Financial Performance & Strategic Issues: Celcom vs Maxis Analysis

This report provides a comprehensive financial analysis of Celcom, a subsidiary of Axiata Group Berhad, in comparison to its competitor Maxis Berhad, over the past five years. It begins by outlining the background and core business of Celcom, including its future outlook and key challenges in the competitive Malaysian telecommunications market. The analysis employs various financial ratios, including profitability (gross and net profit margins), liquidity (current and quick ratios), efficiency (receivable and inventory turnover ratios), solvency, and investor's ratios, to measure and compare the financial performance of both companies. The report interprets these ratios to determine which company has performed better in each category, identifies strategic and operational issues faced by Celcom, and offers recommendations for improvement. Key issues identified include revenue challenges, gearing concerns, expense management, and efficiency improvements. The report also acknowledges the limitations of ratio analysis and provides corresponding recommendations. Desklib offers similar solved assignments for students.

Running head: FINANCIAL ANALYSIS AND MANAGEMENT
Financial analysis and management
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1FINANCIAL ANALYSIS AND MANAGEMENT
Table of Contents
1.0 Introduction...........................................................................................................................2
2.0 Background of Celcom.........................................................................................................2
2.1 Nature of the core business...............................................................................................2
2.2 Future Outlook..................................................................................................................3
2.3 Key challenges..................................................................................................................3
3.0 Relative position in industry.................................................................................................3
4.0 Ratio analysis for measuring financial performance............................................................4
4.1 Background for ratio analysis...........................................................................................4
4.2 Rational for selecting Celcom and Maxis.........................................................................4
4.3 Profitability analysis.........................................................................................................4
4.3.1 Background................................................................................................................4
4.3.2 Profitability ratio table...............................................................................................5
4.3.3 Line graph..................................................................................................................5
4.3.4 Interpretation..............................................................................................................6
4.4 Liquidity analysis..............................................................................................................7
4.4.1 Background................................................................................................................7
4.4.2 Liquidity ratio table....................................................................................................7
4.4.3 Line graph..................................................................................................................8
4.4.4 Interpretations............................................................................................................8

2FINANCIAL ANALYSIS AND MANAGEMENT
4.5 Efficiency ratio..................................................................................................................9
4.5.1 Background................................................................................................................9
4.5.2 Efficiency ratio table................................................................................................10
4.5.3 Line graph................................................................................................................10
4.5.4 Interpretation............................................................................................................11
4.6 Solvency ratio.................................................................................................................11
4.6.1 Background..............................................................................................................11
4.6.2 Solvency ratio table..................................................................................................12
4.6.3 Line graph................................................................................................................12
4.6.4 Interpretation............................................................................................................13
4.7 Investor’s analysis...........................................................................................................14
4.7.1 Background..............................................................................................................14
4.7.2 Investor’s analysis ratio table...................................................................................14
4.7.3 Line graph................................................................................................................15
4.7.4 Interpretation............................................................................................................15
5.0 Identification of the operational and strategic issues and recommendation.......................16
5.1 Analysis of revenue.........................................................................................................16
5.1.1 Strategic issues.........................................................................................................17
5.1.2 Recommendation.....................................................................................................17
5.2 Gearing analysis..............................................................................................................17
5.2.1 Issues........................................................................................................................17
5.2.3 Recommendation.....................................................................................................17

3FINANCIAL ANALYSIS AND MANAGEMENT
5.3 Analysis of expenses.......................................................................................................17
5.3.1 Issues........................................................................................................................18
5.3.2 Recommendation.....................................................................................................18
5.4 Efficiency analysis..........................................................................................................18
5.4.1 Issues........................................................................................................................18
5.4.2 Recommendation.....................................................................................................19
6.0 Limitation of analysis.........................................................................................................19
6.1 Limitation of ratio analysis.............................................................................................19
6.2 Recommendation............................................................................................................19
References.................................................................................................................................20

4FINANCIAL ANALYSIS AND MANAGEMENT
1.0 Introduction
The report will focus on analysing the financial performance of Celcom
telecommunication as against the performance of Maxis for the past 5 years. The report will
concentrate on measuring various financial ratios for both the companies to analyse their
performance and position. It will further evaluate the strategic and operational issues of
Celcom.
Celcom started its operation as the STM Cellular Communication in the year 1988
along with Telekom Malaysia and Fleet Group. The company is the subsidiary of Axiata
Group Berhad. It was incorporated as private company on 12th June 1992 in Malaysia
(Celcom.com.my 2018).
On the other hand the competitor of Celcom that is Maxis Berhad is the investment
holding company that is based in Malaysia and is engaged in managing its operation in
telecommunication industry. Principally the company is engaged in telecommunication
provision, selling of devices and providing digital services. Major business activities of the
company include includes supply of post-paid and prepaid mobile services, providing network
facilities, fixed line services and various other digital, converged and related services.
Advanced Wireless Technologies Sdn. Bhd is the main subsidiary of Maxis Berhad that
operates the national network for public switched and provides applications and internet
services (Maxis 2018).
2.0 Background of Celcom
2.1 Nature of the core business
It delivers telecommunication services that include network services for fiber and
cellular optic transmission, data and voice transmission services through fixed and cellular

5FINANCIAL ANALYSIS AND MANAGEMENT
systems and the paging services. It also provides the training services regarding dealing under
marketable securities (Amba 2014). Further it provides unified messaging services that enable
the users to see fax message through Air Cash services and Web that allows instant access to
the money through the mobile phones of client
2.2 Future Outlook
The company has made good progress with regard to revamp of digital customer’s
experience. Further, the retail outlet will give the customers new experience and they will be
connected in better way (Brigham et al. 2016). In near future the company is also planning to
relocate few of its existing stores to more attractive commercial locations that will make more
convenient access for the customers.
2.3 Key challenges
Telecommunication companies in Malaysia are increasing day by day and the
telecommunication market is dominated by major companies like Tune Talk and Umobile.
The market in telecommunication sector is becoming oligopoly due to higher level of
competition. To maintain the position under the telecommunication market the companies like
Celcom and Maxis are required to analyse the possible reaction of competitors to set their
strategies regarding advertising, output and pricing decisions (Arokiasamy and Abdullah
2013).
3.0 Relative position in industry
If the industry position of Celcom is compared with Maxis it can be observed that with
regard to market share Maxis is the leader and is followed by Celcom. In last 5 years
Malaysia’s telecommunication industry is led by companies like Celcom and Maxis. Their
services helped the people significantly to make their lives simple and easier (Hossain and
Suchy 2013).

6FINANCIAL ANALYSIS AND MANAGEMENT
4.0 Ratio analysis for measuring financial performance
4.1 Background for ratio analysis
Financial statement is the formal record of financial data of any business. All major
information of the business is recorded through financial statements. Main objective of
financial statement is to provide information regarding financial performance, position and
variation in financial position of the company. It helps the users of financial statement to gain
reasonable knowledge regarding the economic activities and position of the business (Delen,
Kuzey and Uyar 2013). Financial performance can be analysed through performing various
ratios like liquidity ratio, efficiency ratio, profitability ratio and gearing ratio. Ratio is the
mathematical expression regarding the relationship of one item with another. It helps in
understanding the financial performance of the company and at the same time it can be
compared with other companies in the same industry as well as with the past performance of
the company (Babalola and Abiola 2013). Further, the creditors and potential investors are
able to evaluate the company’s financial position and performance through using the ratios.
4.2 Rational for selecting Celcom and Maxis
Celcom and Maxis are leading companies among top 3 telecommunication companies
in Malaysia. Celcom is fastest growing telecommunication company that provides fiber and
cellular optic transmission, data and voice transmission services through fixed and cellular
systems and the paging services. On the other hand, Maxis is the leader in telecommunication
industry in Malaysia and can be used as a competitor for Celcom.
4.3 Profitability analysis
4.3.1 Background
Profitability ratios are used to analyse the ability of the company to generate earnings
compared to the expenses and various other costs related to income generation during the

7FINANCIAL ANALYSIS AND MANAGEMENT
particular period of time. It represents the company’s final result that is how profitable the
company is. Various profitability ratios considered for comparing the performance of Celcom
against Maxis are gross profit margin and net profit margin.
4.3.2 Profitability ratio table
4.3.3 Line graph
2013 2014 2015 2016 2017
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
Gross profit margin
Celcom
Maxis

8FINANCIAL ANALYSIS AND MANAGEMENT
2013 2014 2015 2016 2017
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Net profit margin
Celcom
Maxis
4.3.4 Interpretation
Gross profit margin is a profitability metrics used for measuring the profitability
position of the company after paying off the cost of selling the good used for generated for
generating revenue. From the computation table for last 5 years it can be identified that gross
profit margin for Celcom are ranging between 79% and 82%. Till 2015 it was in reducing
trend. However, it improved in 2016. On the other hand, the gross profit margins for Maxis
for the last 5 years are ranging between 66% and 69%. Till the year 2016 it was is increasing
trend. However, it reduced in the year 2017. Therefore, if the gross profit of both the
companies are compared it can be stated that the profitability position of Celcom is better as
compared to Maxis.
Net profit margin is the percentage of revenue remains with the company after paying
all the expenses including operating, financing and tax expenses of the company. It is used to
measure the company’s profitability position as compared to other in the same industry or as
compared to the previous performance of the company (Vogel 2014). It can be identified that
the net profit margin of Celcom is in reducing trend and fell from 13.88% to 3.73% over the
years from 2013 to 2017. On the contrary, the net profit margin of Maxis for the last 5 years

9FINANCIAL ANALYSIS AND MANAGEMENT
was in increasing trend and it increased from 19.43% to 25.21% over the years from 2013 to
2017. Therefore, though the gross profit position of Celcom is better, net profit position of
Maxis is significantly better as compared to Celcom.
4.4 Liquidity analysis
4.4.1 Background
Liquidity ratio indicates the ability of the company to meet the debt obligation as and
when it becomes payable. To be more specific, this ratio states how quickly the company is
able to convert its short term assets into cash which in turn will enable it to meet the
obligations on timely manner (Ehiedu 2014). Various liquidity ratios considered for
comparing the performance of Celcom against Maxis are current ratio and quick ratio.
4.4.2 Liquidity ratio table

10FINANCIAL ANALYSIS AND MANAGEMENT
4.4.3 Line graph
2013 2014 2015 2016 2017
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
Current ratio
Celcom
Maxis
2013 2014 2015 2016 2017
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Quick ratio
Celcom
Maxis
4.4.4 Interpretations
Current ratio is used to measure the ability of the company to pay its short-term
obligations. It is computed through comparing the current assets of the company with the
current liabilities. It can be identified that the current ratio of Celcom is in reducing trend till
the year 2016 and fell from 1.15 to 0.53 over the years from 2013 to 2016. However, the
company improved its position in 2017 as the current ratio has been increased from 0.53 to
0.65. On the contrary, the current ratio of Maxis for the last 5 years was in increasing trend

11FINANCIAL ANALYSIS AND MANAGEMENT
and it increased from 0.51 to 0.57 over the years from 2013 to 2017. However, if the current
ratio of both the companies are compared it can be stated that the liquidity position of Celcom
is better as compared to Maxis.
Like current ratio quick ratio is also used to measure the ability of the company to pay
its short-term obligations. Difference of quick ratio with current ratio is that unlike current
ratio the quick ratio does not consider entire current assets of the company and it does not
consider most liquid assets like prepaid expenses and inventories. It is computed through
comparing the quick assets of the company with the current liabilities. It can be identified that
the quick ratio of Celcom is in reducing trend till 2016 and fell from 1.02 to 0.40 over the
years from 2013 to 2016. However, the company improved its position in 2017 as the quick
ratio has been increased from 0.40 to 0.54. On the contrary, the current ratio of Maxis for the
last 5 years was in increasing trend and it increased from 0.42 to 0.49 over the years from
2013 to 2017. However, if the quick ratio of both the companies are compared it can be stated
that the liquidity position of Celcom is better as compared to Maxis.
4.5 Efficiency ratio
4.5.1 Background
Efficiency ratio measure the company’s ability to deploy the assets and liabilities for
generating sales. Organization those are highly efficient minimizes the net investment in asset
and therefore requires lower amount of debt as well as capital for sustaining in the operation.
In case of assets the efficiency ratio compares the aggregate set of assets with sales or with the
cost of selling the goods (Uechi et al. 2015). On the contrary, in case of liabilities the
efficiency ratio compares the payables with total purchases or total payables of the company
to the suppliers. Various efficiency ratios considered for comparing the performance of
Celcom against Maxis are account receivable ratio and inventory turnover ratio