4.

1 Financial Analysis
4.1.1 Solvency ratio
Equation 1 Current ratio = Current assets/Current liabilities
2 Quick ratio = (Current assets-Inventories)/ Current liabilities
Ajinomoto
2011
Current ratio

Quick ratio

164,016,975
40,175,870 =4.

2012

2013

164,978,783
29,023,688

189,799,586
39,974,819

08
=5.68
=4.75
164,016,97562,802,628
164,978,78363,212,136
189,779,58670,907,069
40,175,870
29,023,688
39,974,819
=2.16

=3.51

=2.97

Current ratio

2011
1,015,064,000
914,740,000 =1.

2012
840,703,000
929,392,000

2013
929,987,000
1,071,862,000

Quick ratio

=0.90
=0.87
11
1,015,064,000517,573,000
840,703,000411,170,000
929,987,000408,614,000
914,740,000
929,392,000
1,071,826,000

Nestle

=0.58

=0.46

=0.49

Solvency ratios also called leverage ratios. The solvency ratios is to measure a company's ability
to sustain the operation indefinitely by comparing debt levels with equity, assets and earnings.
On the other hand, the solvency ratios also means that a firm's ability to pay its bills in the long
term. The common solvency ratios include Current ratio and Quick ratio.
Current ratio is objectively to meet the company's ability to repay its short term liabilities that
include debt and payables with its current assets. Company's current ratio higher means that the
company had more capable of its paying obligations. The current ratio of a company is less than
1 is more riskier because the company would be unable to pay off its obligations. Obviously, it
show the company is not in good financial health if the current ratio is less than 1. Besides, the

higher the current ratio, the more liquid the company is. The current ratio of Ajinomoto company
in the year 2011 was 4.08, 2012 was 5.68 and 4.75 at the year 2013. Although the Nestle
company had a large current assets, but it was not enough to cover its debt obligations. Nestle
company's current ratio at the year 2011 was 1.11, 2012 is 0.90 and year 2013 is 0.87. This show
that the Nestle company may be facing a financial problem or face a not good financial health at
the year 2012 and 2013. As a comparison, the Ajinomoto company was more sense of the
efficiency if its operation cycle or its ability to turn its convert into cash and it also show that the
Ajinomoto company had a good financial position compare with Nestle company.
Quick ratio is more conservative than the current ratio because the quick ratio need to minus out
the inventories from the current assets. It is because the company's inventories is wasting time to
be converted into cash. The quick ratio is to measure a company's liquidity and ability to meet its
obligations and it is similar with current ratio. Quick ratio is viewed as a sign of a company's
financial strength or weakness. The quick ratio of the Ajinomoto company at the year 2011 is
2.16 and there were rising to 3.51 at the year 2012. But at the year 2013, the quick ratio of the
Ajinomoto company was declined to 2.97. It show that the Ajinomoto company's liquidation was
not well perform at the year 2013 compared with year 2012. Besides, the Nestle company's quick
ratio at the year 2011 is 0.58. But the year 2012 was declined to 0.46 while the year 2013 is 0.49.
Although the liquidation of Nestle company in a bad position compare with Ajinomoto company.
4.1.2 Gearing ratio
Equation 3 Debt-assets ratio = Total liabilities/Total assets
4 Equity ratio = Total shareholder's equity/Total assets
5 Debt-Equity ratio = Total liabilities/Total equity

Gearing Ratio
2011
Debt-assets
ratio

2012

49,983,540
270,172,280 =0.19

Ajinomoto
2013

38,528,820
273,851,710 =0.1

50,059,757
294,403,603 =0.1

Equity ratio

220,188,740
270,172,280 =0.81

235,322,890
273,851,710 =0.8

6
Debt-Equity
ratio

49,983,540
220,188,740 =0.23

244,343,846
294,403,603 =0.8

3
38,528,820
235,322,890 =0.1

50,059,757
244,343,846 =0.2

0
Nestle

2011

2012

2013

1,358,582,000
2,011,301,000 =0.

1,153,963,000
1,905,169,000 =0.

1,272,290,000
2,088,734,000 =0.

Equity ratio

68
652,719,000
2,011,301,000 =0.

605
751,206,000
1,905,169,000 =0.

609
816,444,000
2,088,734,000 =0.

Debt-Equity ratio

32
1,358,582,000
652,719,000 =2.

394
1,153,963,000
751,206,000 =1.

390
1,272,290,000
816,444,000 =1.

08

54

56

Debt-assets ratio

Gearing ratio is reliance and use of external debt to finance a firm's operations and measures
level of indebtedness of the firm. As for most ratios, an acceptable level is determined by its
comparison to ratios of companies in the same industry. The most popular examples of gearing
ratios included the Debt assets ratio, Equity ratio and Debt Equity ratio.
Debt assets ratio is measures the extent of a company's or consumer's leverage. Moreover, it also
computes proportion of all external claims if firm is liquidated, creditors rank in priority over
shareholders. The higher the debt assets ratio, the more leveraged the company and will be
greater its financial risk. If the ratio greater than 1 that means a company may be putting itself at
risk of not be able to repay its debts. The Ajinomoto company had a great debt assets ratio. At the
year 2011, the debt assets ratio is 0.19, year 2012 is 0.14 and the year 2013 is 0.17. This means
the Ajinomoto company had a good lending position. The company doesn't put itself in to a risk
and this company had a high credibility to repay its debt. Besides, the Nestle company also
consider as a good company because the debt assets ratio of its company at the year 2012 is

0.605 and 0.609 at the year 2013. In addition, Nestle company have more financial risk compare
with Ajinomoto company and the credibility of its company is less than Ajinomoto company.
Equity ratio also called as Equity Multiplier. The equity ratio is used to analyze a company's debt
and equity financing strategy and indicates financial commitment of shareholders. A lower ratio
means that less assets were funding by debt than by equity and investor funded more assets than
by creditors. The equity ratio sometimes referred as net worth to total assets ratio. The equity
ratio of Ajinomoto company was 0.81 at the year 2011 and 0.86 at the year 2012. That means the
Ajinomoto company in the year 2011 is more conservative than the year 2012 while at the year
2013, the equity ratio become 0.83. Obviously, the Ajinomoto company at the year 2013 is more
conservative than year 2012 but more unconservative than year 2011. Besides, the Nestle
company's Equity ratio in the year 2011 is 0.32, year 2012 is 0.394 and year 2013 is 0.390. This
show that the Nestle company are always considered more conservative and more favorable than
Ajinomoto company because Nestle were less dependent on debt financing and had a low debt
servicing cost than Ajinomoto company.
Debt Equity ratio that compares a company's total debt to total equity. The debt equity ratio
shows the percentage of company financing that comes from creditors and investors. A debt
equity ratio equal 0.5 means that there are half as many liabilities that there is equity. The debt
equity ratio of Ajinomoto company at the year 2012 is 0.16 and 0.20 at the next year. Besides,
the year 2011 had most highest Debt equity ratio compared with these 3 years that is 0.32. That
was not much different between both years. But, the Nestle company's debt equity ratio in year
2012 is 1.54 and in the year 2013 is 1.56 and the highest ratio also in the year 2011 that is 2.08.
That is clearly told us the Ajinomoto company is usually implies a more financially stable
business. The Nestle company is more risky than Ajinomoto company. Creditors viewed a higher
debt to equity ratio as risky because it shows that the investors haven't funded the operations as
much as creditors have. That means, the investors will be reject to invest the business operations
because the company had seeking extra debt financing due to the doesn't performed well. This
can lead to bankruptcy, which would leave shareholders with nothing.
4.1.3 Debt services ratio

Equation 4.6 Debt Services ratio= Earnings before tax & interest/ Interest expenses

2011
Debt Services ratio

Ajinomoto
2012
-

2013
-

Nestle
Debt Services ratio

2011
558,809 , 000
21,398,000 =26.1

2012
637,668 , 000
20,131,000 =31.6

2013
719,054 ,000
21,937,000 =33.7

Debt services ratio is to measure a company's ability to service its current debts by comparing its
net operating income with its total debt service obligation. The Ajinomoto company does not
have any borrowing with other. So, the Ajinomoto company have more income available to pay
for the future debt. On the other hand, the Nestle company have borrowing so automatically will
be create the debt services ratio. At the year 2011, the Nestle company had 26.12%, year 2012
had raised to 31.68% and 2013 also increased to 33.78%. This will cause the company have more
income available to pay for debt servicing.

4.1.4 Efficiency ratio

a) Operational efficiency ratios- daily operating cycle

Equation 7 Average collection period= 365xaverage trade debtors balance/ credit sales
Equation 8 Average stockholding period= 356xaverage stock balance/ cost of goods sold
Equation 9 Average payment period= 365x average trade creditor's balance/ purchases
Efficiency ratio
Average
collection period

2011
29,239,782
x 365
316,165,220

2012
33,526,061
x 365
324,651,542

=34

=38

Ajinomoto
2013
37,006,050
x 365
332,908,276
=41

Average
stockholding
period
Average payment
period

57,528,951
x 365
274,616,553

63,007,382
x 365
293,908,003

67,059,603
x 365
316,819,590

=76
31,428,338
x 365
316,165,220

=78
32,925,538
x 365
324,651,542

=77
33,675,275
x 365
332,908,276

=36

=37

=37

2011
399,578,500
x 365
4,026,319,000

2012
419,499,000
x 356
4,556,423,000

Nestle
2013
448,175,500
x 365
4,787,925,000

=36
449,056,000
x 365
2,862,535,000

=34
464,371,500
x 365
3,003,239,000

=34
409,892,000
x 365
3,089,908,000

=57
750,795,000
x 365
4,246,744,000

=56
875,183,000
x 365
4,556,423,000

=48
957,522,000
x 365
4,787,925,000

=65

=70

=73

Efficiency ratio
Average
collection period
Average
stockholding
period
Average payment
period

Average collection period is to measure of the average number of days that a company takes to
collect revenue after a sale has been made. In the year 2013, the average collection period of
Ajinomoto company is 41 days and higher than the year 2011 and 2012 that is 34 days and 38
days. So, the Ajinomoto company is less operationally efficient than year 2011 and year 2012.
The longer a company has money out there on the street, the more risk it is taking. On the other
hand, in the year 2011 the Nestle company were 36 days of average collection period. This
clearly show that in the year 2011, the Ajinomoto company is more efficient than Nestle
company but at the year 2012 and 2013, the Nestle company had improved their operationally
efficient. The Nestle company only took around 34 days of average collection at the year 2012

and year 2013. In this 2 years, the average collection period of Nestle company have a good
functionally of their company efficiency.
Average stockholding period 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 average stockholding period is better, but it is important it is important to note that the
average stockholding period varies from one industry to another. The average stockholding of
Ajinomoto company was 76 days in the year 2011. Besides, the in the year 2012, the company's
average stockholding period up to 78 days. It show that the year 2011 normally got a greater
liquidity compare with year 2012. Moreover, the year 2013, the average stockholding period
from 78 days declined to 77 days in the year 2013. This was cause by the company had less
obsolescence and more liquidity compared with last year but it still not very well performed in
the year 2013. Furthermore, the average stockholding period of Nestle company at the year 2011
is 57 days and 56 days in the year 2012. Nevertheless, at the year 2013, Nestle company had a
good liquidity and less regression cause the average stockholding period declined to 48 days.
According to the comparison, both company had performed a better liquidity compare with
current year and past year.
Average payment period is a efficiency ratio that shows a company's ability to pay off its account
payable during a period. Average payment period also measures the company's management of
credit period given by its supplier. Firstly, the Ajinomoto company have been taken around 36
days for the average payment period at the year 2011. Besides, the company also took around 37
days at the years 2012 and 2013. Obviously, Ajinomoto company shows that it had a generally
good liquidity position in this 3 years and the company can prompt to make payment to creditors.
It will lead to the company had more creditworthiness analyze by creditor. On the other hand, the
Nestle had took around 65 days for payment period at the year 2011, 70 days in 2012 and 73
days in year 2013. It was clearly show that, the company have too much of purchases and
average trade creditor's balance. In addition, it will lead the creditor of Nestle company would be
facing a default risk in their payment due to the lack of creditworthiness. Based on the
comparison of both company, the Ajinomoto company had a good liquidity and more
creditworthiness than Nestle company from the perspective of the creditor.

4.1.5 Asset efficiency ratios-productivity ratios

Equation 10 Fixed asset turnover ratio= Sales/average fixed assets

Equation 11 Asset turnover ratio= Sales/ Average total assets

Fixed asset turnover

ratio

2011
316,165,220
106,155,305 =2.97

Ajinomoto
2012
324,651,542
108,972,927 =2.97

316,165,220
164,016,975 =1.93

324,651,542
273,851,710 =1.19

2013
332,908,276
104,624,017 =3.1
8

Asset turnover ratio

332,908,276
294,403,603 =1.1
3

Nestle
2011

2012

4,246,744,000
996,237,000 =4.2

Fixed asset turnover

ratio
6

4,556,423,000
1,064,466,000 =4.2
8

4,246,744,000
1,015,064,000 =4.1

Asset turnover ratio

8

2013
4,787,925,000
1,158,747,000 =4.1
3

4,556,423,000
1,905,169,000 =2.3
9

4,787,925,000
2,088,734,000 =2.2
9

Fixed asset turnover ratio measures how successfully a company is utilizing its fixed assets in
generating revenue. Besides, this ratio often used to measure in manufacturing industries, where
major purchase are made to help increase output. Fixed asset turnover ratio is relates to
efficiency of utilization of fixed assets to generate sales. The higher the fixed assets turnover
ratio is better because the higher the ratio the more efficient fixed assets have been employed
while the lower the fixed asset turnover means that indicates idle or unproductive capacity and
most likely have management or production problems. The Ajinomoto had 2.97 fixed asset
turnover ratio at the year 2011 and year 2012. Besides, the Fixed asset turnover had increased to

3.18 at the year 2013. That means this company is using its assets more efficiently compare with
last year. For the Nestle company, the fixed asset turnover ratio of the Nestle company is 4.26 at
the year 2011, 4.28 in year 2012 and 4.13 in year 2013. Nestle have large amount of revenue that
cause the fixed asset turnover is higher. But the Nestle company was not used well for its assets
efficiently and may be facing management or production problems.
Asset turnover ratio is measures how efficiently a firm uses its assets to generate sales. The
Ajinomoto company's asset turnover ratio is 1.93 at the year 2011, increased to 1.19 in year 2012
and decreased to 1.13 in year 2013. That means the net sales of this company is more than the
average total assets for the year. According of this analysis, Ajinomoto company had a most
highest ratio at the year 2011 and it was clearly show that the company is using its assets more
efficiently. Oppositely, in year 2013, the company had a lowest ratios and show that the company
does not using its assets efficiently and the company may be facing management or production
problems. Moreover, the assets turnover ratio of Nestle company in year 2011 is 4.18. It was a
most highest ratio compared with the year 2012 and year 2013 that is 2.39 and 2.29. In the year
2011, the Nestle company had a well management and more efficient total assets have been
employed. Nevertheless, the company would be faced some production problem and cause the
total assets declined. Last but not least, although the Ajinomoto had lower asset turnover ratio,
but the company had trying to maintain their asset turnover and trying to solve their production
problem.
4.1.6 Profitability ratio
a)Profitability ratio in relation to sales or operation
Equation 12 Gross profit margin= Gross profit/sales x100%
Equation 13 Return on assets= EBIT/average total assets x 100%

2011
31,942,222
Gross profit margin
x 100 =
316,165,220
10.10

Ajinomoto
2012
33,520,699
x 100 =
324,651,542

2013
28,085,465
x 100 =8
332,908,276

10.33

.44

31,842,222
x 100 =
254,879,264

Return on assets

12.49

33,520,699
x 100 =
270,011,995
12.41

28,085,465
x 100 =9
284,127,656
.88

Nestle
2011
Gross profit
margin
Return on
assets

2012

2013

1,384,209,000
x 100 =
4,246,744,000

1,553,184,000
x 100 =
4,556,423,000

1,698,017,000
x 100 =
4,787,925,000

32.59
558,809,000
x 100 =
1,899,478,000

34.09
637,668,000
x 100 =
1,958,235,000

35.46
719,054,000
x 100 =
1,996,951,500

29.42

32.56

36.00

Gross profit margin ratio is measures how profitable a company sells its inventory. In other word,
the margin represent the amount in excess of the main variable cost component in a business
available to meet other variable and fixed operating expenses. In the year 2011, the Ajinomoto
company had lead the company's gross profit margin go to 10.10%. It was a good result the
company had cover a bigger operating cost and expenses. Besides, the Ajinomoto company had a
best gross profit margin at the year 2012 that is 10.33%. It will reflects the pricing policy,
production, purchase efficiency and forex gains but at the year 2013, the gross profit margin of
Ajinomoto company had drop to 8.44%. It may be cause by the cost of goods sold of the
company had declined in year 2013. For the Nestle company, the gross profit margin of the
company was keeping ongoing from 32.59% up to 35.46% from the year 2011 to year 2013. This
is clearly show that the Nestle company had indicates bigger buffer to cover their operating cost
and expenses.
Return on assets measures the earning before tax during a period by comparing net income to the
average total assets. In other word, the return on assets is measures how efficiently and
effectively of a company can manage its assets to produce profits during a period. The return on
assets of the Ajinomoto company have been keep declining from year 2011 to 2013 that is
12.49%, 12.41% and 9.88%. It is generally show that the company did not performed well
effectively. The Ajinomoto company can improving the ratio is to "asset strip" that is dispose

unproductive assets or increase revenue from existing assets. A part from that, the Nestle is
opposite with Ajinomoto company. The return on assets of Nestle company were keep increasing
from 2011 to year 2013 that is 29.42%, 32.56% and lastly up to 36%. It was clearly show that the
Nestle company have more effective the borrower is using its assets.

b) Profitability ratio in relation to investment

Equation 14 Return on Equity= Net profit After tax- preference dividend/Average
Ordinary shareholder Equity
Equation 15 Earnings per share= Net profit after tax- preference dividend/ Weighted
average number of shares outstanding
Equation 16 Price earnings ratio= market price per share/ earnings per share

Ajinomoto
Return on Equity

2011
25,870,000
x 100
220,189,000

2012
25,600,876
x 100
235,322,890

2013
19,403,596
x 100
244,343,846

Earnings per share

= 11.75%
25,870,000
80,000,000 =

= 10.9%
25,600,876
80,000,000 =RM0.

= 7.94%
19,403,596
80,000,000 =RM0

32
RM 4.08
= 12.75
RM 0.32

.24

Price earnings ratio

RM0.32
RM 3.99
= 12.
RM 0.3234
34

RM 4.44
= 18.
RM 0.2425
31

Nestle
Return on Equity

2011
427,128,000
652,719,000 x100

2012
505,352,000
751,206,000

Earnings per share

% =65.44%
427,128,000
234,500,000

100% = 67.23%
505,352,000
234,500,000 =

= 68.80%
561,701,000
234,500,000 =

RM2.16

RM2.40

RM1.82

2013
561,701,000
x 100
816,444,000

Price earnings ratio

RM 56.2
RM 1.8214 = 30.86

RM 62.84
RM 2.155 = 29.16

RM 68.00
RM 2.3953 = 28.39

Return on equity (ROE) is to measures the ability of a company to generate profits from its
shareholders investment in the company. ROE is also indicator of how effective management by
using equity financing to the operation of fund and grow of the company. The return on equity of
Ajinomoto company in year 2011 is 11.75%, 10.9% in year 2012 and 7.94% in year 2013. It
were show that the Return on equity of Ajinomoto company was keep declining in this 3 years.
That means, the company did not using its investor's funds effectively. A part of that, Nestle
company had more return on equity that is 65.44% in year 2011, 67.23% in year 2012 and
68.80% in year 2013. The Nestle company continually increase the return on equity. In other
word, Nestle company had well defining its investor's funds effectively. Since every industry has
different levels of investors and income, ROE cannot be used to compare companies outside of
their industries effectively.
Earnings per share is measures the amount of net income earned per share of stock outstanding.
Besides, this is the amount of money each share of stock would receive. The earnings per share
of Ajinomoto company in year 2011 and year 2012 is RM0.32 while the year 2013 was declined
to RM0.24. The Ajinomoto company had more profitable and more profit to distribute to its
shareholders at the year 2011 and year 2012. But in the year 2013, the earnings per share of the
company was drop to RM0.24. It show that the company in year 2013 is less profitable and more
average number of shares outstanding. Furthermore, the earning per share of Nestle company
was keep going up from year 2011 to 2013. It was clearly show that the Nestle company have
more profitable and more profits to distribute to its shareholders year-to-year.
Price earnings ratio is means that how much an investor willing to pay for a stock based on its
current earnings. The price earnings ratio of Ajinomoto company in the year 2011 is RM12.34,
12.75 in year 2012 and 18.31 in year 2013. In other word, due to the price earnings ratio was
keep rising, the investors will be willing to pay more for this company's shares. Inversely, the
price earnings ratio of Nestle company was keep falling down from year 2011 to 2013. It was
obvious show that although the company have a high market price per share, but the price
earnings ratio was falling and made the investor have been confused to invest in this company.

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