The companies that we have chosen for the assignment are Can-One Berhad and Johore Tin Berhad. Both the companies were listed on the Main Board of Bursa Malaysia. The companies engage in tin cans industry, which manufacture various tins, cans and other containers. Eminently, they are competitors to each other. The objective of this report is to assess the strengths and weaknesses of each company by analyzing their financial statements and other non-financial information. Other than that, this report also discussed the issues and limitations faced by the companies and later suggested the recommendations for both companies. Lastly, based on the analysis, the report concluded with the company that has greater potential for future returns and is more ideal to invest in.
Basically, the companies in tin cans industry are confronting with the barrier of getting the main raw materials, tinplate in production of tin cans. They also confronted with the substitution threat from alternative packaging materials. Another concern for the industry is the increasing mining cost and lack of new mines supply. Strong competition among each company in the same industry is also another issue. However, Can-One has overcome the challenges and competitions from the industry by redefining its market position as an edible oil-can specialist. It also diversified its product by introducing a new packaging product, Bag-In-Box. On the other hand, as Johore Tin's production capacity is smaller, it focuses mainly on the market in Johore region. Based on the issues discussed, we recommended the companies to allocate partial expenses in promoting tin cans recycling awareness activities which can decrease the cost of production and increase the reputation of the companies. The companies may allocate more budgets on research and development to solve the lack of new mines supply problem in a long term basis.
From the analysis results of liquidity ratio, asset management efficiency, debt financing and coverage ratio and overall efficiency and performance of both companies, overall, we found that Can-One has greater potential for future growth. The overall efficiency and performance of the company is better than Johore Tin. Its Earning per Share has increased 80% from year 2008 to year 2009. It shows that investors have greater chances of getting future returns if they invest in Can-One. On the other hand, investor can only get meager return (EPS only increased 0.53%) if they invest in Johore Tin Berhad.
CHAPTER 2: Background of the Companies
CAN-ONE BERHAD
Can-One Berhad (Can-One) was incorporated on 7 January 2004 and was listed on the Main Board of Bursa Malaysia Securities Berhad on 29 July 2005. Can-One Berhad is Malaysia-based investment holding company which through its subsidiaries, operates in two segments which includes general cans and food products. Its subsidiaries are Aik Joo Can Factory Sdn Bhd, Canzo Sdn Bhd and F&B Nutrition Sdn Bhd which engage in the manufacture of lithographed tin cans, plastic jerry cans and dairy and non diary products. Its major competitors are Johore Tin and Kian Joo Can Factory Bhd. Meanwhile, its competitors for jerry can industry in Malaysia are Ralco Plastic Sdn Bhd, Mapo Industries Sdn Bhd and United Plactiscs Sdn Bhd.
JOHORE TIN BERHAD
Johore Tin Berhad is an investment holding company. Its subsidiaries are Johore Tin Factory Sdn Bhd, Unican Industries Sdn Bhd, Kluang Tin & Can Factory Sdn Bhd and PT Medan Johor Tin which manufacture various tins, cans, containers, and tinplates. Johore Tin Berhad commenced business on 22 November 2000. Its products include biscuits tins, edible oil and vegetable ghee cans, plastic jerry cans, paint and chemicals cans, sweetened condensed milk (SCM) and evaporated milk cans, pineapple cans and processed food cans. The major competitors of Johore Tin Berhad are Kian Joo Can Factory Bhd and Can-One Berhad.
CHAPTER 3: RATIO ANALYSIS
3.0 CAN-ONE BERHAD
3.1.1 Liquidity and asset management efficiency:
Ratio Calculation
No.
Ratio
Formula of Ratio
Year 2008
Ratio Calculated
Year 2009
Ratio Calculated
1
Current ratio
Current assets / current liabilities
237,880,940 / 202,459,203
1.17
248,887,221 / 166,271,492
1.50
2
Quick ratio
(Current assets-inventories) / current liabilities
(237,880,9401-15,443,561) / 101,959,311
1.20
(248,887,221-97,237,409) / 166,271,492
0.91
3
Account receivable turnover
Net sales / accounts receivable
413,705,032 / 99,053,685
4.18 times
405,926,330 / 123,712,300
3.28 times
4
Inventory turnover
Cost of goods sold / inventories
367,346,963 / 115,443,561
3.18 times
336,465,396 / 97,237,409
3.46 times
5
Payables turnover
Cost of goods sold / accounts payable
367,346,963 / 43,407,864
8.46 times
336,465,396 / 50,835,572
6.62 times
Interpretation of ratios (Year 2008 and Year 2009):
1. Current ratio of the company is increasing from 1.17 to 1.50. The trend shows that the company is becoming more capable to pay its debts over the next business cycle. In 2009, the company is able to pay its RM1 current liability with RM1.50 current asset.
2. Quick ratio of the company is decreasing from 1.20 to 0.91. The decreasing trend shows that the company becomes less capable in paying its short-term debts.
3. Account receivable turnover ratio is also decreasing from 4.18 to 3.28 (times). On average, the company's receivables collectability times is reduced from about 4 times to 3 times in a year. The company may have some collection problem and it may need to reexamine its credit policy.
4. Inventory turnover of the company is slightly increasing from 3.18 to 3.46 (times). The company's efficiency in managing and selling its inventory is considered high. The company can convert the inventory into sales for about 3 times.
5. Payable turnover ratio of the company is decreasing moderately from 8.46 to 6.62 (times). The decreasing trend shows that the company is taking longer time to pay off its supplier.
3.1.2 Debt financing and coverage:
Ratio Calculated
No.
Ratio
Formula of Ratio
Year 2008
Ratio Calculated
Year 2009
Ratio Calculated
1
Debt ratio
Total liabilities / total assets
259,830,489 / 406,813,782
0.64
266,110,315 / 444,465,774
0.60
2
Long-term debt to total capitalization
Long-term debt / (long-term debt + shareholders' equity)
57,371,286 /
(57,371,286+76,200,000)
0.43
99,838,823 / (99,838,823 + 76,200,000)
0.57
3
Debt to equity
Total liabilities / shareholders' equity
259,830,489 / 76,200,000
3.41
266,110,315 / 76,200,000
3.49
4
Times interest earned
Operating profit / interest expense
29,115,152 / 10,049,826
2.90 times
48,527,569 / 11,372,181
4.27 times
Interpretation of ratios (Year 2008 and Year 2009):
1. The debt ratio decreases from 0.64 to 0.60. The proportion of debt Can-One has relative to its assets has decreases about 0.04. Both ratios showed in the calculation are less than 1 indicates that the company has more assets than debt.
2. The company has increased the long term debt to total capitalization for about 24.56%. Can-One is now more risky as compared to year 2008.
3. Debt to equity ratio has slightly increases from 3.41 to 3.49. It indicates that the company will face slightly higher risky position as compared to YA 2008. Can-One will now have to bear additional interest burden of debt servicing.
4. The company increases their times interest earned from 2.90 to 4.27 (times) in Year 2008 to Year 2009 respectively. The higher times interest earned ratio shows that Can One is able to meet its interest payment.
3.1.3 Profitability- overall efficiency and performance and market ratios:
Ratio Calculation
No.
Ratio
Formula of Ratio
Year 2008
Ratio Calculated
Year 2009
Ratio Calculated
1
Net profit margin
Net profit / net sales
17,448,747 / 413,705,032
4.22%
31,476,150 / 405,926,330
7.75%
2
Cash flow margin
Cash flow from operating activities / net sales
22,247,300 / 413,705,032
5.38%
86,748,875 / 405,926,330
21.37%
3
Return on total assets
Net earnings / total assets
17,448,747 / 406,813,782
4.29%
31,476,150 / 444,465,774
7.08%
4
Return on equity
Net earnings / shareholders' equity
17,448,747 / 76,200,000
22.89%
31,179,643 / 76,200,000
40.92%
5
Earnings per common shares
Net earnings / average common shares outstanding
17,314,512 / 152,400,000
11.36 cents
31,179,643 / 152,400,000
20.46 cents
Interpretation of ratios (Year 2008 and Year 2009):
Net profit margin increases from 4.22% to 7.75%shows that the company has been efficient in controlling its expenses and costs. The cost of good sold has been decreased for 8.41% from year 2008 to year 2009.
Can-One increases its cash flow margin form 5.38% to 21.37%. It is a good sign as the company able to generate more cash from sales.
Return on total assets has slightly increased from 4.29% to 7.08% from year 2008 to year 2009 respectively. It indicates that the company is efficient in managing assets and generates profit before contractual obligations must be paid.
In year 2009, the company's return on equity (ROE) has increased for about 18%. It shows that the company is efficient in generating profits from every unit of shareholder's equity. Can-One is able to generate earning growth by using those investment funds by the shareholders.
Earning per common shares in the company has increased from 11.36 cents to 20.46 cents for the year 2009. It indicates that the ability of the company to generate profit to the common shareholder for each shares owned is better as compared to year 2008. It is also apparent that as the company's earning increase, the earning per share will look better.
3.2 JOHORE TIN BERHAD
3.2.1 Liquidity and asset management efficiency:
Ratio Calculation
No.
Ratio
Formula of Ratio
Year 2008
Ratio Calculated
Year 2009
Ratio Calculated
1
Current ratio
Current assets / current liabilities
80,899,796 / 28,705,428
2.82
69,512,526 / 13,442,655
5.17
2
Quick ratio
(Current assets-inventories) / current liabilities
(80,899,796-38,502,441) / 28,705,428
1.48
(69,512,526-26,911,443) / 13,442,655
3.17
3
Account receivable turnover
Net sales / accounts receivable
105,199,209 / (37,133,062+966,414)
2.76 times
107,313,770 / (32,080,333+1,126,163)
3.23 times
4
Inventory turnover
Cost of goods sold / inventories
(126,535+68,282,692) / 38,502,441
1.78 times
(99,382+70,432,433) / 26,911,443
2.62 times
5
Payables turnover
Cost of goods sold / accounts payable
68,409,227 / (5,878,062+3,600,043)
7.22 times
70,432,433 / (2,952,634+3,527,022)
10.87 times
Interpretation of ratios (Year 2008 and Year 2009):
The calculation shows that current ratio of the company is increasing from 2.82 to 5.17. It shows for each RM 1 current liability, the company is able to pay RM 5.17 current asset for its debt.
Quick ratio of the company is increasing from 1.48 to 3.17. The capability of the company to pay its short-term debts has improved. It means that the company can pay its current liabilities from its current assets (fewer inventories) at 3.17.
Account receivable turnover ratio shows an increasing from 2.76 to 3.23 (times). It shows the number of times has increased to 3.23 times that account receivable amount is collected throughout the year.
Inventory turnover of the company is increasing from 1.78 to 2.62 (times). It shows the number of times inventory is sold or used in a time period has increased in 2009. The company is able to convert the inventory into sales for approximately 2 times.
Payable turnover ratio of the company is increasing from 7.22 to 10.87 (times). The increasing number shows there is a relatively short time to pay off its supplier.
3.2.2 Debt financing and coverage:
No.
Ratio
Formula of Ratio
Ratio Calculation
Year 2008
Ratio Calculated
Year 2009
Ratio Calculated
1
Debt ratio
Total liabilities / total assets
43,113,317 / 128,652,618
0.34
24,760,701 / 114,606,742
0.22
2
Long-term debt to total capitalization
Long-term debt / (long-term debt + shareholders' equity)
14,407,889 / ( 14,401,889+65,979,000)
0.18
11,318,046 / (11,318,046+65,979,000)
0.15
3
Debt to equity
Total liabilities / shareholders' equity
43,113,317 / 65,979,000
0.65
24,760,701 / 65,979,000
0.38
4
Times interest earned
Operating profit / interest expense
4,941,718 / 1,268,934
3.89 times
4,965,308 / 723,848
6.86 times
Interpretation of ratios (Year 2008 and Year 2009):
Debt ratio is decreasing from 0.34 to 0.22. Debt ratio less than 1 show that the company has more assets than debt.
The long-term debt to total capitalization is slightly decreasing from 0.18 to 0.15.Johore Tin has become more effective in financing their long term debt in year 2009.
Debt to equity ratio from 2008 to 2009 is decreasing from 0.65 to 0.38. In year 2009, the proportion of equity in the company used to finance its total liabilities is lesser as compared to year 2008.
Times interest earned is increasing from 3.89 to 6.86 (times). A higher ratio indicates that the company has become more capable to meet its interest expense obligations. Its earnings are 7 times greater than its annual interest obligations.
3.2.3 Profitability- overall efficiency and performance and market ratios:
No.
Ratio
Formula
Ratio Calculation
Year 2008
Ratio Calculated
Year 2009
Ratio Calculated
1
Net profit margin
Net profit / net sales
4,941,718 / 105,199,209
4.70 %
4,965,308 / 107,313,770
4.63%
2
Cash flow margin
Cash flow from operating activities / net sales
(3,111,021) / 105,199,209
-2.96%
22,379,419 / 107,313,770
20.85%
3
Return on total assets
Net earnings / total assets
4,941,718 / 128,652,618
3.84%
4,965,308 / 114,606,742
4.33%
4
Return on equity
Net earnings / shareholders' equity
4,941,718 / 65,979,000
7.49%
4,965,308 / 65,979,000
7.53%
5
Earnings per common shares
Net earnings / average common shares outstanding
4,941,718 / 65,979,000
7.49 cents
4,965,308 / 65,979,000
7.53 cents
Interpretation of ratios (Year 2008 and Year 2009):
Net profit margin in year 2008 and 2009 in the company has slightly decreased from 4.70% to 4.63%. However, the decreasing value does not significantly influence the company's performance.
Cash flow margin in year 2009 has increased from -2.96% to 20.85%. It shows that in year 2008, the company is able to generate cash from sales compared with year 2008; the company is unable to generate cash from sales.
Return on total assets in year 2009 has increased to 4.33%. The overall efficiency of the company in managing assets and generating profits has increased about 0.5%.
Johore Tin has slightly increased their return on equity from 7.49% to 7.53% from year 2008 to year 2009. The company should improve their performance in order to achieve higher return on equity to satisfy their shareholders.
The earnings per share of Johore Tin also increase from 7.49cents to 7.53cents in year 2008 and 2009. It shows that the company is doing well because the return of each common share owned has increase
CHAPTER 4: Additional Information and Critical Issues
4.1 Additional Information:
In year 2010, Can-One Berhad is one of the largest tin can manufacturers in Malaysia by its output capacity and is a market leader in the edible oil segment. Besides that, the Group is also one of the largest manufacturers of plastic jerry cans in Malaysia by their output capacity.
Critical Issues:
1) Competition:
Can-One Berhad has overcome the challenges and competition from the industry by redefining its market position as an edible oil-can specialist. The tin can and plastic jerry can business is its chief support business in generating recurring income. Other than that, it has diversified its product by introducing a new packaging product, Bag-In-Box. It has also become an original equipment manufacturer of sweetened condensed milk, sweetened beverage creamer and evaporated milk for international brands, which becomes the company's main growth catalyst.
Johore Tin Berhad main focus is around Johore region. It narrows down its future growth as when it compared to other competitor such as Can-One Berhad and Kian Joo Can Factory, Johore Tin is considered small.
2) Substitution threat:
The rising demand for Can-One Berhad is highly dependent on the production level. So, even with an increase in demand from key end-users may not necessarily transform into an increase in demand for tin cans due to substitution threat from alternative packaging materials.
3) Barrier in getting raw materials.
An issue that may affect Can-One and Johore Tin performance are the fact that Can-One is highly depending on Perstima Group (the sole tinplate supplier in Malaysia who controls the supply and prices of tinplates) to supply tinplate, the main raw material used in the production of tin cans. Tin can makers are unable to supply material at cheaper prices elsewhere as a 15% duty is imposed on all imported tinplates (James, 2009). Volume gain becomes a key to sustain earnings growth as with the lower profit margin.
4) Social concern
Can-One has participated in human resource development by providing training opportunities, locally or abroad for staff of the Group. It also offers industrial training for local colleges and universities undergraduates. The Group also committed to continuously modernize its machinery and equipment to ensure that they are environmentally friendly.
The Board of Johore Tin Group is committed to the welfare of its employees, the community and the environment. During the financial year under review, the Group contributes to various societies, associations and other charitable organizations to assist the community.
5) Environmental issue
Malaysia's current issues about environmental pollution are air pollution; industrial emissions and water pollution are significantly increased. Johore Tin Berhad is manufacturing various types of containers, tins, cans and tinplates. By that, major raw materials such as plastic, steel and tinplate are used to manufacture the products. Thus, Johore Tin Berhad needs to increase the awareness of the benefits of recycling to build up the company's reputation in this industry.
CHAPTER 5: RECOMMENDATIONS
In accordance for the companies to achieve corporate social responsibility, we recommend both companies to practice recycling and allocate partial expenses in doing campaigns about the awareness of recycle publicly. They can hold a recycle campaign which collects the empty tins, cans, tinplates and containers periodically throughout the year. The company can recycle those collected tins and reuse it to decrease the use of mine. This will eventually decrease the cost of production for both companies and not to mention it will help the company to increase their reputation in this industry. Besides that, according to the data collected, it is forecasted that the demand of tin will expand around 15% and the tin reserved will be decreases. The increasing mining costs and lack of new mines supply are big concern. So, we recommend both companies to find alternative to increase the production of tin and effectively use of this mines. Companies can allocate more budgets on research and development to solve this problem in a long term basis.
CHAPTER 6: CONCLUSION
The liquidity ratio for Johore Tin Berhad is performing better than Can-One Berhad. The reason is the quick ratio in 2009 shows that Can-One is depending on liquidation of its inventory to pay its short-term debts. However, Johore Tin does not have the problem. Other than that, Johore Tin also performs more efficient in its asset management if compare to Can-One Berhad, based on the ratio analysis. Besides, Johore Tin Berhad has better performance in debt financing and coverage compared to Can-One Berhad. Johore Tin's total liabilities have decreased significantly in year 2009. It shows that Johore Tin does not have to take many loans to run its business. Meanwhile, Can- One Berhad has higher total liabilities in year 2009 because the working capital has increased and the company spends much on expansionary items like machine and additional lines. Can One Berhad need to apply for loans to finance its working capital and machineries and subsequently Can One has to bear the interests that derived from the long term debts.
However, the overall efficiency and performance for Can-One Berhad is better than Johore Tin Berhad. This is because the incremental percentage for the ratios of Can-One is much greater than Johore Tin. The net profit margin for Can-One increased for 3.53%, on the other hand, Johore Tin's net profit margin slightly decrease. Can-One is more efficient in managing its assets and generating profit from every unit shareholders' equity as compared to Johore Tin, based on the ROA and ROE ratios analysis.
As an investor, we would like to invest in Can-One Berhad. This is because the overall efficiency and performance of the company is better than Johore Tin Berhad. Can-One has much more potential for future growth as its Earning per Share has increased 80% from year 2008 to year 2009. Shareholder can get more returns on their investment in the company. On the other hand, investor can only get meager return (EPS= increased 0.53%) if they invest in Johore Tin Berhad.
CHAPTER 7: REFERENCES
Can-One Berhad 2009 Annual Report. Malaysia, Kuala Lumpur.
Johore Tin Berhad 2009 Annual Report. Malaysia, Kuala Lumpur.
Smith, L. (2009), Management Accounting, Information for Creating and Managing Value, Australia: McGraw Hill Australia Pty Limited.
