SCHOOL OF BUSINESS AND ECONOMICS
ACN3112
INTERMEDIATE FINANCIAL ACCOUNTING AND REPORTING I
SEMESTER 2 2021/2022
LECTURE: GROUP 3
LECTURER: DR. SITI MANISAH BINTI NGALIM
TITLE: ANALYSIS OF FINANCIAL REPORTING
MAXIS BERHAD
DIGI.COM BERHAD
Group Members:
No
Matric No
Name
1.
212867
MYTHLI A/P MUTHU RAMAN
2.
211334
VASUNDHRA A/P KALAIMARAN
3.
210893
ONG CAR MEN
4.
211275
PRABA A/P RAGU RAMAN
5.
212298
SANTHIYA A/P SIVAKUMAR
TABLE OF CONTENT
1.0
Introduction to the Report .................................................................................................. 3
2.0 Introduction to the Company Background ......................................................................... 3
2.1 Maxis Berhad ................................................................................................................... 3
2.2 Digi.Com Berhad ............................................................................................................. 4
3.0
Ratio Analysis ....................................................................................................................... 5
3.1 Liquidity Ratio ................................................................................................................. 5
3.1.1 Maxis Berhad ....................................................................................................... 5
3.1.2 Digi.Com Berhad ................................................................................................. 6
3.2 Profitability Ratio .......................................................................................................... 6
3.2.1 Maxis Berhad ....................................................................................................... 6
3.2.2 Digi.Com Berhad ................................................................................................. 7
3.3 Efficiency Ratio ............................................................................................................. 7
3.3.1 Maxis Berhad ....................................................................................................... 7
3.3.2 Digi.Com Berhad ................................................................................................. 8
3.4 Solvency Ratio ............................................................................................................... 8
3.4.1 Maxis Berhad ....................................................................................................... 8
3.4.2 Digi.Com Berhad ................................................................................................. 9
4.0
Share Price ............................................................................................................................. 9
5.0
Findings................................................................................................................................ 10
5.1 Significant Events .......................................................................................................... 10
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5.2 Company Analysis and Comparison .............................................................................. 11
5.2.1 Liquidity Ratio .................................................................................................. 11
5.2.2 Profitability Ratio ............................................................................................. 12
5.2.3 Efficiency Ratio ................................................................................................. 13
5.2.4 Solvency Ratio .................................................................................................. 14
6.0
Conclusion and Suggestions .............................................................................................. 15
6.1 Conclusion ..................................................................................................................... 15
6.2 Comments ...................................................................................................................... 15
6.3 Suggestions .................................................................................................................... 16
7.0
References ............................................................................................................................ 17
8.0
Appendices ........................................................................................................................... 18
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1.0 INTRODUCTION TO THE REPORT
The purpose of this report is to assess whether or not the company's performance is satisfactory.
Shareholders evaluate it to determine the value of the company. In this case, we use ratio analysis to compare
one figure to another and get a ratio, which we can then use to determine if the ratio reflects a weakness or
strength in the company's operations. These ratios can assist company owners and other potential investors in
assessing the value and quality of the company. Decision makers of such investors can rely on the financial
analysis provided by financial ratios when making financial and operational decisions. (Rashid, Chnar, 2021).
Besides, we would like to see how the companies create value for their shareholders amidst the pandemic, within
the financial year of 2019 until year 2021.
It is obvious that a company's operating performance is influenced by major aspects such as turnover,
profit, asset utilisation, and so on, as well as variables contained in the income statement and balance sheet. The
report aims to analyse the financial performance of selected telecommunications companies in terms of liquidity,
profitability, efficiency and solvency, taking into account the market's growth and prosperity (Khan, &
SAFIUDDIN, 2016).
2.0 INTRODUCTION TO THE COMPANY BACKGROUND
The two companies that our group has chosen that were listed under the Main Market of Bursa Malaysia are
DiGi.Com Berhad and Maxis Berhad.
2.1 MAXIS BERHAD
The first company that we have chosen, which is Maxis Berhad is a Malaysia-based investment holding
company, which manages Maxis Group that operates in the telecommunications industry.The headquarters of
Maxis is located at Level 5-9, 11, 14-25 & 29-30, Menara Maxis, Kuala Lumpur City Centre, Off Jalan Ampang,
50088 Kuala Lumpur. The Maxis Group is principally engaged in the provision of telecommunications and
digital services, as well as the sale of devices. Its major business activities are the supply of mobile prepaid and
postpaid services, fixed line services, as well as provision of network facilities, other converged
telecommunications, digital and related services, such as fixed wireless Internet broadband services. They are
also a provider for wireless multimedia services such as Maxis Broadband Sdn. Bhd., an operator of a national
public switched network and a provider of internet services and applications, and also Maxis Mobile Sdn. Bhd.,
an operator of mobile telecommunications for niche projects. In conclusion, they provide customers with a suite
of high-quality digital services in voice, video and data that were delivered to consumers and businesses reliably
and securely. The history of Maxis Berhad is that they obtained a license to run a nationwide GSM 900 mobile
network, which is a local fixed network and an international gateway in 1993. Not long after, Maxis Berhad
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started its mobile businesses in august 1995 and commenced its fixed line and international gateway operation
in early 1996 after obtaining the license. Along with being established in 1995, Maxis was one of the first mobile
communications providers in Malaysia. Furthermore, Maxis Berhad’s group of companies consist of 6 groups
which is Maxis Broadband Sdn. Bhd., Maxis International Sdn. Bhd., Maxis Collections Sdn. Bhd., Maxis
Mobile Services Sdn. Bhd., Maxis Mobile Sdn. Bhd., and Advanced Wireless Technologies Sdn. Bhd. Next,
the size of this company is they made a total revenue in the year of 2021 in a total of RM 9203 million and total
assets of RM 22,443 million that consists of property, plant and equipment, intangible assets, right-of-use assets,
receivables, inventories, deposits and prepayments, deposits, cash and bank balances and other assets.
2.2 DIGI.COM BERHAD
The second company that we have chosen is Digi.Com Berhad, the third largest mobile operator in the
telecommunication industry in Malaysia. The headquarters of Digi is located at D’House, Lot 10, Jalan Delima
1/1, Subang Hi-Tech Industrial Park,40000 Subang Jaya, Selangor. Digi is offering mobile voice, roaming and
value-added services on both prepaid and contract bases. They also provide wireless telecommunications
services such as mobile and fixed telephony services and data services. Besides that, mobile connectivity,
broadband, voice, enhanced calling features, international roaming, wireless internet and telephone services are
also provided by Digi Telecommunications Sdn. Bhd. DiGi.Com Berhad is listed on Bursa Malaysia Securities
Berhad and is part of the global telecommunications provider, Telenor Group, a telecommunication company
based in Norway. Its mobile service operations are undertaken by its wholly-owned subsidiary, DiGi
Telecommunications Sdn Bhd. Meanwhile, the history of Digi.Com Berhad is that they were formerly known
as Mutiara Telecommunications Sdn. Bhd. and changed its name to the current one in January 1999. Other than
that, this company was founded back on 24 May 1995 and is headquartered in Shah Alam currently. Moreover,
DiGi started operating in May 1995 when it launched its fully digital GSM1800 services, the first digital mobile
communications service in Malaysia. Furthermore, DiGi.Com Berhad has two groups operating under them
which is Digi Telecommunications Sdn. Bhd. and Y3llownation Sdn. Bhd. Besides that, Digi.Com Berhad
profited about RM 6,335million of revenue in 2021 and a total asset of RM 7,839million that consists of noncurrent assets and current assets.
2.3 SIMILARITIES AND DIFFERENCES
Digi and Maxis Bhd are also competitors. Maxis Berhad is Malaysia's top mobile marketing
communications service contributor, with over 11. 4 million mobile subscribers. Both companies provide
prepaid, postpaid, 3G service, and Maxis Broadband.
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Both companies are public limited liability companies formed and domiciled in Malaysia, and they are listed on
the Bursa Malaysia Securities Berhad's Main Market ("Bursa Securities").
Based on the annual report, Digi’s primary operations include the establishment, maintenance, and provision of
telecommunications and associated services, the provision of telecommunication infrastructure services, and
the provision of e-commerce, digital services, and solutions while, as for Maxis, the Company's primary activity
is investment holding, whereas the Group's primary activity is to provide a comprehensive suite of convergent
telecommunications, digital and associated services and solutions, as well as corporate support and services
responsibilities for the Group.
3.0 RATIO ANALYSIS
3.1 LIQUIDITY RATIO
3.1.1 MAXIS BERHAD
The respective current ratios of Maxis for the year 2019, 2020 and 2021 are 0.53:1, 0.63:1 and 0.48:1.
Overall for the three years, the current ratios of Maxis do not exceed 1 which means Maxis does not have enough
liquid assets to cover its short-term liabilities. From 2019 to 2020, the current ratio has increased mainly due to
the decrease in current liabilities from RM 5657 million to RM 4461 million. Based on the annual report, we
found that the decrease of current liabilities caused by the settlement of borrowing under the revolving credit
category amounting to RM 401 million and Islamic Medium-Term Notes amounting to RM 504 million as the
maturity was due. From 2020 to 2021, the current ratio has decreased to 0.48:1 and even lower than the ratio in
2019. The reduction can be explained by the increase in current liabilities from RM 4461 million to RM 6274
million. To further clarify, this was caused by the increase in borrowing under revolving credit amounting to
RM 500 million and Islamic Medium-Term Notes amounting to RM 1272 million which will be due in 1 year
period. Furthermore, we have decided to calculate the quick ratio as it offers a more conservative view of a
company’s ability to meet its short-term liabilities with its short-term assets (Folger, 2022). The respective quick
ratios of Maxis for the year 2019, 2020 and 2021 are 0.5:1, 0.59:1 and 0.45:1. In short, both the current and
quick ratio of Maxis from 2019 to 2021 are less than 1 indicating that Maxis might face problems in meeting its
current liabilities, yet this does not mean Maxis is facing an extreme crisis as it might be able to secure other
forms of financing. From the Statement of Cash Flow (SOCF) of Maxis for 2020 and 2021, it shows that Maxis
has an increasing cash inflow which is RM 153 million and RM 459 million for the respective year. Therefore,
we believe that Maxis will not face difficulty in settling its current liabilities as it is able to generate positive
cash flow at the same time paying back its short-term liabilities.
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3.1.2 DIGI.COM BERHAD
The respective current ratios of Digi for the year 2019, 2020 and 2021 are 0.67:1, 0.61:1 and 0.49:1.
The decreasing ratio shows that the coverage of current assets over current liabilities is getting lesser. From
2019 to 2020, the reduction of current ratio is mainly due to the decline in current assets while the current
liabilities have decreased. The decrease in trade and other receivables amounting to RM 248,536,000 is the main
reason for the decrease in current assets. In 2021, the reduction of the current ratio is mainly contributed by the
addition of current liabilities. This can be explained by the rise of loans and borrowings due in one year is higher
in 2021 which is RM 1,123,421 as compared to RM 774,510 in 2020. For the quick ratio of Digi, it has also
decreased from 2019 to 2021 same as the current ratio. From 2019 to 2020, the quick ratio has reduced from
0.54:1 to 0.45:1 and to 0.37:1 in 2021. Similar to Maxis, both ratios of Digi from 2019 to 2021 do not exceed 1
which indicates the company might face problems in settling its current liabilities. Yet, Digi is also able to
generate positive cash flow in the three years period and we assume Digi’s liabilities are not beyond their
capabilities.
3.2 PROFITABILITY RATIO
3.2.1 MAXIS BERHAD
From the calculations above, Maxis’ profit margin in 2019 is 16.31% which depicts that each ringgit
of sales in 2019, generates an average of 16.31 cents of profit for Maxis. On the other hand, in 2020, the profit
margin is 15.41% that shows that Maxis generated an average of 15.41 cents profit from each ringgit of sales.
This shows that the profit margin dipped by 0.9% in 2020. In 2021, the profit margin dipped by 1.2% to 14.21%
meaning that Maxis only could generate 14.21 cents of profit from each ringgit of sales. The reduction of profit
margin was mainly due to the decrease of net profit over the years. Based on the annual report, although Maxis
recorded a normalised net profit of RM 1,382 million in 2020 compared to RM1,519 million in 2019, the
reduction of net profit was mainly impacted mainly by the temporary loss of international roaming income,
termination of a network sharing agreement and higher impairment made to receivables. Moreover, from 2020
to 2021, net profit fell 5.4% to RM1,308 million due to large investments to expand the Maxis network,
enterprise solutions, and fibre penetration, as well as smart adoption of decreased spectrum life, resulting in
high depreciation and amortisation expenses. The dip in net profit also affected the return on total asset (ROA)
of Maxis from 2019 till 2021 in which from 7.21% in 2019, to 6.25% in 2020 and to 5.90% in 2021. This shows
that every ringgit Maxis invests in assets in 2021, generates 5.9 cents of net income which is a decrease of 1.31
cents from 2019. A decreasing ROA indicates that maxis have over invested in assets for instance as Maxis has
overinvested to expand Maxis network such as 5G space has failed to produce income growth.
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3.2.2 DIGI.COM BERHAD
From the calculation above, Digi’s profit margin in 2019 is 22.75% which shows that each ringgit of
sales generates an average of 22.75 cents of profit. On the other hand, profit margin in 2020 shows a decrease
of 2.91% to 19.84% in 2020. This is mainly due to the reduction in net income of Digi which totalled up to RM
1.22 billion from RM 1.43 billion in 2019 because of lower earnings from before interest, taxes, depreciation,
and amortisation as well as higher depreciation and amortisation. In addition, the covid-19 pandemic even made
it difficult for Digi as it lowered roaming revenues and usage from migrant segments as a result of border
closures. In 2021, the profit dipped slightly to 18.34% that depicts Digi generating 18.34 cents of profit for
every ringgit of sale. As stated, the decline in net profit by 4.8% to RM 1,162 million was due to increment in
finance expenses as well as shutdown of their 3G networks. Despite that, its profit still remains as one of the
best in the telecommunication industry. The decline in net profit similar to Maxis affected Digi’s return on
total assets (ROA) especially in the year 2020 where it dipped by 5% from 19.96 percent in 2019 to 14.95% in
2020. This shows that Digi’s net income generation from every ringgit invested in assets decreased by 5 cents
from 2019 to 2020. Digi's possibility of turning its investments into profit declined mainly due to the Covid-19
pandemic and the increased investment due to the sunset of 3G network and rise of 5G network. However, in
2021 the ROA was maintained healthily making it at 14.50 percent with a slight dip of 0.45%. This reflects its
solid financial capabilities and flexibility to fund future growth opportunities.
3.3 EFFICIENCY RATIO
3.3.1 MAXIS BERHAD
According to accounts receivable turnover, in 2021, Maxis has been able to convert 6.83 times of its
receivable into cash while in 2019 and 2020 only has been able to convert 5.27 times and 5.146 times of its
receivable into cash respectively. This data indicates that Maxis was able to collect its debts very frequently in
2021 compared to 2020 and 2019 because bigger the value, the quicker the debt is converted into cash.
Nevertheless, Maxis has managed to collect the debts frequently in 2019 compared to in 2020. In 2021, every
53 days (365 days ÷ 6.83 times) Maxis was able to collect its debt. Meanwhile, in 2019 and 2020, the debt was
collected by Maxis for every 69 days (365 ÷ 5.27 times) and 71 days (365 ÷ 5.146 times) respectively. Therefore,
Maxis was able to collect the debts more frequently every 53 days in 2021 than the other two years. According
to total assets turnover, Maxis was able to collect its debt. Meanwhile, in 2019 and 2020, the debt was collected
by Maxis for every 87 days (365 ÷ 4.19 times) and 90 days (365 ÷ 4.02 times) respectively. Therefore, Maxis
was able to collect the debts more frequently every 77 days in 2021 than the other two years. Maxis was able to
generate net sales at 0.452 times (45%) from its total asset value in 2019 but Maxis was only able to generate
net sales at 0.405 times (41%) from its total asset value in 2020 which dropped from 2019 to 2020. However,
in 2021 Maxis managed again to generate net sales at 0.415 times (42%) from its total asset value. Hence, the
total assets were utilised well to generate net sales by Maxis was in 2019 comparing to 2020 and 2021
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3.3.2 DIGI.COM BERHAD
Accounts receivable turnover shows how many times a company converts it’s receivable into cash and
indicates debt collection efficiency. In 2021, Digi was able to convert 6.27 times of its receivable into cash
while in 2019 and 2020 only was able to convert 4.7 times and 5.61 times of its receivable into cash respectively.
This data indicates that Digi was able to collect its debts very frequently in 2021 compared to 2020 and 2019
because bigger the value, the quicker the debt is converted into cash. Nevertheless, Digi has managed to collect
the debts frequently in 2020 compared to in 2019. In 2021, every 58 days (365 days ÷ 6.27 times) Digi was able
to collect its debt. Meanwhile, in 2019 and 2020, the debt was collected by Digi for every 78 days (365 ÷ 4.7
times) and 65 days (365 ÷ 5.61 times) respectively. Thus, Digi was able to collect the debts every 58 days in
2021 which is more frequent than the other two years. Total assets turnover measures a company’s ability to
use its total assets to generate net sales which indicates operating efficiency. Digi was able to generate net sales
at 0.877 times (88%) from its total asset value in 2019 but Digi was only able to generate net sales at 0.753
times (75%) from its total asset value in 2020 which dropped from 2019 to 2020. However, in 2021 Digi
managed again to generate net sales at 0.791 times (79%) from its total asset value. Hence, the total assets
utilised very well to generate net sales by Digi was in 2019 compared to 2020 and 2021.
3.4 SOLVENCY RATIO
3.4.1 MAXIS BERHAD
According to the calculations above, Maxis' debt ratio for the fiscal year 2019 is 67.02 percent, which
means debt-financed 67.02 percent of the company's assets. It also indicates that for every RM 1 in assets, the
company owes 67 cents in debt. The company owes 68 cents of debt for each ringgit in assets in the financial
year 2020 since the debt ratio for the year was 67.86 percent, while the debt ratio for the year 2021 was 70.04
percent, indicating that each ringgit in assets owes 70 cents of debt. From the year 2019 to 2021 debt ratio is
still less than 1, indicating that the company owes more assets than debt which makes it less difficult to borrow
money because creditors can be expected to pay them back in full. The higher the debt ratio, the more leveraged
a company is, implying greater financial risk. Depending on the statistics, we can conclude that the debt ratio
has been steadily increasing for the past three years and the company owes more assets than debt. The debt-toequity ratio for the financial years 2019, 2020, and 2021 shows that it employs RM 2 of debt financing for
every RM 1 of equity financing, with debt-to-equity ratios of 2.03, 2.11, and 2.34, respectively. We can observe
from the research that the debt ratio has been increasing over the past three years and is now over 1. A high
debt-to-equity ratio indicates a higher danger of bankruptcy if the company fails to operate as a project while
still having a large debt payment obligation. Maxis is still able to perform well because it is devoted to
maintaining high standards of corporate disclosure and transparency with shareholders, such as ensuring fair
treatment and protection of owners' interests, despite the fact that it invests huge sums of money in assets and
activities.
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3.4.2 DIGI.COM BERHAD
Based on the calculations above, Digi's debt ratio for the fiscal year 2019 is 91.90 which means that
for every RM 1 in assets, the company owes 92 cents in debt. The company owes 93 cents of debt for each
ringgit in assets in the financial year 2020 since the debt ratio for the year was 92.60 percent, while the debt
ratio for the year 2021 was the same a bit as which means each ringgit in assets owes 92 cents of debt while the
percentage of the year is 91.93. From the year 2019 to 2021 debt ratio is still less than 100 percent, indicating
that the company owes more assets than debt. When the company owns more assets than liabilities it can meet
its obligations by selling its assets if needed. For example, Digi has stated certain assets in the amount of cash
so that it has enough cash to pay its debts whenever the debt is more than the assets. The lower the debt-to-asset
ratio, the less risky the company. Depending on the statistics, we can conclude that the debt ratio has been
maintained at less than 1 for the past three years. The debt-to-equity ratio for the financial years 2019 and
2021 shows that it employs RM 11 of debt financing for every RM 1 of equity financing with debt-to-equity
ratios of 11.35 and 11.39 respectively and for the year 2020 debt to equity ratio is 12.51 which indicates RM 13
for each ringgit of equity. Based on the research we can observe that the debt ratio has been increasing until the
year 2020 but dropped by 1.12 in the year 2021 and is now over 1. A high debt to equity ratio indicates a
company uses debt to finance its growth. Digi is a company that invests large amounts of money in assets and
operations and often has a higher debt to equity ratio and for lenders and investors, a high ratio means a riskier
investment because the business might not be able to produce enough money to repay its debts. Digi is still able
to perform well because the company was more dependent on shareholders and medium-low dependent on
investors.
4.0 SHARE PRICE
Company
Share Price as at 23 June 2022 (RM)
Telekom Malaysia Berhad
5.04
Time Dotcom Berhad
4.27
Maxis Berhad
3.21
Digi.Com Berhad
3.17
Axiata Group Berhad
2.71
Ock Group Berhad
0.39
Green Packet Bhd
0.07
Average
2.69
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The share price of Maxis as at 23 June 2022 was RM3.21 while for Digi was RM3.17. There is no
significant difference between their share price as the difference is only RM0.04 but Maxis is having a better
share price. To compare their share price, we have extracted the share price of other telecommunications public
listed companies in the main market as listed in the table above. The reason we only use those companies for
comparison is because they have met the standards in terms of quality, size and operations which we believe
are more suitable and worth to be compared.
From the table above, Maxis and Digi are ranked 3rd and 4th respectively which is considered good.
We have also calculated the average share price of all the companies listed above which is RM2.69. On top of
that, the share prices of Maxis and Digi are above average. However, if compared to Telekom Malaysia Berhad,
which is RM5.04, it shows a greater demand in the shares of Telekom as compared to Maxis and Digi. However,
if compared to Green Packet Bhd which is RM0.07, the share prices of Maxis and Digi are much higher.
From the comparison in above, we can see that the share prices vary between companies. Therefore, we
have identified the main reason that might affect the share price.
The reason that might affect the price is the earning per share (EPS) of each company, which might
affect the demand for shares of a company. EPS indicates how much money a company makes for each share
of its stock and is a widely used metric for estimating corporate value (Fernando,2022). From the annual reports
of Maxis and Digi, we found that their EPS in 2021 is 16.70 cents and 14.90 cents while the EPS in 2020 for
Maxis and Digi are 17.7 cents and 15.7 cents respectively. Maxis shows a decreasing trend while Digi shows
an increasing trend. For Telekom, which is the telecommunication company with the highest share price, the
EPS of their company in 2021 is 23.70 cents. This simply means that for every outstanding share of Telekom,
the company is able to generate 23.70 cents of net profit which is higher than Maxis and Digi. Therefore, the
share price of Telekom is high because the demand is high as the investors believe the company has more profit
relative to its share and is willing to pay more for Telekom’s shares. Contrastingly, Green Packet Bhd with the
lowest share price among the companies which is RM0.07 has a loss per share of 12.15 cents in 2021. This
might be the main reason for the low in demand resulting in a low share price as investors do not have confidence
in the company’s ability to generate a great return on their investment.
5.0 FINDINGS
5.1 SIGNIFICANT EVENTS
From the annual reports of Maxis and Digi, we found that both companies are supporting the government's
agenda under the National Fiberisation and Connectivity Plan (NFCP) which is to target an average speed of
30Mbps in 98% of populated areas by 2023. Therefore, this might increase the purchase of the companies to
improve broadband connection nationwide and boost digital adoption in Malaysia. Another reason is their
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commitment in setting up the National 5G Task Force. As the leading company in Malaysia's
telecommunications sector, both Maxis and Digi are actively preparing their network and business for 5G and
investing to ensure 5G is built right for the future.
Another significant event that occurred was the outbreak of CoronaVirus as Digi and Maxis had a resilient and
inspiring year in 2021. In a year marked by prolonged movement restrictions, macroeconomic and competitive
challenges, and, most notably, a pandemic that continued to affect lives and livelihoods, Digi and Maxis users
and partners rallied to adapt to conditions and deliver a consistent performance, while also being committed to
driving society's recovery from the effects of Covid-19, as well as the devastating floods that hit many parts of
the country later in the year.
5.2 COMPANY ANALYSIS AND COMPARISON
5.2.1 LIQUIDITY RATIO
Overall, it is hard to determine if the current ratio of either company is better than the other company
as the differences are not significant, especially in 2020 and 2021. However, in 2019, Digi possesses a better
current ratio in the year which is 0.67:1 as compared to Maxis which is 0.53:1. This simply indicates that Digi
has RM0.14 more current assets than Maxis to cover RM1 of current liabilities.
Next, we can conclude that the quick ratio of Maxis is better than Digi even though Maxis has a lower
ratio in 2019, but the difference is not significant which is only 0.04 as compared to the difference of current
ratio between the two companies which is 0.14. As mentioned above, by using current ratio, we are not able to
identify which company is having better liquidity. However, by using quick ratio, Maxis is having a better quick
ratio because it has less inventories and prepayments resulting in a better immediate liquidity.
According to Seth (2021), a ratio between 1.5 and 3 is generally considered healthy while below 1 may
indicate liquidity problems for the company. One important point to be highlighted is that both of the ratios for
both companies do not exceed 1, which means they might have too much of current liabilities. We have
identified that ‘trade payables’ is the main contributor to the high current liabilities of both companies. On top
of this, we have figured out reasons that might lead to the high current liabilities. Since the outbreak of Covid19, the usage of internet data has increased tremendously and Maxis as well as Digi will need to invest more on
improving their service to afford the huge capacity which might lead to a high current liability. Furthermore, as
mentioned above, Maxis and Digi are engaging in the NFCP and also striving for the development of 5G in
Malaysia. These might be the reasons causing the high current liabilities as the companies will need more funds
to support both of the projects. From our perspective, even though the current liabilities are high, both of the
companies are concerned with the development of Malaysia’s technology and might increase their reputation
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resulting in a better impression towards them. Currently, the implementation of 5G in Malaysia is still in the
development phase and they will need to invest more in order to make it a success. We believe that their
investment in both of the projects mentioned above will be able to generate a great return in the future.
Therefore, as long as both companies are able to manage their liabilities in a proper manner and able to pay
back in the limited time, the high current liabilities that lead to low liquidity ratio should not be a problem.
5.2.2 PROFITABILITY RATIO
According to CSIMarket data, a telecommunications company's profit margin is 17 percent on
average. (Investopedia 2021). For the three years in question, Digi's profit margin was above 17 percent, which
is the norm for the telecommunications industry while Maxis did not reach the average. From 2019 to 2021,
Digi has a better profit margin percentage than Maxis. As of 2019, Maxis had the largest profit margin of 16.31
percent, while Digi had the highest margin of 22.75 percent in 2019. As noted in the above findings, both
companies had difficulties during the Covid 19 pandemic. We can observe that the epidemic caused travel
restrictions, drop in international roaming and voice usage revenue, a drop in foreign employees, lower
disposable income due to rising unemployment, and decreased retail traffic due to the MCO.These factors had
an impact on their Postpaid, Prepaid, and foreign roaming earnings. This scenario can be further proven by the
fact that both companies' profit margins decreased over a three-year period. Both companies had additional
expenses when the government requested each telco to offer free 1GB data daily from April 1, 2020. (Yeoh,
2020). However, in terms of overall, we can say that Digi is in a better position to keep the company safe and
grow its market share than Maxis will be when things start to look up as it has an overall higher profit margin.
Digi outperforms Maxis by earning more for every RM1 sold and its profit still remains as one of the best in the
telecommunication industry. Digi is able to generate more profits from its sales in comparison to Maxis. We
believe Maxis will be able to regain its profit and compete with Digi because, like Digi, it has been tenacious in
the face of setbacks and is focused on the development of 5G in Malaysia. Maxis is really focusing towards the
future prospect in terms of 5G implementation as according to News Straits Times, Maxis has formed one of
the biggest 5G alliances to accelerate 5G implementation in Malaysia. (NewsStraitsTime, 2022)
Digi also surpasses Maxis in terms of return on asset (ROA), averaging across the three years
averaging above 10% with 2019 being its highest at 19.96%. This shows there is still potential for progress for
Maxis as it underperforms when compared to Digi, Maxis' main competitor in the same business. Digi has a
superior ROA than Maxis because it is more efficient and productive in managing its balance sheet to create
profits. Digi invested well in its assets and their strong financial position enabled them to maintain the RAM
Rating Service Sukuk rating of AAA/P1 with a stable outlook despite these challenging times. Because Digi is
more efficient at turning money, investors are more inclined to put their money into the company than Maxis.
A difficult market scenario for telecommunications in Malaysia persisted from 2019; nonetheless, Digi was able
to show resilience and put in place solid internal systems to constantly assess megatrends as well as market
developments to better adapt to and seize new growth opportunities. Maxis also gave it their all, but it could not
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compete with Digi's efforts. From our findings, we have found out that the main reason why both companies
faced a decline in return on assets throughout the three years was due to the government approach in making
Digital Nasional Berhad (DNB) as a single wholesale network operator. Maxis, Digi and many other
telecommunication companies have overinvested their assets to build their own 5G network but with this new
approach, it has caused a decline in return on assets as telcos have to depend on DNB to get the 5G bandwidth
for their customers. Malaysia telecommunication companies continue to clash with the government over this
new approach regarding the 5G implementation (Baldock, 2022).
5.2.3 EFFICIENCY RATIO
Overall, there are no significant differences between Maxis and Digi but we can conclude that Digi is
better in collecting debts than Maxis because they have a steady increase in accounts receivable turnover
ratio. According to CSI Market, the average accounts receivable turnover ratio of the telecommunication market
is 67 days. Digi and Maxis were able to collect their debts more or less in 67 days. This data collection shows
that Digi and Maxis collect their debts more frequently but digi has a steady increase. It is possible that Digi has
very well, high-quality clients that pay their debts on time and quickly because Digi has a high receivables
turnover percentage. Meanwhile, Maxis has lower accounts receivable turnover because it might be the result
of a poor collection procedure, poor credit policies, or clients that are not financially viable or creditworthy.
Accounts receivable turnover has increased in 2021 as the trade receivables increased because the postpaid
customers for Digi has increased due to the new development in 5G which increases the trades receivable.
Moreover, Digi were able to minimise the bad debt risks and collections of trades receivable has improved
because pandemic has digitalised the payment methods and also effective customer acquisition mechanisms
which reduced their expected credit loss to RM55 million from RM 82 million in 2020. Meanwhile Maxis is
constantly enhancing its skills to provide affordable and superior 5G products that are accessible to everyone
which expands their customer range. Thus, accounts receivable constantly increases which can be one of the
reasons to have an increasing trend for accounts receivable turnover yet Maxis was not able to collect the
existing debts efficiently.
Total asset turnover of both Maxis and Digi have been reduced in 2020 and 2021. Especially, Maxis
wasn’t able to utilize the total assets to generate net sales compared to Digi. Even though Digi obtained a better
total assets turnover ratio, the performance has reduced drastically in 2020 and 2021. This company’s sales
might drop dramatically in a year if it was suffering a reduction in its business. A drop in business might be
caused by a variety of factors, including an economic slowdown or better items being produced by the
competitors. It will have a low total asset turnover ratio as a result of this. The total assets turnover ratio of both
companies has reduced because it implies that a company is not using assets efficiently and may have internal
issues. However, the total assets turnover for the both companies are above the average 0.34 times for the
telecommunication sector as they only have a small assets base. Total asset turnover of Digi and Maxis has been
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recovered in 2021 after facing reduction due to the investment. In 2019, both companies started to keep up with
the 5G race where China, South Korea, United States and the United Kingdom have already rolled out their next
generation of 5G yet the 5G development hasn’t been implemented throughout Malaysia. Thus,
telecommunication companies were just adapting 4G which was doing good at the moment so companies
obtained net sales from their total assets compared to other years since the pandemic has not really affected
2019 yet.
5.2.4 SOLVENCY RATIO
The analysis of debt ratios for three different fiscal years that was presented above indicated that Maxis
was in a stronger position than Digi because its debt ratio was greater than 0.6. This was the case because Maxis'
debt ratio was greater than 0.6. In addition, it shows that the company has RM 0.67 worth of debt for every RM
1 worth of assets that it has. On the other hand, when contrasted with Digi, which had a debt ratio of 0.9, Maxis
debt ratio was lower, making it a better financial position overall. Because of the transition from 3G and 4G to
5G, both businesses were putting in a lot of effort to get their networks and operations prepared for the new
standard, and they were also investing a lot of money to ensure that 5G will be successful in the years to come.
A debt ratio that is either equal to or lower than 0.4 or 40 percent indicates a low risk for lenders and investors.
This gives the impression that there is very little risk involved, that there is the possibility for continuity, and
that the company is in excellent financial health. A debt ratio that is greater than 0.6 or 0.7, which represents
60–70 percent of total assets, is viewed as a higher risk and may discourage investment. In contrast, a debt ratio
that is less than 0.6 or 0.7 represents 50–60 percent of total assets. As a result, we are able to arrive at the
understanding that, in relation to its debt ratio, Maxis achieves remarkable results and possesses a lower level
of risk than the Digi does.
The ratio of the companies' debt to their equity demonstrates that the ratio for both companies is greater
than 1.0. This indicates that the companies have more debt than equity. In addition, both businesses have stated
that with a high ratio, such as for maxis, on average we can see more than 2.0 and for digi, slightly more than
10.0, respectively. Digi is greater than 10.0 due to the fact that, in comparison to Maxis, Digi is a company that
invests a greater amount of money in assets and operations in preparation for the upgrade to 5G. A high ratio
indicates a riskier investment for lenders and investors since it raises the possibility that the company will not
be able to generate sufficient profits to satisfy its financial obligations. This is because a high ratio indicates that
the company has a higher debt-to-equity ratio. A debt-to-equity or debt-to-assets ratio that is less than 1.0 is
considered to be generally safe, whereas ratios that are more than 2.0 are seen as unstable. In general, a debt-toequity or debt-to-assets ratio that is less than 1.0 is considered to be safe (Investopedia). According to the data
presented by Investopedia, we are able to arrive at the conclusion that Maxis is successful in spite of the fact
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that its ratio is greater than 1. When contrasted with digital, however, it will demonstrate that investing in it
carries a lower level of risk.
6.0 CONCLUSION AND SUGGESTION
6.1 CONCLUSION
Based on the ratio analysis on both Maxis and Digi, we can conclude Digi is in a better position as it
generates more profit from its sales and the company assets are more efficient in that case. Other than that,
Digi’s efficiency in collecting outstanding credit accounts is better than Maxis and the company continues to
leverage its assets to create revenue and drive profitability. Although Maxis seems to finance its company assets
by debts lower consecutively compared to Digi, Digi managed to reduce its debt financing in 2021, which shows
that Digi has the ability to strengthen its capital structure in the future by not really relying much on debts and
will be able to sustain in the foreseen future.
As a matter of fact, Telenor ASA ("Telenor"), the ultimate holding company, advised Digi that Telenor
and Axiata Group Berhad ("Axiata") are in talks to merge Celcom and Digi's telecommunications operations,
with each party owning 33.1 percent. According to BusinessToday (2022), Axiata stated in a Bursa Malaysia
stock exchange filing that the deal is subject to the approval of both the company and Digi shareholders, as well
as regulatory clearances and other terms and circumstances. However, according to the Star Online (2022) on
30th June 2022, the Malaysian Communications and Multimedia Commission (MCMC) for the proposed
merger between Celcom Axiata Bhd and Digi. The merger might result in the formation of Malaysia's largest
mobile service operator. Digi and Celcom are the country's second and third major mobile service providers,
respectively.
Based on the information, this could be a plus point to the shareholders who show interest in investing
in Digi as both Celcom and Digi are very well-established companies in the telecommunication industry.
6.2 COMMENTS ON THIS ASSIGNMENT
This assignment taught us how to properly read and analyse annual reports and financial statements of
companies. It was possible to see how companies performed over the financial years that we selected by
conducting in-depth research. In addition, we have discovered that even non-financial information about a
company can have a significant impact on its performance. Going through the annual reports for the first time
and analysing and proving possible reasons why companies perform as they do from 2019 to 2021 amidst the
Covid19 pandemic was indeed an eye-opening experience for us.
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Financial statements are a snapshot of a company's financial health, providing information about its
operations, performance, and cash flow. The income, expenses, profitability, and debt of a business can all be
found in the financial statements. Thus, from this assignment it is proven that how important is it to disclose
financial statements accurately to determine the performance of a company.
6.2 SUGGESTION
The profit of maxis is not in a good position; therefore, Maxis has to take alternative actions such as
increasing sales, controlling expenses, reducing there and try to restrain from investing huge amounts due to
expanding their network. It is advisable for both companies to reduce their cost of goods sold and eliminate
unprofitable services and products as it will result in loss. As Maxis has a low current ratio so it should increase
its current ratio where it can meet its short-term obligation smoothly by maintaining proper liquid funds like
cash and bank balance.
Both of the companies should be settled with the 5G service issue as soon as possible and do not fall
into the trap of overinvesting without resolving clashes with the Governance. The more quickly the problem
can be resolved, the more benefits the business can expect in the future and the sooner customers can start using
5G, the better.
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7.0 REFERENCES
Rashid, Chnar. (2021). The Efficiency of Financial Ratios Analysis to Evaluate Company's Profitability. 119132.
Khan, M. M., & SAFIUDDIN, D. (2016). Liquidity and Profitability Performance Analysis of Selected
Telecoms Companies. International Journal of Research in Regional Studies, Law, Social Sciences,
Journalism and Management Practices (AIJRRLSJM), 1(8), 365- 376.
BusinessToday. (2022, April 28). Axiata expects Celcom-Digi Merger to Be Completed In The Second Half of
2022.
https://www.businesstoday.com.my/2022/04/28/axiata-expects-celcom-digi-merger-to-be-completed-inthe-second-half-of-2022/
Fernando,
J.
(2022).
Earnings
Per
Share
(EPS).
Retrieved
29
June
2022,
from
https://www.investopedia.com/terms/e/eps.asp\
Folger, J. (2022). How Do the Current Ratio and Quick Ratio Differ? Retrieved 25 June 2022, from
https://www.investopedia.com/ask/answers/062714/what-are-main-differences-between-current-ratioand-quick-ratio.asp#:~:text=less%20than%20one.,Key%20Differences,i.e.%2C%20turn%20into%20cash
Seth, S. (2021). What Is the Formula for Calculating the Current Ratio?. Retrieved 25 June 2022, from
https://www.investopedia.com/ask/answers/070114/what-formula-calculating-current-ratio.asp
The Star Online. (2022, June 29). MCMC approves Celcom-Digi merger. The Star.
https://www.thestar.com.my/business/business-news/2022/06/29/mcmc-approves-celcom-digi-merger
Investopedia. (2020, August 15). What is the average profit margin for a company in the telecommunications
sector? Retrieved 23 June 2022 from,
https://www.investopedia.com/ask/answers/060215/what-average-profit-margincompanytelecommunications-sector.asp
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8.0 APPENDICES
Appendix – Ratio Calculations
1. Liquidity ratio calculation:
2. Solvency ratio calculation:
3. Profitability ratio calculation:
4. Efficiency ratio calculation:
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Red
Current Liabilities and Assets
Orange
Inventories
Green
Prepayments
Pink
Net Sales
Purple
Account Receivable
Yellow
Total assets, liabilities and equity
Blue
Net income
Colour indicator for Values Taken from Financial Statements
Appendix: Financial Statements of Digi.Com Berhad (For calculations) – 3 years
19
20
21
22
23
24
25
26
27
28
Appendix: Financial Statements of Maxis Berhad (For calculations) – 3 years
29
30
31
32
33
34
35
36
37
38
39
Appendix: Comparison regarding Liquidity Ratio (Among Companies)
MAXIS
DIGI
Current Ratio
MAXIS
DIGI
Quick Ratio
2019
0.53 : 1
0.67:1
2019
0.5 : 1
0.54:1
2020
0.63 : 1
0.61:1
2020
0.59 : 1
0.45:1
2021
0.48 : 1
0.49:1
2021
0.45 : 1
0.37:1
Appendix: Additional comments
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Appendix: Article regarding Maxis forming largest alliance for 5G (reduce in ROA)
Appendix: Telecommunication company continues to clash with government with new DNB 5G
approach
41
Appendix: MCMC approves Celcom-Digi merger
Appendix: Findings of Annual Report about advanced discussion to merge Digi and Celcom
42
Appendix: Findings on Outbreak of Coronavirus from Digi’s Annual Report
Appendix: Background Information of Maxis
43
Appendix: Background Information of Digi
Appendix: Digi additional information regarding profit and assets (2020)
44
Appendix: Digi additional information regarding profit and assets (2021)
45
Appendix: Maxis additional information regarding profit and assets (2020)
Appendix: Maxis additional information regarding profit and assets (2020)
46
Appendix: Findings on National Ferberisation & Connectivity Plan (NFCP) & National 5G Taskforce
47
Appendix: Earning Per Share of Maxis Berhad (2020 & 2021)
Appendix: Earning Per Share of Maxis Berhad (2020 & 2021)
48