Introduction
In this research we are requested to analyze the following well known companies in Malaysia. We are going to discuss about the Top Glove Corporation Bhd. & Sunrise Bhd. performances, strengths and weaknesses from the financial perspective and by the end of this research we will provide some comparison analyze for both companies to consider for their better future performance.
Business Description of Top Glove Corporation Bhd.
Top Glove is the largest rubber glove manufacturer in the world. Since its inception in Malaysia in 1991, starting from 1 factory in 1991 with 3 production lines, they have grown leaps and bounds to where the are today, Top Glove has embarked on an impressive expansion plan to become the world’s largest rubber glove manufacturer with the following position:
They are listed in the Bursa Saham Kuala Lumpur in year 2001 and in a short span of slightly more than a year, Top Glove Corporation Berhad’s listing has been successfully promoted from the Second Board to the Main Board of the Kuala Lumpur Stock Exchange on May 16, 2002. Top Glove now has a shareholder fund of RM687 million or USD191 million with an annual turnover of about RM1.38 billion or USD383 million as at 31 August 2008. They are also one of the component stocks of the Kuala Lumpur Composite Index, FTSE Bursa Malaysia Mid 70 Index, 100 Index and Emas Index.
Customers’ Satisfaction is their company main focus. Top Glove is very focused on being a “One-stop Complete Glove Sourcing Center”. Realizing the importance of continuously staying ahead in product development, Top Glove has placed a lot of emphasis in Research and Development to produce a wide and diversified range of high quality and value-added glove products in order to cater to the ever-increasing expectations of end-users. The company collaborates closely with government agencies and Ministries to keep itself abreast of the latest development in rubber research technology. The upgrading and collaborations of R & D is to enable Top Glove to be a world class cost effective producer with the most extensive range of premium quality glove products.
Business Description of Sunrise Bhd.
Sunrise Berhad is an award-winning property development company, ranked among the Top Ten in The Edge Malaysia’s Top Ten Property Developers Awards for five consecutive years (2003 – 2007). It is also thrice winner of the FIABCI Malaysia Property Award in 2005, 2001 & 1997 for Best Residential Development, and is listed as one of Forbes Asia’s “Best Under US$1billion” turnover public listed companies in 2005.
Listed on the Main Board of Bursa Malaysia Securities Berhad in 1996, Sunrise Berhad’s current market capitalization is over RM1 billion. It has business operations in Australia and Canada via joint ventures with overseas partners. Sunrise Berhad’s properties have historically enjoyed capital appreciation of up to 60% and rental yield of between 8% and 12%. With an existing land bank of 587 acres in Malaysia, the group’s businesses include:
- Property Development
- Facilities Management
- Investment Holdings
Sunrise has in-house departments and subsidiaries that offer a range of property related services including Property Maintenance, Construction Management, Rental and Resale services.
Financial Ratio Analyzes for Sunrise and Top Glove
- Liquidity Ratios for Sunrise & Top Glove
Current Ratio
As we know the Current ratio is an indication of a company’s ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations.
As for Sunrise company the power to pay back the short term obligations in 2008 has decreased compare to 2007 but it is still acceptable because the company can cover its liabilities via its short term assets. The 2007 is the best year among 2006, 2007 and 2008 since it shows the highest current ratio which means that the company power is higher. Also as for Top Glove company the same situation has happened and it shows that both companies power to pay back the short term obligations has decreased in 2008 due to recession.
Quick Ratio
Quick Ratio is a measure of a company’s liquidity and ability to meet its obligations. Quick ratio, often referred to as acid-test ratio, is obtained by subtracting inventories from current assets and then dividing by current liabilities. Quick ratio is viewed as a sign of company’s financial strength or weakness. The higher number means stronger, lower number means weaker. In general, a quick ratio of 1 or more is accepted by most creditors; however, quick ratios vary greatly from industry to industry.
In this case as we have calculated for both Sunrise and Top Glove Company the quick ratio is more than 1 which means both companies have ability to meet their own obligations.
Cash Ratio
Cash ratio is when we divide the total dollar value of cash and marketable securities by current liabilities. For a bank this is the cash held by the bank as a proportion of deposits in the bank. The cash ratio measures the extent to which a corporation or other entity can quickly liquidate assets and cover short-term liabilities, and therefore is of interest to short-term creditors. also called liquidity ratio or cash asset ratio.
According to the figures that are shown in the charts both companies (Sunrise & Top Glove) are not able to pay their current liabilities with their cash and they are relying just on other types of their current assets. Both companies are in risk according to their cash ratios because their cash ratio is below 1.
- Leverage Ratios for Sunrise & Top Glove
Total Debt Ratio
Total Debt Ratio shows company’s financial leverage. Debt/equity ratio is equal to long-term debt divided by common shareholders’ equity. Typically the data from the prior fiscal year is used in the calculation. Investing in a company with a higher debt/equity ratio may be riskier, especially in times of rising interest rates, due to the additional interest that has to be paid out for the debt. It is important to realize that if the ratio is greater than 1, the majority of assets are financed through debt. If it is smaller than 1, assets are primarily financed through equity.
So for the Sunrise the best year is 2006 since its debt is lower than 2007 and 2008 so the company doesn’t need to spend all its assets to adjust its debt. Sunrise has to consider this matter and decrease their costs in some way. However as we know in property developing Industry usually those years that companies are investing to develop a property they spend more so in the following years when they start to sell their finished property they earn the money and profit. And as for Top Glove the figures proof that the company had good progress from 2006 to 2008 since its debt has decreased compare to its assets and has lower Total Debt Ratio which is really a good sign for the company.
Debt Equity Ratio
Debt to Equity Ratio also is one of the ways to understand the financial leverage of the company. Debt/equity ratio is equal to long-term debt divided by common shareholders’ equity. Typically the data from the prior fiscal year is used in the calculation. Investing in a company with a higher debt/equity ratio may be riskier, especially in times of rising interest rates, due to the additional interest that has to be paid out for the debt. It is important to realize that if the ratio is greater than 1, the majority of assets are financed through debt. If it is smaller than 1, assets are primarily financed through equity.
As for the sunrise company the debt equity ratio for 2006 and 2007 are less than one which shows that assets are primarily financed through equity however in 2008 the figure has gone beyond 1 and this means that the majority of sunrise assets are financed through debt of the company. So this is a bad signal for investors since it has a high risk for them. Top Glove stands in a better place compare to Sunrise since the datas from 2006 to 2008 shows that the company is in progress and the debt equity ratio is decreasing so the investors can be happy to invest in this company and will now have any worries.
Equity Multiplier
As we know the equity multiplier is a way of examining how a company uses debt to finance its assets. In other words, this ratio shows a company’s total assets per dollar of stockholders’ equity. A higher equity multiplier indicates higher financial leverage, which means the company is relying more on debt to finance its assets.
Sunrise‘s equity multiplier is increasing from 2006 to 2008 and as we know the company may be at risk since they may not be able to pay their debts. So they may not be able to find new lenders in the market as well in the near future. In comparison, the Top Glove stands in a better situation since its equity multiplier has declined from 2006 to 2008 and it is a good sign for the company since the company is in lower risk.
Times Interest Earned Ratio
The times interest earned, or the interest coverage ratio, measure the margin safety for a corporation’s bondholders. This ratio measures the firm’s ability to pay its annual fixed interest charges from its ongoing business operations. There are no set rules determining an acceptable number of times earnings should cover interest. A bondholder should investigate the long-term trend of this ratio since it is a better indication of the firms continuing ability through good times and bad times to meet its interest obligations. As a rule of thumb, the more volatile a company’s earnings, the higher the times interest earned ratio should be.
Sunrise has a huge fluctuation from 2006 to 2008 which is not really a good sign for bondholders of the company or the new one who wants to buy bonds. In 2007 the company has a very high fluctuation compare to 2006 and 2008. But as for the Top Glove the fluctuation is less so it shows that the company is doing much better than Sunrise.
Cash Coverage Ratio
Cash Coverage ratio describes the quantity of funds available to cover certain expenses. The higher ratios are desirable to a degree. However, if they are too high, it may indicate that the firm is under-utilizing its debt capacity, and therefore not maximizing shareholder wealth.
Just Like time interest earned ratio for the Sunrise, its cash coverage ratio also follows the same condition and its huge fluctuation in 2007 can proof than the company underutilized its debt capacity and didn’t maximize its shareholders wealth but in 2006 and 2008 it had a better situation. Moreover, Top Glove also follows the routine of the times interest earned of course a bit higher. The cash coverage ratio for Top Glove shows that the company is trying to maximize its shareholders wealth and is a good sign for the company’s further improvement and expansion.
- Efficiency Ratios for Sunrise & Top Glove
Inventory Turnover
The inventory turnover ratio indicates the number of times that an inventory is sold and replaced over a given time period. This ratio can be used to assess the quality of an inventory. Inventory turnover ratios vary widely by industry and obvious deviations from the industry standard may indicate problems. Too much inventory can indicate improper purchasing, inadequate marketing, or an undesirable product. On the other hand, too little inventory can cause problems with product availability and can therefore hurt sales.
The Inventory turnover for both Sunrise and Top Glove is not showing a very high or very low figure. By this we can conclude that both companies are not having any problems to managing their assets from 2006 to 2008. However, the fluctuation of this turnover for Sunrise is more than Top Glove which this fluctuation is somehow normal because of the type of the industry they are in. But still for both companies turnovers are acceptable and both companies are taking care of their quality properly.
Receivable Turnover
The receivable turnover ratio measures the effectiveness of a firm’s credit and collection policies. A high receivable turnover rate can indicate an effective credit and collection policy or alternatively it can indicate that a business operates on a cash basis. A low turnover rate indicates that the firm should pay more attention to collecting its accounts receivable. Accounts Receivable can amount to interest free loans to customers. The firm should analyze its accounts receivable in terms of its stated credit policy.
According to our calculation, Sunrise doesn’t show a good image of its receivable turnover since compare to Top Glove, Sunrise cannot collect its money from the market as efficient as Top Glove. We have to note that in the type of the business that Sunrise is, such problems are always there. But still we can say that the company is in a good condition but as for Top Glove, receivable turnover from 2006 to 2008 the company is doing a really good job in collecting its receivable from the market.
Total Asset Turnover
Total Asset Turnover measures the effectiveness of the firm’s use of assets to generate sales revenue. This ratio can vary over time for a given firm. Firms in the start-up stage tend to have low asset turnover ratios, while mature companies tend to have a more stable asset turnover. Generally, a high asset turnover ratio indicates that the assets are being effectively employed; however, a high asset turnover does not explicitly take into account that the firm might be using old assets, which have been fully depreciated. A firm using newly purchased assets will show a lower turnover ratio because of the higher depreciation costs even though the new machinery is highly efficient. Firms will try to keep their long-term asset turnover ratios close to the industry norm.
The asset turnover for the sunrise company as a huge fluctuation which is normal usually in this market but the as we know the lower the asset turnover means that the company is not using its assets efficiently so for the Sunrise they have to overcome with some strategies to be able to stable their asset turnover ratio and avoid a lot fluctuation. As for the Top Glove its asset turnover ratio is in a good condition and shows that its management is looking carefully in the way the company’s assets are being used which is really good for the company.
Capital Intensity
Capital Intensity measures firm’s efficiency in deployment of its assets, computed as a ratio of the total value of assets to sales revenue generated over a given period. Capital intensity indicates how much money is invested to produce one dollar of sales revenue. So, the lower the ratio the better.
According to the calculated figures and the charts, Sunrise best year is 2006 since they spend less money in order to earn more revenue but 2006 and 2007 is not showing really good capital intensity. However, again we have to note that in this market this fluctuation is some \what normal because in one year they may spend and in another year they may earn only but always there are ways and strategies for companies to have both investments and revenues in constant following years even in this market as a property developer in order to avoid huge investments in one year and not earning a single dollar. As for the Top Glove, since they are in the rubber glove industry, they manufacture and sell so this progress continues every year. This is good for them because they are able to invest lower money and produce more revenue. As it shows in the charts the capital intensity of Top Glove is really doing well.
Day’s Sales in Inventory
Day’s Sales in Inventory is a financial measure of a company’s performance that gives investors an idea of how long it takes a company to turn its inventory into sales. Generally, the lower the Day’s Sales in Inventory the better, but it is important to note that the average DSI varies from one industry to another.
Sunrise and Top Glove Day’s Sales Inventory are showing a low ratio which according to the definition of Day’s sales inventory they are able to turn their inventory into sales in a short time. This ratio shows that these companies are doing well and both companies had better situation in 2007 compare to 2006 and 2008.
Day’s Sales in Receivables
Average number of days a firm takes to collect payments on goods sold is called Day’s sales in Receivables. Numbers much higher than 40 to 50 days indicate collection problems and significant pressure on cash flows. Numbers much lower than 40 to 50 days indicate overly-strict credit policies that might be preventing higher sales revenue.
When we look at the figures for both companies we can estimate that both companies are almost doing well and they can collect their payments from the market but it takes a bit more than 50 days but still it is acceptable for both firms since Sunrise is in Property industry which collecting a payment is a bit time taking and as for Top Glove because it is the world’s number 1 company in producing rubber gloves, the company has a good reputation and loyal customers so they may offer credit facility to their buyers so still it cannot be stated that because their day’s sales in receivables is more than 50 days they are in problem. In general, and according to their situation and industry both companies are doing well.
- Profitability Ratios for Sunrise & Top Glove
Profit Margin
Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors.
As for the Sunrise, the profit margin after 2006 had a great improvement in 2007 and 2008 and it shows that the company is doing well and earning more profit but as for the Top Glove we see a huge decline in its profit margin in 2008 and according to the founding it is due to the world recession that happened in the world and Malaysia was not an exception so since Top Glove is a Malaysian base company its profit decreased in 2008.
Return On Asset (ROA)
This ratio measures the effectiveness to which management is employing the firm’s resources. The ROA measures the return that the company earned on its assets; it does not measure the return earned by an investor. Low ROA might indicate poor management ability. Low ROA may also indicate that further analysis of the firm’s assets might reveal inefficient assets which can be disposed of and converted to cash.
As for Sunrise we are seeing that the ROA of the company is increasing which shows that the management of the company is increasing its ability but according to the industry that Sunrise is competing, this ROA is expectable however as we have mentioned even earlier the good management group can always think of ways to increase their capacities and competencies. Moreover, Top Glove is showing also a good ROA but it can be much better and if we notice, 2006 is the best year for Top Glove compare to 2007 and 2008.
Return on Equity (ROE)
This ratio is used to determine the adequacy of the return on common shareholder’s investment. Generally, the higher the ROE the better.
This ratio also is following the same fluctuation as ROA for both companies. Sunrise ROE is increasing from 2006 to 2008 and also for Top Glove we can realize that the best year is 2006 because it holds the highest ROE compare to 2007 and 2008 so it shows they had a better return on their common shareholders’ investment.
- Earning per Share for Sunrise & Top Glove
Profit attributable to ordinary equity holders of the Company
According to the results of calculations we can realize that Sunrise profit attributable to ordinary equity holders o the company is increasing which is a good news for the equity holders. The same situation is happening for the Top Glove which its equity holders are enjoying more profit attributable of the company.
Basic Earnings per Share
Basic Earnings per share tells an investor how much of the company’s profit belongs to each share of stock. The figure is important because it allows analysts to value the stock based on the price to earnings ratio.
Basic Earnings per Share for Sunrise has a bit fluctuation and ts worst year is in 2006 but it gets better in 2007 and 2008. As for the Top Glove we can realize that its basic earnings per share has an up sloping status which is a good sign for the investors of the company and shows that the company is in a very good situation as for earning per share.
Conclusion & Some Recommendation
According to the above analysis and comparison for Sunrise and Top Glove, both companies are doing well compare to their industry and each other from different industry. But both companies as we have seen had some problems in turning their inventory into sales which according to their business type still they can make some improvement for their companies in this issue. Moreover, both companies have to focus on some strategies to increase their current assets enabling them to pay all their current liabilities via their current assets. But we shouldn’t forget that both companies are the best company in their industry and have a good reputation in the market.
References
http://www.klse.com.my/website/bm/listed_companies/
www.investopedia.com/terms/d/dsi.asp