MYEG Company is the Malaysian based company having a business of the E-government services or can also be found under the IT management sector of Malaysia. The current revenue of the company is $371.22 million with the net profit of $201511. Current 40561 employees are working in this organization and tend to expand its business offshore as well (Morning Star, 2018).
Financial Analysis is an important criterion for determining the strength and the weakness of the company. This tool indicates both the positive as well as the negative aspects of the financial statements and also reflects the areas where the management needs to work upon to improve the areas of the weakness. The variances can also be found out with the help of the ratio analysis technique which has been discussed below in this report (Vogel, 2014). This report has a major outlook on the two year comparison of the balance sheet and the income statement of the MYEG Company based in the Malaysia, the two year detailed ratio analysis, the comparison against the industry and the peer group. For the peer group analysis the company taken is the POS Malaysia. Apart from this the five year trend analysis of the balance sheet, income statement and ratio analysis as well has been undertaken (Morning Star, 2018).
Detailed Ratio Analysis - Two-Year Comparison
Liquidity ratios are calculated with an intention to determine the company’s ability to meet the short term obligations and short term requirements. Such ratio is calculated to match the ability of the company to convert its assets into cash. Such ratios are very helpful for the creditors as it helps them in finding out the ability of the company for the repayment of loans. It also helps in predicting whether the company can meet the obligation for the money which was being lent by the lenders of the company (Baker, Cummings & Jagtiani, 2017).
One of the liquidity ratios is current ratio and it helps in a fair calculation of the company’s ability to meet the short-term liabilities. It is a simple comparison of the company’s current assets and current liabilities. If the result of the comparison indicates the higher number than it is the indication that the company has a strong base to meet the short term obligations
The current ratio of the company for the year 2017 is 18.5 whereas in the year 2016 financial year is 10.97 indicates that the company is able to pay the obligations in comparison to the previous year (Yahoo finance, 2018). The current ratio of the POS company is low with respect to the MYEG thus it explains that the company is performing better than the POS and has more scope of paying off the obligations as it has sufficient current assets as having by the POS (Heikal, Khaddafi & Ummah, 2014).
It is a type of ratio where a quick comparison is done on the basis of cash in hand, accounts receivables and marketable securities of the company against the current liabilities of the company. The result is measured on the basis of a higher number which indicates the strong position of the company to meet the short term obligations of the company (Saeidi, 2015).
The quick ratio of the MYEG is 5.088 in the previous year and 3.91 in the financial year 2017. The quick ratio has been decreased by 23% in comparison to the previous year. The above ratio indicates that the company ability to serve the obligations of the short term nature has been reduced and deteriorated (Morning Star, 2018). The Quick ratio on the other hand is more of the POS Company than MYEG which suggest that though the current assets are sufficient to pay back the current liabilities yet the cash is generated at the faster pace in case of POS (Nobanee & Al Hajjar, 2014).
An activity ratio generally reflects the ability of the company to reflect the ability and the power of the company to convert various accounts into the financial statements of the company in the form of cash or sales (Cable, Healy & Sun, 2018).
Accounts Receivable Turnover
Accounts Receivable Turnover ratio is the key driver that lets the management know about the dependency of the working capital of the company upon the accounts receivable of the company. The result is measured on the basis of indication in the numbers if such ratio indicates a lower number than the working capital of the company is adequate which shows lesser risks of the business (Bergeron, 2017).
The accounts receivable ratio of the company is 71 days and 76 days from the year 2016 to 2017. Thee inventory turnover ratio of the company is nil as the company has not maintained any inventory. The sales to fixed assets of the company have decreased from 1.03 to 0.74 from 2016 to 2017 (Morning Star, 2018). There are several suggestions to improve the receivable ratio as well as the day’s sales in the receivables ratio. The AR ratio in terms of the industry comparison is 82.25 and whereas the ratio of the MYEG is 76.5 in the year 2017 which is again the positive impact however to reach to the position of the 2015 at 63.1 there are following recommendations outlined below (Weygandt, Kimmel & Kieso, 2015).
- The company can start by preparing the aging schedules to interpret for how much time the receivables are outstanding. The policy of the review can be seen on the constant basis to identify for the patterns in the delinquent accounts (Flammer, 2015).
- Developing a strategy to identify the weak customers and the delinquent accounts can be one of the policies to improve the performance of the customers (Aldivitto & Rahman, 2016).
Accounts Payable Turnover Ratio
The payable ratio is the ratio which is used to measure the short-term liquidity of the company. Such ratio is calculated by having a basic comparison between the total purchase from the supplier or cost of goods sold and the average accounts payable of the company for the particular period (Mathuva, 2015).
Under this ratio it can be observed that the accounts payable turnover ratio has been changed drastically over the period of five years as it can be seen form the five year trend analysis. The ratio reached 7 from 20 as it was in the year 2013. The ratio also helps to deliver the information about the number of days in which the payment shall be made. The company has improved the ratio and thereby it is a positive indication from the analysis. In terms of the industry comparison the ratio has been more favourable on the side of the company whereas the ratio of the industry is 4.33. Therefore the company is performing better than other companies (Ukaegbu, 2014).
Sales to Fixed Asset ratio
It is a type of ratio which helps in calculating the general performance of the company. Such type of ratios is calculated with an intention to measure the ability of the company to generate sales from the fixed assets of the company. The result of such ratios are measured in numbers, the higher the numbers of such ratio the higher will be efficiency of the company to utilize the fixed assets of the company (Yahoo finance, 2018). The sale to fixed asset ratio is better of the POS Company as it can be observed by the comparison table and moreover there are several recommendations in regards to the sales to fixed asset ratio which can be improved if these suggestions are followed subsequently by MYEG Company (Hanson, Shleifer Stein & Vishny, 2015).
- Instead of purchasing the assets the assets shall be acquired on lease and the
- The identification of the assets to determine the assets that are directly affecting the sales of the assets can be classified easily.
- The detailed records of the assets which can classify which whether the current assets are on lease or purchase (Arnold, Hackbarth & Xenia Puhan, 2017).
It is a ratio which is used to calculate the capacity of the company to generate profits against the expenses of the company. The result of such ratio is measured in numbers, the higher the numbers the higher will be the profitability of the company (Laitinen & Laitinen, 2018).
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