Nowadays, mankind are can't live without financial. Financial is comes with money resources or the income. Financial is a study that to figure out the personal or the organization of managing money. At the same time, financial also related to Accounting, because all of the calculation is almost the same, only that the financial is focus on the general and Accounting is more specific into the account. In this financial question one, it will learn about the accounting ration, the purpose of accounting ratio, how to compare accounting ratios into the business performance measurement. Other than that, the question are requested to have a comparison between the two companies, and also compare with the industry averages. The two company that used in this assignment question 1 which is Gamuda berhad and WCT berhad. According to the organizations that be chooses are Malaysia based. Before to go deeply to the calculation for business performance measurement by accounting ratios of the two organization, it will show that the background of Gamuda berhad and WCT berhad, to get the information of the two organizations, internet resources and the articles as collection data to support the answer.
Profitability of company
2.1 Gross profit markup and gross profit margin
In the financial, it's do have the same method with the accounting, to find out the cost of goods sold and the net sales. The function of the gross profit markup and gross profit are to measure how much that the gross profit earned by the company sales.
If there are higher gross profit markup and the gross profit margin, it's show that the company is effective and efficient in control of the purchase cost that company made.
If there are lower gross profit markup and the gross profit margin, it's show that the company is ineffective and inefficient in control of the purchases cost that company made Below are the formula of the Gross profit markup and gross profit margin :
Gross profit markup (%) = Gross profit x100
Cost of goods sold
Where cost of goods sold = Opening Stock + Purchases - Closing Stock
Gross profut margin (%) = Gross profit x100
Net sales value
Where Net sales = Sales - Return inwards
2.2 Operating profit margin
Operating profit margin is a percentage that the operating profit before the interest and before the taxation of the company over the sales value. Below is the formula of the operating profit margin :
Operating profit margin(%) = Operating profit before interest and before taxation x100
Net sales value
2.3 Profit margin on sales
Profit margin on sales is the percentage of how much of the company that expenditure. The higher profit margin that made by the company is mean that the higher profit that the company earned, and it's also show that the company are effective to control on its expenditures and interest cost.
Profit margin on sales ( % ) = Net income available to common stockholders x100
Net sales value
*Net income available to common stockholders is comes from profit after interest, after tax, after preference dividend and after minority interest.
3.0 Liquidity
3.1 Current ratio / Working capital ratio
The function of the current ratio is to measure that the company financial status and the liquidity. The company will use the current assets to finance its current liabilities. If the current ratio is higher than the average of the others industry, the larger amount of current assets can be used to finance the current liabilities, further more if the current ratio is lower than the average of the others industry, the smaller amount of the current asset will finance or not enough to finance the current liabilities. Below are the formula of the current ratio :
Current ratio/ Working capital ratio = Current assets
Current liabilities
3.2 Liquid ratio / quick ratio / acid-test ratio
Liquid ratio is appearance between assets and current liabilities. The function of the liquid ratio is used to determine a company's ability to pay off its short-terms by current assets to finance current liabilities. Below is the formula of the liquid ratio :
Liquid ration/ quick ratio / acid-test ratio = Liquid assets
Current liabilities
4.0Asset management of company
4.1Inventory turnover or stock turnover
This method are occurred when the ratio is expressed between cost of sales and the average stock value.
Inventory turnover / stock turnover = Cost of sales or Cost of sales
Average stock value Closing stock value
4.2 Total assets turnover
The function of total assets turnover are use to generated from the assets used to the effective and efficiency for the use of assets.
Total assets turnover = Net sales
Total assets
*where Net sales = Sales - Return inwards and Total assets = Fixed assets + Current assets
4.3 Debtor ratio
The function of the debtor it will occurred between debtor and credit sales.
Debtor ratio = Debtor
Credit sales
4.4 Days sales outstanding (DSO)
Days sales outstanding is to measure of the average number of days that a company takes to collect revenue after a sale. There are two formula to count the days sales outstanding :
Days sales outstanding (DSO) = Debtor x365 days
Credit sales
Days sales outstanding (DSO) = Debtor
(Annual credit sales / 365 days)
Debts management :
5.1 Debts ratio
Debts ratio is a ratio that function between the total of the debts and assets. The total of debts are consist of long-term liabilities . Below is the formula of the debts ratio :
Debts ratio = Total debts
Total assets
5.2 Debts equity ratio
Debts equity ratio is to expressed between the total of debts and the common equity.
Below are the formula of the debts equity ratio :
Debts equity ratio = Total debts = Long-term liabilities + Current liabilities
Common equity Ordinary share capital + Reserves
5.3 Times interest earned or interest cover
Times interest earned or interest cover is the function that to mearsure the number of the time that profit before the interest and the taxation that can be used in to the finance.
Time interest earned = Profit before interest and before taxation
Interest charges
Market value of investment to stockholders
6.1 Earnings per share
Earnings per share is the profit after interest, taxation, preference dividend are available to every ordinary share held by the stockholder.
Earnings per share = Net income available to common stockholders
Number of ordinary shares in issue
*Net income available to common stockholders is conducted by profit after interest, after taxation, after preference dividend and after minority interest.
6.2 Price earnings ratio
The function of the price earning ratio is to expressed in number of times between the market price per ordinary share. Below is the price earnings ratio:
Price / Earning ratio = Market price per ordinary share
Earnings per share
6.3 Earnings yield
Earnings yield is to measure the next income return of the company to the common of stockholders
Earnings yield = Gross earnings per share x100
Market price per ordinary share
6.4 Market price per book value ratio
Market price per book value ratio is to expressed between the market price per ordinary share. IT's indicating the share market price increase high or above its assert value.
Market price / book value ratio = Market price per ordinary share
Net book value per ordinary share
= Market price per ordinary share
(Common equity / Ordinary shares in issue)
The background of Gamuda berhad
Gamuda berhad is Malaysia's leader infrastructure group. In turnkey and B.O.T. civil engineering infrastructure and township development. By core competencies in construction, engineering, project financing, property development, procurement and project management. According to years of experience in the civil engineering and construction business, combined with a philosophy of prudence, the ability to respond creatively to challenges and provide innovative solutions have enabled to achieve the reputation for reliability, innovation and cost effectiveness.
The background of WCT berhad
WCT berhad is a project based company, the major production is the engineering and construction. WCT do have the property development. WCT has won numerous awards and is one of the most sought after companies for storage products and services - Nationwide. Our focus is Storage, from backing up a departmental server, to designing, implementation and training on a complete Enterprise Data Center - Storage Area Network.
