Sheng Siong Group Ltd: Financial And Non-Financial Ratio Analysis Essay.

Analyze the performance of your chosen company using relevant financial and non-financial ratios (5 years). Your analysis should include profit ratios, efficiency, liquidity and other ratios that you consider relevant

1.Select a company form the list provided to you below (Singapore stock exchange (SGX) company ONLY). 
If you select a company outside of the list below, you will automatically fail this part of the assignment, unless you get a prior written approval from your tutor.
2.Give an introduction of the selected company (about the product or services, location, turnover, number of employees). Also comment little bit on the major competitor for your company
3.Make a horizontal analysis and vertical analysis (of Profit and loss account and Balance sheet) for immediately preceding five years (2017, 2016, 2015, 2014, 2013) Get a trend of the sales, profits, assets and liabilities. Comment on the trend (increase or decrease). Compare the trend to the industry (Sector) / GDP of Singapore
Please refer to the slides that is published on Edmodo / base camp for examples of horizontal analysis and vertical analysis (also attached in this sheet)
4.Identify profits
a.Comment on the economic condition (ups and downs in the market of your selected company) - Example: If you have selected Singapore airlines, then comment on the airline industry.
b.For the preceding 5 years calculate the Financial ratios and comment on the ratios as shown below in sample analysis.
c.Use any of the below 4 ratios for commenting on profitability.

Horizontal Analysis and Vertical Analysis

Sheng Siong Group Ltd. is a company listed on the Singapore Stock Exchange. The company operates as the parent company of Sheng Group. Sheng Siong‘s headquarter is located in Singapore. It started its business in 1985 in the retail industry of Australia and currently owns around 48 outlets as supermarkets and grocery stores with the brand name called Sheng Siong (Bloomberg, 2018). These stores offers a wide variety of products such as seafood, meat, vegetables and other packaged, frozen, preserved edible products as well as the items that fall under the categories of general merchandise such as toiletries and other essential domestic products. The company in engaged in both trading and wholesale business of importing and exporting. Sheng Group is presently employing over 2000 employees with a gender distribution of 50:50, approximately (Sustainability Report, 2017). In 2017, the company has reported total revenue of $ 829.9 million. The company has successfully managed to continue its inclining trend with respect to revenue, gross profit margin, net profit margin and earning per share since 2013. In this way the company is continuing to strengthen its financial position in the market. In the e-commerce sector, Sheng Group is facing huge competition from large market players such as RedMart which is a leading company in e-commerce sector of Singapore and also its ranks as third largest retailer after its two major competitors NTUC Fairprice and Dairy Farm International (Singapore Business Awards, 2015).

Horizontal Analysis and Vertical Analysis

Horizontal analysis is also called as Trend Analysis. It is undertake to analyse the changes occurred in respect of various important components of financial statements over the given period of time. In the present case of Sheng Group, horizontal analysis is carried for the last 5 financial years since 2013 and hence 2013 is taken as the base year and changes in the key components of both income statement and balance sheet are analysed. From the analysis table, it has been observed that there has been experienced an increasing trend in respect of sales, profits and total assets over the last 5 financial years. However, total liabilities of the company had also increase till 2016 but in 2017 there has been a slight decline in the level of liabilities (Simply Wall st., 2018).

Trend Analysis

Income Statement

Vertical Analysis

Income Statement

Profits are the earnings that are left after meeting all the expenses of the business. It is the surplus revenue after meeting the overall costs of the business. Strong profitability is desirable for all the businesses and due to the fact that it amounts to creation of more wealth for the owners of the business. Profitability position of a company tells about its return potential and only those companies which have sound profitability state are found to be attractive to the investors as they provide finance to the company for its operations and in return they expect the company to provide them a share in company’s profits.

Part a: Economic Condition of Singapore retail industry:

Trend Analysis

The industry to which Sheng Group belongs is expected to stay competitive. The said industry generally has the tendency of pushing the firms for the increase in sales volume in china during the Chinese New Year festive season. Also after joint venturing with Chinese company, the company has gained various benefits as the china is more focusing on consumer spending led economy. There is a limp economic environment and increasing competition in the Singapore grocery retailers because of entry of online grocery retailers in the market. Still, the industry is growing smoothly because of improved spending patterns of consumers because of emerging interest in the areas of home cooking and rising standards of middle class Singapore families (Euromonitor International, 2018).

Profitability position of Sheng Siong:

To analyse the profitability position of Sheng Group over last 5 years, use of four main ratios have been made and following are the results of all the ratios.

The gross profit margin determines the quantum of earnings available with the company after meeting its costs of goods sold. In the present case of Sheng Group, the GP ratio has continuously increased from 23.0% in 2013, then 24.20% in 2014, then 24.71% in 2015, then 25.69% in 2016 and finally 26.20% in 2017. The inclining trend shows the company’s profitability position is improving with each passing year. However, the company could not meet the industry standards of 24.86% in 2013, 2014 and 2015 but since 2016 it has beat the industry averages.

The net profit margin of the company shows the quantum of earnings left with the company after meeting all its expenses. In the current case of Sheng Group, the net profit margin has continuously been increasing since 2013 when it was merely at 6.77% and over the last 5 financial years it has increased to 9.86% in 2017 but the industry ratio in this regards is quite higher than the company’s ratios. The average net profit margin achieved by the competitors of the Sheng Group is 23.59% and hence it can be said that company must be facing competitive pressure because of its lower net profits.

Therefore, it can be said that profitability position of the business is strong enough.

Dividends are the profits of the company that are distributed among its shareholders in the proportion of their shareholdings, in return of their investments in the company. Dividend is the consideration paid by the companies to its shareholders in lieu of financial assistance provided by them to the company for its business operations. Dividend can only be paid by the companies when they have adequate amount of surplus funds after meeting the business cost and keeping aside a reasonable portion of such profits for the subsequent use in business only. Usually, a company pays two types of dividend: dividend on ordinary shares and dividend on preference shares.

Dividend Yield Ratio

The dividend yield ratio measures the quantum of dividend paid out of its share price. The declining trend of dividend yield may warrant an investigation on company’s market worth but is not an immediate indication of decline in the market worth. However, considering the industry standards it can be said that company was performing better than its competitors till 2016 but in 2017 the yield declined even from the level of industry standards.

Income Statement

Dividend pay-out ratio

The dividend pay-out ratio shows the quantum of dividend paid by company from the amount of profits earned per share. Sheng’s pay-out ratio throughout the period of 5 years is better than that of the other firms operating in the same industry and hence it is considered as a sound investment option. However, the said ratio has declined significantly over the period of 5 years since 2013 till 2017 indicating that company is paying lesser returns to its investors in the current years as compared to previous years.

Earnings per share

The earnings per share ratio measures the business profit that is attributable to each share held by the shareholders. In the present case of Sheng Group, earning per share of the company has experienced an inclining trend over the last 5 financial years. This shows that company has earned higher profits each year and even it has superseded the industry standards making itself an attractive investment option for the existing investors.

Price Earnings Ratio

The price-earnings ratio implies the expected price of the share based on its earning potential. The price-earnings ratio of the company has shown the fluctuating trend but it was however always higher than the industry standards of 17.89 and it shows that company has sound future prospects. But in 2017, the PE ratio has declined from the level of 2016 of 22.32 to 19.39 which indicates that the performance of the company in market seems to have weakened.

Stability and Liquidity Ratio

Part a

The company has sound long term financial position because of low portion of non-current liabilities in its total debt. Also, the short term financial position is strong because of its strong profitability position and also company has current assets more than its current liabilities.

Part b

Part c

Current Ratio:

Liquidity is achieved when the company has sufficient amount of current assets for the disposal of its current liabilities which fall due within the next one year (Foster, 2004). Current ratio has been used to assess Sheng’s liquidity position. Current ratio determines whether company is able to meet its current liabilities which are going to fall due in near future, using the current assets held by the business (Higgins, 2013). Ideal current ratio is 2:1 but the average ratio of the industry to which Sheng Group belongs is 2.5: 1. The current ratio of the company in present case is lower than both industry standard and ideal ratio. Also, there is a fluctuating trend in the current ratio and hence the liquidity position of the business cannot be said to be satisfactory.

Quick Ratio

Quick ratio measures the company’s capacity to meet its current liability using the quick assets of the business (Nissim & Penman, 2001). Quick assets are those current assets which could be quickly converted into cash whenever there is a requirement of cash. Ideal quick ratio is 1:1. However, the in the case of Sheng Group, industry ratio is 2.15: 1 but the company’s quick ratio in last 5 years is quite lower than industry standard. This shows that company does not have healthy liquidity position in the market.

Balance Sheet

Gearing Ratio

The gearing ratio shows the quantum of long term liabilities held by the company in its total capital structure. In the present case of Sheng Group, there is only one non-current liability of the company in all the 5 years. It is in the form of deferred tax liabilities. This shows that there are lower changes of company’s insolvency.

Debt-Equity Ratio

The debt to equity ratio shows the quantum of debt used to finance the requirements of the business as compared to the quantum of equity used for the same purpose. The debt to equity ratio has declined over the last 5 years with some fluctuations during the total period of 5 years. Hence, it can be said that the financial leverage on company is reducing with each passing year.

Asset Turnover Ratio

Asset turnover ratio (ATR) measures the efficiency of the business to earn revenues by using the total assets in the business. In the present case of Sheng Group, the asset turnover ratio is higher than the industry standards in all the 5 years and this is the positive sign on company’s efficiency in generating returns than that of its competitors. But there is a decreasing trend in respect of ATR which shows that company is efficiency is weakened in the last years to earn adequate returns as it was earning in 2013 (Annual Report, 2013).

Stock Turnover Ratio

Stock turnover ratio shows the efficiency of company in converting its inventory into sales. The low inventory time of one period than a previous period shows that company is not able to convert its inventory into sales as quickly as it did in previous years. The ITR is declining over the last 5 years in case of Sheng Group which shows that company is getting inefficient in utilising its inventories but still it is performing better than its competitors.

Accounts Receivable Turnover Ratio

The accounts receivable ratio measures the time taken by company to convert its credit sales into cash sales. In the present case of Sheng group, longer days are taken by the company to convert its credit sales into cash. Hence it can be said that the company is inefficiently managing its accounts receivables.

The overall current ratio has got improved over the last 5 years and this shows that the total current assets of Sheng’s business are being efficiently managed by it.

 Part 7:

The return on equity ratio measures the quantum of profits earned by the company for its equity shareholders by utilising their own invested funds (Higgins, 2012). In the present case of Sheng Group ROE of company in all the five periods covered in this report is higher than the industry average. However, there is a slight fluctuation in the level of ROE in 5 years but it still it can be said that potential investors will find Sheng as the attractive choice where investments can be made as it has higher return potential than its competitors.

The return on assets shows the quantum of profits earned by the business by the effective utilisation of its overall assets. The ROA in last 5 years has exceeded the industry standards but in 2015 it was reported at its lowest among 5 years.

The risk can be determined using the measure of financial leverage. As in the present case of Sheng group, the company is not facing high financial risk as it has no significant amount of debt financing which requires repayment. Rather the company has relied more on the internal financing such as retained earnings and equity shares issue.

Part 8:

Asset Value per Share: $18.61 (Share Investor.com, 2018)

Current Market Price per Share: $ 1.12 (Yahoo Finance, 2018).

High end value= $ 1.13

Low end value= $ 1.12

The asset value per share is calculated by dividing the total net assets held by the company in a particular year with the weighted average number of shares held by the shareholders of the company (Penman & Penman, 2001). Net assets value is the sum of total assets reduced by the liabilities. To assess the stock prices of the Sheng Group, yahoo finance has been referred and it has been observed that there is a continuous fluctuation in the daily stock prices of the company over the last 5 years which leads to change in the market capitalisation of the company. The changes in the price of the stock occurs due to various reasons such as change in the market condition, occurrence of a particular event that could materially affect the company’s operations, the declaration of sound or weak financial results etc. In the case of Sheng Group, no linear fashion has been identified in the changes in the prices of stock as the prices are showing the random movements.  

Part 9: Non-financial factors:

• The brand of Sheng has achieved the sound reputation and hence it has allowed the company to maintain a wide market share than its competitors.
• Innovation: The lack of digitisation expertise of company has put an intense competitive pressure on the company’s growth and existence.
• As the sustainable business practice the Sheng Group has adopted the 3 R: Reduce, Reuse and Recycle approach in managing the resources of the society.
• Even the company maintains sound and effective relationships with its employees by offering them several opportunities for growth and development along with job stability (Sustainability Report, 2017).

Part 10: Comparative analysis:

Sheng Group’s overall financial performance is better than the average performance of other firms of the grocery retailers industry. Average performance of the industry is determined using the financial results of all other firms operating within the same industry and the average of their performance is used to compare the results of individual company with others. In the instant case, after making comparative analysis of Sheng’s own performance and its industry’s performance, it has been observed that Sheng is performing better than the other firms of this industry in terms of profitability due to which it has sound market worth but at the same time company’s liquidity, solvency and efficiency position is not as strong as its competitors.

In order to face the intense competitive pressure in market, Sheng Group has taken its business to the e-commerce platform in 2014 by introducing its online shopping website with the name of “allforyou.sg” to offer the facilities of same day delivery within 3 hours in certain areas of Singapore. The said initiative has delivered Sheng Group a sound growth in its revenue with boosted gross margins by way of cost savings at certain warehouses and promotion of better sales mix at various stores. Further in 2014 and 2015, company has opened up various new stores. It targeted the wide market segment in the housing development board estates. In 2014, the group had acquired Block 506 Tampines Central 1 with a significantly large area to open up a supermarket in 2016 when all its leases will run out.  Recently, the company has also announced its proposal of venturing with a Chinese company named as Kunming Luchen Group Co. Ltd. with the motive of opening up new super markets in China. This expansion strategy in different country has allowed the company to grab the market share internationally. All these events have positively contributed to the financial growth of the company (Singapore Business Awards, 2015).

The lack of company’s expertise in the areas of digitisation of business is the major factor that could lead it to loss of large market in the upcoming years which will drag down its revenues. The company also focuses merely on expansion of the new stores and not on the development of new online facilities such as credit card payments, price match guarantee, large variety of online products which are offered by its competitors such as RedMart (Singapore Business Awards, 2015). Also, there are various scams occurred in the recent times that had impeded the Sheng’s brands and reputation such as the misleading and fake Facebook ad-post which asked the people to register for company’s brand to earn some vouchers. These events have significantly affected the reputation of giant supermarket retailer in the market (Sheng Siong, 2018).

Sheng’s Board comprises of 10 directors out of 5 are non-executive directors 4 are independent directors.

• Lim Hock Chee, Chief Executive Officer
• Lim Hock Eng, Executive Chairman
• Lim Hock Leng, Managing Director
• Tan Ling San, Vice Chairman and Executive Director
• Lin Ruiwen, Executive Director

Directors of the company bring a wide range of relevant knowledge, experience as well as expertise in various areas like accounting, finance, laws, business management and food safety management etc. The collective knowledge, expertise and competencies of the directors help in the effective decision making in relation to significant matters of the business (Sheng Siong, 2014).

Non-executive directors

• Goh Yeow Tin, Lead Independent Director
• Jong Voon Hoo, Independent Director
• Francis Lee Fook Wah, Independent Director
• Tan Poh Hong, Independent Director
• Lee Teck Leng, Robson, Non-executive Director

The independent and or non-executive directors have the role to ensure that all the strategies and plans formulated by the management of the company are constructively challenged, discussed and thoroughly examined so as to protect the interest of the shareholders and other stakeholders of company. They are also given the role of assessing the performance of the management.

The vision of the company must be to become the first largest supermarket retailer in the Singapore market and even in the overseas market. The financial goal of the business must be to achieve an industry standard in its liquidity position.

Conclusion:

After examining the annual reports from the last five financial years since 2013, it could concluded that Sheng Group has outperformed its competitors in the retail industry in terms of profit but it has failed to meet the industry benchmarks in terms liquidity position. Therefore, in order to achieve the vision of becoming top-most grocery retailer, the company needs to set various financial goals such as reducing the accounts receivable conversion cycle to below the industry average of 55 days. Further, the company must have to maintain its currents assets at an amount which is twice its level of current liabilities. The inventory cycle must also be improved to at-least 15 days in order to remain liquid in the market. Further, Sheng Group must emphasis more on digitisation of its business by opening up more e-commerce stores on the e-commerce platform so as to survive the intense competition in the market. Considering the nature of industry, it can be said that Sheng has strong avenues to grab in both Singapore and Chinese market due to sound economic conditions of the country.

References:

Bloomberg, 2018. Company Overview of Sheng Siong Group Ltd. Available at:  https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=136821806 Accessed on: 26.09.2018

Euromonitor International, 2018. Country Report Grocery Retailers In Singapore. Available at: https://www.euromonitor.com/grocery-retailers-in-singapore/report Accessed on: 26.09.2018

Foster, G., 2004. Financial Statement Analysis, 2/e. Pearson Education India.

Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

Investing. Com, 2018. Shen Overview. Available at: https://www.investing.com/equities/sheng-siong-group-ltd-ratios Accessed on: 26.09.2018

Nissim, D. and Penman, S.H., 2001. Ratio analysis and equity valuation: From research to practice. Review of accounting studies, 6(1), pp.109-154.

Penman, S.H. and Penman, S.H., 2001. Financial statement analysis and security valuation. New York, NY: McGraw-Hill/Irwin.

Share Investor.com, 2018. Sheng Siong Group Ltd. Available at: https://www.shareinvestor.com/fundamental/factsheet.html?counter=OV8.SI Accessed on: 26.09.2018

Sheng Siong, 2013. Annual Report: 2013. Available at: https://www.shengsiong.com.sg/product_images/investor/2013/Sheng%20Siong%20Group%20Ltd_Annual%20Report%202013.pdf Accessed on: 26.09.2018

Sheng Siong, 2014. Annual Report: 2014. Available at: https://www.shengsiong.com.sg/product_images/investor/2014/Sheng%20Siong%20AR%202014.pdf Accessed on: 26.09.2018

Sheng Siong, 2014. Sustainability Report: 2017. Available at: https://www.shengsiong.com.sg/product_images/investor/2017/SSG_2017_SustainabilityReport.pdf Accessed on: 26.09.2018

Sheng Siong, 2015. Annual Report: 2015. Available at: https://infopub.sgx.com/FileOpen/ShengSiongGroupLtd_2015AnnualReport.ashx?App=Prospectus&FileID=28677 Accessed on: 26.09.2018

Sheng Siong, 2016. Annual Report: 2016. Available at: https://www.shengsiong.com.sg/product_images/investor/2016/Sheng%20Siong%20Group%20Ltd_2016%20Annual%20Report.pdf Accessed on: 26.09.2018

Sheng Siong, 2017. Annual Report: 2017. Available at: https://www.shengsiong.com.sg/product_images/investor/2017/SSG_2017_AnnualReport.pdf  Accessed on: 26.09.2018

Sheng Siong, 2018. Sheng Siong Group’s net profit grew 6.6% yoy to S$18.3 million for 1Q2018. Available at:  https://www.shengsiong.com.sg/news/86/Sheng-Siong-Group%E2%80%99s-net-profit-grew-6.6%25-yoy-to-S%2418.3-million-for-1Q2018.html Accessed on: 26.09.2018

Simply Wall st., 2018. Sheng Siong Group: Share Prices and Events. Available at: https://simplywall.st/stocks/sg/consumer-retailing/sgx-ov8/sheng-siong-group-shares Accessed on: 26.09.2018

Singapore Business Awards, 2015. Here are 5 things you should know about Sheng Siong. Available at: https://www.sph.com.sg/system/assets/1890/SBA%202015%20(Sheng%20Siong%20Group%20Ltd)_(FINAL).pdf Accessed on: 26.09.2018

Singapore Business Review, 2015. Sheng Siong Group Ltd. Available at:  https://sbr.com.sg/source/motley-fool-singapore/here-are-5-things-you-should-know-about-sheng-siong Accessed on: 26.09.2018

Wall Street Journal, 2018. Sheng Siong Group. Available at: https://quotes.wsj.com/SG/OV8/financials/annual/balance-sheet Accessed on: 26.09.2018

Yahoo Finance, 2017. Sheng Siong: Historical Data. Available at:  https://sg.finance.yahoo.com/quote/OV8.SI/history?p=OV8.SI Accessed on: 26.09.2018