Foundation in natural built and environment Accounting FINAL

Taylor’s University | FNBE April 2014 | Basic Accounting (ACC 30205) | Financial Ratio Analysis

FOUNDATION IN NATURAL BUILT AND ENVIRONMENT

(FNBE)

Basic Accounting [ACC30205/FNBE0145]

Assignment: Financial Ratio Analysis – Cheetah (Domestic)

Group Members: Lee Ren Jet 0319058

Felix Vong Zhi Wei 0318462

Raymond Wah Yun Chen 0319115

Submission Date: Friday, 14/1/2014


A BRIEF BACKGROUND HISTORY OF CHEETAH

Cheetah was founded in 1977 and it was founded by the Chinese family. In

1972, Cheetah became famous as their products was launched towards the

market. During 1970s, sports apparel industry wasn’t as demanding as now

until Cheetah came in. Soon they decided to concentrate on its branding and

design, they also had expanded its brand portfolio with more brands for

different market, mainly towards casual life-style wear.

Their brand portfolio includes many different gender of casual life-style

wear like Cheetah Junior, Cheetah Ladies, C. Union, CTH Unlimited, C2 United,

CTH Ladies and Baby Cheetah. They also have an international brands like GQ

and Ladybird, which mainly focus towards mens’ business wear and children

wear.

After many years of their hard work and dedication, In 2005 they were

awarded the SUPERBRAND 2005 award. They are the first sportswear apparel

company to be recognized by the Award. Sooner and later, they were

recognized as one of Asia’s Top 200 Companies under US$1 billion in 2007 by a


famous magazine company called Forbes. They also received the Asia Pacific

Excellence Brand Award for the Excellence BRAND category in 2009 which

allows them to be so famous and trending in sport clothing’s for a couple of

years.

Cheetah was also listed on the2nd board of Bursa Malaysia as they decided

to turn their company into a public corporate company. It was listed under

Cheetah Holdings Berhad and in 2007 their listing has successfully listed to the

Main board of Bursa Malaysia.


PROFITABILITY RATIO

Profitability Ratios

2012

2013

Return on Equity (ROE) Net Profit Average O/E Profit of the year 2012 Average O/E 193753 298115 = 64.99%

Net Profit Average O/E Profit of the year 2013 Average O/E 186620 295557 = 63.14%

Net Profit Margin (NPM) Net Profit Net Sales Profit of the year 2012 Revenue 193753 1584780 = 12.22%

Net Profit Net Sales Profit of the tear 2013 Revenue 186620 1555149 = 12%

Gross Profit Margin (GPM) Gross Profit Net Sales Gross Profit Revenue 579548 1584780 = 36.57%

Gross Profit Net Sales Gross Profit Revenue 570766 1555149 = 36.7%

Selling Expenses Ratio (SER) Total Selling Expenses Net Sales Sales & Distribution Exp. Revenue 295795 1584780 = 18.66%

Total Selling Expenses Net Sales Sales & Distribution Exp. Revenue

289070 1555149 = 18.59%

General Expenses Ratio (GER) Total General Expenses Net Sales Administrative & Other Exp. Revenue 42256+2980 1584780 = 2.85%

Total General Expenses Net Sales Administrative & Other Exp. Revenue 44920+3563 1555149 = 3.12%

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PROFITABILITY

RATIOS

INTERPRETATION

Return on Equity (ROE)

During the year 2012-2013 period, the business Return of Equity (ROE) has

decreased from 64.99% to 63.14%. This means that Cheetah is getting slightly

less return from the capital than last year.

Net Profit Margin (NPM)

During the year 2012-2013 period, the business Net Profit Margin (NPM) has

decreased from 12.22% to 12%. This means that the business of is getting

worse at controlling its overall expenses.

Financial Expenses Ratio (GER) Total Financial Expenses Net Sales Finance Cost Revenue 4971 1584780 = 0.31%

Total Financial Expenses Net Sales Finance Cost Revenue 5318 1555149 = 0.34%

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Gross Profit Margin (GPM)

During the year 2012-2013 period, the business Gross Profit Margin (GPM) has

increased from 36.57% to 36.7%. This means that the business is getting better

at controlling its Cost of Goods Sold expenses.

Selling Expenses Ratio (SER)

During the year 2012-2013 period, the business Selling Expenses Ratio (SER)

has decreased from 18.66% to 18.59%. This means that the business is getting

better at controlling its selling expenses.

General Expenses Ratio (GER)

During the year 2012-2013 period, the business General Expenses Ratio (GER)

has increased from 2.85% to 3.12%. This means that the business is getting

worse at controlling its general expenses.

Financial Expenses Ratio (FER)

During the year 2012-2013 period, the business Financial Expenses Ratio (FER)

has increased from 0.31% to 0.34%. This means that the business is getting

worse at controlling its financial expenses.


Financial Stability Ratios

2012

2013

Working Capital Ratio

(WCR)

Total Current Assets Total Current Liabilities 127,792,142 31,664,071 = 4.04 : 1

Total Current Assets Total Current Liabilities

138,666,315 36,818,719

= 3.77 : 1

Total Debt Ratio (TDR)

Total Liabilities Total Assets 33,105,744 151,349,581 x100 = 21.87%

Total Liabilities Total Assets 38,138,967 161,789,850 x100 = 23.57%

Stock Turnover

Ratio (STR)

Cost of Goods Sold Average Inventory 75,280,459 81,379,899

= 39.9 Days

Cost of Goods Sold Average Inventory

75,272,539 76,986,147

= 37.3 Days

Debtor Turnover

Ratio (DTR)

365 days ÷ Credit Sales

Average Debtors

= 365 days ÷ 23,305,238

22,388,448

= 350.6 Days

365 days ÷ Credit Sales

Average Debtors

= 365 days ÷ 21,994,374

28,420,796

= 471.6 Days

Interest

Coverage Ratio (ICR)

Interest Expense + Net Profit

Interest Expense

= 286,598−10,862,806

286,598

=338.9 times

Interest Expense+Net Profit

Interest Expense

= 222,283−9,517,078

222,283

=43.8 times

365 Days ÷

365 Days ÷

365 Days ÷


STABILITY RATIOS

Working Capital Ratio (WCR) During the year 2012-2013 period, the business Working Capital Ratio (WCR)

has decreased from 4.04 : 1 to 3.77 : 1. This means that the business ability to pay its current liabilities is getting worse. In addition, it does not satisfied the

minimum requirement of 2 : 1.

Total Debt Ratio (TDR)

During the year 2012-2013 period, the business Total Debt Ratio (TDR) has increased from 21.87% to 23.57%. This means that the business total debt has

increased. In addition, it is still over the maximum limit 50%.

Stock Turnover Ratio (STR)

During the year 2012-2013 period, the business Stock Turnover Ratio (STR) has decreased from 39.9 days to 37.3 days. This means that the business is getting

faster at selling their goods.

Debtor Turnover Ratio (DTR)

During the year 2012-2013 period, the business Debtor Turnover ratio (DTR) has increased from 350 days to 471.6 days. This means that the business is

getting slower in collecting its debts.

Interest Coverage Ratio (ICR)

During the year 2012-2013 period, the business Interest Coverage Ratio (ICR) has increased from 38.9 times to 43.8 times. This means that the business ability

to pay its interest is getting worse. In addition, it does not satisfied the minimum requirement of 5 times.


RECENT DEVELOPMENT

In 2009, Cheetah has fully centralized their company. They

company operation consists of designing, warehousing,

marketing and distribution. They also upgraded their

company into a new 100000sq ft building where the

management can oversees every department.

Recently in 2013, Local Apparel Cheetah Holdings’ net profit

has fall 27%. From rm2.82 million to rm2.05 million. They

also scrap the dividend policy by not paying 30% of its net

profit from this financial year, so that they can save their

funds and use it in business opportunities such as

promotional activities and events.

After a year has passed, they had decided to target 15%

revenue growth. They had confirmed that they will be

making a promotion to clear off their stocks so that they

could get back their cash. Besides doing promotion, they will

be upgrading their clothing as well, better materials,

attractive designs and etc.


PE RATIO

P/E ratio = 𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐬𝐡𝐚𝐫𝐞 𝐩𝐫𝐢𝐜𝐞

𝐄𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐩𝐞𝐫 𝐬𝐡𝐚𝐫𝐞

= 𝟎.𝟒𝟗

𝟎.𝟎𝟕

= 7

A P/E of 7 means that an investor of The

Cheetah Company will need to wait for 7

years to recoup his investment. In this case,

the P/E ratio of Cheetah is lower than what a

conservative buyer would pay, which is 15. It

is also consider fast too because investor can

reclaim back his original principal in 7 years

time.


Investment Recommendation

Based on our opinion, we would not recommend that Cheetah

Company is worth the time investing. Even though Cheetah Company

has shown really cheap share price, their profitability and stability

rate is really weak.

Base on the Profitability Ratio on top of this page, their Return on

Equity has decreased as thier business is getting less return from his

capital. Although their Selling Expenses Ratio (SER) and Gross Profit

Margin (GPM) are getting better in their expenses, their General

Expenses Ratio (GER) and Financial Expenses Ratio (FER) are really

bad at controlling the expenses which also affects their overall

expenses(NET PROFIT MARGIN). In conclusion, their company isn’t

profitable at all.

As for their stability ratio, their company is bad in paying its current

liabilities because their Working Capital Ratio (WCR) is decreasing

and they didn’t even reach the requirement of 2:1. Inventory

Turnover Ratio has shown that they are fast in selling their goods but

their debts have increased and their business is also slow in

collecting its debts. In this case, their stability is really weak.


Last but not least, even though their share price ratio is 7, I wouldn’t

recommend that Cheetah Company is worth investing because their

company’s progress is getting really weak and unprofitable.

REFERENCE

1. Cheetah Holdings Bhd - 7209(CHEETAH). (n.d.). Retrieved January 16,

2015, from http://www.bursawave.com/stock-search/stock/cheetah-

holdings-bhd-2064/

2. Cheetah targets 15% revenue growth | theSundaily. (n.d.). Retrieved

January 16, 2015, from http://www.thesundaily.my/news/1232761

3. CHEETAH HOLDINGS BHD. (n.d.). Retrieved January 16, 2015, from

http://finance.yahoo.com/q?s=7209.KL&ql=0

4. Cheetah. (n.d.). Retrieved January 16, 2015, from http://cheetah-

online.com/index.php?option=com_content&view=frontpage&Itemid=1

5. Stocks | The Star Online. (n.d.). Retrieved January 16, 2015, from

http://www.thestar.com.my/Business/Marketwatch/Stocks/?qcounter=

CHEETAH

6. Cheetah scraps dividend policy | theSundaily. (n.d.). Retrieved January

16, 2015, from http://www.thesundaily.my/news/816734

http://www.bursawave.com/stock-search/stock/cheetah-holdings-bhd-2064/

http://www.bursawave.com/stock-search/stock/cheetah-holdings-bhd-2064/

http://www.thesundaily.my/news/1232761

http://finance.yahoo.com/q?s=7209.KL&ql=0

http://cheetah-online.com/index.php?option=com_content&view=frontpage&Itemid=1

http://cheetah-online.com/index.php?option=com_content&view=frontpage&Itemid=1

http://www.thestar.com.my/Business/Marketwatch/Stocks/?qcounter=CHEETAH

http://www.thestar.com.my/Business/Marketwatch/Stocks/?qcounter=CHEETAH


APPENDIX






Education

Foundation in natural built and environment Accounting FINAL