Horizontal analysis is the financial statements of a firm of successive year's present side-by-side. The function of horizontal analysis is to compare the figures of the current period with the past period, through this can helps firm and it shareholders analyze their performance and improvement of weaknesses, so horizontal analysis is an important part of the financial statements and annual reports.
Vertical analysis is a method of analyzing financial statements in which each item in the statement is represented as a percentage of a single larger item. This method of analysis may be used with both balance sheets and income statements as a way of coherently comparing large monetary amounts and making sense of the data. One of the advantages of vertical analysis is that it makes comparisons between companies of different sizes within the same industry easier to prepare. It also allows a company to weigh its current reports against reports from its past, revealing possible trends or areas that need improvement. The vertical analysis also uses to disclose the internal structure of the firm.
Ratio analysis is a relative magnitude of two selected numerical values taken from an enterprise's financial statements, it helps to identify the financial strength and weaknesses of a company. Ratio Analysis enables the business owner or manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry.
The purpose of doing financial statement analysis is to avoid the error conclusions about the firm's financial condition. In this assignment question will compare between Top Glove Corporation Berhad and Supermax Corporation Berhad which are in the industrial products sector and both of the companies are manufacture glove in Malaysia.
The background of Top Glove Corporation Berhad was Top Glove is the largest rubber glove manufacturer in the world. Since its inception in Malaysia in 1991, starting from 1 factory in 1991 with 3 production lines, we have grown leaps and bounds to where we are today, Top Glove has embarked on an impressive expansion plan to become the world's largest rubber glove manufacturer. As at February 2011, Top Glove Corporation Berhad has 20 factories, 379 production lines and total production capacity is 33.75billion glove per year. Top Glove Corporation Berhad was listed in the Bursa Saham Kuala Lumpur in year 2001 and in a short span of slightly more than a year, Top Glove Corporation Berhad's listing has been successfully promoted from the Second Board to the Main Market of the Kuala Lumpur Stock Exchange on May 16, 2002. Top Glove has a shareholder fund of RM1.09 billion or USD358 million with an annual turnover of about RM2.08 billion or USD682 million as at 31 August 2010. We are also one of the component stocks of the FTSE Bursa Malaysia ("FBM") Mid 70 Index, FBM Top 100 Index and FBM Emas Index.Customers' Satisfaction is Top Glove main focus. Top Glove is very focused on being a "One-stop Complete Glove Sourcing Center". Realising the importance of continuously staying ahead in product development, Top Glove has placed a lot of emphasis in Research and Development to produce a wide and diversified range of high quality and value-added glove products in order to cater to the ever-increasing expectations of end-users. The company collaborates closely with government agencies and Ministries to keep itself abreast of the latest development in rubber research technology. The upgrading and collaborations of R&D is to enable Top Glove to be a world class cost effective producer with the most extensive range of premium quality glove products.
Background of Supermax Corporation Berhad was founded by Dato' Seri Stanley Thai and his wife Datin Seri Cheryl Tan in 1987 as a trading business distributing latex gloves. Their humble beginnings eventually lead to their dream to produce premium quality gloves of their own. This motivated them to work hard and in 1989, they started their first manufacturing facility with just a small team of committed and dedicated employees. With a business foresight and in answering the Government's call to brand Malaysian products, Supermax ventured into own brand manufacturing and became the first OBM (own brand manufacturing) latex glove manufacturer in Malaysia when it launched its first brand, Supermax. SUPERMAX Corporation Berhad a world class latex glove conglomerate listed on the Main Board of Bursa Malaysia Securities Berhad, is a leading international manufacturer, distributor and marketer of high quality medical gloves. Supermax currently exports to over 145 countries worldwide in the regions of America, Europe, Middle East, Asia and the South Pacific. As an own-brand manufacturer, Supermax has developed a range of successful brands such as Supermax, Aurelia, Maxter, Medic-dent and Super gloves which are trusted and recognized by laboratories, hospitals, pharmacists, doctors and surgeons around the world. Supermax Group produces up to 16 billion pieces of gloves per year, meeting approximately 11% of the world demand for latex examination gloves. Supermax Group has nine (9) manufacturing plants based in Malaysia equipped with the state-of-the-art machinery, energy-saving biomass system and a research and development centre. Supermax has six (6) own distribution centers cum corporate offices based in the United States of America, Brazil, Europe, Australia and Canada, and collaborates with 250 independent distributors.
Above is the background of the both companies and below will be the compare of financial statement analysis between Top Glove Corporation Berhad and Supermax Corporation Berhad.
1) Net Working Capital
Net Working capital is for measure of the operating liquidity available for a company to use in developing and growing its business.
Statement Analysis
Calculation Formula
TOP GLOVE CORPORATION BERHAD
(RM)
SUPERMAX CORPORATION BERHAD
(RM)
Net Working Capital
Current Assets
-
Current Liabilities
511,497,000
-
244,059,000
=
267,438,000
381,178,090
-
213,691,706
=
167,486,384
From the calculation of both companies can know that Top Glove Corporation Berhad is better than Supermax Corporation Berhad, because Top Glove Corporation Berhad has the more net working capital than Supermax Corporation Berhad it shows that Top Glove Corporation Berhad has the more ability to pay off its short-term liabilities.
2) Current Ratio
Current Ratio is to measure the ability to meet its current liabilities out if current assets.
Statement Analysis
Calculation Formula
TOP GLOVE CORPORATION BERHAD
(RM)
SUPERMAX CORPORATION BERHAD
(RM)
Current Ratio
Current Assets
Current Liabilities
511,497,000
244,09,000
=2.1
=1 : 2.1
381,178,090
213,691,706
=1.78
=1 : 1.78
From the calculation of both companies can know that Top Glove Corporation Berhad is better than Supermax Corporation Berhad, because Top Glove Corporation Berhad has the more ratios it means Top Glove Corporation Berhad is more capable to paying its obligations for two times of its current liabilities. But Supermax Corporation Berhad only can pay its current liabilities once only.
3) Acid-Test (Quick) Ratio
Acid-Test Ratio is to determine whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets.
Statement Analysis
Calculation Formula
TOP GLOVE CORPORATION BERHAD
(RM)
SUPERMAX CORPORATION BERHAD
(RM)
Acid-Test (Quick) Ratio
Current Assets - (Inventory Prepare Expenses)
Current Liabilities
511,497,000-(119,053,000+14,200,000)
244,059,000
=1.55
=1 : 1.55
381,178,090-(116,199,707+4,741,403)
213,691,706
=1.21
=1 : 1.21
From the calculation of both companies can know that Top Glove Corporation Berhad is better than Supermax Corporation Berhad, because Top Glove Corporation Berhad has the more ratios it means Top Glove Corporation Berhad is has more ability to pay back the current liabilities without selling inventory and the ratio of Top Glove Corporation is 1: 1.55 more than Supermax Corporation Berhad which is 1: 1.21.
4) Accounts Receivable Turnover
The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. It also indicates the number of times the firm collecting its credit during the year.
Statement Analysis
Calculation Formula
TOP GLOVE CORPORATION BERHAD
(RM)
SUPERMAX CORPORATION BERHAD
(RM)
Accounts Receivable Turnover
Net Credit Sales
Average Accounts Receivable
1,529,077,000
206,229,500
=7.41
803,632,619
101,931,571
=7.88
From the calculation of both companies can know that Supermax Corporation Berhad is better than Top Glove Corporation Berhad, because Supermax Corporation Berhad has the more times to collecting its credit during the year.
5) Average Collection Period
Average Collection Period is to indicate the number of days it takes to collect their accounts receivable.
Statement Analysis
Calculation Formula
TOP GLOVE CORPORATION BERHAD
(RM)
SUPERMAX CORPORATION BERHAD
(RM)
Average Collection Period
Account Receivable
Daily Credit Sales
198,263,000
4,189,250
=47.33
79,164,263
2,201,733.20
=35.96
From the calculation of both companies can know that Supermax Corporation Berhad is better than Top Glove Corporation Berhad, because Supermax Corporation Berhad has the lower average collection period which is 35.96days to turn its receivable to cash, Supermax Corporation Berhad is 11days shorter than Top Glove Corporation Berhad.
6) Inventory Turnover Ratio
A ratio showing how many times a company's inventory is sold and replaced over a period.
Statement Analysis
Calculation Formula
TOP GLOVE CORPORATION BERHAD
(RM)
SUPERMAX CORPORATION BERHAD
(RM)
Inventory Turnover Ratio
Cost of Goods Sold
Average Inventory
1,155,975,000
138,409,500
=8.35
=1: 8.35
536,933,813
125,853,585
=4.27
=1 : 4.27
From the calculation of both companies can know that Top Glove Corporation Berhad is better than Supermax Corporation Berhad, because Top Glove Corporation Berhad has the more ratios it means Top Glove Corporation Berhad is having strong sales than Supermax Corporation Berhad.
7) Fixed Asset Turnover
Fixes Asset Turnover is calculate to know how a firm's used its fixed assets efficiently to generate revenue or income.
Statement Analysis
Calculation Formula
TOP GLOVE CORPORATION BERHAD
(RM)
SUPERMAX CORPORATION BERHAD
(RM)
Fixes Asset Turnover
Net Sales
Total Fixed Asset
1,529,077,000
620,912,000
=2.46
803,632,619
564,071,142
=1.42
From the calculation of both companies can know that Top Glove Corporation Berhad is better than Supermax Corporation Berhad, because Top Glove Corporation Berhad has more fixes asset turnover than Supermax Corporation Berhad and it show that Top Glove Corporation Berhad can efficiently to generate revenue or income.
8) Total Asset Turnover
Total Asset Turnover is to evaluate a company's ability to use it asset efficiently to generate revenue.
Statement Analysis
Calculation Formula
TOP GLOVE CORPORATION BERHAD
(RM)
SUPERMAX CORPORATION BERHAD
(RM)
Total Asset Turnover
Net Sales
Total Asset
1,529,077
1,132,409
=1.35
803,632,619
945,249,232
=0.85
From the calculation of both companies can know that Top Glove Corporation Berhad is better than Supermax Corporation Berhad, because Top Glove Corporation Berhad has more total asset turnover than it show that the company is use it asset efficiently to generate revenue.
9) Debt Ratio
Debt ratio shoes the percentage of total funds obtained from creditors.
Statement Analysis
Calculation Formula
TOP GLOVE CORPORATION BERHAD
(RM)
SUPERMAX CORPORATION BERHAD
(RM)
Debt Ratio
Total Liabilities
Total Assets
286,432,000
1,132,409,000
=0.25
=25%
386,414,439
945,249,232
=0.41
=41%
From the calculation of both companies can know that Top Glove Corporation Berhad is better than Supermax Corporation Berhad, because Top Glove Corporation Berhad has small debt ratio which is 25% of debt, 75% of equity and 16% less than Supermax Corporation Berhad, creditor would like to see a low debt ratio.
10) Debt/ Equity Ratio
Debt / Equity Ratio is a significant measure of solvency since a high degree of debt in the capital structure may make it difficult.
Statement Analysis
Calculation Formula
TOP GLOVE CORPORATION BERHAD
(RM)
SUPERMAX CORPORATION BERHAD
(RM)
Debt/equity Ratio
Total Liabilities
Stockholder's Equity
286,432,000
824,513,000
=0.35
=1 : 0.35
386,414,439
558,834,793
=0.69
=1 : 0.69
From the calculation of both companies can know that Top Glove Corporation Berhad is better than Supermax Corporation Berhad, because Top Glove Corporation Berhad has small debt/equity ratio which is per RM1 only has 35sen debt. It is much lower than Supermax Corporation Berhad which is per RM1 has 69sen debt.
11) Time Interest Earned Ratio
