This financial audit report is to analyze the two companies which are different industries that have listed in Kuala Lumpur Stock Exchange (KLSE), and then examine the share price movement from the annual report of 2 companies. Those companies that have been chosen to analyze by the author are the Bonia Corporation Berhad and Parkson Holdings Berhad. Besides that, this report also has to evaluate corporate goal and future forecasting of the companies from chairman statements which are the main objectives in financial management. Moreover, from this report, it can learn how to predict the next month's share prices from the calculation. Therefore, the author can look through the market share prices of the company which can get the results return and risk in investment. There also has explanation the efficient market hypothesis and random walk theory in this report. Lastly, this report also identifies the different between security valuation and capital budgeting, the methods of security valuation, important of capital budgeting and how to use capital budgeting in decision ruling when appraises investment in projects.
Introduction
The first section of this financial audit report is to briefly explain the company background of the companies of Bonia Corporation Berhad and Parkson Holdings Berhad.
Following by the first section, the second section is to examine the market share price movement of the companies from correlation coefficient and regression line of the best fit, to measure that risky and prediction when invests in market share prices. Through the market share prices movements, efficient market hypothesis and random walk theory have to explain in this report.
Lastly, this report also identifies the methods of security valuation methods which are needed to mention when the author wants to value the share prices of the companies. Besides that, this report also presents important of capital budgeting in decision ruling when appraises investment in projects. With the framework, author has determine the different of security valuation and capital budgeting.
Bonia Corporation Berhad
Company Background
Bonia Corporation Berhad is mainly focuses in fashion retailing, marketing and manufacturing, which has provided high quality and fashion of leather goods. There have 883 sales outlets and 103 boutiques in around the world.
The Bonia's history was started in 1977 year, which Mr. Chiang Sang Sem, the Bonia's founder, and now was Executive Chairman in Bonia Group, had apply Bonia of brand name because of inspired from the artwork of Giambologna, Italy. In 1980, the Bonia Group had succeed became market leader in Malaysia and Singapore and was listed on the Bursa Malaysia, Kuala Lumpur Stock Exchange (KLSE). Then Bonia Group had succeeded expanded and had its subsidiaries company.
Now the Bonia Group has succeed added more international brands, which are Pierre Cardin, Braun Bruno, Magli, Buffel, and Renoma to its collection of brands with the gaining of 70% equity in Jeco (Pte) Limited.
Corporate Goal
The main corporate goal of Bonia Corporation Behad is to be the recognized international brand with lists in the public listed companies in the region. According to Bonia Group's vision, Bonia Group will establish more 30 countries and will focus in 5 countries in 2015 year. Furthermore, Bonia Group forecasts to have 1billion earnings and at least have 12% before the tax in yearly.
Financial Reporting and Performance
According to the annual report 2011, Bonia Group's profits have increased 28% to RM461.4million with RM54.8 million from contribution of Jeco (Pte) Limited and RM24.0 million in consignment sales Malaysia. Then Bonia Group has earned RM56.5 million before tax with 24% and RM14.8 million before tax in Jeco (Pte) Limited's contribution. However, there still have losses of RM5.4 million from joint venture business in Vietnam.
Future Forecast
Apart on Bonia Group's forecasting, Renoma Café Gallery has chosen as the master Franchisee from Licensor, Renoma S.T.A.R. for Singapore, Indonesia and Malaysia and launchs 1st concept in 2012 year. Besides, Bonia Group has rebuilt the retail in Vietnam because of arguing with partner. It forecasts will be the temporary because of supporting by Vietnam's departmental stores. Bonia Group forecasts to launch first boutique at Grand Indonesia Shopping Town in Jakarta.
Parkson Holdings Berhad
Company Background
Parkson Holdings Berhad is a Malaysia investment holding company which was under Companies Act in 1965 year and has named as Amalgamated Cement Mills Sdn Bhd in 1982 year. When 1992 year, it had changed to a public company with Pakson name and had listed to Bursa Malaysia in 1993 year. It had joint venture in Parkson Retail Group Limited and Parkson Retail Asia. It has 89 department stores in China, Indonesia, Vietnam, and Malaysia, which 7 stores in Indonesia are under the brand name of a Kem Chicks Supermarket and Centro Lifestyle Department Store, and 8 stores in Vietnam, 37 stores in Malaysia are under brand name of Parkson.
Corporate Goal
Parkson Group has the corporate goal which offers more international brands to join venture in consignment of department stores. Parkson Group is using the strategy of consistent market positioning, localization and focusing Fashion, Cosmetics, Household and Electrical to achieve objectives with target of young and contemporary market segments.
Financial Reporting and Performance
In 2011, Parkson Group has earned gross sales of RM9.49 billion, which had increased 10% and earned operating profit of RM971 million which had increased 11%. Besides, Parkson Group also had earned the net profit RM348 million, which had increased 22%. Moreover, Balance sheet of Parkson Group maintains healthy in 2011 with funds of more than RM2 billion to shareholders.
Future Forecast
Parkson Group has planning to focus in expanded new retail markets to more countries. Then it has to maintain partnership with the Indonesia which has following the listing of shares of SGX-ST for future forecast. Parkson Loyalty Card programme, which is emphasized, also is the future forecast of the company to gain more consumers.
Market Share Price Movement of PARKSON and BONIA
Share price movement is determined to estimate the future cash flows and share price in the company. This report has done to determine the share prices movement of Parkson and Bonia.
Market Share Price
Month
PARKSON HOLDINGS BHD
Market Share Price
Bonia Corporation Berhad
Market Share Price
Jan
5.95
1.81
Feb
5.66
1.8
Mar
5.73
1.8
Apr
5.87
1.85
May
5.92
1.85
June
7.73
1.81
July
6.12
1.81
Aug
5.89
1.73
Sep
5.82
1.65
Oct
5.69
1.72
Nov
5.81
1.96
Dec
5.84
2.07
Scatter Diagram Graph
Scatter Diagram is a technique that uses to determine relationship between two months and to determine how the financial market works and the risk of company. Below is the table of monthly share price Parkson, which uses to plot scatter diagram graph market share prices.
PARKSON HOLDINGS BHD
Month
x
y
Month
JAN
5.95
5.66
FEB
FEB
5.66
5.73
MAR
MAR
5.73
5.87
APR
APR
5.87
5.93
MAY
MAY
5.92
7.73
JUN
JUN
7.73
6.12
JUL
JUL
6.12
5.89
AUG
AUG
5.89
5.82
SEP
SEP
5.82
5.69
OCT
OCT
5.69
5.81
NOV
NOV
5.81
5.84
DEC
DEC
5.84
2.2.1 Scatter Diagram Graph of PARKSON HOLDINGS BHD
The graph above has showed that the correlation between 2 months of the share price of Parkson, which the highest is on June RM7.73 and the lowest, is on February RM5.66.
BONIA CORPORATION BHD
MONTH
x
y
MONTH
JAN
1.81
1.8
FEB
FEB
1.8
1.8
MAR
MAR
1.8
1.85
APR
APR
1.85
1.85
MAY
MAY
1.85
1.81
JUN
JUN
1.81
1.81
JUL
JUL
1.81
1.73
AUG
AUG
1.73
1.65
SEP
SEP
1.65
1.72
OCT
OCT
1.72
1.96
NOV
NOV
1.96
2.07
DEC
DEC
2.07
2.2.2 Scatter Diagram Graph of BONIA CORPORATION BHD
The graph above is scatter diagram of Bonia, which the highest is on December RM2.07, and the lowest, is on October RM5.66. Based on the scatter diagram graph, it also has showed Parkson's correlation between 2 months is strong than Bonia.
Calculation of Correlation Coefficient
However, it needs to use calculation of correlation coefficient to measure more accurately that weak and strong of correlation between 2 months are interpreting. It takes on values ranging between +1 and -1.
PARKSON
x
y
xy
x²
y²
5.95
5.66
33.68
35.40
32.04
5.66
5.73
32.43
32.04
32.83
5.73
5.87
33.64
32.83
34.46
5.87
5.92
34.75
34.46
35.05
5.92
7.73
45.76
35.05
59.75
7.73
6.12
47.31
59.75
37.45
6.12
5.89
36.05
37.45
34.69
5.89
5.82
34.28
34.69
33.87
5.82
5.69
33.12
33.87
32.38
5.69
5.81
33.06
32.38
33.76
5.81
5.84
33.93
33.76
34.11
5.84
5.95
34.75
34.11
35.40
72.03
72.03
432.74
435.78
435.78
The formula of Correlation Coefficient
The answer shows that the correlation coefficient of Parkson following by the 2 months is 0.11. It means that the correlation efficient of between 2 months of the share price are weak.
BONIA
x
y
xy
x²
y²
1.81
1.80
3.26
3.28
3.24
1.80
1.80
3.24
3.24
3.24
1.80
1.85
3.33
3.24
3.42
1.85
1.85
3.42
3.42
3.42
1.85
1.81
3.35
3.42
3.28
1.81
1.81
3.28
3.28
3.28
1.81
1.73
3.13
3.28
2.99
1.73
1.65
2.85
2.99
2.72
1.65
1.72
2.84
2.72
2.96
1.72
1.96
3.37
2.96
3.84
1.96
2.07
4.06
3.84
4.28
2.07
1.81
3.75
4.28
3.28
21.86
21.86
39.87
39.95
39.95
The answer shows that the correlation coefficient of Bonia following by the 2 months is 0.38. It means that the correlation efficient of between 2 months of the share price are weak. However, it still better if compares with Parkson.
Calculation Regression line of Best Fit
According to Sir Francis Galton (1822-1911), which had developed scatter diagram and correlation coefficient, also had identified regression line that used to do prediction.
Equation of x (current share price) and y (predicted share prices)
Formula Regression Line of Best Fit
PARKSON
Therefore,
2.2.2.1 Regression Line Best Fit of PARKSON HOLDINGS BHD
is the equation line of Parkson. Therefore, it can use to predict the share prices for future. For example, if this month the share price (x) is RM6.0,
And the next month's share price also will be RM6. Based on the graph, it also has showed Parkson's share prices are more stable.
BONIA
0.38
1.8217-0.692
Therefore,
2.2.2.2 Regression Line Best Fit of BONIA CORPORATION BHD
is the equation line of Bonia. There also can use to predict the share prices for future. For example, if this month the share price (x) is RM2.0,
And the next month's share price also will be RM2.64. Based on the graph, it also has showed Parkson's share prices are more risky, if compares with Parkson's regression line of best fit.
Time Series Graph
Time series is a collection of market share prices then shows that which month is the highest and lowest, and the upward or down turn in the market.
PARKSON HOLDINGS BHD
2.3.1 Time Series Graph of PARKSON HOLDINGS BHD
Based on the graph above, the share prices of Parkson has moved down on January to February and moved up again on March. The most transmutation in Parkson is on May which moved up to June then moved down again to July.
-
BONIA CORPORATION BHD
2.3.2 Time Series Graph of BONIA CORPORATION BHD
Based on the graph above, the share prices of Bonia has moved moderate in early of the year 2011. Then the share prices start move down on August to September and move up again on October.
Calculation of Correlation Coefficient
Same with 2.2.1 calculation for scatter diagram, now is calculate correlation coefficient of time series of Parkson and Bonia to determine the relation between month and share prices.
PARKSON
x
y
xy
X²
Y²
1.00
5.95
5.95
1.00
35.40
2.00
5.66
11.32
4.00
32.04
3.00
5.73
17.19
9.00
32.83
4.00
5.87
23.48
16.00
34.46
5.00
5.92
29.60
25.00
35.05
6.00
7.73
46.38
36.00
59.75
7.00
6.12
42.84
49.00
37.45
8.00
5.89
47.12
64.00
34.69
9.00
5.82
52.38
81.00
33.87
10.00
5.69
56.90
100.00
32.38
11.00
5.81
63.91
121.00
33.76
12.00
5.84
70.08
144.00
34.11
78.00
72.03
467.15
650.00
400.38
0.0154
0.00024
The answer shows that the correlation coefficient of Parkson following by the months and share price is 0.0154. It means that the correlation efficient of between months and share price are very weak.
BONIA
x
y
xy
X²
Y²
1.00
1.81
1.81
1.00
3.28
2.00
1.80
3.60
4.00
3.24
3.00
1.80
5.40
9.00
3.24
4.00
1.85
7.40
16.00
3.42
5.00
1.85
9.25
25.00
3.42
6.00
1.81
10.86
36.00
3.28
7.00
1.81
12.67
49.00
3.28
8.00
1.73
13.84
64.00
2.99
9.00
1.65
14.85
81.00
2.72
10.00
1.72
17.20
100.00
2.96
11.00
1.96
21.56
121.00
3.84
12.00
2.07
24.84
144.00
4.28
78.00
21.86
143.28
650.00
39.95
On the other hand, coefficient of Bonia between months and share price is. Although the correlations efficient are very weak, but it still better if compares with Parkson.
Calculation Regression line of Best Fit
Same with 2.2, regression line of best fit also has used to determine in time series.
PARKSON
Therefore,
is the equation line of Parkson.
BONIA
0.002
1.8217-0.013
Therefore,
is the equation line of Bonia.
Market efficiency hypothesis
Efficient capital market, which security prices change rapidly following by new information and, therefore, the current prices of securities reflect all information about the security. It is important to analyze capital markets efficiency and understand the efficient market hypothesis because its results of researches have significant real-world implications for investors and portfolio managers. An efficient market is requires a large number of profit maximizing participants analyze and value securities.
Random Walk Theory
Random walk theory is defines by the fact that price changes are independent of each other (Brealey et al, 2005). Actually random walks is connected to efficient market hypothesis, which if more efficient the market, the more random of share prices will change. Investors cannot accurately predict the share prices no matter with the correlation coefficient and regression line of best fit. Thus, share prices always fully reflect the information available and no profit can be made from information based trading (Lo and MacKinley, 1999).
Different Forms of Market Efficientcy
According to FAMA, there have three sub hypotheses in efficient market hypotheses which are weak efficiency, semi-strong efficiency and strong efficiency.
2.4.2.1 Weak Efficiency
The weak forms of the efficient market hypothesis states that share price fully reflect all historical information. It means that past rates of return and other historical share prices do not have relationship with future rates of return, which is rates of return should be independent.
2.4.2.2 Semi-strong efficiency
The semi-strong form of the efficient market hypothesis states that share prices will adjust immediately and in an unbiased manner to reflect new information, which is made publicly available. This does not mean that everybody has to have the same opinions about the significance of the new information. Prices will reflect the view of the market, which will automatically be the best interpretation of the mechanism. The implication of this is that a share can never be over or under prices according to the information, which is publicly available.
2.4.2.3 Strong efficiency
The strong form of the efficient market hypothesis states share prices reflect all information. This means that no investors have monopolistic access to information related to the prices. The strong form efficient encompasses both weak form efficient and semi strong form efficient. Further, the strong form efficient will get more assumption of efficient markets, to assume perfect markets, in which prices adjust to the release of new news.
Technical and Fundamental Analysis
Based on the study of past share prices, many financial analysis seems to be view because of capital market are inefficient. A technical analysis or chartist has occurred to predict future price movements from prices. Besides, fundamental analysis is study publicly available information such as published accounts in order to try to identify the real worth or intrinsic value of shares, which may be more or less than the share price.
Anomalies in the behavior of share price
Many such anomalies have been reported and investigated in the quest to understand the behavior of share prices (Fama 1998).
Calendar effects
There has some calendar effects have been examined, which trading at particular times of the day can lead to negative or positive returns. One study found a significant monthly effect wherein all the market's cumulative advance occurred during the first half of trading months. An analysis of the weekend effect found that the mean return for Monday was significantly negative during 5 year sub periods and a total period. In contrast, the average return for the other 4 days was positive.
The size anomalies
The returns from investing in smaller companies have been shown, in the long run, to be greater than the average return from all companies. One study, for example, found that small firms outperformed large firms by 6% per year (Dimson and Marsh 1986). It has been suggested that above-average returns from small companies may compensate for the greater risk associated with them, such as the risk of financial distress.
