Assignment Final Finance

7/28/2019 Assignment Final Finance

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FACULTY OF BUSINESS AND MANAGEMENT

SEMESTER SPETEMBER

2012

BBPW 3203

FINANCIAL MANAGEMENT II

MATRICULATION NO : 850106015325001

IDENTITY CARD NO : 850106-01-5325

TELEPHONE NO : 016

7924214

EMAIL : [email protected]

LEARNING CENTRE : JOHOR BAHRU
mailto:[email protected]:[email protected]:[email protected]


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CONTENTS

1.0 TRC SYNERGY BERHAD : An Intro 1 - 2

2.0 Capital Structure Related Ratio Computation 3 - 4

3.0 Capital Structure Analysis of TRC Synergy Berhad

for the year 2008 until 2010 56

4.0 Capital Structure and Financial Condition evaluation

of TRC Synergy Berhad. 78

5.0 Summary 9

6.0 Appendix

6.1 Balance Sheet Of the year 2008 1011



(i)


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1.0 TRC SYNERGY BERHAD : AN INTRO

TRC Synergy Berhad was initially incorporated as a private limited company in

Malaysia under the Companies Act, 1965 on 11 December 1996 under the name TRC Synergy

Sdn Bhd. On 8th January 1997, the company changed its status from a private limited company

to a public company and assumed the name TRC Synergy Berhad (TRCS).

TRCS was listed on the Main Board of the Bursa Malaysia Securities Berhad on 6th

August 2002, where it offered Public Issue and Offer For Sale of 16,000,000 and 3,500,000

ordinary shares respectively. TRCS is principally an investment holding company while the

principle activity of its subsidiary companies are construction, manufacturing of construction

materials and property development.

The TRCS group of companies employs over 500 personnel of which more than 15% are

in sub-professional and professional group. TRCS not only has the ability to undertake common

projects like roads and building construction, but also specialized mega projects like airports,

railway track works, stadium, hospitals and large property development ventures.

The companys motto As one with the nation sums up the companys aspiration to progress in

tandem with the nations vision.

The construction division is the main contributor to TRC Groups revenue and profit. The

construction activities are undertaken by TRC Synergy Berhads wholly owned subsidiary, Trans

Resources Corporation Sdn Bhd. With over more than 27 years of experience in the construction

industry, TRC has now established itself as one of the reputable contractors in the country,

capable of undertaking major construction projects like roads, bridges, railway, airport facilities,

hospital, prison complex, submarine base and other infrastructure works.


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Its key achievements include the successful completion of fast track design and build

projects such as the National Hockey Stadium at Bukit Jalil, the Labuan Airport, Westport Rail

Link Projects, Prison Complex in Bentong Pahang, Sepanggar Bay Submarine Base and Kuala

Terengganu Runaway Extension projects. Among TRCs current projects are the extension to the

Kelana Jaya Line of the LRT project, the Stations and Depot works to the Klang Valley

MRT(KVMRT) packages and the modernization of Brunei International Airport.

TRC is a safe bet as it has already got a ticket to ride on the current public

infrastructure spending boom, i.e. via the RM950m main contract of the Package A of the

Kelana Jaya LRT Line extension project. Also, its lean setup means that it can profitably

execute certain smaller public jobs and subcontracts of key large-scale projects

- Analysis from RHB Research Institute Sdn. Bhd.


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2.0 Capital Structure Related Ratio Computation

There are four leverage ratios; Debt ratio, Debt equity ratio, Equity multiplier and

Interest coverage ratios use to assess the financial strength of a company. In general,

analysts use the first two, the Debt ratio and Debt equity ratios, are popular

measurements. The ratios deliver key insights to evaluating a companys capital

structure. The debt ratio compares total liabilities to total assets. The debt equity ratio

which compares long term liabilities to total shareholders equity.

The formula to measure Debt ratio and Debt equity ratio:

Debt ratio = Total liabilities / Total assets and multiplied by 100.

(The percentage will indicate the proportion of debt on its total assets.

Higher ratio means higher debts, generally, lower ratio always favored)

Debt equity ratio = Long-term liabilities / total shareholders equity.

(The percentage will indicate the total debts for each ringgit of equity the

owners. The lower ratio is better for shareholders)

A) Leverage Ratio Computation of TRC Synergy Berhad for the year 2008

Properties Computation (RM) Percentage / Ratio

Total Assets RM 456,333,269 -Total Liabilities RM 189,465,987 -

Long-term Liabilities RM 7,981,776 -

Total Share holder Equity RM 266,867,282 -

DEBT RATIO RM 189,456,987RM 456,333,269

= 0.415172 X 100

= 41.52 %

DEBT RATIO

= 41.52 %

DEBT EQUITY RATIO RM 7,981,776RM 266,867,282

= 0.02990 X 100

= 2.99 %

DEBT EQUITY RATIO

= 2.99 %


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B) Leverage Ratio Computation of TRC Synergy Berhad for the year 2009

C) Leverage Ratio Computation of TRC Synergy Berhad for the year 2010


Total Assets RM 447,255,344 -

Total Liabilities RM 160, 912,423 -



DEBT RATIO RM 160,912,423

RM 447,255,344

= 0.35977 X 100

= 35.98 %

DEBT RATIO

= 35.98 %

DEBT EQUITY RATIO RM 7,174,785

RM 286,342,921

= 0.02505 X 100

= 2.51 %

DEBT EQUITY RATIO

= 2.51 %


Total Assets RM 458,081,723 -Total Liabilities RM 159,846,246 -



DEBT RATIO RM 159,846,246RM 458,081,723

= 0.34894 X 100

= 34.89 %

DEBT RATIO

= 34.89 %

DEBT EQUITY RATIO RM 1,205,553

RM 298,235,477

= 0.00404 X 100

= 0.40 %

DEBT EQUITY RATIO

= 0.40 %


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3.0 Capital Structure Analysis of TRC Synergy Berhad for the year 2008 until 2010

The strengths of a companys balance sheet can be evaluated by three categories, working

capital, assets and capital structure. A companys capital comprised of long-term capital, which

consist of debt and equity. A healthy proportion of equity capital is opposed to the over

dependent on debt capital. In financial term debt is a good example to increase the amount of

financial resources for the firms growth. There is an assumption that management can earn more

on borrowed funds than its payment of interest expenses on these funds. However, management

to maintain a solid record of commitment on its borrowings. On the other hand, a company with

high leverage may find its freedom restricted by its borrowers and may have its profitability

affected as a result of paying high interest costs. Incidentally, a company in highly competitive

business, if burdened with high debt may find its competitors taking advantage of its problems to

grab more market share. A companys reasonable use of debt and equity to support its assets is a

key indicator of strengths. A healthy capital structure, with a low debt and a proportionate level

of equity is a positive sign of investment quality.

TRC Synergy Berhad is a big public listed company with 2634 shareholders and more

than 5 million paid up capital shares. It is quite common for big companies capital structurehaving bigger debt obligations. TRC Synergy berhads Debt Ratio of 41.52% in year 2008,

35.98% in 2009 and 34.89% in the year 2010, indicates a significant decrease in debt ratio each

year, explains the firm is under the process of improving its debt margin. The change passively

achieved by improving in its fund management. The total liability of RM 189,465,987 in the year

2008, had been decreased to RM 159,846,246 in the year 2010. It shows that 15.63 % of the

companys debt leverage was dropped fairly and increased the capital equity. The capital equity

in the year 2008 is RM 266,867,282 meanwhile in the year 2010 is increase to RM 298,235,477.

Clearly, the companys capital management opt for equity financing than debt financing.

In general, the construction industry has a small debt ratio indication meansconstructions are in a good position to manage their funds independently. They have smaller

borrowings comparing other firms in different industries. It can be assumed that the stable

economy growth can be a factor for their strong financial positions.


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The Debt Equity Ratio also shows a good signs of improvements. Its long term debts are

far smaller and had decreased its leverage to a better management of its funds and have its

proportional funds left at bad times. A small long term liabilities means low interest servicing

can increase the shareholders equity to attract their confidence. The Debt Equity Ratio of the

TRC Synergy Berhad shows a good sign that its long term liabilities against its total equity is

only 2.99 % in year 2008, 2.51% in 2009 meanwhile in the year 2009 the debt equity ratio lower

than 1.0 % because of there is no details about borrowings at their financial statements. An

indication at almost zero debts of the firm. It means the shareholder equity have big

dividends.means the shareholders can count fair distribution of dividend. Smaller percentage of

debt equity ratio is always a good position against the leverage. The long term liabilities which

made up of bonds, preference shares and other similar long term maturity type borrowings, and

these holders cannot demand payment as long as the company pays the interest on its funded

debt.

In general, The financial leverages is smaller that construction industry which of its

funding most come from debts. Higher debt ratio sometime due to the size of the business can be

a factor for bigger debt financing.A small long term liabilities means low interest servicing canincrease the shareholders equity to attract their confidence.


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4.0 Capital Structure and Financial Condition evaluation of TRC Synergy Berhad.

The construction industry plays an important role for growth of the Malaysia

economy, which has contributed about 2.5 % of gross domestic product (GDP) in year

2010. In the Malaysia Master Plan 2006 2015, more than 800,000 job oppurtunities

have been created within these industries. Therefore efforts towards improving

construction efficiency in cost effectiveness and shorten construction time would be

implemented from time to time.

Construction industry in Malaysia considered as fragmented industry, whereby

policy, implementation guideline and practice within industry are inconsistent among the

players involved. TRC Synergy Berhad is a successful player in this construction industry

for more than 15 years. Capital structure decisions have the underlying aim towards

maximizing the value of a firm. Any event that could accumulate unnecessary costs such

as financial distress, liquidation and bankruptcy would deviate companies from attaining

this objective. The ultimate consequences lay ahead may be worst if any major

misjudgment occurred following financing decisions of the firms activity. Firm needs to

efficiently allocate its source of capital that will finally reduce its cost through lowering

its weighted cost of capital. The results will be increased in net economic return and

eventually its value. Thus, in todays financial management, regardless whether it is

property or construction or any other sectors, achieving the best capital structure is

crucial.

Since the financial condition of construction companies are very sensitive with

the economic cycle, the decision to finance the company with internal or external source

is very crucial. The results of the study show that large firms such as TRC Synergy

Berhad rely heavily on the debt financing. We also discovers that asset tangibility has

influence the most on the debt. The rationale behind this situation is that, when thecompany has more assets tangibility, the demand for debt in financing the assets is

also increased.


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Based on our analysis, TRC Synergy Berhad show a good financial performance

at each financial year. Debt payments are tax deductible. As such, if a company's tax rate

is high, using debt as a means of financing a project is attractive because the tax

deductibility of the debt payments protects some income from taxes. Based on our

analysis, TRC Synergy Berhad has the debt ratio in between 42.0 % and 32.0 %. More

stable and mature firms such as TRC Synergy Berhad typically need less debt to finance

growth as its revenues are stable and proven. These firms also generate cash flow, which

can be used to finance projects when they arise.

The debt equity of TRC Synergy Berhad is in between 3.0 % and 0.5 % means

the equity for each ringgit earns a sky fall dividends for their shareholders. Usually their

share rates are quite high in the market. They prefer more equity for their capitalstructure. Its proven when the total equity increase from RM 266,867,282 in the year

2008 to RM 298,235,477 in the year 2010. More equity means more shareholder, more

shareholders means more customers and more customers bring more profit. More profit

margin can cushion their overall operating expenses.

Generally shareholders would prefer smaller debt engagement will earn them a

bigger dividends. Company is to dispose off their financial obligations against the

shareholders dividends. Based on Hong Leong Research report, the EBIT ratio in the year

2010 is 20.4 % meanwhile in the year 2009 is 37.9 % shows that earnings before interest

and taxes increase and also indicate that the firms profitability increase in that particular

year.


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5.0 Summary

The study of capital structure on TRC Synergy Berhad in three subsequent years

finds that there is proven that financial management of the said firm at optimal standard

and best capital structure engagement. After analyzing a number of factors, a firm

establishes a target capital structure it believes is optimal according to its nature and

strength, which is used as a guide for raising funds for its operation.

The finding of the report shows, that TRC Synergy Berhad tends toward the

equity financing instead of the debt financing. Main source of external financing

available to firms is from commercial banks. These commercial banks encourage short

and secured loans only. Larger firms can easily get loans from banks of which likes to

advance loan to those are financially sound.

Consequently, a companys reasonable use of debt and equity to support a healthy

capital structure that reflects a low level of debt and corresponding a high level of equity

is a very positive sign of investment.

[ Total Words : 2453 ]


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6.0 Appendix

6.1 Balance Sheet of TRC Synergy Berhad (Year 2008)


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Assignment Final Finance