1 SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN FOUNDATION IN NATURAL AND BUILT ENVIRONMENT FEBRUARY 2014 / SEMESTER 2 STUDENTS NAME: DARREN LOONG CHI YOONG (0318029) TAN ZHAO MING (0318724) HOOI ZHAO HONG (0318524) MODULE: BASIC ACCOUNTING (ACC30205) LECTURER: MR. CHANG JAU HO ASSIGNMENT TITLE: FINANCIAL RATIO ANALYSIS (AMWAY MALAYSIA) WORD COUNT: 1162 SUBMISSION DATE: 13 TH NOVEMBER 2014
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SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
FOUNDATION IN NATURAL AND BUILT ENVIRONMENT
FEBRUARY 2014 / SEMESTER 2
STUDENTS NAME: -‐ DARREN LOONG CHI YOONG (0318029) -‐ TAN ZHAO MING (0318724)
-‐ HOOI ZHAO HONG (0318524) MODULE: BASIC ACCOUNTING (ACC30205) LECTURER: MR. CHANG JAU HO ASSIGNMENT TITLE: FINANCIAL RATIO ANALYSIS (AMWAY MALAYSIA) WORD COUNT: 1162 SUBMISSION DATE: 13TH NOVEMBER 2014
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CONTENTS
History and Recent Developments ……………………………………… 3 Income Statement and Balance Sheet …………………………………… 4 - 7 Profitability Ratios ......………………………………………………....... 8 Stability Ratios ........................................................................................... 9 Interpretation of Results ............................................................................. 10 -11 Price/Earning Ratio & Investment Recommendation................................. 12 -13 References.................................................................................................... 14
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History of AMWAY Malaysia Amway Malaysia started its distribution services in 1976 with only five staffs in a small
office and warehouse facility in Jalan Ipoh. In that year, Amway Malaysia was one of the
earliest direct selling industries in the country.
AMWAY Malaysia was the first direct selling company to be listed on the Main Board of
the Kuala Lumpur Stock Exchange in 1996. On the other hand, the Ministry of Domestic
Cooperatives and Consumerism awarded a 10-‐year Direct Selling License AMWAY
Malaysia in 2010, being the first to achieve this feat.
Recent Developments One of the most recent developments by AMWAY Malaysia is the new smartphone
application create by them, which is called ‘AMWAY Central App’. The main function of
the application is to provide updates and tools of AMWAY products. For example, for
AMWAY users that owns an eSpring, which is a water filtration system by AMWAY, the
application provides tips for the users to maintain the functioning of their eSpring
system and to also enhance the knowledge of users to know the importance of clean
water and share it with others that does not own an eSpring yet.
AMWAY Malaysia will also be celebrating the Amway Universal Children's Day on 20th
November 2013, having to launch the AMWAY One By One campaign back in 2003.
Through the campaign, many of AMWAY's distributors and employees have travelled to
over 50 countries where the children are in need of help. They have conducted over 300
projects to brighten the children's future by building homes for them, giving them free
education and all physiological needs.
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Income Statement of AMWAY Malaysia for the financial year ended at 31 December 2012
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Balance Sheet of AMWAY Malaysia as at 31 December 2012
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Income Statement of AMWAY Malaysia for the financial year ended on 31 December 2013
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Balance Sheet of AMWAY Malaysia as at 31 December 2013
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Profitability Ratios
Profiability ratio 2012 2013
Return on Equity (ROE)
99708000
(227971000 + 192322000)/2 × 100%
= 47.4%
109023000
234311000 + 227971000/2 × 100%
= 47.2%
Net Profit Margin (NPM)
99708000797523000
× 100%
= 12.5%
109023000834222000
×100%
= 13.1%
Gross Profit Margin (GPM)
251534000797523000
× 100%
= 31.5%
266037000834222000
×100%
= 31.9%
Selling Expense Ratio (SER)
81965000/2797523000
× 100%
= 5.1%
83961000/2834222000
×100%
= 5.0%
General Expense Ratio (GER)
81965000/2797523000
× 100%
= 5.1%
83961000/2834222000
×100%
= 5.0%
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Stability Ratios Stability ratios 2012 2013
Working Capital (WCR)
248629000106591000
= 2.33 : 1
24774300094599000
= 2.62 : 1
Total Debt (TDR)
106617000334588000
×100%
= 31.9%
94629000328940000
×100%
= 28.8%
Stock Turnover (ITR)
365 days ÷ !"!#$#%%%
(!"#$%###!!"#$%&&&)/!
= 45.6 days
365 days ÷ !"#$#!%%%
(!"!#$%%%!!"#$%###)/!
= 42.6 days
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Interpretation of results The percentage of the return on equity (ROE) of AMWAY Malaysia in the year 2012 is
47.4%, whereas the ROE of AMWAY Malaysia the year 2013 is 47.2%. In conclusion, the
ROE has decreased from 47.4% to 47.2% during 2012 to 2013 period. This means that
the owner is simply getting less return from his/her capital than last year.
The percentage of the net profit margin (NPM) of AMWAY Malaysia in the year 2012 is
12.5%, whereas the NPM of AMWAY Malaysia in the year of 2013 is 13.1%. Therefore
we can conclude that the NPM of AMWAY Malaysia during 2012-‐2013 periods has
increased from 12.5% to 13.1%. This means that the owner is better at controlling its
overall expenses.
The percentage of the gross profit margin (GPM) of AMWAY Malaysia in the year of
2012 is 31.5%, whereas the GPM of AMWAY Malaysia in the year of 2013 is 31.9%. In
conclusion, the GPM of AMWAY Malaysia during 2012-‐2013 periods has increased from
31.5% to 31.9%. This means that the business ability to control COGS getting better.
The percentage of the selling expenses ratio (SER) of AMWAY Malaysia in the year 2012
is 5.1%, whereas the SER of AMWAY Malaysia in the year of 2013 is 5.0%. Therefore we
can conclue that the SER of AMWAY Malaysia during 2012-‐2013 periods has decreased
from 5.1% to 5.0%. This means that the business is better at controlling selling
expenses.
The percentage of the general expenses ratio (GER) of AMWAY Malaysia in the year
2012 is 5.1%, whereas the GER of AMWAY Malaysia in the year of 2013 is 5.0%.
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Therefore we can conclue that the GER of AMWAY Malaysia during 2012-‐2013 periods
has decreased from 5.1% to 5.0%. This means that the business is better at controlling
general expenses.
The Ratio of the working capital (WCR) of AMWAY Malaysia in the year 2012 is 2.33:1,
whereas the WCR of AMWAY Malaysia in the year of 2013 is 2.62:1. In conclusion, the
WCR of AMWAY Malaysia during 2012-‐2013 periods has increased from 2.33:1 to
2.62:1. This means that the business ability to pay current liabilities with current assets
is getting better. In addition, it does satisfy the minimum payment of 2:1.
The percentage of total Debt (TDR) of AMWAY Malaysia in the year 2012 is 31.9%,
whereas the TDR of AMWAY Malaysia in the year of 2013 is 28.8%. In conclusion the
TDR of AMWAY Malaysia during 2012-‐2013 periods has decreased from 31.9% to
28.8%. This means that the business overall liability has reduced. Therefore it is not
over 50% maximum limit.
The days of stock turnover (ITR) of AMWAY Malaysia in the year 2012 is 45.6 days,
whereas the ITR of AMWAY Malaysia in the year of 2013 is 42.6 days. In conclusion the
ITR of AMWAY Malaysia during 2012-‐2013 periods has decreased from 45.6 days to
42.6 days. This means the business is selling it's product at a faster rate.
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Price/Earning (P/E) Ratio Share price of AMWAY Malaysia as at 12th November 2014: RM 11.560
Earnings per share of AMWAY Malaysia as at 12th November 2014: RM 0.64
P/E Ratio= !" !!.!"!" !.!"
= 18.06 times
Interpretation: As it can be seen from the P/E ratio calculated above, the outcome is
18.06 times. This means that the share price of AMWAY Malaysia is high and if an
investor purchases the share of AMWAY Malaysia, he would have to wait for 18 years to
recoup his investment.
Investment Recommendation Based on the profitability ratios calculated, most of the ratios have good outcomes and it
has improved during the 2012-‐2013 period, except for the return on equity, where the
shareholder is getting less from his capital. Looking at the other ratios, such as the net
profit margin, gross profit margin, selling expenses ratio and general expenses ratio, the
overall profitability ratio seems to be stable and the shareholder are benefiting based
on the calculation of the ratios.
As for the stability ratios on the other hand, the calculation shows that there are good
outcomes of the working capital, total debt as well as the stock turnover. All of the
outcomes are getting better during the 2012-‐2013 period. Based on both the
profitability ratios and the stability ratios, it can be seen that AMWAY Malaysia has not
made much loss during the 2012-‐2013 period.
Finally, the share price of AMWAY Malaysia seems to be high at RM 11.56. The earnings
per share are also considered low. Having a high share price and low earnings per share
can result in a high P/E ratio. The current P/E ratio of AMWAY Malaysia is 18.06 times.
If an investor were to purchase the shares of AMWAY Malaysia, he would have to wait
for 18 years to recoup his investment. A conservative investor would purchase a share
with a P/E ratio of 15 times or less.
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In conclusion, an investment in AMWAY Malaysia doesn't look as bad as it is because
overall the company is doing very well year by year and they always strive to improve
every period. The stability ratios and profitabilty ratios has proved it. The biggest
downside of investing in AMWAY Malaysia is to have a high P/E ratio. Overall, we would
not recommend an investment in AMWAY Malaysia because the share price is high,
which makes the P/E ratio too high for a good investment.
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References 1. AMWAY Malaysia Annual Report 2012 -‐