Fm assignment-final
- 1. 1.0 About LBS 1.1 Background LBS Bina Group Berhad is a management and investment holding company. The Company, through its subsidiaries, operates property development and investment. LBS also provides project management and contractor services for property development, turf and landscaping contracting, insurance services, sells motor vehicles, and trades building materials. For over 20 years, LBS has nurtured a reputation for delivering properties with unsurpassed quality that inspire and enrich. By insisting on continually improving not only construction technologies but the very latest in architectural trends, LBS lives up to its belief that Malaysians deserve homes of the finest workmanship. LBS began with one man’s vision. In the 1960s, Dato’ Seri Lim Bock Seng founded a construction business in Petaling Jaya. Within a few years, LBS’ scale of projects established it as a reputable property developer. Several of its well publicised accomplishments were Taman Perindustrian Bukit Serdang Seksyen 14 in Selangor, jointly developed with the 1992 Thomas Cup champions, Taman Pinggiran Putra, Serdang and the township project at Bandar Saujana Putra. This trend of growth has seen LBS become a dominant player in Malaysia’s property sector, and spread its wings across the seas to China. Company Name : LBS Bina Group Berhad (518482-H) Date of Incorporation : 29 June 2000 Listed on Bursa Malaysia : 30 January 2002 Main Market (Properties) Stock Code/Name : 5789 / LBS
- 2. 1.2 Structure of LBS
- 3. 1.3 Shareholders LBS has issued 655,836,248 ordinary shares,excluding treasury share of 60,000, as per 29 March 2017 among a total of 5363 shareholders. The substantial shareholders include the following:
- 4. 1.4 Key Management Personnel Dato’ Seri Lim Bock Seng Chairman Tan Sri Lim Hock San JP Group Managing Director of LBGB Datuk Wira Lim Hock Guan Executive Director Major (Hon) Dato’ Sri Lim Hock Sing Executive Director Datuk Lim Hock Seong Executive Director Dato' Alan Chia Lok Yuen Executive Director Dato' Lim Mooi Pang Executive Director Datuk Lim Si Cheng Director Datuk Haji Baharum Bin Haji Mohamed Director Lim Tong Lee Director
- 5. 2.0 Principal Activities The principal activities of LBS are investment holding and provision of management services to its subsidiary companies in the Group. In general, the Company operates through the following segments: property development, management and investment, trading, construction, and motor racing circuit. Diagram below portraits the percentage of the business income from different segment. 85% 7% 3% 5% Percentage ofbusiness income from different segment ofLBS in year 2016 (Source: 4-traders) Property Development Construction Motor Racing Circuit Trading
- 6. Table below shows some of the subsidiary companies and their principal activities. List of Subsidiary Companies and Principal Activities (Source: LBS)
- 7. 3.0 Analysis ofthe Revenue Contributions ofthe Different Segments ofthe Company When it comes to evaluating a large cap company like LBS Bina Group, in many cases, analyzing key financial data may only be a starting point. As a general rule, the size and scope of business of many large caps means that in order to really understand them, we need to analyze them as a set of companies within a company. A company's segment data can be a great place to start this analysis. The company operates through five segments: Property Development; Construction; Management and Investment; Motor Racing Circuit; and Trading and Others. The property development segment is involved in the development of residential, industrial and commercial properties. The management and investment segment is involved in investment holding and provision of management services. While the trading and others segment is involved in trading of building material, insurance agent, selling of insurance membership cards and tourism development. Besides that, the construction segment is involved in the business of building, project planning and implementation contractor. The Motor racing circuit segment is involved in motor racing circuit development and management. Its other business segments include selling of membership cards covering personal insurance and insurance agent. Comparison of the Segment Information Year 2015 and Year 2016 (Source: LBS Bina Group Berhad (518482-H) Annual Report 2016)
- 8. Year 2015 Segment Percentage (%) Property Development 84.48 Construction Contracts 9.89 Trading and Others 1.97 Completed Properties 0.35 Motor Racing Events and Sponsorship 3.30 I. Property Development (RM 574,730,317 / RM 680,295,861) x 100% = 84.48% II. Construction Contracts (RM 67,313,756 / RM 680,295,861) x 100% = 9.89% III. Trading and Others (RM 13,384,916 / RM 680,295,861) x 100% = 1.97% IV. Completed Properties (RM 2,397,750 / RM 680,295,861) x 100% = 0.35% V. Motor Racing Events and Sponsorship (RM 22,469,122 / RM 680,295,861) x 100% = 3.30%
- 9. Year 2016 Segment Percentage (%) Property Development 81.87 Construction Contracts 6.59 Trading and Others 5.31 Completed Properties 3.76 Motor Racing Events and Sponsorship 2.47 I. Property Development (RM 813,441,607 / RM 993,619,057) x 100% = 81.87% II. Construction Contracts (RM 65,454,432 / RM 993,619,057) x 100% = 6.59% III. Trading and Others (RM 52,775,630 / RM 993,619,057) x 100% = 5.31% IV. Completed Properties (RM 37,406,927 / RM 993,619,057) x 100% = 3.76% V. Motor Racing Events and Sponsorship (RM 24,540,411 / RM 993,619,057) x 100% = 2.47%
- 10. Segment Information Year Ended 31 December 2014 (Source: LBS Bina Group Berhad (518482- H) Annual Report 2016) Segment Information Year Ended 31 December 2015 (Source: LBS Bina Group Berhad (518482- H) Annual Report 2016)
- 11. 4.0 Evaluation of the Current State ofthe Major Industries in which the Company Operates (Property Development & Motor Racing Circuit are to be discussed) LBS Bina Group Berhad, an investment holding company, engages in the property development activities primarily in Malaysia and the People’s Republic of China. Upon completion of the disposal of the Group's investment assets in Zhuhai City, the People's Republic of China, the Group has been focusing on the organic growth of its property development activities in Malaysia Managing director Tan Sri Lim Hock San said as long as the country’s economic growth remained steady at current level, the property market should perform well going forward in the future. In view of the ongoing projects and expected launches this year, LBS Bina Group Berhad is confident to achieve RM1.5 billion sales target that they have set for the year. For the property development industry, according to The Edge Property (2017), the property developer LBS Bina Group Berhad is in talks with two landowners in the Klang Valley to expand its portfolio of land available for development via joint ventures (JV). The group’s total undeveloped land bank now totalled 3,920 acres (1586.35ha), scattered across both Peninsular Malaysia, Sabah and Sarawak, and has a collective future gross development value (GDV) of RM30.6 billion. However, for the challenges, there is a stiff competition in the property industry with developers making a shift towards the affordable segment. This will be the trend for the next two to three years due to the rising demand for such homes. The group plans to launch six new projects, with a combined GDV of RM1.88 billion, in the next seven months. Among them are the RM628 million GDV Alam Perdana development in Northern Klang Valley, which comprise of two- storey link and townhouse units; the Skylake Residences in Puchong, which has a GDV of RM372 million; and the Perumahan Penjawat Awam 1 Malaysia serviced apartments in Bukit Jalil, which has a GDV of RM353 million. All the six projects are in the affordable housing segment, with units in the price range of about RM500,000. Aside from these six, the group has 17 ongoing projects with a total GDV of RM3.2 billion, which have an average take-up rate of 72%. The Group will continue to monitor closely the changing macro-economic conditions and remain selective on investment that is likely to create the optimum value. It would also strengthen its sales and operations further for launching more competitive products. In addition, LBS Bina
- 12. Group Berhad would be selective in expanding its land bank whilst observing the correct timing in launching its new projects. Barring any unforeseen circumstances, the Board after having considered all the relevant aspects including the current projects in hand, the above-mentioned prospects, property and construction industry outlook, is optimistic that the Group is able to continue to improve its financial performance in the future as well as deliver greater value to the shareholders of the Company. For the motor racing circuit industry, on the group’s JV with Zhuhai Jiuzhou Group Holdings Ltd, the investment arm of the Zhuhai City government in China, the group expects to obtain planning and layout approvals for the project within the next few months. The collaboration with Zhuhai Jiuzhou is to upgrade and transform the Zhuhai International Circuit, with the new development expected to feature a motor racing track, hotel, and theme park. LBS Bina shares slid three sen or 1.46% to RM2.02 yesterday, valuing the group at RM1.35 billion. Year to date, the stock has climbed 22.28%.
- 13. 5.0 An analysis of the company’s strengths and weaknesses LBS Bina Group Berhad is a construction company in Malaysia. As an organization, it is bound to have its strengths and weaknesses as pointed out below. Strengths First of all, LBS has a good insight into the future. It is reflected in their Land Banking initiative which includes assets selection through direct acquisition or joint venture with the land owner. This would allow the company to always have sufficient resources (land) when they intend or have projects to develop hence securing the land with a lower price as the price of land is hiking year by year and by acquiring it earlier, it would help the company to save the future cost as well. LBS has plans and projects which are ready to be executed in the near future to expand their business. Another crucial strength of LBS is that they are forecasting the potential risk for their projects and take reasonable measurement or prevention in order to reduce the risk to the minimum. This is a good measurement by the management as this gives time to the management to take precaution actions, improve management plans and mitigation measures so that the risk can be minimized to the lowest. Secondly, LBS diligently cares for its customers. They do not produce only one product directed to certain customers, but a wide range of products are constructed at a reasonable price to carter all different kinds of customers either with different preference or different income group. The management always ensures that the price of the material for construction is kept low with their bulk purchasing agreement. The materials are checked to ensure only the quality materials will be used in the construction of the company’s projects. To deliver the greatest satisfaction to the customers, all the projects will be inspected by in-house management and the consultants to ensure the building standard are achieved. The last strength noticeable is the desire to always seek improvement. LBS just had a reconstruction of its Construction Division which has previously perform poorly. In an
- 14. organization, what’s important is the desire to always seek improvement and willing to change to improve. The reconstruction has serve as a measurement for the division to improve, if no corrective actions are taken towards division that is performing poorly, this might be a fatal wound to the company and might end up shutting down the company. LBS has always been seeking new potential business to expand their portfolio. From being just a small construction company, they expand their business across Malaysia and even across countries to China which they built a race circuit. If they had not tried to expand their business, such opportunity would not befall on them. By expanding their business, LBS now has subsidiaries that can help to increase their revenue even more. Weaknesses What noticeable of LBS’s lacking of is that they are the minor one being unable to make proper judgment on the investment made which cause them a loss of RM22 million. One might say to focus on your own specialty before venturing into a new industry, being a construction company, LBS Bina Group has invested their money into equity securities in the Hong Kong Stock Exchange. Maybe they could have invested more into their core business – construction, before venturing into a new industry that they are not familiar with.
- 15. 6.0 The company’s strategic plans for seizing opportunities and for facing challenges in its industry. LBS has always seeks improvement to stand better in this industry. In order for them to gain advantages from their competitors, LBS executed the land banking initiatives where they acquire lands as reserves even before they have projects for it. This does not only allow the company to acquire the land at a lower price, it would also enable the company to always have sufficient resources to carter all the company’s need. In order to grow in this industry, LBS Bina Group Berhad has decided that acquiring new potential business to expand their portfolio helps strengthen their stand in this industry. With the acquiring of subsidiaries that is related to construction, the company can save cost of outsourcing which can further lower the cost and increase the revenue of the company. The company is also targeting the affordable segment, which the company believes to be the driving force in the property market in the near to medium term supported by the country’s young demographic and coupled with the government’s vigorous initiatives in helping the Malaysian in the low and medium income groups to but their houses. This is the company’s way of strengthening their standing in this industry by tackling the segment which is the most profitable in the business. One of the toughest challenges every company face is sustaining their company in the industry and LBS clearly has its plan to increase its sustainability in this industry. In year 2016, LBS established their own Sustainability Committee to shoulder all the responsibility of scrutiny, review and reinforce the entire framework including policies, strategies, and approaches. The first step is to lead the company to a better environment, social and governance. This initiative has been an effort by the company to ensure a better sustainability of the company. Other challenges would be problems regarding execution competency and operational efficiency. With so many subsidiaries, it will be difficult for the top management to execute plans properly as sometimes the order has to pass through a lot of layers before
- 16. reaching the employees. LBS ensures that the operation plan for all the subsidiaries and the parents company are align which will not conflict with each other and end up damaging the company. Therefore, in order for them to continue growing, it is important to improve its overall execution competency and operational efficiency in the accelerating stringent business environment.
- 17. 7.0 Major capital investments & major sources offunding for investments LBS has invested more in Property, plant and equipment and Land held for property development. For Property, plant and equipment, the total amount is RM212,749,463 in year 2013. The total amount of Property, plant and equipment including Leasehold land and buildings, Motor vehicles, Office equipment, furniture and fittings, Renovations, Plant, machinery and equipment and Racing circuit. Leasehold land and buildings have the highest amount among other which have RM82,122,346. The following year 2014, the total amount of Property, plant and equipment is RM214,444,731. Leasehold land and buildings still the highest amount compared with others. While the amount of Property, plant and equipment in year 2015 is RM240,941,611. Other than Property, plant and equipment, LBS has invested in Land held for property development. The total amount in year 2013 is RM392,462,614. The total amount contains Freehold land RM78,481,242; Long-term leasehold land RM109,716,815 and Property development cost RM204,264,557. Furthermore, the total number of Land and property development in year 2014 is RM347,549,001. The amount including Freehold RM73,068,787; Long-term leasehold RM60,353,585 and Property development cost RM214,126,629. Lastly, the total amount in year 2015 is RM515,026,439. Freehold RM100,914,374; Long-term RM132,204,001 and Property development RM281,908,064 are included in the amount of Land and property development. The major sources of funding for these investments are from cash flow operating activities, investing activities and financial activities. For year 2013, the sources from operating activities are interest received by operating; from investing activities are disposal of subsidiary companies, disposal of non-current assets held for sale and acquisition of subsidiary companies; from financial activities are drawdown of bank borrowings and conversion of warrants. For year 2014, the sources from operating activities are interest received by operating and impairment of goodwill arising on consolidation; from investing activities are proceeds from promissory notes, disposal of investment in mutual fund and quoted shares; from financial activities are drawdown of bank borrowings, issuance of shares and conversion of warrants.
- 18. For year 2015, the sources from operating activities are interest received by operating and property, plant and equipment; from investing activities are disposal of financial assets, promissory notes and available-for-sale financial assets; from financial activities are drawdown of bank borrowings, issuance of shares and conversion of warrants.
- 19. 8.0 Evaluating financial performances trend in the last 2 financial years (FY2013, FY2014) by analyzing LBS’s financial condition for the FY2015. The financial condition of a company can be evaluated using liquidity ratios which liquidity ratios measure a company's ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio and quick ratio. Simply, these ratios reflect the ability of the firm to meet its current debt obligations based on its current assets. Normally, a company will have a higher margin if safety to meet its current liabilities when they have higher liquidity ratios. In the graph shown below, these ratios declined slightly from FY 2013 to FY 2014 and declined even steeper from FY 2014 to FY 2015. The trend shows that the company has lesser ability to pay off its short term debts from FY 2013 to FY 2015. This shows that the company is becoming less liquid. In brief, a healthy firm is less likely to fall into financial difficulties if its liquidity ratios are higher than 1. In another meaning, this firm is quite risky in this situation. Liquidity ratio analysis Years FY2013 FY2014 FY2015 Current Ratios 1.52 x 1.46 x 1.43 x Quick Ratios 1.48x 1.44 x 1.34 x Table above shows the current ratios and quick ratios for FY2013 – FY2015. 1.52 1.46 1.43 1.48 1.44 1.34 1.25 1.30 1.35 1.40 1.45 1.50 1.55 FY2013 FY2014 FY2015 Liquidity Ratio Current Ratio Quick Ratio
- 20. The activity of the company can be analysed using inventory turnover ratio, average collection period, average payment period and total asset turnover ratio. These ratios will indicate the efficiency of the firm in using its assets to generate revenues. According to Investopedia, inventory turnover is a ratio showing how many times a company's inventory is sold and replaced over a period of time. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand. It is calculated as sales divided by average inventory. There is an increase in the inventory turnover ratio is in line with the company’s increase in revenue from FY 2013 to FY 2014. Based on its income statements, an increase from RM533, 532,722 in FY2013 to RM668, 265,030 in FY2014 in revenue can be visualised. Nevertheless, the company was not efficient and effective enough in year 2013. The reason is that the significant increase in activity did not translate to a proportional increase in revenue. However, the drastic decrease in inventory turnover from FY2014 to FY2015 indicates that the inventory is quickly converted to sales or cash as more sales is generated as shown in the graph below. Inventory turnover analysis Years 2013 2014 2015 Inventory Turnover Ratio 16.17 x 35.00 x 5.81 x Table above shows the inventory turnover ratios for FY2013 – FY2015. 16.17 35.00 5.81 - 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 FY2013 FY2014 FY2015 Inventory Turnover Inventory Turnover
- 21. According to Investopedia, the average collection period is the approximate amount of time that it takes for a business to receive payments owed in terms of accounts receivable. The average collection period is calculated by dividing the average balance of accounts receivable by total net credit sales for the period and multiplying the quotient by the number of days in the period. This activity ratio calculates management's ability to receive cash (Anon n.d.). The slightly decrease in number of days the customer will pay the company in FY2014 is beneficial to the company as efficient cash flow is required to support the increase in assets and sales when business is growing at a fast pace. A lower figure is considered better as the business has locked up lower funds in account receivables for other business purposes. However, there is a drastic increase in number of days the customer will pay the company in FY2015 is very crucial to the company. Average collection period analysis Years 2013 2014 2015 Average Collection Period 189.19 days 188.56 days 198.15 days Table above shows the average collection period for FY2013 – FY2015. 189.19 188.56 198.15 182.00 184.00 186.00 188.00 190.00 192.00 194.00 196.00 198.00 200.00 FY2013 FY2014 FY2015 Average Collection Period Average Collection Period
- 22. According to Investopedia, average payment period means the average period taken by the company in making payments to its creditors. It is computed by dividing the number of working days in a year by creditors turnover ratio. In FY2014, the company is able to pay its creditors faster as the number of days decreased. This may be an indication of this company has higher working capital and better financial condition. However, there is a twist by then. The number of days increased from 410 days to 491 days from FY2014 to FY2015, meaning that the company’s ability to pay its creditors has become weaker. Average payment period analysis Years 2013 2014 2015 Average Payment Period 457 days 410 days 491 days Table above shows the average payment period for FY2013 – FY2015. 457.07 410.31 491.22 360.00 380.00 400.00 420.00 440.00 460.00 480.00 500.00 FY2013 FY2014 FY2015 Average Payment Period Average Payment Period
- 23. According to Investopedia, total asset turnover ratio is the ratio of the value of a company’s sales or revenues generated relative to the value of its assets. The asset turnover ratio can often be used as an indicator of the efficiency with which a company is developing its assets in generating revenues. From FY 2013 to FY2014, the total asset turnover had significantly increased. Therefore, it specifies that the efficiency of using its assets in generating revenues is better. Nonetheless, this company generated less revenues compared to the previous year as the graph line had decreased. Simply, their efficiency had decreased based on the graph. Total asset turnover analysis Years 2013 2014 2015 Total Asset Turnover 0.27 x 0.30 x 0.28 x The table above shows the total asset turnover ratios for FY2013 – FY2015. By using leverage ratios, time interest earned and fixed-payment coverage ratios, the debt level of the company can be analyzed . The leverage ratios include debt ratio and debt-to-equity ratio which are used to measure the risk of the company. 0.27 0.30 0.28 0.24 0.25 0.26 0.27 0.28 0.29 0.30 0.31 FY2013 FY2014 FY2015 Total Asset Turnover Total Asset Turnover
- 24. According to Investopedia, the debt ratio compares a company's total debt to its total assets. This provides creditors and investors with a general idea as to the amount of leverage being used by a company. The lower the percentage, the less leverage a company is using and the stronger its equity position. In general, the higher the ratio, the more risk that company is considered to have taken on. The debt ratio had increased partially from FY 2013 to FY2014. The situation is getting worsen when the percentage from 56.67% to 58.42% during the year of 2014 to 2015. Simply, the company might suffer from the risk of insolvency as a higher percentage of assets are financed through debts. As mentioned above, the company will meet difficulties and issues in applying and obtaining loan when the risks increase. Debt ratio analysis Years 2013 2014 2015 Debt Ratio 56.58% 56.67% 58.42% The table above shows the debt ratios for FY2013 – FY2015. 56.58% 56.67% 58.42% 55.50% 56.00% 56.50% 57.00% 57.50% 58.00% 58.50% 59.00% FY2013 FY2014 FY2015 Debt Ratio Debt Ratio
- 25. According to Investopedia, the times interest earned ratio is a coverage ratio that measures the proportionate amount of income that can be used to cover interest expenses in the future. The time interest earned ratio had decreased drastically from FY2013 to FY2014 and continued to decrease partially in year 2015. Higher time interest earned ratio is a signal of financial health and this shows that the company has effective operations to meet the interest payment. However, based on the graph analysis, this company was having a hard time as low times interest earned ratios indicating high credit risk. This also means that the company presents higher risks of insolvency to its investors and creditors. Times Interest Earned Analysis Years 2013 2014 2015 Times Interest Earned 29.14 x 5.36 x 5.88 x The table above shows the times interest earned ratios for FY2013 – FY2015. 29.14 5.36 5.88 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 FY2013 FY2014 FY2015 Times Interest Earned Times Interest Earned
- 26. According to Investopedia, the fixed charge coverage ratio measures a firm's ability to satisfy fixed charges, such as interest expense and lease expense. Since leases are a fixed charge, the calculation for determining a company's ability to cover fixed charges includes earnings before interest and taxes, interest expense, lease expense and other fixed charges. The fixed charge coverage ratio highlights the ability of the company to cope with its fixed payment. From FY 2013 to FY 2014, the ability of the company had decreased as shown in the graph below. However, the situation turns completely in the next year. From FY 2014 to FY 2015, the ratio increases which is a good sign to the company. With the high ratio scored in FY 2015, it indicates that this company is able and strong enough to sustain against the fixed charges. These financial ratios determine the company’s financial debt in its business. This company can be considered as a healthy firm which can maintain its business based on this analysis. In recent years, the company has high credit risk in paying off the associated interest expenses but it can recover its fixed payment within a short but sufficient time. Fixed Payment Coverage Ratio Analysis Years 2013 2014 2015 Fixed Payment Coverage Ratio 4.06 x 2.40 x 4.47 x The table above shows the fixed payment coverage ratios for FY2013 – FY2015. 4.06 2.40 4.47 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 FY2013 FY2014 FY2015 Fixed-Charge Coverage Ratio Fixed-Charge Coverage Ratio
- 27. According to Investopedia, gross profit margin is a financial metric used to assess a company's financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. The gross profit margin increased slightly from FY2013 to FY2014 and it continued to increase significantly from FY2014 to FY2015. Gross Profit Margin Analysis Years 2013 2014 2015 Gross Profit Margin (%) 31.60 31.87 34.58 The table above shows the gross profit margin ratios for FY2013 – FY2015. 31.60% 31.78% 34.58% 30.00% 31.00% 32.00% 33.00% 34.00% 35.00% FY2013 FY2014 FY2015 Gross Profit Margin Gross Profit Margin
- 28. Operating profit margin can be used to check how profitable the company is after excluding operating expenses and depreciation. Based on the graph shown below, the steeping graph line shows that the company’s operating profit margin decreased extremely from FY2013 to FY2014. The percentage remained steadily during year 2014 to 2015. Operating Profit Margin Analysis Years 2013 2014 2015 Operating Profit Margin (%) 82.86 18.88 18.86 The table shows the operating profit margin ratios from FY2013-FY2015. 82.86% 18.88% 18.86% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% FY2013 FY2014 FY2015 Operating Pofit Margin Operating Pofit Margin
- 29. According to Investopedia, net profit margin is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends excluding common stock dividends have been deducted from a company's total revenue. Thus, net profit margin is one of the most vital factors in evaluating a company’s profitability. Projected profits based on sales can be developed through net profit margin. Based on the net profit margin analysis, the company’s net profit margin drops significantly and increase by 0.32% in year 2015. Net profit margin analysis Years 2013 2014 2015 Net Profit Margin (%) 74.47 10.04 10.36 The table above shows the net profit margin ratios for FY2013 – FY2015. 74.47% 10.04% 10.36% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% FY2013 FY2014 FY2015 Net Profit Margin Net Profit Margin
- 30. Based on Investopedia, the return on total assets (ROTA) is a ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The ratio is considered to be an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid. The company did not earn the high return over its total assets during year 2013 to year 2015. The graph line decreased drastically and continued to decrease slightly in year 2015. Return on Total Assets Ratio Analysis Years 2013 2014 2015 Return on Total Assets (%) 19.77 3.02 2.90 The table above shows the return on total assets ratios for FY2013 – FY2015. 19.77% 3.02% 2.90% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% FY2013 FY2014 FY2015 Return on Total Assets (ROA) Return on Total Assets (ROA)
- 31. Return on common equity is a measure of how well a company uses its investment dollars to generate profits; often times, it is more important to a shareholder than return on investment. A higher ROE is expected from a growing company. However,this company did not fulfill this requirement. The graph line has declined from 45.5% to 7.0% and maintained the same percentage in year 2015. Return on Common Equity Ratio Analysis Years 2013 2014 2015 Return on Common Equity (%) 9.18 15.54 7.14 The table above shows the return on common equity ratios for FY2011 – FY2015. There are a few statements and comments by analyzing the indicators of profitability as shown in the graphs above. It can be concluded that the company has been generating profit from FY2013 to FY2014 but somehow the level of earnings plummeted in FY2015 which might be due to excessive expenditure on operating expenses in relation to the operating profit margin shown. Increasing net profit margin shows that a company is earning more profit than it spent. However, the net profit margin of LBS Bina Group Berhad dropped sharply in FY2014 and FY2015. The company did not use its assets effectively as it has generated a growing return in correspondence to its assets from FY2013 to FY2015. The company’s Return on Common Equity (ROE) ratio from FY2013 to FY2015 shows that it is not generating profit over the period, decreasing the shareholder’s value of their investments in the company. 45.5% 7.0% 7.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% FY2013 FY2014 FY2015 Return on Common Equity Return on Common Equity
- 32. Evaluation and analysis using earnings per share, price to book ratio and price to earnings ratio can highlight and explain the market performance of the company. Earnings per share is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. LBS had their highest earnings at FY 2013 which is RM0.96 per share. However, the earnings per share had decreased from RM0.96 to RM0.14 in FY2014 and maintained the same amount in FY2015. The decline in the earning per share indicates that the company might reinvestment in a company's operations, debt reduction and poor earnings through simple assumptions. Earning Per Share Ratio Analysis Years 2013 2014 2015 Earning per Share (RM) 0.96 0.14 0.14 The table above shows the earning per share ratios for FY2013 – FY2015. RM0.96 RM0.14 RM0.14 RM- RM0.20 RM0.40 RM0.60 RM0.80 RM1.00 RM1.20 FY2013 FY2014 FY2015 Earning Per Share Earning Per Share
- 33. According to Investopedia, the price to earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price to earnings ratio if the company had surged from FY2013 to FY2014 and decreased slightly in FY2015. A high price-to-earnings implies that investors are expecting the higher profit growth in coming years compared to firms with a lower price-to-earnings. In the year of 2015, the low P/E ratio might be due to the company being undervalued or is doing extraordinarily well as compared to other years (Price Earnings Ratio n.d.). Price To Earnings Ratio Analysis Years 2013 2014 2015 Price-To-Earnings Ratio 1.53 x 11.10 x 10.00 x The table above shows the price to earnings ratios for FY2013 – FY2015. 1.53 11.10 10.00 0.00 2.00 4.00 6.00 8.00 10.00 12.00 FY2013 FY2014 FY2015 Price/ Earning (P/E) Price/ Earning (P/E)
- 34. According to Investopedia, The price-to-book ratio (P/B Ratio) is a ratio used to compare a stock's market value to its book value. The price to book ratio highlights that the company’s market value is performing againest its book value. There is an obvious increase from FY2013 to FY2014 which means LBS had been trading for more than its book value. In another meaning, the company has been earning a profit. Nonetheless, there is a decrease in FY2015 but not a crucial one. Price To Book Ratio Analysis The table above shows the price to book ratios for FY2013 – FY2015. The market performance of LBS Bina Group Berhad shown in the graphs above can be concluded as satisfying from FY2013 to FY2014. However, there might be some declination of LBS’ market performance in Year 2015. By and large, the ratios indicate that LBS had maintain its overall market performance. 0.69 0.81 0.75 0.62 0.64 0.66 0.68 0.70 0.72 0.74 0.76 0.78 0.80 0.82 FY2013 FY2014 FY2015 Price/ Book Ratio (P/B) Price/ Book Ratio (P/B) Years 2013 2014 2015 Price-To-Book Ratio 0.69 x 0.81 x 0.75 x
- 35. 9.0 Conclusion and recommendation for improvements LBS has lesser ability to pay the debts from year 2013 to 2015. The sales started to drop from year 2014 to 2015. However, they didn’t owe creditor’s payment mean that the company has higher working capital and good financial condition. Besides, the operating profit for the company decreased extremely from year 2013 to 2014. Meanwhile, the percentages remains the same during year 2015. Referring to the results of financial analysis from year 2013 to 2015, LBS does not quite perform well. As recommendation for improvements, LBS can forecast their cash flow which will reduce the risk of shortage in the future. Operating budget is necessary because it is the measurement tool for success. If there are any issue occurs, the budget can be used wisely. Lastly, a proper system need to be executed which may help the Company run more efficiency.