You are on page 1of 18

1.

0 Introduction

The purpose for doing Accounting in Practice assignment is to express the idea or
concept by our own word to demonstrate the understanding after reading the annual
report in year 2014. We apply the concept to different situation or phenomenon. For
example, the component of financial income and financial position would apply in
different ratio to indicate company liquidity and profitability. Other than that, we analyze
the idea in SWOT analysis and consider the relationship among external factor or internal
factor to affect them. Evaluate a decision or perspective by group discussion- invest or do
not invest, after the 10 types of ratio and SWOT analysis are enough for us to make the
conclusion. If invest the group, current modes of business operation would help us earn
profit in future? In the other way, if not invest the group, any vast turnover in the way for
operate business? The assignment helps us to solve such of doubt and learn the operation
of business.

We start our assignment with research from internet and always refer back annual report.

We choose Mudajay Group Berhad for our assignment. The group is international
business with has been group has been received many award and certificate in the last
few years. For example, the group achieved The Edge Billion Ringgit Club award
continuously in 2010, 2011, and 2012. Besides, the group also achieved the Annual
KPMG/ Shareholder Value Awards in 2007, 2008, 2010, and 2011. The groups quality
is recognized as international standard. Thus, we can say that Mudajaya Group Berhad
have high reputation with strong brand image in construction sector. But, Mudahjaya
Group Bhd is suffering loss in year 2014. What kind of questionable management or
other factor serious influence the group? This make us feel curiously and motivate to
choose for finding out reason why they would suffer loss in year 2014 and do they may
earn profit in future.

1
2.0 Mission and Objective

As the top leader company, Mudajaya Group Berhad emphasized in development and
maintaining the international quality standard of performance, complete a projects on
time in order to improve customers satisfaction and enhancement of shareholders value.

To achieve their mission, Mudajaya Goup Berhad will concentrate in provide a high
quality services in order to bring projects on time and to seek continual revenue growth,
so customer will perceive good value. The Group will develop a plan for a business
succession plan to establish long-term financial stability for their future. The group will
develop an infrastructure for long-term planning and organizational structure. Further
opportunity can be develop within their organization and extended community.

In fulfilment of Mudajayas mission, the rules and regulation that had set by the
government conduct all Mudajaya employees in particularly of situation in dealing and
involving ethical dilemma to ensure that the group maintaining high standard in their
performing or duties. Meanwhile, the Group also will get the stability remuneration or
funds from government. For the investor, they have faithful to invest this company in
order to decreased conflicts and fraud.

In promoting sustainability, the groups agenda includes they have high corporate
governance standards and ethics. Secondly, strengthens their internal management,
extend international standard on health and local, safety, security, human rights and ethics
to all business partners. Mudajaya Group has to take the potential environment risks
across their operations standards ISO 9001, ISO 14001 and OHSAS 18001. Recycling
campaign have been annually promote to their employees in order to solve the global
environmental and disposal of construction waste.

Mudajaya Group Berhad is an independent and professional expert organization. Any


matters in relation, company will take action to discharge of their responsibility
(employees or director). All the members are responsible for their companys
performance and to be the premier professional. The Group members require having
ability to solve problem and spirit of innovation. Innovative and problem solving based

2
on experiences. There have a lot of experienced members and served for several years in
Mudajaya Group Berhad.

Further strengthening the experience, Mudajaya Group Berhad has been received a lot of
awards and its subsidiaries and associated companies. Especially, the group is the winners
of top leader of the construction and property sector and ranked as 5th in the top 100
listed companies for the best shareholders value creation in year 2010.

Mudajaya Group Berhad will be the best construction sector.

3
3.0 Ratio

Current Ratio:

Current Assets
Current Ratio =
Current Liabilities

Current Ratio 2014 = 960225

355821

= 2.70 x

Current ratio of a company measuresthe proportion of current assets to current liabilities.


The larger amount of current assets in relationship to a small amount of current liabilities
provides assurance that the obligations will be paid. Higher the current ratio the better
because indicates companys financial strength and market stability. Mudajaya Group
Berhad has RM 2.70 in current asset for every RM 1 in current liability in year 2014.
However in year 2013 it only has RM 1.80.The current ratio of Mudajaya Group Berhad
in has increased by RM0.90.In this situation, Mudajaya Group Berhad has higher
liquidity in year 2014 compared to 2013.

Quick Ratio:

Current Assets - Inventories


Quick Ratio =
Current Liabilities

Quick Ratio 2014 = 960225-6374

355821

= 2.68 x

Quick Ratio measures a companys ability to meet its short-term obligations with most
liquid assets available. From the calculation,the amount of quick ratio has increased by

4
RM 0.89 in year 2014. Mudajaya Group Berhad has RM2.68in liquid current assets for
every RM1 in current liabilities in year 2014 while Mudajaya Group Berhad has only RM
1.78 in year 2013.The higher the quick ratio, the more secure the company liquidity
position in short-term. The inventories in year 2014 is higher than 2013. The increasing
in quick ratio indicates Mudajaya Group Berhad is experiencing sales growth in 2014 and
able to cover financial obligations due to the quick ratio is more than 1.0.Ifthe value of
the quick ratio is less than 1, then it is said that such company is not stable and may face
difficulty in paying short- term debts however Mudajaya Group Berhad situation is
contrary.

Net working capital:

Net working capital of 2014 = Current assets Current Liabilities

= Rm960225-Rm355821

= RM 604404

Since Mudajaya Group Berhads current assets exceed current liabilities then the working
capital is positive. This means that Mudajaya Group Berhad able to pay all of current
liabilities by using only current assets which also means the companys financial is very
liquid. Mudajaya Group Berhad had used the extra liquidity to grow the business. To
prove that, Mudajaya Group Berhad had going through transition, hopes to establish
Utility Reit in the year of 2014 purpose to reduce its dependence on construction work
from third parties in an effort to enhance profit margins.

Gross profit margin:

Gross profit margin in 2014= (14870)

Gross profit margin is used to measure a firm's financial health by revealing the money
left over from revenues after accounting for the cost of goods sold. The gross profit
margin of Mudajaya Group Berhad is -14870 which incurred gross loss in year 2014. The
company is unable to control the production cost in 2014. This is caused by the weaker
performance at its construction segment was due to higher cost for its operations.

5
Net profit margin:

Net profit margin in 2014= (70462)

From the statement of profits and loss of Mudajaya Group Berhad, had stated that
Mudajaya incurred -70462 net loss in year 2014. Mudajaya Group Berhad failed to bear
over the cost of production and expenses in 2014 due to the weaker performance in
construction segments as the main income is from construction work. Net loss in profits
does lead the company shares to drop, in year 2014 Mudajaya Group Berhad had fall
4.1% on weaker earnings. This also lead theshareholders to sell the shares as they look at
net profit margin closely because it shows how good a company is at converting revenue
into profits available for shareholders.

Inventory Turnover:

AVERANGE
INVENTORY YEAR
2014 2013
Beginning Inventory + 6374+5397 6221+5397
Ending Inventory 2 2
2 = 5885.5 = 5809

INVENTORY TURNOVER YEAR


2014 2013
(1065675) (1297372)
Cost of Goods Sold
5885.5 5809
Average Inventory
= (181.07) = (223.34)

Inventory turnover measure a companys liquidity of the inventory. High turn ratio shows
the company has a strong sales performance and easy to turn inventory into cash. Low
inventory turnover ratio is a signal of inefficiency. It implies either poor sales or excess
inventory. It indicates poor liquidity, possible overstocking, and obsolescence, but it may

6
also reflect a planned inventory build up in the case of material shortages or in
anticipation of price rise rapidly.

Mudajaya Group Berhad gets the higher inventory turnover ratio, -181.07 times. It means
they sell through products efficiently and also buying appropriate inventory for demand.
In the comparison, inventory and cost of goods sale had increased together in year 2014.
High turnover can result from inventory build up intended to meet spikes in demand.

Receivable Turnover:
AVERAGE ACCOUNT
YEAR
RECEIVABLE
2014 2013
Beginning Account
Receivable + Ending 450981+341427 239382+ 450981
Account Receivable 2 2
2 = 396204 = 345181.5

RECEIVABLE YEAR
TURNOVER 2014 2013

Net Credit Sales 1050805 1535786


Average Account 396204 345181.5
Receivable = 2.65 = 4.45

Receivables turnover ratio measures a business' ability to collect its sales efficiently on
credit. Higher ratios mean that companies collect their receivables more frequently
throughout the year. Also, a high ratio reflects a short lapse of time between sales and the
collection of cash, while a low number means collection takes longer. Receivables are
longer being held and the risk not to be collected increase.

Mudajaya Group Berhad receivable turnover ratio is 2.65 times with the average
collection period, 137.62 days. There has a decrement with 1.8 in year 2014 due to the

7
decline of credit sale and receivable increase. If the ratio is going up, either the effort of
collection period improve, sales may be rise or receivable are being decreased.

Payable Turnover:

AVERAGE ACCOUNT
YEAR
PAYABLE
2014 (RM000) 2013 (RM000)
Beginning Account
Payable + Ending Account 442625+ 328459 536879+ 442625
Payable 2 2
2 = 385542 = 489752

YEAR
PAYABLE TURNOVER
2014 (RM000) 2013 (RM000)
Total Purchase (1065675) (1297372)
Average Account Payable 385542 489752
= (2.76) times = (2.65) times

Payable turnover ratio reveals how quickly a company pays off its vendors, it is used by
AVER and creditors to help decide whether have to grant credit to a business. Higher
supplies
AGEmeans company may pay the bill as frequently and regularly to their creditor.
ratio
TOTA
YEAR
Mudajaya
L Group Berhad gets a low ratio compared with previous year. Even though the
creditor
ASSE had been decrease in year 2014 but total purchase was increase. The decrement
of creditor
T is not enough to cover the purchase. This cause the group cannot pay the bill
2014
to creditor as 2013in a year.
frequently
(RM00 (RM
Begin
0) 000)
ning
166457 1644
Total on Asset:
Return 3+ 510+
Asset+
185236 1664
Endin YEAR
8 573
g Total 2014 (RM000) 2013 (RM000)
2 2
Asset 8
= =
2
175847 1654
0.5 541.5
RETURN ON ASSET
(61605) 195627
Net Income
1758470.5 1654541.5
Average Total Asset
= (3.5)% = 11.8%

Return on Assets Ratio or ROA is one of profitability ratio with expressed as percentage.
It measures company assets to generate profit efficiently during a given period of time.
Higher return on assets is more favorable to investor because company earns more money
on assets. Low return on asset indicates inefficient use of companys asset compared with
industry average.

Mudajaya Group Berhad gets the ratio with negative 3.5%. The return on asset had
decrease 15.3% due to the losses earned before tax in year 2014. Furthermore, the group
conduct high level of debt. It show Mudajaya Group Berhad in not properly utilized the
capital or their management is questionable.

Shares Holder Equity:

SHARES HOLDER
YEAR
EQUITY
2014 (RM000) 2013 (RM000)
Total Asset Total
1852368-766698 1664573- 472766
Liabilities
= 1085670 = 1191807

YEAR
RETURN ON EQUITY
2014 (RM000) 2013 (RM000)

9
(61605) 195627
Net Income
1085670 1191807
Shares Holder Equity
= (5.67) % =16.41%

The return on equity ratio or ROE is a profitability ratio by measuring the ability of a
firm to generate profits from its shareholders investments in the company. It is important
for that potential investor because they may know how efficiently a company will use
money to generate net income.

Mudajaya Group Berhad has negative return on equity ratio, 5.67% due to the losses
earned before tax in year 2014. There has larger increment in total liabilities which do not
cover by total asset, cause shares holder equity decline.

4.0 SWOT Analysis

4.1 Strengths

Strong brand image

Mudajaya Group Berhad covers a lot of destinations around the world including
Malaysia. The group has been controlling its strong brand image in order to win the
loyalty of customers to grow its market shares. In the way of transformation their
business plan, Mudajaya Group Berhad has created a strong brand recognition in the
domestic as service as the international market. The group has consistently established a
high quality and high standards of product and services on its business segments for 50

10
years. Further strengthening the experience, Mudajaya Group Berhad has been received a
lot of awards and its subsidiaries and associated companies. Especially, the group has
break their own record---emerged as the top leader of the construction and property sector
and ranked as 5th in the top 100 listed companies for the best shareholders value creation
in year 2010. The group always emphasized in develop and maintaining the quality of
performance. The group has recorded an increase in the number of customers over the
past couple years. Moreover, the group was awarded the winners of the edge billion
ringgit club corporate awards in Malaysia. A lot of award received by the group and it has
enough of capability, experienced business unit and strong persuasive to attract
customers, in order to growth market shares and have confidence in Mudajaya Group
Berhad. Extend local and international standards on health, safety, security, environment,
human rights and ethics to all business partners Strong brand loyalty and brand recall.

Have a good leader and employees

In order to promote their company, Mudajaya has set their own strategy---Combined
Nomination and Remuneration Committee (CNRC) to settle the board. As representative
of Mudajaya Group Berhad, this strategy is helping those internal employees in ensuring
individuals with the requisite skills, knowledge, experience and personal characteristics.
However, employees have a short-term benefit which is extra annual bonus in order to
encourage workers work hard in their daily performance. Otherwise, CNRC has installs a
lots of duties and responsibilities in order to create to be an excellent leader. To determine
suit training and orientation needs for Directors, review the fulfilment of such training. In
the case of candidates, the CNRC will also assess the candidates ability to discharge such
responsibilities or functions as are expected from independent directors. Besides, actually
the company focused more on overall experience to treat their customer, instead not
much focused on awards. The spirit should be encouraged in business society realities.
Nevertheless, Mudajaya Group Berhad has many premium and excellent leader. They
have lot of experienced, high educated and served for several years in Mudajaya Group
Berhad. A person who can satisfy the basic psychological needs of his followers can also
be an effective leader; they will lead to achieve their goals.

Strong subsidiaries

11
Mudajaya Group Berhad is the main contributor and it has many subsidiaries. Its
subsidiaries which involve construction activities such as civil engineering and building
construction on both design and build and construction contracts for Government and so
on. The group of subsidiaries has established itself as one of the leading civil and
building contractors in Malaysia with a reputation for successful, earn more money and
timely completion of projects undertaken. The Mudajaya Group has been involved in a
portfolio of contracts and some of which were on joint venture basis. For example,
KUCHING: Mudajaya Group Bhd (Mudajaya), a subsidiary of Mudajaya Corporation
Bhd, has secured RM1.9 billion worth of new jobs with the agreement to construct a
Tune Hotel.

Statement on Corporate Governance

Corporate governance is not a simple policies or procedures but is consists lots of rules
rather than processes. The rules focus more on creating better management and fewer
ethical or legal problems. Mudajaya Group Berhad corporate governance which means it
is a capability, professional and trusted company. There have many advantages on
corporate governance. In other than that, Government is a stable policies and never gone
bankruptcy, while for the company who cooperate for will get the stability remuneration
or funds. For the investor, they have faithful to invest this company in order to decreased
conflicts and fraud.

Weaknesses

Internal management

The internal management working group found there have an additional costs incurred a
certain project undertaken by the group where review as irregular trade. The amount have
been counted for no further material influence. This case showed that management was
one of the weaknesses in the internal control system.

Loss of control

According to the research, another problem is the loss of control of subsidiaries. The
group derecognizes theirs liabilities and asset, non-controlling interest related to the

12
consolidated statement of financial position. Any mistaken amount arising on the loss of
control recognized in profit or loss. This case will lead to unfair and fraud to the investor.

Labour resources

Labour resources are very important in assisting the successful completion of a project.
Construction workers majority are foreigner because its labour cost is lower than
domestic worker in previous couple years. However, the problem faced by the employer
is not only increase construction material prices and also labour force also high cost of
permit to work. In doing this kind of construction project, the physical construction
worker emphasized skilled, body strength and manual, so for those worker must receive
training. Besides, the cost of provide training have to cover in Mudajayas financial
statement.

4.3 Opportunities

Exploring to the global market

According to the annual report of 2014, the chairmans statement stated that the group
will be focused to expand their business to various countries such as India, Indonesia,
Myanmar, Vietnam, and Philippines. For example, the group expanded their business in
Indonesia. There are several reasons bring to the opportunities such as the high profitable
of company in the last few years that supported the management in the decision. Besides,
the following reason is the potential of project confident them to moving further and
further.

Expanding in the new market


13
Currently, the group is concerning in the power sector. The record of good financial
strength for Mudajaya Group Berhad supported this transformation. On the other hand,
the population increment, demand of energy increase brings profit lead the group ensures
with transformation from construction to other sectors. The group will decrease the
involvement in the construction; pay more attention in the power sector due to high profit
margin. According to an article, the groups interest in the overseas power plants range
was increased from 26% to 65% and the recurring income will contribute up to 70% of
revenue in 5 years.

Housing price

The housing price will affect the sale in construction sector. For example, when the
housing price is low, people will take the opportunities to buy the house for their own use
or for invest. Even though, the group have to pay building material expenses to run the
project such as cement and worker wages, but they still may earn lesser profit when
project operated. Total sales increase help to cover the extra expenses.

Barrier of entry help to increase the profit

Mudajaya Group Berhad getting the benefit through the barrier of entry. Construction is a
high barrier to entry industry, because of the industry need to have big enough of fund to
start the business from the initial point. The group will get the competitive advantage
from the barrier. From an example, the group can avoid other competitors share the profit
in the same sector. In this case, the group may opportunity to earn more by getting more
and more projects, because the consumers only have few choices.

14
4.4Threat

Economic downturn

Since the economic down turn, cause lack of new projects. According to THE SUN
newspaper, the group continues to record the loss in 2014 that affected by lack of the new
project. It will happen because people will decide not to invest during the economic
downturn, this causes their sale decline. For the group itself, they may choose not to have
any investment in other new business or developed any new project; this situation will
slow down the group development. As an example which happens in Greek, downturn of
economic serious influence construction industry, cut public investment and decrease
construction activity. For Mudajaya Group Berhad, they make their investment more
conservative.

15
Housing price

When the government implemented Good and Services Tax (GST) people is not willing
to pay for house purchase. For the firm, it would be a serious problem when the project
operated. Sales decrease but cost of production keeps increase, the group would suffer
loss. Since the cost of production increase, the group will decides to raise their housing
price, but this kind of condition diminished consumer buying power especially for those
from middle income families.

High cost and high risk business

Mudajaya Group Berhad is a high cost business. For example, the group needs to invest a
huge amount of money in a project to get the raw material, labours, designers, engineers,
to pay government taxes and other expenses. If the project has any mistake or incident
happen during the working process, it will make the group loss a lot. For example, if
there is any one of the building collapse and that building is under the companys project,
it will make the investor loss of confidence and the investors may ask back their
investment.

Government budget

The construction sector is expected to grow in 2015, the Mudajaya Group Berhad believe
the profit may increase in 2015. Unfortunately, the government budget for construction
sector will be decides to maintain in RM48.5billion in 2015. It will make the group loss
due to the group is underpinned by some government infrastructure project. The labours
wage and the price of material will keep increasing, but government budget that decided
to maintain will make the group incurred in additional expenses due to they have to pay
the extra expenses by themselves. It will make the expenses of the group more than the
revenue.

16
5.0 Conclusion and Recommendation

In a nutshell, Muadajaya Group Berhad suffers losses in year 2014 due to the
questionable internal control management. In the different ratio show the group is not
more liquidity and profitability. While, SWOT analysis has demonstrate the group is
having potential profitable. They started to operate new product line to Indonesia and also
developing a wind energy project in Cebu, the Philippines. This is a high cost with high
return project, power plant project to prove the group have enough capabilities and ability
to cover the loss in year 2014. Mudajaya can effectively manage their project and risks
from construction and streamline deliveries to ensure that projects are completed within
budget and on schedule. The Company is also a total solutions provider and can optimise
existing power plants through retrofits, upgrades and conversions. For the group, there

17
would expand rapidly in their business. For investor, Mudajaya Group Berhad is worth to
invest since the group realise value from power asset and earn profit in such of project.

Apart from constructing, operating and owning its own IPP Project in India, Mudajaya
has also embarked on the provision of design, engineering, procurement, construction,
commissioning and operations and management (O&M) services. Mudajaya Group
Berhad is independent power producer. They penetrate market deeply with various type
of business. Even they loss in year 2014 is insuffient evidence to reject the investment.
Since their profit from construction, power sector and others also can not represent
Mudajaya Group Berhad loss the criteria to compete with each other in the same sector
cause potential investor run off in market.

Furthermore, the raw materials manufactured MJC Industries Sdn Bhd (Mind) and
MJC Precast Sdn Bhd (MPre) which is their subsidiary. It helps to complete the
construction development and also operate new business. For instance, they produce
ready-mixed which from its plant located in Ijok, Selangor. It has a large fleet of mixer
trucks to cater for in-house demand and supply to other contractors.

18