INTRODUCTION

Analysis and Interpretation of financial statements help in determining the liquidity position,
long term solvency, financial viability and profitability of a firm. Ratio analysis shows whether
the company is improving or deteriorating in past years. Moreover, comparision of different
aspects of all the firms can be done effectively with this. It helps the clients to decide in which
firm the risk is less or in which one they should invest so that maximum benefit can be earned.
Ratio analysis involves the calculation and interpretation of key financial performance indicators
to provide useful insights.Ratios use simple calculations based upon the interactions in sets of
data. For example, changes in costs of sale are directly linked to changes in sales activity.
Changes in sales activity also have an effect upon wages and salaries, receivables, inventory
levels and so on. Ratios allow us to see those interactions in a simple, concise format. Without
ratios, financial statements are largely uninformative to all but the very skilled. Ratios enable
financial statements to be interpreted if you compare like with like. Parties interested in analysis
include such as shareholders, lenders, customers, suppliers, employees, government agencies and
competitors.

OBJECTIVES
1) Explain how the use of ratios can help in analyzing the profitability, liquidity, efficiency
and capital structure of businesses in DRB-HICOM company,
2) Calculate the main accounting ratios in DRB-HICOM company,
3) Interpret the results of calculating accounting ratios in DRB-HICOM company,
4) Explain the advantages and disadvantages of the gearing of an organisation being high or
low in DRB-HICOM company,
5) Explain how the proportion of costs that are fixed and variable impacts profit at different
levels of activity in DRB-HICOM company.

BACKGROUND OF COMPANY

DRB-HICOM Berhad (DRB-HICOM or the Group) has more than three decades of history that
dates back to the incorporation of Heavy Industries Corporation of Malaysia Berhad (HICOM) in
1980 and merging in 2000 with Diversified Resources Berhad (DRB). HICOM led the countrys
nationalization drive and was instrumental in the development of the National Car Project. DRB
was the developer of Malaysias first national motorcycle and Malaysian-made truck. The new
entity was renamed DRB-HICOM Berhad.
The Group marked a milestone in 2005 when it was acquired by EtikaStrategiSdn. Bhd. And a
new Management team came on board. In the following year, its numerous businesses were
rationalized into three core sectors, Automotive, Services and Property, and Asset and
Construction. Since then, a number of strategic initiatives have been progressively undertaken to
strengthen DRB-HICOM into one of the countrys leading conglomerates.
With the acquisition of PROTON Holdings Berhad, which was completed in 2012, DRBHICOM has the most comprehensive and integrated automotive operation in Malaysia with
businesses involved in the whole integrated chain of the automotive ecosystem from vehicle
design and development, manufacturing of automative components, vehicle assembly, inspection
and distribution, to sales and after sales service. Besides cars, the Group assembles and
distributes motorcycles, commercial vehicles, defence vehicles and customized vehicles such as
ambulances. The marques assembled or distributed by the Group are top global brands such as
Audi, Honda, Isuzu, Volkswagenn, Mitsubishi, Suzuki and Mercedes-Benz.
DRB-HICOMs automotive arm is buttressed by the businesses it groups in its services sector. It
holds government concessions through KL Airport Services Sdn. Bhd., which provides airport
handling services in Malaysian airports, Alam Flora Sdn. Bhd., the countrys leading solid waste
management company and PUSPAKOM Sdn. Bhd., the sole commercial vehicle inspection
company in the country. In 2008, the Group acquired an equity interest in Bank Muamalat
Malaysia Berhad, adding Islamic banking to its finance-related stakes in two insurance
companies. The Groups services sector was further augmented with the acquisition of Pos
Malaysia Berhad in 2011, providing DRB-HICOM with an extensive logistics network that spans
the length and breadth of the country.

The third sector within the Group is an important contributor to its growth, as DRB-HICOM
builds upon its landbank holdings in key locations and leverages on the prestigious property
brand of Glenmarie. It is also represented in the hospility industry through Holding Inn Kuala
Lumpur Glenmarie, Lake Kenyir Resort, Taman Negara in Terengganu and Rebak Island Resort
in Langkawi, and has a foothold in recreation with the Glenmarie Golf and Country Club.
With more than eighty operating companies un its stable and a workforce of over 52,000
employees, DRB-HICOM can be considered as one of the more exciting companies listed on the
Main Board of Bursa Malaysia. Its entrepreneurial leadership is pursuing the Groups second 5
year plan (FY 2012-2016) aimed at sustaining the momentum created by its earlier plan. The
diversified range of businesses within the group is enabling it an important contributor to
national development and economic growth.

USING RATIOS
1) Profitability Ratios
I.
Return on capital employed ratio
- shows whether the people who invested money in the business are getting an
-

adequate return on their investment

ROCE is a long-term profitability ratio because it shows how effectively
assets are performing while taking into consideration long-term financing.
This is why ROCE is a more useful ratio than return on equity to evaluate the
longevity of a company.

Return on capital employed (ROCE) =

Net profit
100
Capital employed

2013

(ROCE) =

1,037,367
100
8,322,280

= 12.46%

2014
796,613
100
(ROCE) = 8,505,985
= 9.37%

Return on capital employed (ROCE) is a financial ratio that measures a company's

profitability and the efficiency with which its capital is employed. A higher ROCE
indicates more efficient use of capital. ROCE should be higher than the companys
capital cost; otherwise it indicates that the company is not employing its capital
effectively and is not generating shareholder value.
In 2013, the return on capital employed (ROCE) is 12.46% and decrease by 3.09% to
9.37% in 2014.
II.

Gross profit ratio

- shows the amout of gross profit for every 100% of sales revenue.

Gross profit
100
Sales

2013
2,650,373
100
= 10,484,354
= 25.28%

2014
2,666,739
100
= 11,534,003
= 23.12 %

In 2013 the gross profits ratio is 25.28% and decrease to 23.12% in 2014.

III.

Net profit percentage

- shows the amount of net profit for every 100% of sales revenue.

Net profit
100
Sales

2013
698,938
100
= 10,484,354
= 6.67%

2014
644,921
100
= 11,534,003
= 5.59%

In 2013 the net profits percentage is 6.67% and decrease to 5.59% in 2014.

2) Liquidity Ratios
Liquidity ratio analyze the ability of a company to pay off both its current liabilities as
they become due as well as their long-term liabilities as they become current. In other
words, these ratios show the cash levels of a company and the ability to turn other assets
into cash to pay off liabilities and other current obligations.
I.

Current ratio

compares assets which will become liquid within approximately 12 months

with liabilities which will be due for payment in the same period and indicates
whether there are sufficient short-term assets to meet the short-term liabilities.

Current ratio =

Current assets
Current liabilities
2013

Current ratio =

17,232,989
28,105,170

2014

Current ratio =

14,284,898
25,571,900

=1 : 0.56

=1 : 0.61

The current ratio is a liquidity and efficiency ratio that measures a firms ability to pay off
its short-term liabilities with its current assets. The current ratio is an important measure
of liquidity because short-term liabilities are due within the next year. The current ratio in
2014 decrease by 0.05% to 0.56% depands on 0.61% in 2013.

II.

Acid test ratio

- shows whether the business has sufficient liquid resources to meet its current
liabilities.

Acid test ratio =

Current assetsinventory
Current liabilities

2013
Acid test ratio =
(17,232,9891,990,412)
28,105,170

2014
Acid test ratio
=

(14,284,8982038213)
25,571,900

=1 : 0.48

=1 : 0.54

The acid test ratio is a more conservative version of another well known liquidity metric
and the currents ratio. Although the two similar, the acid test ratio provides a more
rigorous assessment of a companys ability to pay its currents liabilities. In 2013, the acid
test ratio is 0.54 and decrease to 0.48 in 2014.

3) Efficiency Ratios
I.
Inventory turnover ratios
- measures how efficient a business is at maintaining an appropriate level of
inventory

Cost of sales
Average inventory

2013
10,484,354
= ( 1,990,412+1,519,108 ) 2

10,484,354
1,754,760

2014
11,534,003
= ( 2,038,213+1,990,412 ) 2

11,534,003
2,014,312.5

= 6.7 times

= 6 times

This ratio is important because total turnover depends on two main components of
performance. The first components is stock purchasing. If larger amounts of inventory are
purchased during the year, the company will have to sell greater amounts of inventory to
improve its turnover. If the company cant sell these greater amounts of inventory, it will
incur storage costs and other holding costs.The second components is sales. Sales have to
match inventory purchases otherwise the inventory will not turn effectively. In 2013 the
inventory turnover ratio is 6 times and increase to 6.7 times in 2014.

II.

Account receivable / sales ratio

- measures the length of time a debtor takes to pay their debt.

Accounts receivable
Sales

2013

2014

4,202,026
13,134,727

3,749,070
= 14,200,742

= 1: 3.13

= 1: 3.79

= 365
3.13

= 365

= 117 days

1
3.79

=96 days

In 2013 the accounts receivable or sales ratio is 117 days and decrease to 96 days in
2014.

III.

Accounts payable / purchases

- measures the length of time we take to pay our creditors.
Accounts payable
Purchases

2013

5,447,843
10,484,354

= 1: 1.92

2014

5,285,752
11,534,003

= 1: 2.18

= 365

1
1.92

= 365

= 190 days

1
2.18

= 167 days

In 2013 the accounts payable or purchases is 190 days and decrease to 167 days in 2014.

4) Shareholder Ratios
Ratio of total company equity held by shareholders to the total value of assets held by the
company. This ratio reflects how much money shareholders would receive if all company
assets were liquidated, and is used to determine how much of the companys assets are
owned by shareholders.
I.

Earning per share ratio

- gives the shareholder a chance to compare one years earnings with another in
terms that are easily understood.

Earnings per share =

2013

Net profit after interest taxpreference dividends

Number of ordinary shares issued

2014

Earnings per share

=

Earnings per share

575,305
1,933,237

= 1: 29.76

456,819
1,933,237

= 1: 23.63

The basic earnings per share is calculated by dividing the Groups net profit attributable
to owners of theCompany by the number of shares in issue during the financial year. In
2013 the ratio earning per share is 29.76 decrease to 23.63 in 2014.

II.

Dividend cover ratio

- gives the shareholder some idea as to the proportion that the ordinary
dividends bear to the amount available for distribution to ordinary
-

shareholders.
States the number of times an organization is capable of paying dividends to
shareholders from the profits earned during an accounting period.

Dividend cover =

Net profit after tax preference dividends

Ordinary dividends paid proposed

2013
Dividend cover

2014
Dividend cover

575,305
1,719,601

= 1: 0.33

456,819
1,719,601

= 1: 0.27

In 2013 the dividend cover ratio is 0.33 and decrease to 0.27 in 2014.

CONCLUSION
Ratio analysis is a form of fundamental analysis that links together the three financial statements
commonly produced by corporation. Ratios provide useful figures that are comparable across
industries and sectors. Using financial ratios, investors can develop a feel for a companys
attractiveness based on its competitive position, financial strenngh and profitability. Ratios allow
us to see those interactions in a simple, concise format. Without ratios, financial statements are
largely uninformative to all but the very skilled. Ratios enable financial statements to be
interpreted if you compare like with like. Parties interested in analysis include such as
shareholders, lenders, customers, suppliers, employees, government agencies and competitors. In
conclusion, analysis account statement can know the analyzing profitability, liquidity, efficiency
and capital structure of businesses in DRB-HICOM company. Furthermore, can know the
advantages and disadvantages of the gearing of an organisation being high or low in DRB-

HICOM company and how the proportion of costs that are fixed and variable impacts profit at
different levels of activity in DRB-HICOM company.