Abstract
Financial analysis is an essential tool in the hands of the manager, as it is with its help the decisions related to the company’s finances are taken. Without the analysis and grounds for making such management decisions, the firm cannot achieve the desired level of income, or the lack of financial settlement will lead the company to bankruptcy. The purpose of the assignment was to perform financial analysis of a company listed on the Bursa Malaysia. Dominant Enterprise Berhad was chosen for the completion. The Malaysia-located company turned into public listed organization with thirteen subsidiaries, operating on production of wood goods and supply of wood goods sectors, which make company’s major revenue sources.
It was found that timber market can be considered a monopolistic competition, where relatively large number of firms operates, producing differentiated products, among which there is the price and non-price competition. Performed analysis of financial ratios showed that Dominant Enterprise Berhad had high liquidity, almost equal dependence on the borrowed and own funds, proper use of inventories and assets in manufacturing wood products and favorable profitability. Comparing to its major competitor, Lion Forest Industries Bhd, DEB had more stable and feasible financial position. Used DuPont model for the evaluation of company’s Return on Equity showed that the crucial cause for the fluctuations in ROE over FY2013-2015 was in the variations in profitability calculated by Return on Assets (ROA). According to three-component disaggregation of ROE, the major cause of the decline in Return on Equity (ROE) within FY2013-2015 is the reduction in efficacy calculated by Asset Turnover and Net Profit margin. DEB’s positive result of Net Working Capital showed company’s proper intensions of using its assets.
Introduction
After several years of global economic crisis, the financial analysis of the urgency has increased significantly, because now not only company’s success, but the most elementary survival in the current crisis, depends on its financial condition. That is why, today, the analysis of the financial condition of the company is paid a lot of attention, not only on the part of its shareholders, who want to know all economic component of the firm inside and out, but also by many stakeholders, who are planning to implement their monetary investment in it (Brigham and Ehrhardt, 2013). During the conduct of business, leaders constantly have to take a number of management decisions, many of which depend not only on the success and effectiveness of the company, but also its very existence as a whole. The adoption of such solutions as an investment or asset allocation is not possible without the financial analysis (Sloman, Wride and Garrat, 2012).
Good financial position is characterized by the effective use of resources, the best ratio of current assets and liabilities in the balance sheet and the ability of the organization in time and to fully pay its debts by internal means (Keown, Martin, Petty and Scott, 2001). Poor financial condition threatens the existence of the company and describes it as efficiently utilizing available tools, resources, and not ready to fulfill its obligations. The end point is the poor financial situation of bankruptcy, the inability of the company to pay its obligations from existing assets (Brigham and Daves, 2007).
As the purpose of the assignment is to perform financial analysis of a company listed on the Bursa Malaysia, Dominant Enterprise Berhad was chosen for the completion. The company is engaged in the production of ecologically clear engineered wood decorations, laminated wood panel goods along with the supply and export of a varied assortment of wood products internationally (Dominant Enterprise Berhad, 2016). The analysis will be conducted on the basis of its previous three years performance. As company’s financial years ended March 31, its Annual Reports of 2013, 2014 and 2015 as secondary sources will be taken for consideration during performance of external financial analysis.
Dominant Enterprise Berhad: Industry of Operation and Revenue Sources
Company Background
Dominant Enterprise Berhad (DEB) started its operation in 1992 as the supplier in Singapore under AIPL. Later, the Malaysia-located company turned into public listed organization with thirteen subsidiaries, offering management services, and $68 million of market capitalization (Dominant Enterprise Berhad, 2016). The organization operating sectors consist of production of wood goods and supply of wood goods. The production of wood goods sector is engaged in producing of laminated wood panel goods and primed medium thickness fiberboard moldings, covered decorations and furniture constituents. Concerning the supplying of wood goods sector, it includes delivery of wood items and building resources. Additionally, Dominant Enterprise Berhad specializes on investment and possessions’ holding (Financial Times, 2016a). Dominant Enterprise Berhad functions in four Southeast Asian countries (namely Malaysia, Singapore, Vietnam and Thailand) and Australia. However, its distribution sector penetrated markets of Pacific Island and Indian Ocean states (Dominant Enterprise Berhad, 2015). DEB’s affiliates consist of (Financial Times, 2016a; Dominant Enterprise Berhad, 2016):
Premier Woodprofile Sdn. Bhd. (producer of quality moderate and light thickness MDF moldings);
Bripanel Industries Sdn. Bhd. (producer and supplier of Plain & PVC & PU laminated MDF, particleboard and other ornamental wood panels goods along with primed MDF and covered decorations);
Ecopanel Industries Sdn. Bhd. (producer of structural insulated panel);
Akati Wood (Vietnam) Co., Ltd (producing and marketing laminated panel goods in Vietnam);
Combi Trading Sdn. Bhd. (the wholesale supplier of durable products);
Ikta Sdn. Bhd. (distributor of wood panel items);
Jurihan Sdn. Bhd. (the supplier of plywood to furniture producers and building resources to wholesalers);
Kim Guan Impex Sdn. Bhd. (supplier of wood panel goods and building resources);
Green Panel Pty Ltd (importer and supplier of wood panel goods);
Favor Woodpanel (Thailand) Co Ltd (importer and supplier of wood panel goods);
Akati Impex Pte. Ltd (one of the crucial wood panel traders in Singapore);
Damai Estate Sdn. Bhd. (provider of investment holding and possessions’ management amenities); and
Wira Land Development Sdn. Bhd. (property development market operation).
Industry of Operation
Timber market can be considered a monopolistic competition, where relatively large number of firms operate, producing differentiated products, among which there is the price and non-price competition. The thing is that timber complex includes very diverse and unlike each other’s productions, which combines the use of a single unique by nature raw material, namely wood. Commodity structure of the global timber market is quite complicated (Krugman and Wells, 2012).
Malaysia’s timber segment generates stable export incomes and is a key job offer. The market gets Government’s support over different motivational programs and state R&D spending. The country manufactures wood products mostly for export, which accounts for almost $3.8 billion, out of which almost 32% is contributed by the export of wooden furniture (Global Wood, 2015). However, the wood production in the country decreased by 0.2% within 2010-2015 (Food and Agriculture Organization of the United Nations, 2015). At the same time, the United States, Russia and Canada occupy the highest positions among wood manufacturers in the world. The United States and the European Union are the biggest consumers of timber industry. More than a billion people rely on woods and the amenities they provide (CDP, 2014). The company’s competitors are presented on the Figure 1, among which Lion Forest Industries Bhd and AYS Ventures Bhd are the leading by revenue (Financial Times, 2016a).
Figure 1. Dominant Enterprise Berhad’s Competitors
Revenue Sources
Speaking about DEB’s main revenue sources, it should be stated that the distribution sector is still considered as the largest provider at almost 84% of FY2015 organization’s proceeds (Dominant Enterprise Berhad, 2015). In FY2014, this revenue source was also the biggest, making up 83.8% of the total organization’s proceeds. The reason of its increase compared to FY2013 by over 21% was in the penetration of Thailand and the Philippines (Dominant Enterprise Berhad, 2014). Apart from the disposal growth of RM4.3 million, the sector’s operating profit increased by 19.4% as well to RM24.6 million in FY2015 by RM4.0 million compared to FY2014, mainly attributable to greater proceeds and extensive range of supply. In the interim, the production sector proceeds raised by almost 17% to RM90.0 million in FY2015, while in FY2014, the segment’s share was lower by RM13.0 million. This growth was caused by the market share development into East Malaysia, Thailand and the Philippines along with value added goods and new product development processes (Dominant Enterprise Berhad, 2015). In FY2014, except for the producing and distribution sectors, the balance RM0.5 million of the DEB’s proceeds was supplemented by the rental revenue from the business construction in Johor Bahru, which was finished and leased out within the year (Dominant Enterprise Berhad, 2014).
Thus, it can be said that Dominant Enterprise Berhad, when choosing ways to increase profit, is oriented mainly on internal factors affecting the profit margin. Its major revenue sources come from supplying and manufacturing activities. Company’s position in the market is quite positive and strong with the 3rd place by the revenue among its competitors.
Ratio Analysis of Dominant Enterprise Berhad and Lion Forest Industries Bhd
Analysis of financial ratios is one of the most common systems of financial analysis, which methods are calculations of certain financial ratio indicators, describing various aspects of the financial activities of the company. In financial management, the greatest spread was received by the following groups of analytical financial ratios, namely ratios of the company’s financial stability assessment, evaluation of the company’s solvency ratios, asset (capital) turnover evaluation ratios and ratios of profitability estimation and others (Investopedia, n. d.).
Liquidity Ratios
The liquidity of the company is its ability to carry out its obligations under all types of payments in a timely manner. Current ratio measures organization’s ability to pay temporary duties. Cash ratio describes the organization’s ability to reimburse the temporary responsibilities through cash assets on account and temporary investments. Quick asset ratio characterizes the company’s ability to meet its current obligations with the most liquid (traded in the money) assets (Brigham and Houston, 2011).
Performed calculations of Dominant Enterprise Berhad’s liquidity ratios show that the company can easily reimburse its temporary obligations. Current and Quick Asset ratios are within normal values and even their change within three years did not affect this ability. Also, these indicators show positive trend (Figure 2). However, its cash and cash equivalents can poorly assist in repayment’s issue as the company has more illiquid current assets, which in case of urgent sale can lose some value (Dominant Enterprise Berhad, 2013; Dominant Enterprise Berhad, 2015).
Figure 2. Dynamics of Liquidity Ratios of Dominant Enterprise Berhad, FY2013-2015
Speaking about DEB’s competitor, Lion Forest Industries Bhd (investment holding, trader and supplier of building resources), its liquidity position is much stronger (Figure 3) with the current ratio of 5 and its negative tendency and quick ratio of 4.57 (Financial Times, 2016b). However, within the industry the situation of both companies is quite positive (the value of current ratio is 0.69) (Reuters, 2016).
Figure 3. Dynamics of Current Ratios of Dominant Enterprise Berhad and Lion Forest Industries Bhd, FY2013-2015
Leverage Ratios
Leverage concerns the amount of debt, which the company has on its balance sheet. This indicator evaluates financial wellbeing. Usually, the more debt a company has, the riskier its stock is, as debt-owners cover first asserts to an organization’s assets (Elliot and Elliot, 2010).
DEB’s Debt to equity ratio is lower than the industry value of 89.4%, which means that the company depends on own and borrowed funds, while companies of the industry mostly rely on the borrowed assets. However, DEB’s total debt increased within FY2013-2015 by almost 40% (Dominant Enterprise Berhad, 2013; Dominant Enterprise Berhad, 2015). Concerning Lion Forest Industries Bhd, the company has significant shareholder’s equity and properly finances itself (Financial Times, 2016b). According to Figure 4, Dominant has positive trend of the ratio, while Lion – negative. It means that Dominant’s dependence on the borrowed funds will increase, ceteris paribus, while Lion’s dependence – decrease. Nevertheless, attraction of additional borrowings is profitable for the enterprise, in terms of getting additional income, provided the aggregate return on equity exceeds the return on borrowed one (Ittelson, 2009).
Figure 4. Dynamics of Debt/Equity Ratios of Dominant Enterprise Berhad and Lion Forest Industries Bhd, FY2013-2015
Asset Management Ratios
Asset management ratios are necessary to understand the optimal amount of company’s assets for the existing production initiatives. Inventory turnover is an activity ratio calculated as cost of revenue divided by inventory. Asset turnover is an activity ratio calculated as total revenue divided by total assets (Brigham and Daves, 2007).
Within three years DEB’s Inventory turnover ratio increased and shows positive trend (Figure 5), however the industry value is much lower (1.85 for Inventory turnover and 0.44 – for Asset turnover) (Reuters, 2016), while its competitor’s indicators are higher by almost eight times (Financial Times, 2016b). It means that DEB actively uses its assets for the manufacturing of wood products. High Inventory turnover ratio describes either strong sales or ineffective buying. Asset turnover shows negative tendency (Figure 6).
Figure 5. Dynamics of Inventory Turnover Ratio of Dominant Enterprise Berhad and Lion Forest Industries Bhd, FY2013-2015
Figure 6. Dynamics of Asset Turnover Ratio of Dominant Enterprise Berhad and Lion Forest Industries Bhd, FY2013-2015
Profitability Ratios
Profitability characterizes an organization’s capability to earn money compared with sales, possessions and equity. These ratios evaluate the capability of a firm to generate incomes, profits and cash flows concerning some metric, frequently the sum of funds invested. They emphasize how successfully the profitability of a firm is being brought about. Profit margin is an indicator of profitability that assesses the amount of money every dollar brings from sales (Brigham and Ehrhardt, 2013).
Return on equity specifies whether the organization is generating sufficient amount of proceeds for its shareholders. DEB generates 10% with the highest value in FY2014 (Dominant Enterprise Berhad, 2013; Dominant Enterprise Berhad, 2015). The industry value of ROE is 5% (Reuters, 2016). Lion Forest Industries Bhd has negative net income, thus, its ROE is also negative (Financial Times, 2016b). The higher the ROE is, the better it is for the company (Figure 7). DEB’s profit margin informs that it has better control over its expenses in comparison with its competitor, who has negative value (Figure 8). The value corresponds to the industry’s one (Reuters, 2016).
Figure 7. Dynamics of Return on Equity Ratio of Dominant Enterprise Berhad and Lion Forest Industries Bhd, FY2013-2015
Figure 8. Dynamics of Profit Margin Ratio of Dominant Enterprise Berhad and Lion Forest Industries Bhd, FY2013-2015
DuPont Model
DuPont Model is another approach, which can be applied to examine the profitability of using conventional methods to define the efficiency of management. For this technique DuPont incorporates data from the Income Statement and Balance Sheet. The model was elaborated by F. Donaldson Brown, who became an employee of the financial business unit of a big chemical organization in 1914 (Rothaermel, 2015). After the first large-scale program of reengineering in the U.S., the DuPont approach received the fame in all main U.S. companies. The crucial advantages of this technique include its simplicity, proper link to compensation plan and application to persuade management in the necessity for particular actions to advance the professional rate of purchasing or sales functions. Disadvantages of DuPont approach consider unreliable performance of accounting and lack of cost of capital in calculations (Ittelson, 2009).
Two-Component Disaggregation of ROE for Dominant Enterprise Berhad
The crucial cause for the fluctuations in Return on Equity (ROE) over FY2013-2015 is the variations in profitability calculated by Return on Assets (ROA).
There is also Three-Component Disaggregation of ROE for Dominant Enterprise Berhad
The major cause of the decline in Return on Equity (ROE) within FY2013-2015 is the reduction in efficacy calculated by Asset Turnover and Net Profit margin.
It should be noted that the structure of the DEB’s assets as of March 31, 2015, is characterized by an excess of current assets over total fixed assets (68.9% over 31.1%). Total assets within three years have increased by almost RM105 million (37.7%). Noting the increase in assets, it is important to pay attention that equity increased to at about the same extent – by 36.5%. The growth in the assets of Dominant Enterprise Berhad is associated mostly with the growth of the following items of the balance assets, namely Cash (by 80%), Plant & Equipment (by 79.4%) and growth in Trade and other receivables (by 37.3%). The increase of total liabilities made up 39.3% due to short-term borrowings (Dominant Enterprise Berhad, 2013; Dominant Enterprise Berhad, 2014; Dominant Enterprise Berhad, 2015).
Summary of Comparative Analysis
The owners analyze financial statements in order to find ways to improve the return on capital, ensure the stability of the company position. Lenders and investors analyze financial statements in order to minimize their risks on loans and deposits. Making a decision about investing in the capital or the enterprise (for example, under bank loan), each investor assesses the risks that might arise. An important role is played by the assessment of the financial condition of the enterprise and its performance (Brigham and Ehrhardt, 2013).
In general, Dominant Enterprise Berhad is financially consistent organization. It has sufficient number of equity for serving obligations, liquid assets, proper application of invested assets and materials. The company operates on the monopolistic competition market.
The use of comparison method makes it possible to find the causes and impact of dynamic changes and deviations of the balance of the liquidity and profitability of the activity, and find reserves to increase profits. Comparative analysis should be made for a certain period of activity of not only one company (internal benchmarking), but also the comparison of reporting two-and more like entities (external benchmarking) (Ittelson, 2009).
Thus, during the comparison of Dominant Enterprise Berhad with one of its competitors, Lion Forest Industries Bhd, the following items can be defined:
Lion Forest Industries Bhd’s liquidity position is much stronger with the current ratio of 5 and quick ratio of 4.57 than of Dominant Enterprise Berhad with current ratio of 1.74 and quick ratio of 2.0. However, both companies can easily reimburse their temporary obligations;
DEB’s Debt to equity ratio is lower than the industry value of 89.4%, which means that the company equally depends on own and borrowed funds, while companies of the industry mostly rely on the borrowed assets. Concerning Lion Forest Industries Bhd, the company has significant shareholder’s equity and properly finances itself (Financial Times, 2016b);
Inventory turnover and Asset turnover ratios of Lion Forest Industries Bhd are higher by almost eight times compared to Dominant Enterprise Berhad (Financial Times, 2016b).
Lion Forest Industries Bhd has negative net income, thus, its ROE is also negative (Financial Times, 2016b). The industry value makes up 5%, while DEB’s indicator comprises 10%.
The increase in the Dominant Enterprise Berhad’s assets by 37.7% was achieved as a result of its own funds and the sources of growth were covered by increasing the liabilities of the enterprise. Lion Forest Industries Bhd’s assets declined by 10.9% due to the decrease in the cash and temporary investments almost twice. The share of own funds of the Dominant Enterprise Berhad increased by 36.5%. as for the Lion Forest Industries Bhd, its shareholder’s equity also decreased by 7.8%. During the reporting period, in absolute and relative size, reserves and costs of the Dominant Enterprise Berhad increased. At the same time, the value of money and other assets decreased, their share in total assets of the Company decreased in comparison with the value of FY2013 (by 5.3%) due to the value of cash and short-term investments. The value of money of Lion Forest Industries Bhd decreased also because of cash and short-term investments (Financial Times, 2016a and b).
However, the level of risk of investing in companies is low. The reason for the stability of investments with low risk is low volatility assets: where a sharp rise is absent, there are no sharp and sudden drops. Many investors try to choose assets with low risk, guided by the concept – the lower the risk is, the higher the profit will be. As a rule, in the area of finance, risk is the uncertainty of profitability expected by the investor. That is, a person can lose more than expected. This is the main reason why many investors prefer investments with low risk. Such investment is considered, with a low likelihood of loss of part or all investment amounts. This type of investment is particularly suitable for those, who take their hard loss. When selecting investments with low risk, normal profit, in line with expectations. In the case of investments with low risk the attention should be paid to the fact that the relationship between risk and expected return implies a lower rate of return with little risk. Low profitability is a necessary compromise in the case of investments with low risk. In this case, it takes less time to gather information and monitor investments (Rothaermel, 2015).
Working Capital Management and Capital Investment Appraisal
Net working capital is monetary support of circulating assets at the expense of all the possible ways to cover the costs, namely its working capital, loans obtained in the long term, which are to provide working capital, and loans short-term periods. The presence and the increase in net working capital (NWC) is essential for the maintenance of liquidity and financial stability of the company. The value of the net working capital shows how much of current assets is financed by capital invested equity and long-term liabilities (Brigham and Houston, 2011). DEB’s value of NWC increased from RM96 in FY2013 to almost RM112 in FY2015. The main reason of the active growth of NWC is strong growth in equity due to the high profitability of activities and a high level of self-financing company (Dominant Enterprise Berhad, 2013; Dominant Enterprise Berhad, 2014; Dominant Enterprise Berhad, 2015).
The positive value of the indicator indicates a full repayment of liabilities due to sale of current assets. It also demonstrates the correct intension of using by Dominant Enterprise Berhad of its assets (but it is important to control this amount in order to avoid its significant growth as this situation will indicate an inefficient allocation of funds, large volumes of reserves or problems with the payment of production by buyers). The successful operation of the business entity depends on the security of its working capital, so it is the most important category of business economics. Current assets as stocks and materials are directly involved in production, so the lack of means of data leads to a decrease in volumes of manufacture of the goods and the bankruptcy of the enterprise (Elliot and Elliot, 2010). Dominant Enterprise Berhad’s assets increased within three years by almost 38%.
Nevertheless, it is necessary to work on the optimization. There is a set of standard measures to optimize working capital:
Reduction of production needs in inventories, supply optimization (i.e., reducing the amount of illiquid assets): the identification of excess inventory levels; reducing the cost of procurement of raw materials (including the revision of schemes of logistics, reduced transportation and storage costs of goods and materials); reducing the number of products, located in the manufacturing process (work in progress), which will reduce the amount of working capital in the current period (Brigham and Daves, 2007);
Decrease in the proportion of various liabilities (accounts receivable and accounts payable): the introduction of a system of effective monitoring of payments; minimization of the debt write-off customers and facts on debts; renegotiation of installments’ conditions of payments to suppliers and customers (Brigham and Ehrhardt, 2013); and
Monitoring of economic performance in the current period, the development of systems for responding to the negative dynamics of these indicators.
Capital expenditures and investments in the company are planned for the following innovative projects (Ittelson, 2009):
- Implementation of research, experimental, design and technological organization of work;
- The acquisition, dismantling, delivery, installation, commissioning and development of production equipment and manufacturing process equipment;
- The development of production and refinement of product prototypes, production of models and samples, design objects and means of labor;
- Construction and reconstruction of buildings and structures, the establishment or rent production of space and jobs, as well as other elements of capital assets directly linked to the implementation of the project of new products;
- The completion of standard working capital resulting from implementation of planned processes or manufacturing products;
- Prevention of negative social, economic and other consequences caused by the proposed project.
Market capitalization is the total value of the shares of the company, is used together with indicators of performance of the company in the calculation of a large number of parameters needed to determine the future profitability of investments (Brigham and Daves, 2007). Dominant Enterprise Berhad belongs to companies with high capitalization as its value makes up almost RM190 million, 4th position among 15 companies. It means that it is regarded as the safest investment for those, who wish to receive a steady income, because they usually pay dividends on a regular basis, rather than companies with low or mid-cap.
Large companies have access to more intensive funding and more resources, making them more resilient to volatile economic conditions. During economic subsidence, sharp rise in the number of investments in these companies because of their safety is possible. The liquidity of companies with high capitalization is also higher, which leads to reduced volatility and a greater chance of getting the price, at which the company wants to sell them (Brigham and Ehrhardt, 2013).
The Malaysian economy is projected to stay on a healthy increase course, with BNM forecasting GDP growth varying from 4.5% to 5.5% sustained by local demand as the crucial driver. Although private consumption is projected to restrain as households modify to the adoption of the Products and Services Tax, the moderately steady labor industry is forecasted to support household expenditure. These elaborations paint an optimistic viewpoint for the Dominant Enterprise Berhad, as company’s opportunities are principally hinged on the condition of the Malaysian market and the furniture segment. The company plans to sustain its competitive gain by developing new designs and value-added characteristics to enlarge its product assortment to meet its consumers’ perceptive requirements. Simultaneously, the company will leverage on its economies of scale in order to improve its production expenses and receive a competitive gain in both the local and global markets (Dominant Enterprise Berhad, 2015).
Thus, the company, which has reached this size, is usually able to make further investments in product development, behind which there is already a brand. When a large company announces the release of a new technology or product, based on cutting-edge developments, this usually leads to a positive response from traders and investors. Taking advantage of the companies with high capitalization is more difficult, than companies with low or medium, as it is difficult to find an available to public information about them, which is not known to all trades. Investing in large companies is still fraught with risk, and despite a history of success, there is no guarantee that a first-class portfolio with low risk will bring a steady income for long periods of time. Selecting the data to determine the level of income depends on the stage of the company’s estimated life cycle. As Dominant Enterprise Berhad has a relatively stable income and a sufficiently clear trend development over the three years, the prediction can be made on the basis of retrospective (historic) information.
Conclusion
One of the most important conditions for the successful organization of financial management is an analysis of its financial condition. The financial condition of the organization is characterized by a set of indicators that reflect the process of formation and use of its funds. In a market economy, the financial condition of the organization in fact reflects the final results of its operations. It was the final performance of the organizations interested in the owners (shareholders) of the company, its business partners and tax authorities. All this determines the importance of analyzing the financial condition of the economic entity and enhances the role of the analysis of economic processes (Brigham and Ehrhardt, 2013).
Decision analysis of related tasks allows providing basic financial management functions (Brigham and Ehrhardt, 2013):
• Management of the current stability of the organization, its liquidity, solvency and short-term financing sources;
• Management of financial market stability of the organization;
• Management of investment activity of the organization;
• Management of long-term sources of funding for business development;
• Portfolio management, long-term and short-term investments;
• Financial management of the company in its reorganization and liquidation in bankruptcy conditions in the international capital markets.
Financial ratios are used to compare indicators of the financial condition of a particular company with those of other companies or industry averages; to identify the dynamics of the development of indicators and trends in the financial condition of the company; to determine the normal restrictions and criteria for the various parties’ financial condition (Brigham and Ehrhardt, 2013).
Dominant Enterrpise Berhad occupies one of the leading positions in the Malaysian timber industry with market capitalization of $68 million. Speaking about DEB’s main revenue sources, it should be stated that the distribution sector is still considered as the largest provider at almost 84% of FY2015 organization’s proceeds (Dominant Enterprise Berhad, 2015). In the interim, the production sector proceeds raised by almost 17% to RM90.0 million in FY2015, while in FY2014, the segment’s share was lower by RM13.0 million. Dominant Enterprise Berhad’s liquidity ratios show that the company can easily reimburse its temporary obligations. The company equally depends on own and borrowed funds, while companies of the industry mostly rely on the borrowed assets. DEB actively uses its assets for the manufacturing of wood products. DEB generates 10% with the highest value in FY2014 (Dominant Enterprise Berhad, 2013; Dominant Enterprise Berhad, 2015). The crucial cause for the fluctuations in Return on Equity (ROE) according to DuPont model (two-component disaggregation of ROE) over FY2013-2015 is the variations in profitability calculated by Return on Assets (ROA). The major cause of the decline in Return on Equity (ROE) according to DuPont model (three-component disaggregation of ROE) within FY2013-2015 is the reduction in efficacy calculated by Asset Turnover and Net Profit margin.
The increase in the company assets by 37.7% was achieved as a result of its own funds and the sources of growth were covered by increasing the liabilities of the enterprise. The share of own funds increased by 36.5%. During the reporting period, in absolute and relative size, reserves and costs increased. At the same time, the value of money and other assets decreased, their share in total assets of the Company decreased in comparison with the value of FY2013 (by 5.3%) due to the value of cash and short-term investments. The level of risk of investing in the company is low. DEB’s value of NWC increased from RM96 in FY2013 to almost RM112 in FY2015. The main reason of the active growth of NWC is strong growth in equity due to the high profitability of activities and a high level of self-financing company (Dominant Enterprise Berhad, 2013; Dominant Enterprise Berhad, 2014; Dominant Enterprise Berhad, 2015).
Thus, the Malaysian economy is projected to stay on a healthy increase course, with BNM forecasting GDP growth varying from 4.5% to 5.5% sustained by local demand as the crucial driver. That is why Dominant Enterprise Berhad has opportunities to further development.
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