SBLC5005 - Financial Management: Tomei Consolidated Berhad Analysis

This report provides a comprehensive financial analysis of Tomei Consolidated Berhad, a leading jewelry company in Malaysia, over the past five years. Using financial ratio techniques, including profitability, liquidity, working capital management, capital structure, and stock market performance, the analysis assesses the company's present and future financial health. A PEST analysis examines the political, economic, social, and technological factors influencing Tomei's operations. The report identifies challenges and limitations and concludes with recommendations for potential investors, highlighting the company's strong growth prospects and suggesting areas for improvement to enhance shareholder value. Desklib offers a platform to explore similar solved assignments and past papers for students.

1
Financial Performance of a listed company

2
Executive Summary
The present report has undertaken an analysis of the financial performance of company
Tomei Consolidated Berhad, a leading jewelry company of Malaysia. It has been depicted form
the overall analysis that the company at present is in good state of financial growth and
development. As such, it is recommended to potential investor to invest within the company on
the basis of its strong future growth prospects.

3
Contents
Executive Summary.........................................................................................................................2
Part 1: Introduction and company background................................................................................4
Background of TOMEI Consolidated Berhad (TOMEI).............................................................4
Part 2: PEST Analysis of TOMEI Consolidated Berhad.................................................................4
Part 3: Financial Analysis................................................................................................................5
Profitability Analysis...................................................................................................................7
Liquidity Ratios............................................................................................................................8
Working Capital Ratio...............................................................................................................10
Capital Structure Ratio...............................................................................................................10
Stock market performance.........................................................................................................12
Part 4: Challenges and limitations.................................................................................................12
Part 5: Recommendations..............................................................................................................13
Part 6: Conclusion..........................................................................................................................13
References......................................................................................................................................14

4
Part 1: Introduction and company background
The present report is developed for carrying out analysis of the financial performance of a
selected company over the past five years with the use of financial ratio technique. It involves
calculation and interpretation of the following ratios such as profitability, liquidity, working
capital management, capital structure and stock market performance. This is carried out for
developing an insight into the present and future expected financial performance for providing
recommendations regarding the potential investment within the company.
Background of TOMEI Consolidated Berhad (TOMEI)
The company selected for the purpose is Tomei Malaysia, one of Asia’s leading gold and
Jewelry Company that is established in the year 1968. The company has attained a dominant
position within jewelry sector of Malaysia having approximately 60 retail outlets within the
country operating under its five different brands. It carries out its operations under the brands
such as Tomei, My Diamond, Goldheart, Le Lumiere and De Beers. The company also is
involved in whole-selling of its products to other jewelry brands and also exports them to
different countries within Asia jewelry market. The dominant position attained by the company
is largely due to its constant product innovations and introducing new designs into its jewelry
products. The company has received various rewards for its outstanding contribution into the
jewelry market such as ‘World Diamond Mark’ and is also accredited by Malaysia Corp in the
year 2010 with the ‘Malaysian Brand’ Certification (Tomei Consolidated, 2017).
Part 2: PEST Analysis of TOMEI Consolidated Berhad
PEST Analysis can be regarded as a strategic management tool that can be used by the
management of the company to make better decisions for future growth and development. The
analysis of the various environmental factors impacting the company operations are discussed as
follows:
 Political Factors: There is no immense threat to the growth and development of the
company due to political forces within Malaysia. Malaysia is regarded to be politically
stable country and its trading policies are considered more stable that makes it an
attractive country for promoting business growth. Tomei conducts its operations in
various countries and has developed effective policies based on the retail specificity of
each country. The increasing inequality policies in Malaysia can lead to causing changes
in the taxation policies. It is essential for the company to effectively collaborate with the
stakeholders such as non-government organization, activist moments and protest groups
which plays a significant role in developing policies within Malaysia. The company has
to also comply with the changing regulatory policies of conducting retail operations in
Malaysia and other emerging economies to ensure its continued growth (Tomei
Consolidated, 2017).

5
 Economic Factors: The growth of Tomei is directly related with the economic
performance of the country. The strong economic growth realized by the country over the
past few years due to rising disposable income and rising investment in new industries is
predicted to promote economic growth within the country. The Malaysian government is
seeking to invest for developing the infrastructure of the country and thus facilitating in
improving the business environment. These all factors strongly support the further growth
and development of Tomei Group. In addition to this, the company can easily gain access
to the easy availability of liquidity within the equity market of the country for promoting
its future global expansion (PEST Analysis of Tomei Consolidated, 2017).
 Social Factors: The rising income inequality trend within Malaysia can negatively impact
the company growth in the future context. Also, the consumer buying behavior is largely
influenced by the media power and thus the company needs to capture this opportunity
for developing its better market position. Also the company needs to place emphasis on
meeting the needs of young population segment of the country which is rapidly evolving
(Tomei Consolidated, 2017).
 Technological Factors: The adoption of latest technological innovations for reducing the
cost of production is causing the need of Tomei to restructure its supply chain for
improving its flexibility for meeting the customer needs. The development of online
technologies and medium has causing large scale changes in the customer needs and
expectations. As such, Tomei is required to adopt the use of these technological
innovations for meeting the constantly changing customer requirements. For example, it
is required to adapt to the channel of e-commerce for reaching to large number of
customer base across the world quickly and thus supporting its plan of global expansion
(PEST Analysis of Tomei Consolidated, 2017).
Part 3: Financial Analysis
TOMEI CONSOLIDATED BERHAD
Amount in RM'000
Particulars 2013 2014 2015 2016 2017
Total
Liabilities
RM209,5
40
RM230,0
23
RM208,5
72
RM205,6
90
RM213,8
74
Interest
Expense or
Finance Cost
RM11,64
2
RM11,45
5
RM12,01
1
RM11,77
5
RM11,02
3
EBIT/PBIT RM7,906
RM16,96
8
RM14,07
8
RM19,82
8
RM32,30
5
Profit after tax -RM4,723 RM1,707 -RM1,540 RM4,266
RM16,13
1
Profit after tax
and preference
dividend -RM4,723 RM1,707 -RM1,540 RM4,266
RM16,13
1
Current assets RM374,5 RM394,9 RM373,8 RM375,1 RM396,5

6
70 99 50 26 62
Current
liabilities
RM186,4
07
RM217,3
17
RM200,1
83
RM200,4
52
RM209,3
64
Inventory/
Stock
RM332,8
63
RM354,8
20
RM337,3
34
RM334,9
41
RM348,4
15
Quick Assets
RM41,70
7
RM40,17
9
RM36,51
6
RM40,18
5
RM48,14
7
Average
Inventory
RM332,8
63
RM343,8
42
RM346,0
77
RM336,1
38
RM341,6
78
Debtors/
Account
Receivables
RM24,83
5
RM24,58
2
RM26,15
9
RM31,52
3
RM35,43
5
Sale/Revenue
RM701,9
07
RM564,7
99
RM499,3
41
RM472,2
09
RM617,0
20
Total Assets
RM396,0
30
RM414,6
97
RM394,3
45
RM395,6
96
RM417,4
40
Average total
Assets
RM396,0
30
RM405,3
64
RM404,5
21
RM395,0
21
RM406,5
68
Shareholder's
Equity
RM186,4
90
RM184,6
74
RM185,7
73
RM190,0
06
RM203,5
66
EPS (Basic) -3.18 0.81 -1.24 3.38 11.58
(Annual Report. 2017, 2016, 2015, 2014 and 2013)
Ratio Analysis 2013 2014 2015 2016 2017
Liquidity
ratios:
Current ratio
Current
assets/Current
liabilities
2.01 1.82 1.87 1.87 1.89
Acid test ratio
(Current assets -
stock)/Current
liabilities
0.22 0.18 0.18 0.20 0.23
Working
Capital Ratios 2013 2014 2015 2016 2017
Debtor collection
period Debtors/Sale*365 12.91 15.89 19.12 24.37 20.96
Asset turnover
ratio
Sales/Average Total
Assets 1.77 1.39 1.23 1.20 1.52
Profitability
ratios: 2013 2014 2015 2016 2017
Net profit margin Profit after
tax/sales*100
-
0.67% 0.30% -
0.31% 0.90% 2.61%
Return on equity Profit after tax and
preference dividend /
-
2.53% 0.92% -
0.83% 2.25% 7.92%

7
(Share capital
+reserve)*100
Capital
Structure Ratio 2013 2014 2015 2016 2017
Debt to Equity
Ratio Debt/Equity 1.124 1.246 1.123 1.083 1.051
Interest cover
ratio
PBIT/Interest
charges*100 0.68 1.48 1.17 1.68 2.93
Stock market
performance 2013 2014 2015 2016 2017
EPS (Basic)
Profit after tax and
preference
dividend/Number of
Shares
-3.18 0.81 -1.24 3.38 11.58
(Baker and Powell, 2009)
Profitability Analysis
The profitability analysis is used for determining the bottom line of a company and
gaining an analysis regarding its return to the investors. The profitability position of Tomei is
analyzed by the use of following ratios:

8
2013 2014 2015 2016 2017
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
Profitability Ratios
Percentage
Net Profit Margin: Net Profit Margin: The ratio depicts the net income generated by a company
from the overall revenue realized.
Formula: Sales Revenue/Net Income (Bragg, 2010)
It can be analyzed from the net profit margin of the ratio over the past years that its net
profitability has improved significantly over the selected financial period. This depicts the
company sales have been increased over the past few years depicting growth in its products and
services delivered. This depicts that the company sales is increasing owing to its global
expansion.
Return on Equity: The ratio provides a measurement of the ability of a company to utilize its
equity base for generating earnings.
Formula: Net Income/ Shareholder’s Equity (Baker and Powell, 2009)
The ratio of the company has increased rapidly over the past five years financial period
from 2013-2017 depicting its improved efficiency in generating returns on its equity base.
However, the company is still recommended to improve the ratio for creating larger returns for
the shareholders and thus delivering higher value for them. This is essential for achieving the

9
trust of the company shareholders and thus ensuring continued capital investment for promoting
its future growth.
Liquidity Ratios
Liquidity ratios is very important section in ratio analysis as it helps in measuring the
ability of company to pay the current liabilities or short term liabilities as they arises. In other
words, liquidity ratios evaluate the position of current assets to be used for paying the current
liabilities and how much is part is left for working capital purpose. Liquidity ratios reflect
number of times the short term debt liabilities have been covered through short term assets (Cash
and other liquid assets). Two most important liquidity ratios are current ratio and acid test ratio
(Feldman and Libman, 2011).
2013 2014 2015 2016 2017
0.00
0.50
1.00
1.50
2.00
2.50
2.01
1.82 1.87 1.87 1.89
0.22 0.18 0.18 0.20 0.23
Liquidity Ratios
Times
Current Ratio: Current ratio is used evaluate the balance sheet financial performance for
meeting the company short term liabilities. Current ratio is best measure to evaluate whether
company has enough resources to pay the short term debt liabilities during the next financial
period.
Formula: Current Assets/Current liabilities
Tomei Consolidated Company has current ratio of 2.01 in year 2013 and after it has been
decreased to 1.82 in year 2014. From year 2014 to year 2017, current ratio of Tomei
Consolidated has been maintained above 1.80 times which indicates company has successfully
meet the short term liabilities during the last five years but it has failed to touch the ideal mark of
2:1. It has been expected from the company that it will continue to keep the current above 1.80
times in future and maintains similar liquidity position.
Quick Assets: Quick ratio is also known as acid test ratio and this ratio is used to measure the
ability of the company to meet the current liabilities through using the most liquid assets such as

10
cash or quick assets. Quick assets refer to those short term assets that have the ability to be
converted into cash and cash equivalents in very short period of time. This ratio is more reliable
as compared to current ratio as short term assets such as inventory have been excluded from the
calculation of quick ratio as inventory takes time to convert into cash and cash equivalents.
Formula: Quick Assets (Current assets-Inventory)/Current liabilities (Arnold, 2013)
Tomei Consolidated Company has quick ratio of 0.22 times in year 2013 and it is almost
same in other years under review. It means Tomei Consolidated Company does not have enough
quick assets to pay for current liabilities. Most of current assets of Tomei Consolidated Company
have been kept in form of inventory and it is of very high value. Tomei Consolidated Company
sells gold products that have very huge cost and it increases holding cost of inventory. It
increases another short term liability on company to be settled every period.
Working Capital Ratio
2013 2014 2015 2016 2017
0.00
5.00
10.00
15.00
20.00
25.00
12.91
15.89
19.12
24.37
20.96
1.77 1.39 1.23 1.20 1.52
Working Capital Ratios
Debtor’s Collection Period: This ratio is also known as receivable collection period as this ratio
indicates the velocity of company’s debt collection.
Formula: Net receivable sales/ Average accounts receivables *365 (Tracy, 2012)
Debtor’s collection period of Tomei Consolidated Company was 12.91 days in year 2013
and it has been increasing continuously since than that reflects management takes more time in
current year as compared past years. Increasing trend in debtor’s collection period signifies poor
debtor’s collection policy.
Asset turnover ratio: This ratio calculates the efficiency of management to make use of assets
to produce sales. Here total assets mean every type of assets such as tangible assets, intangible
assets, current, non-current etc that have been presented in the balance sheet.

11
Formula: Revenue / Average total assets (Tracy, 2012)
Tomei Consolidated Company uses most of its assets to turn them in revenue but there is
declining trend in this ratio that shows poor management performance over the time.
Capital Structure Ratio
The capital structure ratios are sued for developing an insight into the type of financial
resources incorporated by a company to carry out its operational activities. The capital structure
of Tomei can be analyzed by the use of following ratios:
2013 2014 2015 2016 2017
0.000
0.500
1.000
1.500
2.000
2.500
3.000
1.124
1.246
1.123 1.083 1.051
0.68
1.48
1.17
1.68
2.93
Capital Structure Ratio
Times
Debt-Equity Ratio: The ratio is used for assessing the relative proportion of debt and equity
used by a company in developing its capital structure.
Formula: Debt /Equity (Arnold, 2013)
The debt-equity ratio of Tomei Consolidated has remained almost stable over the past
five financial years and has depicted a slight decline over the selected financial period. It can
also be stated that it has maintained an optimum mix of debt and equity in its capital structure
during selected financial period as its value is in between the standard benchmark.

12
Interest Coverage Ratio: The ratio provides a measure of the ability of a company to meet its
interest obligations on its debt payments.
Formula: EBIT/Interest Expense (Arnold, 2013)
The ratio has shown an increasing trend over the selected financial period from 2013-
2017 for Tomei Consolidated. This means that the company has depicted an increase in its ability
for meeting the interest obligations.
Stock market performance
These ratios are used for assessing the current share price of a company stock and thus
determining its relative attractiveness for the postnatal investors.
2013 2014 2015 2016 2017
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Market Performance Ratio
In RM
EPS: The ratio depicts the percentage of profit realized by a company that is attributed to its
each outstanding share of common stock.
Formula: Profit after tax and preference dividend/Number of Shares (Zimmerman and Yahya-
Zadeh, 2011)
The EPS ratio of the company has depicted an increasing trend form the year 2013-2017
depicting that its ability to generate returns for the shareholders has been improved significantly
over the selected financial period.
Part 4: Challenges and limitations
The major change that is faced by Tomei Consolidated as examined from PEST analysis
is complying effectively with the changing government policies in different countries for
ensuring its effective global expansion. Also, its growth in the local market can be significantly