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…BRYAN ANG MIN CHUIN (SECTION 13)………………
Modular Programme Assignment
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Student ID: …0342970…………………………………………….Student ID: ……………………………………………….
Programme: …Bachelor of Business……………………………………………………………………………………………
Name of module: ……Introduction to Finance…………… Name of tutor: … Mohammad Hassan Shakil
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Assignment title: …Assignment I2F…………………………………………………………………………..
Due date & time: …22 October 2020 5pm………………………………………………………………….
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Module Name and Code : Introduction to Finance FIN60104
Name of Tutor:
Mohammad Hassan Shakil
Assignment Title: Assignment I2F
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d
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Any additional comments (if there
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Assessed by:
Date:
Name: Bryan Ang Min Chuin
Student ID: 0342970
Section: 13
Tutor Name: Mohammad Hassan Shakil
Selected Company: British American Tobacco Malaysia
(a)
In this study, I have chosen British American Tobacco (B.A.T) Malaysia as the listed company in Bursa
to fulfil this assignment. British American Tobacco was formed from the merge of Rothmans of Pall Mall
(Malaysia) Berhad and Malaysian Tobacco Company Berhad on 3 November 1999. The merger of these
successful international brands has led B.A.T to become the largest tobacco company in Malaysia. B.A.T is the
leading tobacco company in Malaysia which has approximately 53.9 percent of market share in the legal market.
The business activity of B.A.T is the importation and sales of cigarettes that served across the whole Malaysia.
They have strong position in the cigarettes market because they provide high quality tobacco brands that are based
on their customer needs such as DUNHILL, KENT, PETER STUYVESANT, PANT MALL and ROTHMANS
which help them gain a lot of customer loyalty. They currently have employed 497 employees directly and 1576
indirectly via external distributors. They are involved in generating insights, developing brands and making these
on a national level. B.A.T aim to maintain their top position as one of the leading companies in Malaysia by
serving and satisfying their consumers with strong portfolio of brands.
(b)
Liquidity
1.Current Ratio
2.Quick Ratio
3.Cash Ratio
2019
0.88
0.72
0.03
2018
0.94
0.70
0.12
2017
0.90
0.54
0.02
2016
1.27
0.90
0.09
The table about has shown the liquidity ratios of B.A.T for the past four years. Based on the calculation,
we can clearly see, the current ratio of B.A.T are declining from 2016 to 2019. This is due to the company has a
decrease in the current asset, an increase in current liabilities year by year. Based on these statistics, the solvency
of B.A.T for short-term debt is becoming weaker as their current ratios are not healthy which means a reduced
ability in generating cash. This inferior liquidity shows the operating capacity is reduced and might face certain
risk in their operation.
B.A.T ’s quick ratio performance also has a slight decrease from the past four years. It indicates that
there is a reduce in liquid assets to pay off its liabilities. The average quick ratio of the tobacco industry is 0.4 and
B.A.T has the above average of quick ratio which shows their quick ratio are relatively healthy compare with their
competitors. As for the trend of quick ratio of B.A.T, it is assumed to slowly decline same as current ratio due to
the declining of demand in the market.
According to the calculation, the cash ratio of B.A.T is unstable and consider low as the average cash
ratio is 0.23. This indicates the level of solvency of B.A.T using cash is very weak compare with other companies
and the risk of paying off their debts is higher if problem happen which might affect the confidence of the creditors.
Asset Management
1. Inventory Turnover
2. Receivable Turnover
3.Total Asset Turnover
2019
14.10
10.02
2.36
2018
9.66
14.66
2.63
2017
8.73
16.30
2.56
2016
10.41
20.41
3.06
The table about has shown the asset management ratios of B.A.T for the past four years. Based on the
inventory turnover of B.A.T for the past four years, it indicates that their inventory turnover is increasing and
higher than the industry average which is 11.78. This show the company obtain a healthy sale with the stock they
have and efficient purchasing power which is good for company because they are making good inventory
investment without overstocking.
The receivable turnover of B.A.T. shows that there is a decrease over the years and its is below the
industry average of 16.43. This indicates that there might be a collection problem from its customer as we can see
there is a decline in the revenue from 2016 to 2019. Company will face an extra opportunity cost if the account
receivables are hold for longer period which is bad for B.A.T.
The total asset turnover of B.A.T decline in the past four years and also lower than the industry average
of 3.3. This means that the company is not using it asset efficiently may due to poor utilization of its asset and
poor collection method or poor stock management.
Financial Leverage
1.Total Debt Ratio
2.Debt to Equity Ratio
3.Equity Multiplier
2019
0.62
1.65
2.64
2018
0.62
1.54
2.50
2017
0.63
1.74
2.75
2016
0.50
1.00
2.00
Table about shows the financial leverage of B.A.T. Based on the statistics, the debt ratio of B.A.T are
almost the same and a slight increase from 2017. However, B.A.T debt ratio is over 50% which consider a
leveraged company. This means that the company uses more debt fill its funding which may be riskier company
for investor to consider.
The debt to equity ratio of B.A.T is increasing from 2016 to 2019. This shows that the company’s
operations are more relying on debts by borrowing money, which subject the company to potential risk. This is
bad for the company because this will greater the risk of bankruptcy.
In this case the equity multiplier of B.A.T has increased in the past four year however the lower the better.
This situation is similar to its debt to equity ratio as this company use more debt to finance the purchase of asset.
The high debt burden could be financially risky to B.A.T.
Profitability
1.Profit Margin
2.Return on Asset
3.Return on Equity
2019
0.14
0.34
0.89
2018
0.16
0.42
1.06
2017
0.17
0.47
1.29
2016
0.19
0.59
1.18
Table about shows the profitability ratios of B.A.T. The profit margin shows a declining trend year over
year due to a decrease of net income and also revenue. This show the earning of this company is decreasing and
also indicates that they are becoming inefficient in converting sales into actual profit which might due to lesser
demand.
Based on the table, B.A.T ‘s ROA is also facing a decline mainly due to decrease in net income. It
indicates that the company is generating lesser income from the use of their assets. The occurrence of this situation
may be due to the company didn’t manage it asset effectively hence produce a lower amount of net income.
The Return on Equity of B.A.T also shows a decline trend as the net income and total equity is decreasing.
This indicates that the efficiency of the company is not as good as before because they didn’t fully utilize the
resources provided by the equity investors.
Based on these ratios’ analysis, the strengths of B.A.T is their inventory management as they can achieve
a healthy sale without overstocking and having efficient purchasing power. Besides that, their strength also lies at
its large asset that maintain their strong position in the market as their current ratio and quick ratio is above
industry average that can be liquidized to pay their debts. On the other hand, the weaknesses of B.A.T is also
obvious as their cash in hand are decreasing year over year and rely more on loans to finance their operations
which increase their liabilities. Moreover, their sales and profit is decreasing too which may subject them to
potential financial risk. These shows the company’s performance are decreasing year over year.
(c)
After the analysing the ratios of B.A.T, it shows that they need to take some action to improve their
performance and financial problem. In my opinion, the company need to reduce their loan amount at first to keep
their liabilities lower because the ratios above show an increasing in liabilities every year. By this the company
can reduce the risk of facing financial problem and hence prevent them from bankruptcy. Besides that, B.A.T also
need to increase their cash in hand because their cash ratio is very low so that the company can always be prepared
to confront with any financial emergency that happen in the future. This can also help to increase creditors
confidence as this can show the ability of the company to pay off the debts. Moreover, they also need to come out
with a more effective marketing strategies because their revenue and inventory are decreasing every year showing
the demand for their products is slowly declining. So my recommendation is they need to do research on the
current trend of consumer preference such as they are more towards e-cigarette nowadays and come out with a
strategy to encounter this problem. By this, it can help to increase the sales that drive the revenue at the same time
and also can increase the market share of the company. Furthermore, B.A.T can issue more shares to attract
investor which can increase their equity and less rely on debts to finance its operation and use their equity to
develop their production to increase revenue. They also need to take action on their internal management such as
fully utilizing their assets and equity effectively and efficiently because their ROA and ROE are declining these
years which can help them to make use of their operation to its full potential that can help to increase production
and hence increase net income by hiring experienced manager to manage their company.
(d)
In this assignment, I have learned that how to analyse a company’s financial status independently and
also use the statistics to interpret the company’s performance. By doing this, I can know the financial health of a
company. At first, I need to find out the complete official financial statement of the company so that there won’t
be any error in the calculation. After that, I will do a research about the company background and also their current
status before doing any interpretation with the ratios. For example, do research about their business activities and
the current market trend for their product to have a general idea of how the company is doing so that I can compare
it with the statistics I found. During the interpretation, I will analyse the ratios with my point of view and at the
same time relate it with the current market trend to come out with a reasonable and unbiased commend for the
company. In this part, I can know what is the ability of this company to pay off its debt, is their financial risk free
and understand how their business is doing through the ratios analysis. By doing this myself, I can know that
whether this is a good and healthy company or not and also know is it worth to invest in this company in the future.
For example, after this assignment I know that the performance of B.A.T is not as good as before and might
continue it down trend in the future due to the changing in market trend and demand so it is not a good option to
invest in it unless they come out with new products like producing vape or e-cigarettes that are in trend which
meets the consumers need then they will regain back their strong position in this market.
References
1) Batmalaysia.com. 2020. British American Tobacco Malaysia - Company Factsheet. [online] Available
at:
<http://www.batmalaysia.com/group/sites/BAT_AP6D2L.nsf/vwPagesWebLive/DOAP8FY5>
[Accessed 21 October 2020].
2) Bizfilings.
2020. Business
Ratios
|
Bizfilings.
[online]
Available
at:
<https://www.bizfilings.com/toolkit/research-topics/finance/businessratios#:~:text=Generally%2C%20your%20current%20ratio%20shows,or%20a%20combination%20of
%20both.> [Accessed 21 October 2020].
3) Roggio, A., 2020. How To Calculate And Interpret Inventory Turnover | Practical Ecommerce. [online]
Practical Ecommerce. Available at: <https://www.practicalecommerce.com/how-to-calculate-andinterpret-inventory-turnover> [Accessed 21 October 2020].
4) The Strategic CFO. n.d. Accounts Receivable Turnover Analysis & Definition • The Strategic CFO.
[online] Available at: <https://strategiccfo.com/accounts-receivable-turnover-analysis/> [Accessed 21
October 2020].
5) accountingverse.com. n.d. Debt Ratio - Formula, Example, And Interpretation. [online] Available at:
<https://www.accountingverse.com/managerial-accounting/fs-analysis/debt-ratio.html> [Accessed 21
October 2020].
6) Corporate Finance Institute. n.d. Asset Turnover Ratio - How To Calculate The Asset Turnover Ratio.
[online] Available at: <https://corporatefinanceinstitute.com/resources/knowledge/finance/assetturnover-ratio/> [Accessed 21 October 2020].
7) The Strategic CFO. n.d. Net Profit Margin Analysis • The Strategic CFO. [online] Available at:
<https://strategiccfo.com/net-profit-margin-analysis/> [Accessed 21 October 2020].
8) (BATO), B., 2020. British American Tobacco Malaysia Bhd (BATO) Financial Ratios. [online]
Investing.com. Available at: <https://www.investing.com/equities/british-american-tobacco-(m)-bhdratios> [Accessed 21 October 2020].
9) Wsj.com. n.d. 4162.MY | British American Tobacco (Malaysia) Bhd Annual Balance Sheet - WSJ. [online]
Available at: <https://www.wsj.com/market-data/quotes/MY/XKLS/4162/financials/annual/balancesheet> [Accessed 21 October 2020].
10) Wsj.com. n.d. 4162.MY | British American Tobacco (Malaysia) Bhd Annual Income Statement - WSJ.
[online]
Available
at:
<https://www.wsj.com/marketdata/quotes/MY/XKLS/4162/financials/annual/income-statement> [Accessed 21 October 2020].
11) Akers, H., 2019. What Does A Low Percentage Return On Assets Mean?. [online] Bizfluent. Available
at: <https://bizfluent.com/info-8664505-low-percentage-return-assets-mean.html> [Accessed 21
October 2020].
12) My Accounting Course. n.d. Return On Assets Ratio - ROA | Analysis | Formula | Example. [online]
Available at: <https://www.myaccountingcourse.com/financial-ratios/return-on-assets> [Accessed 21
October 2020].
Appendixes
1) Liquidity (All value in MYR millions)
a. Current Ratio: Current Asset / Current Liability
2019: 544 / 618 = 0.88
2018: 639 / 679 = 0.94
2017: 595 / 662 = 0.90
2016: 739 / 580 = 1.27
b.
Quick Ratio: (Current Asset – Inventory) / Current Liabilities
2019: (544 – 98) / 618
2018: (639 – 162) / 679
2017: (595 – 237) / 662
2016: (739 – 215) / 580
c.
= 0.72
= 0.70
= 0.54
= 0.90
Cash Ratio: Cash on hand / Current Liabilities
2019: 20 / 618 = 0.03
2018: 79 / 679 = 0.12
2017: 12 / 662 = 0.02
2016: 50 / 580 = 0.09
2) Asset Management (All value in MYR millions)
a.
Inventory turnover: Cost of goods sold / ((Beginning Inventory + Ending Inventory) / 2)
2019: 1791 / ((162+92) / 2) = 14.10
2018: 1928 / ((237+162) / 2) = 9.66
2017: 1972 / ((215+237) / 2) = 8.73
2016: 2487 / ((263+215) / 2) = 10.41
b.
Receivable Turnover: Revenue / ((Beginning Acc. Receivable + Ending Acc. Receivable)/2)
2019: 2509 / ((221+280) / 2) = 10.02
2018: 2823 / ((164+221) / 2) = 14.66
2017: 2916 / ((194+164) / 2) = 16.30
2016: 3756 / ((174+194) / 2) = 20.41
c.
Total Asset Turnover: Revenue / ((Beginning total asset + Ending total asset)/2)
2019: 2509 / ((1102+1028) / 2) = 2.36
2018: 2823 / ((1047+1102) / 2) = 2.63
2017: 2916 / ((1228+1047) / 2) = 2.56
2016: 3756 / ((1228+1228) / 2) = 3.06
3) Financial Leverage (All value in MYR millions)
a.
Total Debt Ratio: Total Liabilities / Total Asset
2019: 640 / 1028 = 0.62
2018: 681 / 1102 = 0.62
2017: 665 / 1047 = 0.63
2016: 615 / 1228 = 0.50
b.
Debt to Equity Ratio: Total Liabilities / Total Equity
2019: 640 / 389 = 1.65
2018: 681 / 442 = 1.54
2017: 665 / 382 = 1.74
2016: 615 / 613 = 1.00
c.
Equity Multiplier: Total Asset / Total Equity
2019: 1028 / 389 = 2.64
2018: 1102 / 442 = 2.50
2017: 1047 / 382 = 2.75
2016: 1228 / 613 = 2.00
4) Profitability (All value in MYR millions)
a.
Profit Margin: Net Income / Revenue
2019: 346 / 2509 = 0.14
2018: 469 / 2823 = 0.16
2017: 493 / 2916 = 0.17
2016: 721 / 3756 = 0.19
b.
Return on Assets: Net Income / Total Asset
2019: 346 / 1028 = 0.34
2018: 469 / 1102 = 0.42
2017: 493 / 1047 = 0.47
2016: 721 / 1228 = 0.59
c.
Return on Equity = Net Income / Total Equity
2019: 346 / 389 = 0.89
2018: 469 / 442 = 1.06
2017: 493 / 382 = 1.29
2016: 721 / 613 = 1.18