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 1 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 2 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 3 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. 4 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. 5 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. 6 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 7 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. 8 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 9 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 10 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 11 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 12 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 13 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 14 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. 15 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. 16 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 17 8.0 APPENDICES Appendix – Ratio Calculations 1. Liquidity ratio calculation: 2. Solvency ratio calculation: 3. Profitability ratio calculation: 4. Efficiency ratio calculation: 18 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 40 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