Financial Analysis
The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. The current ratio indicates a firm's market liquidity and ability to meet creditor's demands. According to the current ratio analysis above, we can see that IOI Corporation Berhad's current ratio has
increased from 2.11 times in 2014 to 2.77 times in 2015, which is increase of 0.66 times. Both of 2014 and 2015's current ratio showed the company's strength in handling short-term finance. But since the standard of current ratio for healthy businesses range between 1.5 and 3, IOI Group's current ratio in 2014 and 2015 in which shows the company are efficiently using its current assets or its short-term financing facilities.
IOI Corporation's current ratio decreased from 2.77 times in 2015 to 1.53 times in 2016. This decrease in current ratio resulted from significant increase of borrowings in 2016. However, increase of borrowings bring the current ratio to a healthy range, which is 1.53 times, perfectly laid within the health range.
The debt-to-total assets is a leverage ratio that defines the total amount of debt relative to assets. This enables comparisons of leverage to be made across different companies. This is a broad ratio that includes long-term and short-term debt, as well as all assets. Companies with high debt-to-total assets ratio are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the firm's operation.
In addition, high debt-to-total assets ratio may indicate low borrowing capacity of firm, which in turn lower the firm's financial flexibility. In 2014, the company's debt-to-total assets ratio was 59.34% and it dropped to 55.35% in 2015. This slight decrease in total debt allows the company to have more borrowing capacity and higher financial flexibility. However, in 2016, the ratio raised to 57.75%, a slightly increase of 0.4% from 2015 as the debt increased dramatically from RM9,105.50 million to RM10,139.10 million. This indicates that the more than 50% of the debt relative to company's asset. Thus this will increase the risk of the company like loans for new projects may be difficult to obtain
Inventory turnover measures the inventory management efficiency of a company or the liquidity of a company’s inventory. Different industry has a different inventory turnover. For a company that sells fresh foods, its inventory turnover must be much higher than a company that sells consumer products as they cannot keep its inventory for too long. Inventory turnover ratio should be compared against industry averages. For consumer products
industry, a low turnover implies poor sales and, therefore excess inventory. While a high ratio implies either strong sales or ineffective buying. Based on the analysis, we can see that it was 5.88 times in 2014 and it decreased to 5.05 times in 2016. These figures shows that IOI Corporation Berhad performing well in controlling inventory levels, although the inventory ratio decrease from 5.88 times in 2014 to 5.05 times in 2016, the ratio still stay close with the industry average.
Net profit margin is the percentage of sales after all costs and expenses, including interest, taxes, and preferred stock dividends have been deducted. Based on the analysis, IOI Corporation Berhad had recorded a huge decrease in net profit margin from 2014 to 2015. In 2014, the net profir margin is recorded at 28.18%, then drop to 0.45% in 2015. This significant decrease is due mainly to the reduce in net income from RM 3,373 million to RM 51.90 million. Then, the net
profit margin rose 11.68 times from 2015 to 2016, which is 0.45% in 2015 to 5.26% in 2016.
Revenue growth rate is used to measure how fast a company's business is expanding. Based on the graph, IOI corporation Berhad’s revenue growth rate is -2.36% in year 2014 and it drops further to -3.09% in 2015. This slightly decrease is due mainly to the reduce in revenue from RM 11,910.60 million in 2014 to RM 11,541.50 million in 2015. Then, the revenue growth rate increase from -3.09% in 2015 to 1.71% in 2016. Increase in revenue in 2016 caused the revenue
growth rate turn to positive value.
CONCLUSION
In summary, the financial performance of IOI Corporation Berhad is good and strong as we can see some good figures in current ratio, debt-to-total assets ratio, inventory turnover and revenue growth rate. Although the net profit margin shows a huge decrease in 2015, but I believe that IOI Corporation Berhad is well prepared and new strategies has been introduced and implemented to achieve a higher level. Therefore, we can conclude that IOI Corporation Berhad has a strong financial standing based on all these analyses.