Ratio analysis is the calculation of ratio which is derived from the information in a company financial statement. Ratio analysis indicates whether a company is doing well or not. It can show the performance and status of the company from year to year. Ratio analysis also helps bankers or investors to determine a company worthiness to invest. There are five main areas in ratio analysis such as liquidity, investment/shareholders, gearing, profitability and financial.
Trend analysis indicate the trend in progress of a company through evaluate the performance of a company for a period of time. The progress direction of a company can be seen by comparing the current performance of a company with the performance over the last few years. Trend analysis give an idea for investors on what will the company do in the future based on what the company did in the past.
Cross-sectional ratio analysis allows investors or analyst to compare the financial ratio of a company with other companies in a same industry at the same point of time. Cross-sectional ratio analysis also show how does a company performed compared to its competitors.
7) Discuss the limitations of ratio analysis.
The first limitation will be the use of historical data to calculate the financial ratio. Financial statements are the primary sources used to calculate the ratio but most of the financial statements are out-dated information unless the figures in the financial statement are marked to market. Therefore, it is hard to predict the future or make any meaningful judgement based on the out-dated information.
Second limitation is companies may choose different accounting practices. It is not relevant to compare companies that using different accounting practices as using different method to calculate, the value exist in the financial statement is not related. Some companies may use LIFO (last-in-first-out) basis to value its inventory while some companies may use FIFO (first-in-first-out) basis to value its inventory. So, when make comparison, the result will be inaccurate. Besides, companies may also use different methods to calculate depreciation such as reducing methods and straight-line method. This will affect companies' financial statement differently and will lead to invalid comparison.
Third limitation is the ignorance of qualitative aspects. Ratio analysis is a type of quantitative analysis, so, it automatically ignores the qualitative aspects. Ratio analysis only required to use the figures stated in the financial statement to calculate, get results, analysis and make decision. It ignores aspects such as quality of management, changes in domestic and international economies and regulatory changes. Therefore, there are risks if make decision only based on ratio analysis as internal factors of a company will sometimes have big impact.
Fourth limitation is the changes in the price level. When calculate the ratio, inflation effect often been ignored, so the ratio calculated will not give a perfect answer in the changing of price level. Changes in price level will affect the depreciation charges, value of assets, sales, profit and cost of production. So, a proper adjustment for price-level changes must be made before making any comparison. When there are changes in results over period of time, it may show that the performance of the company had improved but in fact, a different picture will be shown after adjusting for inflationary changes.
The last limitation is the window dressing. Window dressing is a technique that a company will use when they want to make their financial statement look stronger. They will manipulate their financial statement by performing some sort of transactions at the end of its fiscal year but the financial statement will return to old level as soon as the new fiscal year starts. So, those figures that will be used to calculate the ratio are not accurate. Data being manipulated is used to mislead those investors and let them believe that the company is doing well.
Distinguish between the public company from private company
Registrar's certificate for public company doing business
A public company may not allow launched any activity of the business or power of borrowing unless the registrar of the related companies has issued a certificate under the Companies Act 2006 either register to become private company. Before of issuing that certificate, the company's register must be satisfied that the authorized minimum required must be less than the nominal value of related company allotted share capital which of the company has their obligation to deliver the statutory declaration complying with the Companies Act 2006. Accordingly, no any of the public company is allow to launched a business until it has atleast ΒΌ of the authorized minimum equalize with the shareholder funds of a value. To be superior to make it, the public limited company's allotted share capital must be atleast more than £50,000, or the prescribed equivalent in euros.
Distribution of profit
A public company also same with the private company which they may also assign to their shareholders only by the time in the excess of its accumulated realised profits over its accumulated losses; but unlikely a private company, a public company is not even allowed to make any of the distribution if their aggregate in value of called-up share capital more than its net assets which is in the state of undistributable reserves. Also, in order for the distribution must not reduce the amount of those assets to less than that aggregate.
Meetings and shareholders resolutions
For a pulic company, they must keep an Annual General Meeting within 6 months of its financial year end whereas, a private company does not have any of the obligation or responsible of need to hold an AGM unless its Articles require one. The quicker and easier of the process for shareholders resolution is to be passed by appropriate majority of shareholder resolutions in a public company at a properly convention of meeting, while a can be only passed by a written resolution which are faster and simpler process.
EURO HOLDING BERHAD
Euro Holdings Berhad is an investment holding company. They are mainly focus on manufacturing and marketing furniture and furniture fabric material, trading of office furniture. The Company's operations are mainly conducted in Malaysia. On April 7, 2011, the Company acquired Euroland & Development Sdn Bhd (ELD). On September 26, 2011, the Company acquired a piece of freehold land. Euro Holdings Berhad sells its products under the Euro brand name in Malaysia, Japan, America, India, Southeast Asia, United State and America. In 1976, the company was found in Rawang, Malaysia.
Euro Holdings Bhd lists under Main Market of Bursa Malaysia. The stock code of "7208" or uses of their stock name "EURO" is used in Bursa Malaysia . Most of their customers include multinational companies and Government sector which are listed in companies and corporate players. In order to boast in the new market, the new phase of its third plant will expand its utilization rate to 75% from 60% to expand its revenue stream with the new steel furniture business. Euro Holding Berhad is banking on its steel furniture business to drive growth. They also focus their business industry such as South Africa where they are lastly not too active. On the other hand, Asean market has been growing which contribute 20% of their total sales.
Generally, their focus on Asean region which the demand for their products are gradually gain an improvement compare with Europe and US. The business pattern had also change as dealers are cutting down on stock holding levels as the customers nowadays are very cost conscious. To overcome it, the insert more effort on restructuring and reorganizing the production floor and to streamline the entire process flow. Also, they even aim to transform from the traditionally strong manufacturing company to one which is more on technology and automation driven. Euro Holding Berhad's major shareholders are Lew Fatt Sin (17.97%), Mohd Haniff Abdul Aziz (15%), Law Sim Shee (10.76%), and Choong Yuen Keong (10.38%). Additionally, they corperate with Euro Chairs Manufacturer (M) Sdn Bhd, Euro Space Industries (M) Sdn Bhd, Euro Chairs System Sdn Bhd, Euro Space System Sdn Bhd and Euro Chairs (M) Sdn Bhd.
During the year ended 31 December 2011, they launched five products which is headlines, a range of executive office chairs that come in a multitude of bright colours and are eco-friendly; improved version of their original task chair- Active II; office sofa; workstation, and metal storages, which include steel mobile pedestals, lateral filings and cabinets. During this period, the Company's subsidiaries were Euro Chairs Manufacturer (M) Sdn Bhd, Euro Space Industries (M) Sdn Bhd, Euro Chairs System Sdn Bhd, Euro Space System Sdn Bhd and Euro Chairs (M) Sdn Bhd. On March 1, 2010, the Company acquired 100% equity interest in Eurosteel System Sdn Bhd and Eurosteel Line Sdn Bhd. The company also intensify their R & D effort and activities to introduce new range of product line- steel furniture. Moreover, they also aiming on the ''green'' production as customers are increasingly environmentally conscious with growing awareness of environmental issues worldwide even they now require the usage of 'green' materials in production even production process must be eco-friendly.
LEN CHEONG HOLDING BERHAD
On 12 April 1995 under the Companies Act 1965, LEN CHEONG HOLDING BHD was incorporated in Malaysia. Their company is based in Melaka, Malaysia. Basically, the company is an investment holding with accumulated of management services to their own subsidiary companies. The company consists of Len Cheong Furniture Sdn Bhd, Len Cheong Manufacturing Sdn Bhd, Len Cheong Industries Sdn Bhd and Len Cheong Resources Sdn Bhd. Len Cheong Holding Berhad is one of the leading manufacturers of rubberwood furniture in Malaysia. Len Cheong Holding Bhd lists under Main Market of Bursa Malaysia which has been classified in the Consumer Products sector. The code "7943" of the stock code has been used or identify their stock name of "LCHEONG".
The company is currently operates from its main factory plants situated on a total land area of approximately 17,542.39 square metre at Bukit Rambai Industrial Area in Melaka. The Company has a total workforce of around 230 workers together with the sister company Len Cheong Manufacturing Sdn Bhd (Main supplier for veneer lamination board). In addition, the company major executives are Chin Chuan Sow (chairman), Hui Fong Fong (managing director) and Yit Yang Yee (independent $ non executive director). On the other hand, the company also subsidiary involve Len Cheong Furniture Sdn. Bhd., Len Cheong Industries Sdn. Bhd. and Len Cheong Manufacturing Sdn. Bhd. Len Cheong Furniture Sdn. Bhd is a wholly owned subsidiary of the Company, and also known as a manufacturer of rubber wood furniture in Malaysia. The company also has learned to the New Management to become more innovative by modifying its marketing strategy and action in order to stay both profitable and consumer-responsive and competitive. Futhermore, the company have put effort on cutting the cost as well as widen the product range on every year as can compared to the last year- 2012 which they gain more RM1 million on their products. The company also even aim to exercise a better control over the supply of raw materials.
The principal activities of the subsidiaries are rental of premises, rubber wood sawmilling, slicing of wood veneer lamination, manufacturing of furniture components and parts, moulding, manufacturing and marketing of rubber wood furniture. L.Cheong holding berhad also known as manufacturer and distributor of wooden furniture, including bookshelves, tabletops, chairs, tables, bedroom sets, sofas and home entertainment furniture. Furthermore, the company also produces laminated boards, veneer and frames through its wholly owned subsidiary. Over 90% of its products are for exports to overseas markets which is in the US, Canada, Europe, Japan and Korea. The company even aims to substitute Nyatoh wood with rubberwood as its raw materials for furniture production. This is simply because the Nyatoh wood gained a good response from its domestic as well as oversea customers at the Asia Fair in Kuala Lumpur and it decided to further develop its oversea market. However, among the furniture series which they provided in the market, the highest sales is belong to the 'white colour' bed room furniture series.
HOMERITZ CORPORATION BERHAD
In 1997, Homeritz Corporation Berhad is based in Muar, Malaysia. Homeritz is an integrated from ODM which is also call "Original Design Manufacturerand" and OEM which is "Original Equipment Manufacturer" player with a totally a new series of home furniture products even engages in property investment. They are not only be the manufacturer but also exporter of a totally new range of home furniture, comprise leather and sofas with the fabric based, dining chairs and table even the bed frames. They was incorporated as a public company in Malaysia on 6 Feb 2008. Its major activities are the investment of holding and the generally and accumulated of management services. Homeritz also known as one of the big contributor which leading upholstered home furniture manufactured in Malaysia, they even exported their products over more than 40 country around the world.
Homeritz are operate in 4 plants involving 1 rented factory and they are located in Kawasan Perinsdustrian Bukit Bakri, Muar, Johor with a total built-up area of approximately 348000 sq. ft. Their company workforce is about 500 peoples. The company's board of directors are Chua Fen Fatt (Managing Director), Tee Hwee Ing (Executive Director), Mohd Khasan Bin Ahmad, Tay Puay Chuan and Teo Seng Kuang (Independent Non-Executive Director). On the other hand, Homeritz top three exporting region are Europe (59.9% of FY09 revenue), Australasia (25.6%) and North & South America (8%). Furthermore, they leading upholstered home furniture maker and cater mainly to the oversea market. In additionally, Homeritz always aim to expand their capacity to leverage on rising demand especially from Europe and US markets. The company even aim to achieve with add 15% to its current annual production capacity of 120,000 units of bed frames & sofas and 360,000 units of dining chairs in Malaysia. Homeritz's valuation is mainly supported by: (1) growing demand for upholstered furniture amid a global economic recovery and (2) potential dividend yield of 6.9% for FY10 based on its commitment of a 50% payout.
Their company include their subsidiaries in Home Upholstery Industries Sdn. Bhd. and U.S. Furniture Manufacturing Sdn. Bhd. Home Upholstery Industries Sdn. Bhd. is liable engaged in the manufacture, sales and design of upholstery furniture products and investment holding. Their product include dining chairs sofas and bed frames where it undertakes the (OEM) and (ODM) activities. They also have their self owned lifestyle of brand which under the brand name of Eritz. U.S. Furniture Manufacturing Sdn. Bhd. is engaged in property investment holding. Homeritz also offers its products under the brand name of Eritz primarily in Malaysia, New Zealand, Europe, America, South Africa even the Middle East. They even exported their products over more than 40 countries in the world covering Europe, Australia, North and South America and Africa. Nearly 99% of its revenue is from export sales. Homeritz's furniture products are primarily based on Western Stylishness and preferences. The company even intends to widen its product range by increasing the number of new models by 30%. In 2010 November, Homeritz has created its own furniture brand which called "Eritz". Its primary goal is to achieve 50% of its turnover from its house brand within the next five years. If its success, this could expand the overall margin for the Group going forward.
