Financial Performance Evaluation: A Comparative Study of VS & SKP

This report provides a detailed financial analysis comparing V.S. Industry Berhad (VS) and SKP Resources Berhad over five years (2013-2017). It utilizes various financial ratios, including profitability, liquidity, efficiency, solvency, and investor ratios, to assess and compare their financial performance. The analysis identifies strategic and operational issues for both companies, offering recommendations for improvement. Key findings include fluctuating profitability trends, varying liquidity positions, and efficiency differences in inventory management. The report also addresses the limitations of ratio analysis and provides suggestions for a more comprehensive evaluation. Desklib offers this report as a resource for students, alongside a wide array of study tools, solved assignments, and past papers.

Running head: FINANCIAL ANALYSIS
Financial analysis
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1FINANCIAL ANALYSIS
Table of Contents
1.0 Introduction..........................................................................................................................4
2.0 Background of v.s. industry Berhad (vs).............................................................................5
2.1 Nature of core business....................................................................................................5
2.2 Future Outlook.................................................................................................................5
2.3 Key Challenges................................................................................................................5
3.0 Relative position in the industry..........................................................................................6
4.0 Ratios analysis of financial performance of VS vs SKP......................................................6
4.1 Background to ratio analysis............................................................................................6
4.2 Rationale for selecting VS and SKP for comparison.......................................................7
4.3 Profitability Analysis.......................................................................................................7
4.3.1 Background...................................................................................................................7
4.3.2 Table of Profitability ratios...........................................................................................8
4.3.3 Line Graph....................................................................................................................8
4.3.4 Interpretation...............................................................................................................10
4.4 Liquidity Analysis..........................................................................................................11
4.4.1 Background.................................................................................................................11
4.4.2 Table of Liquidity Analysis....................................................................................11
4.4.3 Line Graph..................................................................................................................12
4.4.4 Interpretations.............................................................................................................12

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4.5 Efficiency Analysis........................................................................................................13
4.5.1 Background.................................................................................................................13
4.5.2 Table of Efficiency Ratio............................................................................................13
4.5.3 Line Graph..................................................................................................................14
4.5.4 Interpretation...............................................................................................................15
4.6 Solvency Analysis..........................................................................................................16
4.6.1 Background.................................................................................................................16
4.6.2 Table of Solvency ratios...........................................................................................16
4.6.3 Line Graph..................................................................................................................17
4.6.4 Interpretation...............................................................................................................17
4.7 Investors Analysis..........................................................................................................18
4.7.1 Background.................................................................................................................18
4.7.2 Table of Investors Ratios............................................................................................19
4.7.3 Line Graph..................................................................................................................19
4.7.4 Interpretation...............................................................................................................21
5.0 Identification of strategic and operational issues and recommendations...........................22
5.1 Profitability....................................................................................................................22
5.1.1 Strategic issue..............................................................................................................22
5.1.2 Recommendation.........................................................................................................22
5.2 Gearing strategy.............................................................................................................22
5.2.1 Problem.......................................................................................................................22

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5.2.3 Recommendation.........................................................................................................22
6.0 Limitation analysis.............................................................................................................23
6.1 Limitation of ratio analysis............................................................................................23
6.2 Recommendation............................................................................................................23
Reference..................................................................................................................................24

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1.0 Introduction
Main objective of the report is to focus on the financial performance and position of
V.S. Industry Berhad (VS) agisnt SKP Resources Berhad (SKP) for the last 5 years that is
from 2013 to 2017. For the purpose of analysis various ratios like profitability ratios, liquidity
ratios, efficiency ratios, solvency ratios and investor’s ratios. Further, the report will identify
the operational and strategic issues of both the companies and will provide recommendations
based on the findings. Finally, the report will provide the limitations of ratio analysis.
V.S. Industry Berhad is the Malaysian company that operates under electronic
components sector. It is an investment holding company that assembles, manufactures and
sells the electrical and electronic products, plastic molded parts and components in Malaysia,
Europe, Indonesia and various other countries. Various manufacturing solutions provided by
the company includes mold design, fabrication services, product design, electronics, final
assembly, testing and services related to supply chain management (Vs-i.com 2018).
On the other hand, SKP Resources Berhad is the investment holding company and is
engaged in delivering management services to the subsidiaries. Further, the company is
engaged in sub-assembly of electrical and electronic equipments and various other secondary
processes. It offers wide range of products that includes video accessories, computer
accessories, audio accessories and various other miscellaneous accessories (Skpres.com
2018).

5FINANCIAL ANALYSIS
2.0 Background of v.s. industry Berhad (vs)
V.S. Industry Berhad (VS) was founded in 1982 and listed on the Main Market of
Stock Exchange Malaysia in 1998. VS has been classified in the Industrial Products sector.
2.1 Nature of core business
The company’s principal activities are manufacturing, assembling and sale of
electronic and electrical products and plastic moulded components and parts such as speakers
and remote controls. It also markets, distributes, and sells plastic household products. VS also
operates a palm oil plantation. Geographically the company is spread across Malaysia, United
States of America, Europe, Indonesia and Taiwan.
2.2 Future Outlook
VS is a global leader in integrated Electronics Manufacturing Services (EMS) for
office and household electrical and electronic products. In the EMS sector, the rapid pace of
globalization and technological adoptions, as well as innovation-led product replacements,
are expected to fuel growth in manufacturing activity. Increasing collaboration between brand
owners and manufacturing partners in crucial phases of product development and delivery
will be ongoing. Therefore, EMS players with in-house R&D as well as integrated global
supply chain expertise, are well-positioned to gain an upper hand.
2.3 Key Challenges
Operating environment remains challenging such as rising cost of materials,
escalating wages and utility costs, fluctuation in currency exchange, juggling human
resources especially on the production floors and talent engineer. Also, balancing between
costs down pressures from customers and managing upward cost increase remain as key
challenge.

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3.0 Relative position in the industry
VS industry Berhad (VS) and SKP Resources Berhad (SKP) are two notable EMS
companies listed on Stock Exchange Malaysia.
VS’s share price has risen a whopping 553% over the last three years to date when it
was trading at MYR1.18 and shot up to MYR3.7 with market capitalisation grew to
MYR3.11billion. SKP, however rose at 141% for same three years giving market
capitalisation of MYR2.04billion. VS is chosen as compare to its competitor SKP for this
assignment for financial performance analysis using ratio.
At a glance of market capitalisation as table below
4.0 Ratios analysis of financial performance of VS vs SKP
4.1 Background to ratio analysis
To quick assess a company’s performance and financial health, financial ratios are a
great way to evaluate various aspects of a company’s operating and financial performance
such as its efficiency, liquidity, profitability and solvency. Ratios analysis involves data

7FINANCIAL ANALYSIS
retrieved from current and historical financial statements to access whether the company is
improving or deteriorating; or can be used to judge a company’s performance against other at
similarly-situated companies.
4.2 Rationale for selecting VS and SKP for comparison
VS is one of the top 50 EMS corporation in the world, with in-house printed circuit
board (PCB) and battery-pack assembly capabilities to provide one-stop manufacturing
solution to its clients. SKP is one of the fastest-growing integrated contract manufacturers,
catering for the electrical and electronics, industrials, automotive and food & beverage
industries. It also has better manufacturing capabilities. SKP’s in-house assembly capability
is coming in place, rivalling that of VS. Both companies delivered strong financial
performance in the past 3-5 financial years. Simply put, they are friendly competitors.
4.3 Profitability Analysis
4.3.1 Background
All the entities are concerned regarding their profitability and the profitability of the
company are analysed through various profitability ratios like net profit margin, gross profit
margin, return on assets and return on equity. These ratios state the ability of the company to
transform its sales into profit at different measurement stages. Further the return ratios
indicate the ability of the company to measure its overall efficiencies with regard to
generation of returns for the shareholders (Vogel 2014).

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4.3.2 Table of Profitability ratios
4.3.3 Line Graph
2017 2016 2015 2014 2013
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
Gross profit margin
VS
SKP

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2017 2016 2015 2014 2013
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
Net profit margin
VS
SKP
2017 2016 2015 2014 2013
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Return on Asset
VS
SKP
2017 2016 2015 2014 2013
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Return on equity
VS
SKP

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4.3.4 Interpretation
Gross profit margin of the company is the profitability metrics that is used for
assessing the financial health of the company through measuring the percentage of revenue
left with the company after paying off the cost for goods sold. If the company does not
possess sufficient gross margin it will not be able to meet its operational expenses efficiently.
Looking into the gross profit margin of VS as well as SKP it can be identified that the till
2016 the ratio for VS is in increasing trend and in 2017 it reduced to 13.97% from 15.47%.
On the other hand, the gross margin of SKP till 2015 was in reducing trend. However, it 2016
it increased from 14.06% to 15.31% and again reduced to 10.12% in 2017 (Sarlin 2015).
The net profit margin of the company is the profitability metrics that is used for
assessing the financial health of the company through measuring the percentage of revenue
left with the company after paying off all the operating expenses including the financial
expenses and tax expenses. Looking into the net profit margin of both the companies it can be
stated that the net profit of both the companies are fluctuating and have no particular trend.
Whereas the net profit of VS has increased from 3.77% to 4.76%, the net profit margin of
SKP has been reduced from 9.34% to 5.34% over the last 5 year period. However, the net
profitability position of SKP is better as compared to that of VS.
Return on assets indicates the profitability of the company as against its total assets. It
measures the ability of the company to generate income through deploying its assets. It can
be identified that the return on assets of VS is in increasing trend and it increased from 4.23%
to 8.43% over the last 5 years. On the other hand, the return on assets for SKP is in reducing
trend and it reduced to 13.46% from 20.04%. However, if both the companies are compared

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it can be stated that the performance of SKP is better as compared to VS (Heikal, Khaddafi
and Ummah 2014).
Return on equity measures the ability of the company to generate income through
deploying its shareholder’s equity. It can be recognized that both the company’s return on
equity are in increasing trend. Whereas the ROE of VS has increased from 8.33% to 14.78%,
the return on equity of SKP has been increased from 20.19% to 22.67% over the last 5 year
period. However, if both the companies are compared it can be stated that the performance of
SKP is better as compared to VS.
4.4 Liquidity Analysis
4.4.1 Background
Under accounting, the term accounting is stated as ability of the company to pay-off
its financial obligation when it becomes due. Therefore, the liquidity ratio is used for
measuring the ability of the company to pay off its short-term obligations (Delen, Kuzey and
Uyar 2013).
4.4.2 Table of Liquidity Analysis

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4.4.3 Line Graph
2017 2016 2015 2014 2013
0
0.5
1
1.5
2
2.5
3
3.5
Current ratio
VS
SKP
2017 2016 2015 2014 2013
0
0.5
1
1.5
2
2.5
3
Quick ratio
VS
SKP
4.4.4 Interpretations
Current ratio and quick ratio both are used to measure the liquidity position of the
company on short-term period. The main difference between current ratio and quick ratio is
that while computing the current ratio all the current assets are compared against the current
liabilities whereas in case of quick ratio the most liquid assets like inventories are not taken
into consideration. Looking into the current ratio of both the company it can be recognized
that the current ratio of VS increased from 1.16 to 1.28 whereas the current ratio of SKP is

13FINANCIAL ANALYSIS
reduced from 3.07 to 1.49. On the other hand, the quick ratio of VS increased from 0.86 to
0.94 whereas the quick ratio of SKP is reduced from 2.68 to 1.21. However, very high current
ratio of SKP is indicating that the company is not utilising its working capital efficiently
(Ehiedu 2014).
4.5 Efficiency Analysis
4.5.1 Background
Efficiency ratio measures the ability of the company to use the assets and manage the
liabilities efficiently. For example, the debtor days represent the efficiency of the company
with regard to collection of its dues within the due period.
4.5.2 Table of Efficiency Ratio

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4.5.3 Line Graph
2017 2016 2015 2014 2013
0
10
20
30
40
50
60
70
Days sales of inventory
VS
SKP
2017 2016 2015 2014 2013
0
50
100
150
200
250
300
Creditor days
VS
SKP

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2017 2016 2015 2014 2013
0
20
40
60
80
100
120
140
Debtor's days
VS
SKP
4.5.4 Interpretation
Day’s sales of inventory ratio for any company represent the time taken by the
company in selling its inventories or replacing the entire stock of inventory. Higher day’s
sales of inventory represent that the company is not efficient in replacing its inventories.
Looking into the days sales of inventory ratio of both the companies it can be found out that
VS takes 57 to 62 days on an average to replace its inventories. On the other hand, SKP
takes 26 to 51 days on an average to replace its inventories. Hence, SKP is more efficient in
replacing its inventories as compared to VS.
Creditor day’s ratio for any company represents the time taken by the company in
making payment to its creditors for the dues. Higher creditor day’s represents that the
company is not efficient in paying its obligations. Looking into the creditor day’s ratio of
both the companies it can be found out that VS takes 87 to 129 days on an average to make
payments to its creditors. On the other hand, SKP takes 63 to 105 days on an average to
make payments to its creditors except for the year 2015 when it took significantly long time

16FINANCIAL ANALYSIS
to make the payment. Hence, SKP is more efficient in paying-off its obligation as compared
to VS (Fathi, Farahmand and Khorasani 2013).
Debtor day’s ratio for any company represents the time taken by the company in
collecting payment from debtors for the dues. Higher debtor day’s represents that the
company is not efficient in collecting its dues. Looking into the debtor day’s ratio of both
the companies it can be found out that VS takes 94 to 129 days on an average to collect dues
from debtors. On the other hand, SKP takes 63 to 107 days on an average to collect dues
from debtors. Hence, SKP is more efficient in collecting its dues as compared to VS.
4.6 Solvency Analysis
4.6.1 Background
Solvency ratio is the key measurement that is used for measuring the ability of the
company for meeting the debt as well as other obligations. It further indicates whether the
company has sufficient cash balance to pay off its short term as well as long term liabilities.
If the solvency ratio of the company is significantly low it indicates that the company may
default in meeting its obligations.
4.6.2 Table of Solvency ratios

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4.6.3 Line Graph
2017 2016 2013
0
5
10
15
20
25
30
Interest coverage ratio
VS
SKP
2017 2016
0
0.02
0.04
0.06
0.08
0.1
0.12
Gearing ratio
VS
SKP
4.6.4 Interpretation
Interest coverage ratio is the solvency ratio that is used to measure the ability of the
company with regard to payment of the interest on outstanding debt. Generally, it measures
times the company can pay its interest obligation with the available income. To be more
specific, it measures the company’s margin of safety with regard to interest payment for a
specific period of time. Looking into the interest coverage ratio of VS for the last 5 years it
can be recognized that except 2014 the company’s ratio is moving around 11 to 13 that is

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quite good. On the other hand, SKP’s interest coverage ratio is indicating that the company is
facing solvency risk as its interest coverage ratio is significantly low.
Gearing ratio is the financial ratio that is used to measure the debt of the company as
against the equity. This ratio is often analysed by the potential investors to assess the leverage
position of the company as it represents the proportion of assets financed through debt and
the proportion financed through equity. It further determines whether the company is able to
survive in case of economic downturn. Comparing the gearing ratio of VS with SKP it can be
found that the gearing ratio of VS is consistent and better as compared to SKP (Enekwe, Agu
and Eziedo 2014).
4.7 Investors Analysis
4.7.1 Background
Investors ratios are the key metrics used to measure the company’s ability to earn
sufficient return for the shareholder’s of the business as the owner’s investment are tied up in
business they require return on their investment in exchange of the risk undertaken.
Therefore, to get the overall picture of the company with regard to shareholder’s return the
investors often analyse various investors ratio like earning per share, P/E ratio, dividend
payout ratio and dividend yield (Yesil and Kaya 2013).

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4.7.2 Table of Investors Ratios
4.7.3 Line Graph
2017 2016 2015 2014 2013
0
2
4
6
8
10
12
14
EPS
VS
SKP

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2017 2016 2015 2014 2013
0
2
4
6
8
10
12
14
16
P/E Ratio
VS
SKP
2017 2016 2015 2014 2013
0
1
2
3
4
5
6
7
Dividend yield
VS
SKP
2017 2016 2015 2014 2013
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Dividend payout ratio
VS
SKP

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4.7.4 Interpretation
Diluted EPS is used to measure the quality of EPS in case where all the convertible
securities are exercised. It is an important metric to analyse the financial health of the
company. EPS is reported in the income statement of the company and the public companies
are obliged to report it. Looking into the EPS of both the companies it can be observed that
the diluted EPS of VS during last 5 years has been increased from 4.8 to 12.65 whereas the
diluted EPS of SKP has increased from 4.66 to 8.68 over the last 5 years period (Brigham et
al. 2016). Therefore, EPS of VS is better as compared to SKP. P/E ratio is used to measure
the current share price of the company against its EPS. Looking into the P/E ratio of both the
companies it can be observed that the diluted P/E ratio of VS during last 5 years has been
increased from 13.33 to 13.91 whereas the P/E ratio of SKP has increased from 0.07 to 0.14
over the last 5 years period. Therefore, P/E ratio of VS is better as compared to SKP.
Dividend yield represents the portion of share price given by the company as
dividend. It is computed through dividing the dividend per share by market price per share.
Looking into the dividend yield of both the companies it can be observed that the dividend
yield of VS during last 5 years has been increased from 1.00 to 5.90 whereas the dividend
yield of SKP has increased from 2.20 to 4.15 over the last 5 years period. Therefore, dividend
yield of VS is more consistent and better as compared to SKP (Babalola and Abiola 2013).
Dividend payout ratio measures the total dividend payment made to the shareholders against
the net income of the company. It is the percentage of net income paid to the shareholders
through dividend. It can be observed that the dividend payout ratio of VS has been increased
from 20.8% to 46.6% whereas the dividend payout ratio of SKP has been increased from
47.2% to 47.8%. However, the dividend payout ratio of SKP is more consistent and better as
compared to VS.

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5.0 Identification of strategic and operational issues and recommendations
5.1 Profitability
Improving trends of all the profitability ratios for the last 5 years for VS is indicating
that the company is operating smoothly.
5.1.1 Strategic issue
The major strategic issue of the company is that it is involved in producing the plastic
components and parte for the global customer that is also produced by 2 of its main
competitor.
5.1.2 Recommendation
Along with the existing product it shall involve in producing new and innovative
products that is not produced by its competitor. Further, it shall concentrate more on
production of its key product that is the portable household products.
5.2 Gearing strategy
Low gearing ratio of the company over the last 5 years is indicating that the company
is lower leveraged
5.2.1 Problem
Significantly low gearing ratio is indicating that the company raise major proportion
of fund through equity and very less portion through debt. However, there shall be balance
between debt and equity as higher equity will dilute the ownership of existing shareholder.
Further, unlike debt payment the payment to shareholders is not tax deductible.
5.2.3 Recommendation
The company is recommended to raise further fund through debt and not from equity.

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6.0 Limitation analysis
6.1 Limitation of ratio analysis
Ratio analysis though can be proved as an important tool to measure the financial
performance of any company and compare it with any other company or the past performance
of same company, it has some limitations as follows –
 Ratios can be correctly measured only when the data is correct. Sometimes for the
purpose of window dressing companies states wrong data in the financial statements.
In such cases, ratio analysis will be of no use.
 Ratios are calculated and analysed based on the past performance of the company.
However, it does not state anything regarding the future performance of the company
(Amba 2014).
 While comparing the performance of 2 or more companies through computation of
ratios it will not be comparable if the companies use different accounting methods.
6.2 Recommendation
It is recommended to the company that apart from ratio analysis it shall prepare the
budget and perform variance analysis to project the performance of future period and
compare it with the budget.

24FINANCIAL ANALYSIS
Reference
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