kossan's financial evaluation

Financial Analysis

1 2 3

Features Main Board of Bursa Malaysia in 1996

History Established in 1979: Cutless bearings used in the marine industry.

Business Direction

Bursa Malaysia

Company Profile

MISSION: To be a world class glove manufacturer by providing top quality products with excellent services through continuous improvement and innovation.

To produce high quality gloves at efficient low-cost

DATO ’ LIM KUANG SIA

Liquidity Analysis

Liquidity expresses the capacity of the company to meet its short term obligations, that is, to cover its

cash outflows with adequate cash inflows.

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 ,𝐶𝑅=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Current Ratio

Year

Industry Average2013 2014 2015

Current Assets 500,437 559,996 694,569 1,473,095

Current Liabilities 278,726 335,767 323,991 920,691

Current Ratio 1.795 1.668 2.144 1.600

2013 2104 20150

0.5

1

1.5

2

2.5

1.7951.668

2.144

1.6

Caused by surplus cash RM100,000,000

Quick Ratio

2013 2104 20150

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.261

1.091

1.5091.326

𝑄𝑢𝑖𝑐𝑘𝑅𝑎𝑡𝑖𝑜 ,𝑄𝑅=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠− 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 Year

Industry Average2013 2014 2015

Current Assets 500,437 559,996 694,569 1,473,095

Inventory 148,782 193,532 205,588 252,115

Current Liabilities 278,726 335,767 323,991 920,691

Current Ratio 1.795 1.668 2.144 1.600

Quick Ratio 1.261 1.091 1.509 1.326

2013 2104 20150

50000

100000

150000

200000

250000

148782

193532

205588

Efficiency Analysis

Efficiency ratios measure a company's ability to use its assets and manage its liabilities effectively.

ANALYSIS & INSIGHT – DEBT RATIO

1. Trending fluctuated throughout 3 years series.2. Compared to industry average, Kossan having very low inventory turnover 3. Indicate Kossan is moving slow in transforming its inventory into cash.4. Indicate that Kossan also not aggressively in making sales.

2013 2014 2015 Industry average

Cost of goods sold 736,780 724,678 860,799 1,955,610

Inventory 148,782 193,532 205,588 252,115

Inventory turnover 4.95 3.74 4.19 7.8

Inventory Turnover

2013 2104 20150

1

2

3

4

5

6

7

8

9

4.95

3.71

4.19

7.8

Recommendation1. Reconstruct their marketing strategy in order to attract more

customers.

ANALYSIS & INSIGHT – TIMES INTEREST EARNED

1. The trending from 2013 to 2015 is fluctuated. Having the highest in 2014 which is 78.8 days.

2. Throughout 3 years series, the value are higher than the industry average.3. It shows that Kossan’s account receivable was not well manage. Result in longer

period to collect payment from the customers.4. This also indicate that Kossan was too lenient with their customers on the credit term.

Recommendation

5. To be strict with their customer in collecting the payment.6. To reduce the company credit term policy. Thus, faster cash able to be gain from the

sales.


Accounts Receivable 242,945 280,909 311,172 380,700

Sales per day 3581.6 3566.4 4491.8 6,878.1

Average Collection Period 67.8 78.8 69.3 55.3

Average Collection Period

2013 2104 20150

10

20

30

40

50

60

70

80

90

67.8

78.869.3

55.3


Sales 1,307,292 1,301,740 1,639,509 2,510,510

Total assets 1,106,018 1,289,665 1,476,295 2,687,930

Total Assets Turnover 1.18 1.0 1.11 0.9

Total Asset Turnover

2013 2104 20150

0.2

0.4

0.6

0.8

1

1.2

1.4

1.18 1 1.11

0.9

Leverage Analysis

Financial leverage ratios measure the value of equity in a company by analyzing its overall debt picture &

structure.


Total Liabilities 384,008 461,652 499,849

Total assets 500,437 1,289,665 1,476,295

Debt ratio 35% 36% 34% 39.9%

Ratio Actual (2013) Actual (2014) Actual (2015) Industry Average

(DR) 35% 36% 34% 39.9%

Debt Ratio

2013 2104 20150

100000

200000

300000

400000

500000

600000

384008

461652 499849

Debt AmountDebt Ratio

2013 2104 201531

3233343536

3738394041

35

36

34

39.9

ANALYSIS & INSIGHT – TIMES INTEREST EARNED

1. TIER in 2015 at 27.45 times - able to pay interest obligation by 27.45 times a year frm OP2. No difficulties in paying interest payment - has safety option to cover the interest payment3. Consistent with DR – firm did not have to pay high interest obligation due to low debt financing that serve as

capital.4. Compared to industry average; it is only 27.45 times a year and below than industry average (88.18 times) to

show its ability in paying interest obligation.

Ratio Actual (2013) Actual (2014) Actual (2015) Industry Average

(TIER) 27.7 23.93 27.45 88.18 times


EBIT 187,018 194,865 278,722

Interest 6,884 8,144 10,155

TIER 27.7 23.93 27.45 88.18

Times Interest Earned Ratio

Recommendation – Leverage Ratio1. Not to use more R/E because it lead to more tax payment

paid to government and reduced dividend payout to investors (aim – to max. shareholders wealth)

2. To consider debt financing rather than using more on the internal funding or equity funding – adv. of tax shield.

3. To involve firm lawyer, internal analysts, CFO, CEO in discussion to select which strategy to use and risk level.

4. Future Projections: a. To opt for trade-theory strategy (means of capital

support as firm can rationalizing the domination of using debt over equity and retained earnings).

b. To also opt for pecking order theory when are not able to use debt as its capital structure.

5. However, need also to consider on economic situation and also risk tolerance level/policy of the company

Profitability Analysis

Profitability ratios are used to assess a business's ability to generate earnings compared to its expenses

and other relevant costs incurred during a specific period of time.

ANALYSIS & INSIGHT

1. Based on the trend pattern, the amount is slightly decreasing year by year.

2. Gives a negative impact to the company in terms of cost of goods sold management

3. Cost of goods sold of the company is considered high. Kossan not utilize its Cost of goods sold in an efficient way.

4. However, when comparing with the industry average, it shows increasing pattern.

5. Can conclude that they actually good enough to manage their cost of goods sold than other competitor.


Gross Profit 736,780 724,679 860,799 554,900

Sales 1,307,292 1,301,740 1,639,509 2,510,510

Gross Profit Margin 56.36% 55.67% 52.50% 22.10%

Gross Profit Margin

2013 2104 20150

10

20

30

40

50

60 56.36

55.67 52.5

39.9

ANALYSIS & INSIGHT

1. The operating profit margin is slightly increasing from year 2013 and 2014 which is 0.70%.

2. However, in 2015 the ratio is increasing drastically at 16.87% and above the industry average.

3. For every RM1 sales, company able to generate RM16.87 of operating profit

4. High operating profit margin means that Kossan is good in utilizing its opetrating cost.

5. Operating profit is enough to pay the interest and tax


Operating Profit 184,329 192,560 276,556

Sales 1,307,292 1,301,740 1,639,509

Operating Profit Margin 14.10% 14.80% 16.87% 14.78%

Operating Profit Margin

2013 2104 201512.5

13

13.5

14

14.5

15

15.5

16

16.5

17

17.5

14.1

14.8

16.87

14.78


Net Profit 140,066 148,836 206,319

Sales 1,307,292 1,301,740 1,639,509

Net Profit Margin 10.71% 11.43% 12.58% 11.2%

Net Profit Margin

2013 2104 20150

50000

100000

150000

200000

250000

140066

148836

206319

Net Profit

2013 2104 20159.5

10

10.5

11

11.5

12

12.5

13

10.71

11.43

12.58

11.2

Net Profit Margin

2013 2014 2015Industry average

Earnings Available for Common Shares (NIAC) (RM’000) 141,706 150,765 212,934 316,724

Numbers of Shares of Common Stock Outstanding

(unit ‘000)1,360,532 1,360,532 1,360,532 351,632

Earnings Per Share RM0.10 RM0.11 RM0.16 RM0.90

Earnings Per Share

2013 2104 20150

50000

100000

150000

200000

250000

141706

150765

212934

Earning Available For C/S

2013 2104 20159.5

10

10.5

11

11.5

12

12.5

13

10.71

11.43

12.58

11.2

Earning Per Share

ANALYSIS & INSIGHT

1. ROTA fluctuates; overall still above industry average.2. Net income after tax keep on increasing.3. Total assets increasing from year to year.4. The management team fully utilize total assets in converting it into profits.5. A good signal to investors.


Earnings Available for Common Shares (NIAT) (RM’000) 140,055 148.836 206,319 281,192

Total Assets (RM’000) 1,106,018 1.289.665 1,476,295 2,687,930

Return on Total Assets 12.70% 11.50% 14.00% 10.46%

Return On Total Assets

2013 2104 20150

2

4

6

8

10

12

14

16

12.711.5

14

10.46

ANALYSIS & INSIGHT

1. ROE fluctuates; overall still above industry average.2. Net income after tax keep on increasing.3. Total Equity increasing from year to year.4. Comparing with liquidity, efficiency and profitability; all shows

positive results.

RECOMMENDATION

5. Not to use more Return Earning in financing the capital – more tax payment which can reduce net income after tax.

6. Considering debt financing – tax shield.


Earnings Available for Common Shares (NIAT) (RM’000) 140,055 148.836 206,319 281,192

Total Equity (RM’000) 722,010 828,013 976,446 1,614,393

Return on Equity 19.4% 18% 21.1% 17.4%

Return On EquityROE Value

2013 2104 20150

5

10

15

20

25

19.418 21.1

17.4

Recommendation

• Boost revenue/sales• Reduce cost• Increase profit margin• Reduce risk

• Invest in marketing• Advertisement• Branding Activities

• Study/research market needs• R&D & Gordon Growth Model • Reevaluate current practices/SOP

• Come up with effective & efficient solution based on analyzation.

• Follow up with the result of new implementation

Market Analysis

Market value aimed to evaluate the company’s stock. The evaluation will defined whether the company

stock is overvalued or undervalued.

Price Earnings ratio = Market price per share of common stock Earning per share

Price Earnings Ratio


Price earnings ratio 20.99 19.61 29.43 26.54

2013 2104 20150

5

10

15

20

25

30

35

20.9919.61

29.4326.54

Analysis & Insight

The ratio of the company is increasing and above industry average. The trend

showed an increased in between the year of 2013 to 2015.

It explains that the level of confidence of investors towards the company getting

higher.

The figure indicates that the investors are willing to pay $ 29.43 for each $1.00

earning.

Market Book RatioMarket Book value ratio = Market price per share of common stock

Book Value


Market price per share of common stocks 4.22 4.48 9.30

Book value 4.00 3.60 6.40

Market book value ratio 1.06 1.24 1.45 2.20

2013 2104 20150

0.5

1

1.5

2

2.5

1.06

1.24 1.45

2.2

Recommendation

1. DiversificationDiversification of the products and service can help organization improve their market share.

3. Invest in new projectInvestment in the new project can help organization to increase their market share.

2. Social responsivenessThe company should create relationship with the society. Organize the activities that involve the citizen.