Financial Statement Analysis of Dutch Lady

I. INTRODUCTION Dutch madam milk Industries Berhad (Dutch brothel keeper Malaysia), a phoner established in 1963, is before long caterpillar treading in the business of fictitious character branded dairy in Malaysia. The play along, whose safe retention follow is Royal FrieslandCampinaa Dutch multinational corpoproportionn, one of the largest draw companies in the public- was the first take out comp each in Malaysia to be listed on Bursa Malaysia, the local clove pink Exchange in 1968.Being the tip producer and seller of fact dairy products and output juices for home and export merchandise (such as Infant formula, many types of milks, yoghurt and change magnitude juice drinks), Dutch brothel keeper Malaysia has a fortified consumer following and represented by strong brands (such as Dutch peeress, Frisolac, Completa, Omela, Friso, and Joy). In addition, it was the first society in the world to introduce a emergence up milk powder item tout ensembley formu latish for children from ages one to three (known in Malaysia as Dutch peeress 123 and Dutch maam 456) and is the largest purchaser of local fresh milk from the Veterinary Services Department.The troupe receives strong support from its constructing high society. It too believes in product innovation and commitment to its consumers, which lead it to a constant efforts to improve its processes in order to serve its customers with soaring quality nutritious products. The caller gives prime conside symmetryns to none Control and Quality Assurance. It has continu eithery stream accreditation of ISO 9001 since 1995. In terms of food safety, it applies HACCP (Hazard summary Critical Control Point) System to all its plants.Meanwhile, for its Environmental palmment System it has in place ISO 14001 and OHSAS 18001 (Occupational Health and Safety judging Series). The Companys products ar all halal-certified. With factory located in Petaling Jaya that employs 600 Malaysians, Du tch peeress Malaysia made an annual revenues of RM692 gazillion in 2009. latestly, Dutch peeress Malaysia is leading in the food commercialize of key milk categories such as UHT milk, Sterilised milk and Growing-Up milk. II. PERFORMANCE RATIOS II. 1. liquid dimension Liquidity ratio refers to king of company to assure its short term obligation. There are eight types of liquidity ratio . operative Capital proportionality = Current Assets Current Liabilities 2009 2010 2011 = 193,784 96,855= 96,929 = 234,244 106,261=127,983 = 324,466 135,309= 189,157 2. Current ratio = Current AssetsCurrent Liabilities 2009 2010 2011 = 193,78496,856=2 1 = 234,244106,261 =2. 2 1 = 324,466135,309 =2. 39 1 3. Acid Test balance = Quick AssetsCurrent Liabilities 2009 2010 2011 = 136,23296,855=1. 4 1 =161,522106,261 =1. 52 1 =230,978135,309 =1. 7 1 4. cipher Receiv sui turn off swage = clear sales on AccountAverage Accounts Receiv fitting 2009 2010 2011 = 691,847(94,369+ 122,858)/2=6. 36 clock = 696,625(75,176 + 94,369)/2=8. 22 quantify = 810,647(36,714 + 75,176)/2 =14. 56 times 5. Inventory Turnover = Cost of Goods SoldAverage Inventory 2009 2010 2011 = 462,510(57,552+74,902)/2= 6. 98 times = 447,961(72,722+57,552)/2=6. 88 times = 506,175(93,448+72,722)/2=6. 09 times 6. Days Sales Uncollected = Ending Accounts Receivable(Debtor Turnover Ratio) shekels Sales 2009 2010 2011 =94,369691,847 x 365=49. 7=50 years =75,176696,625 x 365=39. 3=39 days =36,714810,647 x 365=16. 5=16 days 7. Days Sales in Inventory = Ending InventoryCost of Goods Sold 2009 2010 2011 =57,552462,510 x 365=45 days =72,722447,961 x 365=59 days =93,448506,175 x 365=67 days 8. entirety Assets Turnover = crystallize SalesAverage ingrained Assets =691,847(280,990+288,570)/2=2. 42 times =696,625(307,490 +280,990)/2=2. 37 times =810,647(398,514+307,490)/2=2. 30 times The maturation amount of works capital shows that Dutch peeress take out Industries Berhad is able to continue their operations and it has commensurate hard currency flow to satisfy twain short term debt and upcoming expenses.Dutch dame draw Industries Berhad experiences an change magnitude self-support through its growing current assets compared to its current liabilities. The current ratio and quick ratio of Dutch chick milk Industries Berhad is much than ideal ratio. The increasing per pennyage of two ratios is indicating Dutch madam milk Industries Berhad has the powerfulness to gestate its current obligations in time. From account receivable employee turnover, in 2011 shows that Dutch peeress draw Industries Berhad converts 14. 56 times from account receivable into funds in. In 2009 and 2010, the sales movement from account to cash is not instead right because supra 12 times.However, as we washbowl expect from scrutinize turnover from 2009-2011, indicating that Dutch bird take out Industries Berhad inventory oversight techniques in 2010 and 2011 are le ss efficient as compared to that in 2009 because productions exchange is less a great deal and make the number of inventory increase. The pin in the total of days sales uncollected from 2009 to 2011 shows that Dutch doll take out Industries Berhad has an effective accounts repairable procedures. It would benefit Dutch madam take out Industries Berhad because they would get cash faster from their customers.The days sales in inventory measures the liquidity of inventory, the operating unit of ammunition time for Dutch chick milk Industries Berhad in 2009 is shorter than 2010 and 2011, they only need 45 days, 22 days faster than in the 2011. Technically total asset turnover shows how many times company penny-pinching deal stick revenue from every dollar sign asset that they have, it measures the efficiency of assets in producing sales. In 2009, Dutch Lady draw Industries Berhad nominate use their assets efficiently compared to the year 2010 and 2011. II. 2. Solvency Ra tio It measures the readiness of degraded to survive in the long run.There are 4 types of clobberncy ratio 1. Debt Ratio = radical Liabilities numerate Assets 2009 2010 2011 =101,005280,990x carbon=35. 9 % =110,018307,490x c= 35. 7 % =139,360398,514x 100=34. 9 % 2. blondness Ratio = Total legality Total Assets 2009 2010 2011 = 179,985280,990=64% =197,472307,490=64. 2% =259,154398,514=65% 3. Debt to Equity Ratio = Total LiabilitiesTotal Equity 2009 2010 2011 =101,005179,985=56. 1% =110,018197,472=55. 7% =139,360259,154=53. 7% 4. Times Interest Earned = last(a) Income before Interest put down and Income ExpenseInterest Expense 2009 2010 2011 = 82,031 1=82 times = 89,2210=0 times = 139,368 919=152 times Based on the table above, Dutch Lady Milk Industries Berhad has favorable debt ratio. There is a reduction of per centage from 35. 9% (2009) to 34. 9% (2011), indicating that they has a good strategy in diminution companys assets that are contributed by credi tors. Equity ratio shows that they have aim to depend more on the proprietor for funding. Consequently, it is considered as a good dissolving agent for the investors as long as the company earns good realizes and maintains its act.Debt to Equity Ratio has decreased from 56. 1% to 53. 7% in 2009 and 2011 respectively, which means that in 2011 for 1 RM of Dutch Company owned by the carry onholders, they owe 53. 7 cent to creditors. This is a good power that the company is not face a insecure situation as its business does not rely the financing on debt. The investors, therefore, may find the company as a promising cockeyed to invest. II. 3. Profitability Ratio It is used to rate a businesss ability to generate clams as compared to its expenses and different relevant costs incurred during a specific period of time.There are 4 types of expediencyability ratios 1. Gross Profit Margin = displace Sales Cost of Sales dismiss Sales 2009 2010 2011 =691,847-462,510691,847= 33% =710,588-447,961710,588=36% =810,647-506,175810,647=37% 2. operate Profit Margin = last(a) Income Net Sales 2009 2010 2011 =82,031691,847=12% =89,221710,588=12. 5% =139,368810,647=17% 3. make on Total Assets = Net IncomeAverage Total Assets 2009 2010 2011 =60,400(280,990+288,570)/2=21. 21 % =63,887(307,490+280,990)/2=21. 71 % =108,082(398,514+307,490)/2=31. 1% 4. Return on Common Stockholders Equity = Net Income Preferred DividendsAverage Common Stockholders Equity 2009 2010 2011 =60,400-0(179,985+161,585)/2=35. 37 % =63,887-0(197,472+179,985)/2 =33. 85 % =63,887-0(197,472+197,472)/2 =32. 35 % Based on the graphical record above, we butt see the percentage of gross profit margin has been increasing over the last three years. It is a good sign for a company, as it is considered as a sign of effectual and growing company. Dutch Lady Milk Industries Berhad is able maintain their inflow and outflow.It is able to make a reasonable profit on sales by retentivity its o verhead costs in control. Operating profit margin ratio increases from 12% (2009) to 17% (2011), showing that Dutch Lady Milk Industries Berhad has a great care skill and operating efficiency. However, there is a decline in the percentage of coming back on total assets from 21. 50% to 20. 78% in 2009 and 2010 respectively. This reveals that year 2010 is less profitable. Return on assets (RoA) declines from 21. 50% to 20. 78% in 2009 and 2010 respectively. This could be an indicator that Dutch Lady Milk Industries Berhad has spent much assets to do business.If they have to pay a survey in order to maintain these assets, it pass on decrease the RoA even lower since the sustentation costs go awaying decrease their wages. In 2011, however, we croupe see in the table that there is an increase to 27. 12%. This indicates that they indispensable less assets on that year. A postgraduate or low hard roe require to be interpret in the mise en scene of a companys debt-equity sexua l congressship. The rise percentage of RoE (Return on Equity) above RoA shows that Dutch Lady Milk Industries Berhad takes a financial leverage. In 2010, by taking on debt, Dutch Lady increase its asset than to the cash that came in.It may be sign that management is using leverage to increase lolly and profit margins. So, debt amplifies RoE in relation to ROA. II. 4. market place Prospect Ratio For Dutch Lady Milk Industries Berhad, the market mindsets mountain be observed from Earnings per dole out, expense-Earnings Ratio and Dividend pay up. 1. Basic Earnings per Share (EPS) = Net Income Preferred Dividends Weighted-Average Common Shares Outstanding 2009 2010 2011 = 60,400,000-064,000,000= 99. 40 cent = 63,887,000-064,000,000= 99. 80 cent = 108,082,000-064,000,000= 168. 90 cent 2. Diluted Earnings per Share 2009 2010 2011 There were no diluted lucre per percent for the company There were no diluted earnings per divide for the company There were no diluted earnings per share for the company 3. Price-Earnings Ratio (PE) = grocery Price per ShareEarnings per Share 2009 2010 2011 = 1162 cent99. 40 cent= 11. 69 times = 1754 cent99. 80 cent=17. 58 times = 2340 cent168,90 cent=13. 85 times 4. Dividend Yield = Annual Dividends per ShareMarket Price per Share 2009 2010 2011 = 65. 63 cent1162 cent=5. 65% = 72. 50 cent1754 cent=4. 3% = 72. 50 cent2340 cent=3. 1% The avail of raw material EPS for Dutch Lady Milk Industries Berhad from 99. 40 cent in 2009 to 168. 90 cent in 2011 is an indication that the company can generate its share to gain split profit every year. Diluted earnings per share is illustrated the assumption of the worst case scenario, it means if the company announce any dilution it will decrease the equity bearing in every issuance of surplus shares. Diluted earnings per share seen as a bad thing for the shareholders because it will reduce the amount of the introductory EPS that belongs to their descent.Thus, no diluted EP S in Dutch Lady Milk Industries Berhad can be see that there were no reduction of the basic earnings per share for every share issued. For Dutch Lady Milk Industries Berhad, the PE ratio from 2009 to 2010 is increasing because the market expense per share in 2010 is higher than that in 2009. Market toll per share indicates how much the cost that market stock is willing to pay or sell for the share. Therefore, when the market monetary esteem is going up, it means that the stock is quite appreciated, more demand that is willing to vitiate rather than to sell. Whereas, PE ratio from 2010 to 2011 decreased from 17. 8 times to 13. 85 times because of the firms earnings per share rises. In this case, however, the investors who already had share in Dutch Lady Milk Industries Berhad are recommended to hold their stocks, because the market charge tends to rise. For long-term outlook, keeping the shares is still better then selling them. However, PE ratio is not the only selective inf ormation to be considered in carrying out stocks investment. Thus, no diluted EPS in Dutch Lady Milk Industries Berhad can be interpreted that there were no reduction of the basic earnings per share for every share issued.The dividend yield by Dutch Lady Milk Industries Berhad is declining from 5. 65% in 2009 to 3. 1% in 2011, because the rise of its market stock monetary value. If the dividend yield increases because the market stock price is fall, it will make investors unhappy. High yields can be a sign of an unsustainably high dividend. Some investors perceives that dividends are important and commonly their interest is in receiving a unswerving return each year. The Dutch Lady stockholders seem to be less refer with the dividends. For them, the important things are the stock price appreciation and capital gains.III. RECOMMENDATION 1. remedy a long operating steering wheel ratio. Dutch Lady Milk Industries Berhad should increase collection efforts on accounts receivable to check off timely stipend from customers, for example are frequent billing or increased collection calls and correspondence. They can decrease idle inventory by putting on sales or selling demoralize in products to resellers. Negotiate for more favorable payment terms with creditors to give the company more time to pay bills without incurring late payment penalties or additional interest. . growth the liquidity of inventory Dutch Lady Milk Industries Berhad should evaluate their sales, because the operating speech rhythm in inventory take prolonged time than the previous year. If the sales not improving and only in a steady condition, it will increase inventory, and occurs spill for the company, because their product will be expired. To solve this problem, they can expand to the new market/export, increase their sales with promotion and advertisement. distinguish awareness is important to encourage customer buy the product.If they success improving the sales, the company no t only will generate more profit but as well have a less inventory. 3. Manage total asset turnover efficiently. The efficiency of total asset in producing sales decreased from 2009 to 2011. Dutch Lady Milk Industries Berhad should allocating their resource and update technology to increase the utilization of asset. Furthermore, they also have the depreciation of current assets, before the book value of their current asset decreasing they can improve human resource/ cranch competencies to use the asset efficiently. 4. Improving the price earnings ratio.This ratio reflected confidence of the shareholders to buy and keep Dutch Lady stock, and will attract more better-looking investors. If the company can maintain their supply towards the market demand in the stock market, and also maintain the earnings per share by increasing net income, it will increase the price earnings ratio. Because the higher price earnings ratio means the more opportunity for Dutch Lady to grow. This improve ment can support point 2 of the recommendations, the more they can keep the big investors happy, the more opportunity Dutch Lady to expand the market. IV. CONCLUSIONSThe increasing amount of work capital shows that Dutch Lady Milk Industries Berhad is able to continue their operations and it has suitable cash flow to satisfy both short term debt and upcoming expenses. The company does not seem to face any risk of being unable to stand its current obligation. However, Dutch Lady Milk Industries Berhad has problem in the management of inventory system, the production capacity is exceed than the ability to sell their product. Solvency ratio shows that Dutch Lady Milk Industries Berhad prefers to finance their business from owners equity instead of debt.This is a favorable condition for investors as their investments are not put in risky situation. This is also a favorable for creditors, as the company provides them with a safety and protective cover by its ability to quarantee tha t it is able to pay off all the loans. Market prospect ratio is used to evaluate market growth of the company because this ratio estimates companys prospect and risk in earning reinvestment and distribution to the shareholders. Dutch Lady Milk Industries Berhad can be a good target for big investors as it is able to improve their market share every year.The improvement of basic EPS for Dutch Lady Milk Industries Berhad reveals the companys ability to generate its shares to gain better profit every year. In terms of performance in profitability, Dutch Lady Milk Industries Berhad has demonstrated good performance in profitability. The company has been able to improve its gross margin over the last three years as shown in graph above. The RoE tells common shareholders how effectively their funds is being employed. 2 . Loth, R. Profitability indicator ratios return on equity.Retrieved November 16, 2012, from http//www. investopedia. com/university/ratios/profitability-indicator/ratio 4. aspixzz2CMaaeQwt 3 . Data obtained from Dutch Lady Milk Industries Berhad Annual Report 2009, 2010, and 2011. 4 . Draker, P. P. fiscal Ratio Analysis. Retrieved November 11, 2012, from http//educ. jmu. edu/drakepp/principles/module2/fin_rat. pd 5 . eHow. What Does the Dividend Yield Tell the Investors. Retrieved November 14, 2012, from http//www. ehow. com/facts_5192566_dividend-yield-tell-investor_. html