BDA1283 Introduction to Finance: Financial Ratio Analysis of Poh Kong

This report presents a financial ratio analysis of Poh Kong, a public listed jewelry company in Malaysia, covering the most recent three-year period. It assesses the company's performance using liquidity, activity/efficiency, and profitability ratios, calculated from the Statement of Comprehensive Income and Statement of Financial Position. The analysis reveals a deteriorating trend in the company's liquidity, efficiency, and profitability. While the company's current ratio indicates adequate short-term debt coverage, the quick ratio suggests potential challenges. Inventory turnover has slowed, and collection periods have increased. Profitability metrics, such as gross and net profit margins, have declined, although return on assets and equity have improved. A news article confirms a decrease in net profit, attributed to gold price fluctuations. The report concludes with recommendations for improving liquidity and profitability, while acknowledging limitations related to reliance on past data and exclusion of external factors. Desklib offers a wide array of solved assignments and past papers for students.

Running head: FINANCE
Finance
Name of the student
Name of the university
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Author note

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Table of Contents
Introduction...................................................................................................................2
1.1 Brief history.........................................................................................................2
1.2 Product range, industry, consumer groups and target market...........................2
1.3 Position of the company......................................................................................2
2. Calculation of ratios..................................................................................................3
3. Summary of the performance...................................................................................3
3.1 Liquidity...............................................................................................................3
3.2 Activity / efficiency...........................................................................................3
3.3 Profitability...........................................................................................................4
4. News / article confirming the performance of Poh Kong as stated above...............4
5. Conclusion................................................................................................................4
5.1 Summary of analysis...........................................................................................4
5.2 Limitation.............................................................................................................5
5.3 Recommendation................................................................................................5
Reference.....................................................................................................................6
Appendix.......................................................................................................................7
Statement of comprehensive income.......................................................................7
Statement of financial position..................................................................................7

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Introduction
1.1 Brief history
Poh Kong that was established in 1976 as the pioneer jewellery has
renovated itself from the heartland traditional goldsmith jeweller to most recognised
jewellery brand with regard to the excellence in quality, craftsmanship and design.
The company is listed under Bursa Malaysia from the year 2004. At present the
company has manufacturing facility of its own located in Shah Alam and opened its
100th stores in 2012 and has been ranked as largest retail chain store in Malaysia
(Poh Kong|Best Jewellery,Diamond,Gold Rings Retail shop in Malaysia, 2018).
1.2 Product range, industry, consumer groups and target market
In – house brands of the company include Happy love, Tranz, The art of
Auspicious and Anggun and various other products are planning to be introduced in
near future. Further the company is licensee for the Disney collection and the sole
distributor for the Schoeffel luxury pearls imported from Germany, Moraglione
imported from Italy, Luca Carati, Hemera Diamond, Angel diamond and is the carrier
for various exquisite jewellery pieces from all over the globe (Poh Kong|Best
Jewellery,Diamond,Gold Rings Retail shop in Malaysia, 2018).
1.3 Position of the company
It is the largest retailer for gold jewelleries in Malaysia with with finest quality
of jewelleries with pears, diamond, and gold, Jade or the gem stones. It was
awarded with Asia Pacific top 500 retails companies as top 10 retailers. Further, it
won the gold medal in 1996 for Golden design awards. Poh Kong and its main
competitors Tomei Consolidated BHD experienced surge in their share price over
last 2 years. However, owing to tightening of the purse strings of the consumers at
the time of geopolitical and economic uncertainties there is the threat on its earnings
(Fahami et al., 2015).

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2. Calculation of ratios
3. Summary of the performance
3.1 Liquidity
Liquidity ratios are used for measuring the ability of the company in meeting
its short - term debt with the available assets those can be quickly converted into
cash. Computing the current ratios is comparing the current assets of the
organization with its current liabilities. For all the 3 years under consideration current
ratio of the company is more than 1 that indicates that the current assets of the
company are adequate to meet its current obligations (Jakpar et al., 2017). However,
while computing the quick ratio the assets those take some times to get converted
into cash are excluded. Looking into the quick ratio of the company it can be stated
that the quick ratio of the company for all the 4 years are less than 3 as current
assets of the entity include large amount of prepayments and inventories
3.2 Activity / efficiency
These ratios are computed to measure the efficiency of the company with
regard to collecting and paying the debts and times taken by it to sell or replace the
inventories. Inventory turnover ratio of the company is in reducing trend and the days
increased from 1.04 to 1.47 over the last 3 years. On the other hand, if the collection
and payment efficiencies are considered it can be stated that payment time is
improved from 10.02 days to 9.18 days whereas the collection period is increased
from 3.31 days and 4.54 days (Brigham et al., 2016). However, total asset turnover
ratio that measures the value of sales or revenue of the company as compared to

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the total assets has been improved from 1.05 to 1.29 over the years from 2016 to
2018.
3.3 Profitability
Profitability ratios measure the ability of the company to generate profit for its
shareholders after making payment for all the expenses. Gross profit margin that
computes the proportion of revenue left with the company after paying for cost of
selling the goods are in reducing trend and has been reduced from 24.25% to
19.57% over the years from 2016 to 2018 (Ramsey et al., 2016). Further, the net
profit margin of the company that computes the profit left after meeting all the
operating expenses has been reduced from 3.37% to 2.33% over the years from
2017 to 2018. Return on assets that measures the dollar earned from utilizing the
assets is increased from 0.01 to 0.03. Return on equity of the company that
measures the number of dollar earned on each dollar of investment made by the
shareholders has also increased from 0.02 to 0.05 (Khaldun & Muda, 2014).
4. News / article confirming the performance of Poh Kong as stated above
As per the news published by The Star Online despite of the higher revenue
the company experienced the fall in net profit by 41.8% to RM 4.3 million for the 3rd
quarter of the year ended 30th April 2018 as compared to RM 7.4 million in the
corresponding period of last year (Rahim, 2017). It has been said by the company
that the fluctuation in the gold process affected the operating profits of the company
during the same quarter. This news confirms the above analysis as it can be
recognized that the all the profitability ratios of the company have been reduced in
2018 as compared to 2017 (Thestar.com.my, 2018).
5. Conclusion
5.1 Summary of analysis
From the above analysis it can be summarized that the performance of the
company over the years has been deteriorated in terms of liquidity, efficiency and
profitability. Collection times as well as the payment times of the company have been
increased as compared to previous year. Further, the revenue portion left with the
company after paying the expenses has been reduced.

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5.2 Limitation
The major limitation of the analysis made above is that all the analysis are
done based on the past performance data of the company that does not focus on the
future. Further, while making the analysis only the financial data have been
considered. However, the industry condition, economic circumstances and demand
of the customers have not been considered those have major impacts on the
performance of the company.
5.3 Recommendation
For improving the liquidity position of the business it shall pay off the short
term obligation that will improve the current ratio as well as the quick ratio. Further,
the operational expenses shall be reduced, wherever possible, for improving the
profitability position.

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Reference
Brigham, E. F., Ehrhardt, M. C., Nason, R. R., & Gessaroli, J. (2016). Financial
Managment: Theory And Practice, Canadian Edition. Nelson Education.
Fahami, N. A., Azhar, F. W., Rahim, Z. H. A., & Karim, H. A. (2015). Application of
Fuzzy Logic Approach in Financial Performance Evaluation: A Case Study of
Consumer Product Sector in Malaysia. Journal of Business and Economic
Policy, 2(4), 141-145.
Jakpar, S., Tinggi, M., Siang, T., Johari, A., Myint, K., & Sadique, M. (2017). Working
capital management and profitability: evidence from manufacturing sector in
Malaysia. Journal of Business & Financial Affairs, 6(2), 1-9.
Khaldun, K. I., & Muda, I. (2014). The influence of profitability and liquidity ratios on
the growth of profit of manufacturing companies a study of food and
beverages sector companies listed on indonesia stock exchange (period
2010-2012).
Poh Kong|Best Jewellery,Diamond,Gold Rings Retail shop in Malaysia .
(2018). Pohkong.com.my. Retrieved 22 December 2018, from
https://www.pohkong.com.my/
Rahim, N. (2017). Sustainable growth rate and firm performance: A case study in
Malaysia. International Journal of Management, Innovation & Entrepreneurial
Research, 3(2), 48-60.
Ramsey, S. D., Bansal, A., Fedorenko, C. R., Blough, D. K., Overstreet, K. A.,
Shankaran, V., & Newcomb, P. (2016). Financial insolvency as a risk factor
for early mortality among patients with cancer. Journal of Clinical
Oncology, 34(9), 980.
Thestar.com.my. (2018). Poh Kong net profit falls 42% - Business News | The Star
Online. Retrieved 22 December 2018, from
https://www.thestar.com.my/business/business-news/2018/06/13/poh-kong-
net-profit-falls-42/

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Appendix
Statement of comprehensive income
Statement of financial position

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