Lion Industries Corporation Berhad (LICB) was incorporated on 17 May 1924 as Sungai Way Dredging Limited under the Companies Enactment 1917. Subsequently, it changed its name to Sungei Way Dredging Berhad on 21 October 1991. LICB was listed on the Main Market of Bursa Malaysia Securities Berhad on 29 December 1973 and adopted its current name on 18 February 2003.
LICB is involved in the manufacturing of long steel products, by Amsteel Mills Sdn Bhd (AMSB) and Antara Steel Mills Sdn Bhd (Antara) at three steel mills. AMSB's plant located in Kelang, Selangor produces billets for rolling into steel bars and wire rods while its plant in Banting Selangor, set up in 2001 produces special grade billets for rolling into specialty bars and wire rods for automotive parts, mattress and mechanical springs, turning parts, wire rods, wire ropes and other stringent applications. The third mill operated by Antara in Pasir Gudang, Johor, was acquired in 2002 from Johor Corporation Bhd, and produces billets which are rolled into steel bars and light sections such as angle bars, flat bars and U-channels.
Lion Industries Corporation Berhad is engaged in investment holding and property development. The Company operates in five business segments : steel, which is engaged in manufacturing and marketing of steel bars, wire rods, hot briquetted iron, steel related products and provision of chartering services ; property development, which is engaged in property development and management tire, which is engaged in the manufacture and sales of tires and other related rubber products; building materials, which engaged in trading and distribution of building materials and other steel products, and others, which is engaged in holding, treasury business, manufacturing and trading of lubricants, spark plugs, plastic components and automotive components, sales and distribution of motor vehicles and provision of transportation services. Its subsidiaries include Amble Legacy Sdn Bhd, Crest Wonder Sdn Bhd, and JOPP Builders Sdn Bhd.
The steel bars, wire rods and sections produced by LICB are used in the construction, fabrication and manufacturing industries. Antara also operates a Hot Briquetted Iron (HBI) plant in Labuan using the Midrex Technology from USA. Antara's HBI is manufactured from high-purity iron ore and is rated as among the world best and supplied to steel mills for iron making, steelmaking and foundry applications. In the property development sector, LICB is involved in property management and residential development. Its joint-venture with the Eastern & Oriental Group comprises a mixed integrated development project which includes three blocks of 28-storey serviced apartments, with retail, food and beverage theme outlets located at the site of the former St Mary's School in Kuala Lumpur.
Financial Statement Analysis
Financial statement analysis is defined as accounting analysis which refers to an assessment of company performance and position. Financial statement analysis is also a judgmental process of identifying financial strength and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account.
Financial statements are prepared to meet external reporting obligations and also for decision making purposes through analysis and interpretation of it. Besides that, the major benefit of financial statements analysis is that the investors get enough idea to decide about the investments of their funds in the specific company. Then, regulatory authorities like International Accounting Standards Board can ensure whether the company is following accounting standards or not. Furthermore, financial statements analysis can help the government agencies to analyse the taxation due to the company. Moreover, company can analyse its own performance over the period of time through financial statements analysis.
Following are the most important tools and techniques of financial statement analysis:
Horizontal and Vertical Analysis
Comparison of two or more year's financial data is known as horizontal analysis, or trend analysis. Horizontal analysis is facilitated by showing changes between years in both RM and percentage form. Horizontal analysis of financial statements can also be carried out by computing trend percentages. Trend percentages state several years' financial data in terms of a base year.
Vertical analysis is the procedure of preparing and presenting common size statements. Common size statement is one that shows the items appearing on it in percentage form as well as in RM form. Each item is stated as a percentage of some total of which that item is a part. Key financial changes and trends can be highlighted by the use of common size statements.
Ratios Analysis
The ratios analysis is the most powerful tool of financial statement analysis. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. Ratios can be found out by dividing one number by another number. Ratios show how one number is related to another.
Horizontal and Vertical Analysis
Trend Analysis
Year
2006
2007
2008
2009
2010
Revenue (RM '000)
19,362
13,313
10,423
10,176
11,894
Percentage of Changes in Revenue (%)
-
-45.44
-27.73
-2.43
14.44
Profit (RM '000)
8,006
7,089
7,054
5,933
8,170
Percentage of Changes in Profit (%)
-
-12.94
-0.50
-18.89
27.38
Non-Current Assets (RM '000)
425,779
308,848
261,240
287,202
283,576
Current Assets (RM '000)
1,313,118
1,379,910
1,225,981
1,165,170
1,138,535
Total Asset (RM '000)
1,738,897
1,688,758
1,487,221
1,452,372
1,422,111
Non-Current Liabilities (RM '000)
87,169
82,302
73,752
69,865
135
Current Liabilities (RM '000)
574,129
509,064
300,355
261,570
294,929
Total Liability (RM '000)
661,298
591,366
374,107
331,435
295,064
Earnings per Share
RM (sen)
(1.30)
30.44
119.01
(39.04)
50.67
The revenue of the company is decreasing gradually since year 2006 from RM 19.36 millions to RM 10.18 millions in the year 2009. The revenue has been increased by RM 1.7 millions in the year 2010 compared to year 2009. The percentage of changes in revenue is negative on the year 2006 to 2009. Although the rate of revenue is negative, the value of decrease is becoming smaller compared to prior year. The decrease of revenue is due to the decrease in rental of the company. However, the revenue in the year 2010 increased due to the increment of dividend income from subsidiary companies.
The profit of the company maintained at around RM 6-8 millions for the five years ended 2010. The percentage of profits is not stable for the recent five years. The percentage of changes in profit is also negative from the year 2006 onwards. The company profit decreased tremendously at the year 2009 is because of the net change in inventories. The company did not manage well the inventories in the company and hence caused the profit to decrease. However, the company still manages to increase the profit in the year 2010.
The company total assets are decreasing constantly with the percentage of around -2% except for the year 2008 which reached at -13.55%. The company non-current assets are about 20% of the total assets in the company. The total assets are decreasing from RM 1739 millions to RM 1422 millions in a very slow rate. The decrease in assets will not affect the ability of company to pay debt when it is due because the decrease in assets followed by the decrease in liabilities as well. The rate of decrease in total assets is less than the rate of decrease in total liabilities.
The company total liabilities are decreasing enormously with the percentage of around -12% except for the year 2008 which reached at -58.07%. The company non-current liabilities are about 13% of the total liabilities in the company for the year 2006 and 2007. This figure increased to around 20% for the year 2008 and 2009. This value then drops to 0.05% in the year 2010. The total liabilities are decreasing from RM 661 millions to RM 295 millions in an average rate. The decrease in liabilities is due to the company had paid up most of the debts and loans.
Ratios Analysis
LIQUIDITY RATIOS
Liquidity ratios measure the short term solvency of financial position of a firm. These ratios are calculated to comment upon the short term paying capacity of a concern or the firm's ability to meet its current obligations. Examples of liquidity ratios are current ratio and quick ratio or acid test.
Current Ratio
The purpose of the current ratio is to measure the company's ability to meet as short-term financial obligations out of its current assets. It should have sufficient liquid resources to meet all current liabilities. High current ratios are needed for companies that have difficulty borrowing on short term notice.
Formula: Current Ratio =
Table for Lion Industries Corporation Bhd
Lion Industries Corporation Bhd
Year
2006
2007
2008
2009
Current Assets (RM'000)
1,313,118
1.379,910
1,275,981
1,165,170
Current Liabilities (RM'000)
574,129
509,064
300,355
261,570
Current Ratio
2.287
2.711
4.082
4.455
Average
3.479
Current ratio of Lion Industries Corporation Bhd shows the increase in year 2006 to year 2009, from 2.287 to 4.455 and decrease in year 2010 to 3.86. From current ratio in year 2006 to year 2009, it shows that the ability to pay short term debt is increasing from year to year. But for the year 2010, it also shows that the ability of company to pay of short term debt has decrease. Average current ratio for this company is 3.479, for every RM1 of short term debt it has RM3.479 of current asset to pay for them.
ASSET MANAGEMENT/TURNOVER RATIOS
Activity/Turnover ratios are calculated to measure the efficiency with which the resources of a firm have been employed and provide information about management's ability to control expenses and to earn a return on the resources committed to the business. Examples of activity/turnover ratio are debtors/creditors turnover ratio, working capital turnover ratio, fixed assets turnover ratio, total assets turnover ratio, inventory turnover and days receivables.
Total Asset Turnover
Total asset turnover analysis is the amount of sales generated for every ringgit's worth of assets. It is calculated by dividing sales in ringgits by assets in ringgits. It measures a firm's efficiency at using its assets in generating sales or revenue. It also indicates pricing strategy where companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.
Formula: Assets Turnover =
2.1 Table for Lion Industries Corporation Bhd
Lion Industries Corporation Bhd
Year
2006
2007
2008
2009
Sales (RM'000)
19,362
13,313
10,423
10,176
Total Assets (RM'000)
1,739,445
1,688,758
1,478,221
1,452,372
Assets Turnover (times)
0.011
0.0079
0.0066
0.0069
Average (times)
0.00814
We can see that the total asset turnover ratio of Lion Industries Corporation Bhd has been decreasing from 0.011 times in 2006 to 0.0066 times in 2008, then increase to 0.0083 times in 2010. Although the company is not efficient in generating sales or revenue in 2006 and 2007, but the company has improve its efficiency to gain sales or revenue by using its asset in 2008 to 2010. It is a good sign for shareholder to invest in this company.
Inventory Turnover
A ratio showing how many times a company's inventory is sold and replaced over a period.
Formula: Inventory Turnover =
3.1 Table for Lion Industries Corporation Bhd
Lion Industries Corporation Bhd
Year
2006
2007
2008
2009
Sales (RM'000)
19,362
13,313
10,423
10,176
Inventory (RM'000)
43
43
43
43
Inventory Turnover
450.28
309.61
242.4
236.65
Average
303.11
Inventory turnover of the company has been decreasing numerously from 450.28 in year 2006 to 236.65 in year 2009 and increase 39.96 from year 2009 to year 2010. Average inventory turnover of Lion Industries Corporation Bhd is 303.11. This indicates the company is efficiency in the product line or marketing effort.
PROFITABILITY RATIOS
Profitability ratios measure the results of business operations or overall performance, effectiveness of the firm, management's ability to control expenses and to earn a return on the resources committed to the business. Examples are profit margin, gross/net profit ratio, expense ratios, operating ratio, return on assets, return on equity, EPS ratio and price earnings ratio.
Profit Margin
Profit margin is one of profitability ratios. It is calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every ringgit of sales a company earns. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss.
Formula: Profit Margin =
4.1 Table for Lion Industries Corporation Bhd
Lion Industries Corporation Bhd
Year
2006
2007
2008
2009
Net Income (RM'000)
7,840
7,089
7,054
5,933
Sales (RM'000)
19,362
13,313
10,423
10,176
Profit Margin
40.49%
53.25%
67.68%
58.30%
Average
57.68%
Profit margin of the company has increased from 40.49% in 2006 to 67.68% in 2008 and decreased to 58.30% in 2009 follow by a increase 68.69% in 2010. This indicates that Lion Industries Corporation Bhd is making money as it show positive profit margin.
Return on Assets
Return on assets or return on investment measures the company's ability to utilize its assets to create profits and indicator of how profitable a company is relative to its total assets and displayed as a percentage. Return on assets gives an idea as to how efficient management is at using its assets to generate earnings and calculated by dividing a company's annual earnings by its total assets.
Formula: Return on Assets=
Table for Lion Industries Corporation Bhd
Lion Industries Corporation Bhd
Year
2006
2007
2008
2009
Net Income (RM'000)
7,840
7,089
7.054
5,933
Total Assets (RM'000)
1,739,445
1,688,758
1,487,221
1,452,372
Return On Assets
0.0045
0.0042
0.0047
0.0041
Average
0.00464
Lion Industries Corporation Bhd decrease in return on assets from 0.45% (2006) to 0.42% (2007) and increase to 0.47% (2008) and decrease again to 0.41% (2009) and finally increase to 0.57%. The positive percentages of return on assets indicate that this company is efficient in using assets to generate profit.
Return on Equity
The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.
Formula: Return on Equity=
Table for Lion Industries Corporation Bhd
Lion Industries Corporation Bhd
Year
2006
2007
2008
2009
Net Income (RM'000)
7,840
7,089
7,054
5,933
Shareholders' Equity (RM'000)
1,078,147
1,097,392
1,113,114
1,120,937
Return On Equity
0.73%
0.65%
0.63%
0.53%
Average
0.65%
Return on equity Lion Industries Corporation Bhd show that decrease 0.2% from 0.73% in year 2006 to 0.53% in year 2009 and for the year 2010, it increase to 0.72%. Average return on equity of Lion Industries Corporation Bhd is 0.65% shows a positive performance and return on equity encourages make investment on this company. If the return on equity is high, then the stock price will also tend to be high, and actions that increase return on equity are likely to increase the stock prices.
LEVERAGE RATIOS/LONG TERM SOLVENCY
Leverage ratios measure the degree of protection of suppliers of long term funds and can also aid in judging a firm's ability to raise additional debt and its capacity to pay its liabilities on time. Long term solvency conveys a firm's ability to meet the interest costs and payment schedules of its long term obligations. Example is debt ratio.
Debt Ratio
Debt ratio indicates what proportion of debt a company relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in term of its debt-load. A debt ratio of greater than 1 indicates that a company has more debt than assets and Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk.
Formula: Debt Ratio =
7.1 Table for Lion Industries Corporation Bhd
Lion Industries Corporation Bhd
Year
2006
2007
2008
2009
Total Liabilities (RM'000)
661,298
591,366
374,107
331,435
Total Assets (RM'000)
1,739,445
1,688,758
1,478,221
1,452,372
Debt Ratio
0.38
0.35
0.25
0.23
Average
0.284
For the Lion Industries Corporation Bhd, it shows a trend of gradually decrease in the debt ratio from 0.38 in 2006 to 0.21 in 2010, which means that the proportion of total debt compare to the total asset is decreasing each year. In term of investment, the investor will confident to the company since they have more assets than debt.
Summary of the Analysis
From the trend analysis above, we can see that the company revenue and profit was decreased from the year 2006 to 2009 but increased on year 2010. Next, we see that the total assets and the total liability decreased rapidly from the year 2006 to 2010. On the other hand, from the ratio analysis, we can see from current ratio in year 2006 to year 2009, it shows that the ability to pay short term debt is increasing from year to year. But for the year 2010, it also shows that the ability of company to pay of short term debt has decrease. Meanwhile, on the asset management/turnover ratios, it can be seen that it is a good sign for shareholder to invest in this company and it is indicates the company is efficiency in the product line or marketing effort. Besides, the positive percentages of return on assets indicate that this company is efficient in using assets to generate profit and also the return on equity actions that increase return on equity are likely to increase the stock prices. Furthermore, in term of investment, the investor will confident to the company since they have more assets than debt.
Financial Strengths and Weaknesses
When computing financial relationships, a good indication of the company's financial strengths and weaknesses becomes clear. Examining these ratios over time provides some insight as to how effectively the business is being operated. Financial strengths include improved productivity, improved sales and improved profitability.
Research indicates that organizations using strategic management concepts are more profitable and successful than those that do not. Businesses using strategic-management concepts show significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities. High performing firms tend to do systematic planning to prepare for future fluctuations in their external and internal environments. Firms with planning systems more closely resembling strategic management theory generally exhibit superior long-term financial performance relative to their industry. High performing firms seem to make more informed decisions with good anticipation of both short and long term consequences. On the other hand, firms that perform poorly often engage in activities that are short-sighted and do not reflect good forecasting of future conditions. Strategists of low performing organizations are often preoccupied with solving internal problems and meeting paperwork deadlines. They typically underestimate their competitors' strengths and overestimate their own firm's strengths. They often attribute weak performance to uncontrollable factors such as poor economy, technological change, or foreign competition.
Non-financial Strengths and Weaknesses
Non- financial Benefits include increased employee productivity, improved understanding of competitors' strategies, greater awareness of external threats, understanding of performance reward relationships, better problem avoidance and lesser resistance to change.
Besides helping firms avoid financial demise, strategic management offers other tangible benefits, such as an enhanced awareness of external threats, an improved understanding of competitors' strategies, increased employee productivity, reduced resistance to change, and a clearer understanding of performance reward relationships. Strategic management enhances the problem prevention capabilities of organizations because it promotes interaction among managers at all divisional and functional levels. Interaction can enable firms to turn on their managers and employees by nurturing them, sharing organizational objectives with them, empowering them to help improve the product or service, and recognizing their contributions. In addition to empowering managers and employees, strategic management often brings order and discipline to an otherwise floundering firm. It can be the beginning of an efficient and effective managerial system. Strategic management may renew confidence in the current business strategy or point to the need for corrective actions. The strategic management process provides a basis for identifying and rationalizing the need for change to all managers and employees of a firm; it helps them view change as an opportunity rather than a threat.
Outlook for the Future
The operating environment is expected to remain challenging in view of the uncertainties surrounding there covey of the major advanced economies. Nevertheless, domestic steel demand is expected to be higher with the implementation of various infrastructure projects. Moving forward, the Group will continue to execute its plans and strategies to expand its market presence and improve production efficiency and productivity.
Recommendations
Although in year 2006 to year 2009, revenue that can gain from the company has decreased but in year 2010, it started to increase. This shows that Lion Industries Corporation Bhd has improve their skill of sales to gain more profit. Furthermore, other receivables and other payables of the company are fluctuating. This indicates that management of the assets and liabilities of the company is unstable.
Ratio of assets turnover is considered very low with the average of 0.00814. This shows that the company needs to operate for a long time to gain back the cost of assets that used to generate sales. Lion Industries Corporation Bhd should reduce the investment or loan that given to subsidiary companies. The assets or cash should be use to invest in activities that can generate more sales such as recruit more employees and build more plants.
Average for the return on equity in Lion Industries Corporation Bhd is 0.65%. The profitability of each RM100 of investment is RM0.65. This indicates that the return can get from the investment is quite low. To improve the return that can get from the company, it must generate more profits during the operation.
