KAWAN cover all the short-term debt and have

KAWAN FOOD BERHAD

            Based on the calculation, quick ratio from Kawan Food
Berhad was increased from year 2012 to 2013. This is due to the inventory level
of company has decreased of slow paying debtors. It is also means that the
company has a better liquidity position in the year. When come to 2014, the
quick ratio has decreased to 2.88 times. It might led by the rising of
company’s inventory. However, the quick ratio has also decreased from year 2015
to 2016. (Investopia, 2017)

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            According to the annual report of the company, we
calculated the Kawan Food Berhad had the highest current ratio with 3.9756 in
year 2013, which mean the company is held in a good financial condition that
capable to pay off its debtors or other obligation in within a year period.
However, the current ratio has started to drop in 2014. It shown the financing
of current asset is become weak and their company’s debt is increased while the
current asset is dropping. On the other hand, the company is maintained a ratio
around 3.6 of the both years in 2015 and 2016. However, since the ratio is over
1.0, it shows that the company has more short-term assets than short-term
debts. (C. C. D. Consultants Inc., 2015)

            Next,
the cash ratio is used as a measure of company’s liquidity. According to
the calculation, we can see that the highest cash ratio is 2.0118 during year
2015. Since the overall company’s cash ratio is bigger than 1, we believed that
the company has more cash and cash equivalents than current liabilities. In other
words, the company has the capability to cover all the short-term debt and have
remaining cash in hand. (Investopia, 2017)

            The
debt ratio of Kawan Food Berhad has decreased from 0.1570 to 0.1493 during
2012-2013. It indicates a more stable business possible of longevity because a
company with lower ratio leads to lower overall debt. However, the debt ratio
increased in the next two years which is from 0.1721 to 0.2074 means the company has more debt than assets and the company
is facing financial risk. After that, the debt ratio has declined 2016 which is
0.1720. (Investopia, 2017)

            The
debt-to-equity ratio has decreased from 0.1862 to 0.1755 from 2012 to 2013.
Yet, it raised back until the year 2015 which is 0.2617. It may indicates that
as a firm’s debt-to-equity ratio rises, it becomes more risky because if it
becomes unable to meet its debt obligations, it will be caused into a bankruptcy.
However, the ratio has dropped to 0.0277 in the next year. (Accounting For Management, 2017)

            From
the calculation, the company’s capitalization ratio has declined from 2012 to
2013. However, it is also declined seriously from 2014 to 2016 which is 0.0416
to 0.0658. As the companies with low capitalization ratio are considered to be less
risky because they are at a solvency risk if they fail to repay their debt on
time. Companies with a low capitalization ratio may also find it easier to get
more loans in the future. (My Accounting Course , 2017)

            The
company’s solvency ratio is increased from 0.8968 to 0.9372 from years 2012 to
2013. However, it is decreased from 0.8437 to 0.6518 during the three years
which is from 2014 to 2016. Moreover, the solvency ratio indicates whether a
company’s cash flow is sufficient to meet its short-term and long-term
liabilities. The low solvency ratio has proved that the greater the probability
that it will default on its debt obligations. (Audit IT, 2017)

            From
the calculation, the company’s interest coverage ratio has smoothly increasing
during the five years. It determines how easily a company can pay interest
expenses on outstanding debt. The company has shown a high interest
coverage ratio, it is meant that company’s debt burden is low and the
possibility of bankruptcy or default are also lower. (Audit IT,
2017)

 

NESTLE (M) BERHAD

            Based on the calculation, the company’s quick ratio of
Nestle (M) Berhad is increased from 0.4622 to 0.4864 during 2012-2013. In 2014,
the quick ratio is started to decrease to 0.4005. As coming to year 2015, the
quick ratio also dropping from 0.3943 to 0.3645. As the quick ratio is
lower than 1, may indicate that the company relies too much on
inventory or other assets to pay its short-term liabilities. (C. C. D. Consultants Inc., 2015)

            Next is the current ratio of Nestle (M) Berhad. The
company’s current ratio in 2012 is 0.9046. But, the current ratio of the
company keep dropping in the next following years and reach a lowest at 0.6532.
As the current ratio is less than 1.0, the company may faced less short-term
assets than short-term debts and it could be defenseless to unexpected bumps in
the economy or business climate. (Investopia, 2017)

            The company’s cash ratio is decreased from 0.0372 to
0.0091 which is from 2012 to 2015. A low cash ratio may be an indicator of a
company’s strategy to have low cash reserves. However, certain industries
operate with higher current liabilities and lower cash reserves. But when
coming to year 2016, the cash ratio has started to increase to 0.0152. As the company’s
cash ratio is less than 1, there are more current liabilities than cash and
cash equivalents. In this situation, it shows that the company is insufficient
cash on hand to pay off short-term debt. (C. C. D. Consultants Inc., 2015)

            According to the calculation, the company’s debt ratio is
escalating seriously from 0.6057 to 0.7406 within the five years. The higher the debt ratio, the more leveraged a company is,
implying greater financial risk. A higher debt ratio (0.6 or higher) makes it
more difficult to borrow money. Lenders often have debt ratio limits and do not
extend further credit to firms that are over-leveraged. Of course, there are
other factors as well, such as credit worthiness, payment history and
professional relationships. (Investopia, 2017)

            The
company’s debt-to-equity ratio is also rising sharply during the five years
which is from 1.5362 to 2.8543. The debt-to-equity ratio indicates the
relationship between the amount of capital that has been borrowed (i.e. debt)
and the amount of capital contributed by shareholders (i.e. equity) in the firm.
In other words, as a firm’s debt-to-equity ratio rises, it becomes more risky
because if it becomes unable to reach its debt obligations, it will be enforced
into bankruptcy. (Investopia, 2017)

            The
company’s capitalization ratio is declined from 0.2301 to 0.1971 during
2012-2013. However, it increased back in the next three following years which
is from 0.2207 to 0.2948 during 2014-2016. It is meaning that the company is
riskier. Companies with higher capitalization ratio run higher risk of
insolvency or bankruptcy in case they are not able to repay the debt as per the
predetermined schedule. However, higher debt on the books could also be
earnings accretive if the business is growing in a profitable manner (more on
this in the analysis section). (Investopia, 2017)

            Based
on the calculation, it shows the company’s solvency ratio is also increased in
the first three years which is from 0.5260 to 0.5330. A stronger or higher
ratio indicates financial strength. However, the solvency ratio is decreased to
0.3798 during 2015 but also grow in the next year. In stark contrast, a lower
ratio, or one on the weak side, could indicate financial struggles in the
future. (Investopedia, 2017)

            Lastly,
the company’s interest coverage ratio is raised from 31.6759 to 32.7781 during
the first two years. But, it decreased in the next two years which is dropped
to 27.2602 and 21.1692 in years 2014 and 2015. However, it increased in year
2016 to 22.6532. A higher ratio indicates a better financial health as it means
that the company is more capable to meeting its interest obligations from
operating earnings. On the other hand, a high ICR may suggest a company is
“too safe” and is neglecting opportunities to magnify earnings
through leverage.  (Investopia,
2017)