KAWAN FOOD BERHAD Based on the calculation, quick ratio from Kawan FoodBerhad was increased from year 2012 to 2013.
This is due to the inventory levelof company has decreased of slow paying debtors. It is also means that thecompany has a better liquidity position in the year. When come to 2014, thequick ratio has decreased to 2.
88 times. It might led by the rising ofcompany’s inventory. However, the quick ratio has also decreased from year 2015to 2016. (Investopia, 2017) According to the annual report of the company, wecalculated the Kawan Food Berhad had the highest current ratio with 3.9756 inyear 2013, which mean the company is held in a good financial condition thatcapable to pay off its debtors or other obligation in within a year period.However, the current ratio has started to drop in 2014.
It shown the financingof current asset is become weak and their company’s debt is increased while thecurrent asset is dropping. On the other hand, the company is maintained a ratioaround 3.6 of the both years in 2015 and 2016.
However, since the ratio is over1.0, it shows that the company has more short-term assets than short-termdebts. (C. C.
D. Consultants Inc., 2015) Next,the cash ratio is used as a measure of company’s liquidity. According tothe calculation, we can see that the highest cash ratio is 2.0118 during year2015.
Since the overall company’s cash ratio is bigger than 1, we believed thatthe company has more cash and cash equivalents than current liabilities. In otherwords, the company has the capability to cover all the short-term debt and haveremaining cash in hand. (Investopia, 2017) Thedebt ratio of Kawan Food Berhad has decreased from 0.
1570 to 0.1493 during2012-2013. It indicates a more stable business possible of longevity because acompany with lower ratio leads to lower overall debt. However, the debt ratioincreased in the next two years which is from 0.1721 to 0.2074 means the company has more debt than assets and the companyis facing financial risk. After that, the debt ratio has declined 2016 which is0.1720.
(Investopia, 2017) Thedebt-to-equity ratio has decreased from 0.1862 to 0.1755 from 2012 to 2013.Yet, it raised back until the year 2015 which is 0.2617. It may indicates thatas a firm’s debt-to-equity ratio rises, it becomes more risky because if itbecomes unable to meet its debt obligations, it will be caused into a bankruptcy.However, the ratio has dropped to 0.
0277 in the next year. (Accounting For Management, 2017) Fromthe calculation, the company’s capitalization ratio has declined from 2012 to2013. However, it is also declined seriously from 2014 to 2016 which is 0.0416to 0.0658. As the companies with low capitalization ratio are considered to be lessrisky because they are at a solvency risk if they fail to repay their debt ontime.
Companies with a low capitalization ratio may also find it easier to getmore loans in the future. (My Accounting Course , 2017) Thecompany’s solvency ratio is increased from 0.8968 to 0.9372 from years 2012 to2013. However, it is decreased from 0.8437 to 0.
6518 during the three yearswhich is from 2014 to 2016. Moreover, the solvency ratio indicates whether acompany’s cash flow is sufficient to meet its short-term and long-termliabilities. The low solvency ratio has proved that the greater the probabilitythat it will default on its debt obligations. (Audit IT, 2017) Fromthe calculation, the company’s interest coverage ratio has smoothly increasingduring the five years. It determines how easily a company can pay interestexpenses on outstanding debt. The company has shown a high interestcoverage ratio, it is meant that company’s debt burden is low and thepossibility of bankruptcy or default are also lower. (Audit IT, 2017) NESTLE (M) BERHAD Based on the calculation, the company’s quick ratio ofNestle (M) Berhad is increased from 0.4622 to 0.
4864 during 2012-2013. In 2014,the quick ratio is started to decrease to 0.4005. As coming to year 2015, thequick ratio also dropping from 0.3943 to 0.3645.
As the quick ratio islower than 1, may indicate that the company relies too much oninventory or other assets to pay its short-term liabilities. (C. C.
D. Consultants Inc., 2015) Next is the current ratio of Nestle (M) Berhad. Thecompany’s current ratio in 2012 is 0.9046. But, the current ratio of thecompany keep dropping in the next following years and reach a lowest at 0.
6532.As the current ratio is less than 1.0, the company may faced less short-termassets than short-term debts and it could be defenseless to unexpected bumps inthe economy or business climate. (Investopia, 2017) The company’s cash ratio is decreased from 0.0372 to0.
0091 which is from 2012 to 2015. A low cash ratio may be an indicator of acompany’s strategy to have low cash reserves. However, certain industriesoperate with higher current liabilities and lower cash reserves. But whencoming to year 2016, the cash ratio has started to increase to 0.0152. As the company’scash ratio is less than 1, there are more current liabilities than cash andcash equivalents. In this situation, it shows that the company is insufficientcash on hand to pay off short-term debt.
(C. C. D. Consultants Inc.
, 2015) According to the calculation, the company’s debt ratio isescalating seriously from 0.6057 to 0.7406 within the five years. The higher the debt ratio, the more leveraged a company is,implying greater financial risk. A higher debt ratio (0.6 or higher) makes itmore difficult to borrow money. Lenders often have debt ratio limits and do notextend further credit to firms that are over-leveraged. Of course, there areother factors as well, such as credit worthiness, payment history andprofessional relationships.
(Investopia, 2017) Thecompany’s debt-to-equity ratio is also rising sharply during the five yearswhich is from 1.5362 to 2.8543. The debt-to-equity ratio indicates therelationship between the amount of capital that has been borrowed (i.
e. debt)and the amount of capital contributed by shareholders (i.e. equity) in the firm.In other words, as a firm’s debt-to-equity ratio rises, it becomes more riskybecause if it becomes unable to reach its debt obligations, it will be enforcedinto bankruptcy.
(Investopia, 2017) Thecompany’s capitalization ratio is declined from 0.2301 to 0.1971 during2012-2013. However, it increased back in the next three following years whichis from 0.2207 to 0.2948 during 2014-2016.
It is meaning that the company isriskier. Companies with higher capitalization ratio run higher risk ofinsolvency or bankruptcy in case they are not able to repay the debt as per thepredetermined schedule. However, higher debt on the books could also beearnings accretive if the business is growing in a profitable manner (more onthis in the analysis section). (Investopia, 2017) Basedon the calculation, it shows the company’s solvency ratio is also increased inthe first three years which is from 0.5260 to 0.5330. A stronger or higherratio indicates financial strength.
However, the solvency ratio is decreased to0.3798 during 2015 but also grow in the next year. In stark contrast, a lowerratio, or one on the weak side, could indicate financial struggles in thefuture. (Investopedia, 2017) Lastly,the company’s interest coverage ratio is raised from 31.6759 to 32.7781 duringthe first two years. But, it decreased in the next two years which is droppedto 27.
2602 and 21.1692 in years 2014 and 2015. However, it increased in year2016 to 22.6532. A higher ratio indicates a better financial health as it meansthat the company is more capable to meeting its interest obligations fromoperating earnings. On the other hand, a high ICR may suggest a company is”too safe” and is neglecting opportunities to magnify earningsthrough leverage. (Investopia, 2017)