ACCOUNGTING

8/8/2019 ACCOUNGTING

1/15

MBA of Wales accounting for managerial decisions

------------------------------------------------------------------------------------------------------------

TABLE OF CONTENT

I. Executive summary 2

II. Introduction/company background3

III. Accounting policies..4IV. Analysis of company performance..5-11

Ratio analysis & interpretation.5

Group development.....11

V. Shareprice Performance...12

VI. Recommendation & Conclusion.13

NEW TOYO INTERNATIONAL HOLDINGS LTD

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


2/15


------------------------------------------------------------------------------------------------------------

I. EXECUTIVE SUMMARY:

Financial Analysis is an evaluation of the financial performance of a

firm both in the past and its prospect in the future. Hence, it is very important tofirms stakeholders as investors, banks, traders, managers, etc... To determine

the firms financial position relating to their relative interest. In this paper, with the

investor standpoint, we are going analyze the financial performance of the Group

NEW TOYO INTERNATIONAL HOLDINGS LTD. in order to know how its

business is doing, how it is performing at present and what it future prospect, that

all help us to determine our investment to this group.

In part II, before analyzing the groups financial performance, we will

go through their accounting policies to know if there are any unusual features

compared to the Singapore standards.

In part III, we will have a short background of New Toyo International

Holdings to know their history, their activities and their key markets.

In part IV, we will compare figures from different categories through

financial ratio analysis. There are many ratios that we can use, but as an investor

standpoint, profitability ratios help us to know whether the Group is making a

profit and enough or not. Liquidity ratios will we know the companys ability tomeet obligation as and when they fall due. Meanwhile, efficiency ratios help we

know the level of operational efficiency of the company. Finally, investment ratios

will help the investor to expect what we can out of our investment as dividend,

share price, earnings and yield. Besides that, we will consider the group

prospects through its investment and development

In part V, the share price chart in recent years up to present to

know its overall share price performance are reviewed and considering some

responses from the analysis community can help us to know other shareholders

comments about the group share price.

In part VI, recommendation and conclusion about this paper will be

addressed. From this, the investor can decide to invest in this group or not.

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


3/15


------------------------------------------------------------------------------------------------------------

II. INTRODUCTION/ COMPANY BACKGROUND:

It is an investment holding company in Singapore. In April 1997, itwas listed on the Singapore Exchange under its present name of New Toyo

International Holdings Ltd.

The Group It is one of the biggest independent producers of

laminated paper products and packaging products in the Asia.

Its core products included specialized laminated aluminum paper,

cigarette box printing and corrugated carton boxes. The Group has factories in

Singapore, Malaysia, Vietnam, Australia, China and Thailand with more than

1,470 employees. The Groups customers are mainly the big tobacco, fast

moving consumer goods (FMCG), manufacturing and electronic industries as

British American Tobacco, Sony, Panasonic, Toshiba, Nike, Pepsi Cola

Its other activities include investing activities, provision of

management consultancy and administration services, property holding,

investment holding and sale of non carbon papers.

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


4/15


------------------------------------------------------------------------------------------------------------

III. ACCOUNTING POLICIES:

After reviewing accounting policies section of the notes to thefinancial statements used by New Toyo International Holdings Ltd., we can see

that there is no feature unusual or judged against generally accepted practice as

it is prepared in accordance with Singapore Financial Reporting Standard.

All policies clearly explain and interpret the definitions and usage of

transactions and events in the financial statements.

Moreover, the accounting policies also represent new or revised

standards that are in accordance with its operation.

Besides the financial statements are comply with Financial Reporting

Standard and interpretation of the Financial Reporting Standard. The financial

statements provide information that related and useful for all needs of users as

stakeholders in making respective economic decisions. It represents the results,

the financial position, financial performance and cash flows of the firm.

Referred to Report of Auditors in the Annual Report, there is no

unusual opinion from the Auditors as they believe that the Financial Statement

can give a true and fair view of the affairs of the Group.

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


5/15


------------------------------------------------------------------------------------------------------------

IV. ANALYSIS OF COMPANYS PERFORMANCE:

Below we will analyze the Financial Statements of NEW TOYOINTERNATIONAL HOLDINGS in 2004 and 2005 to assess their strength and

weaknesses in order for us to decide our investment in this Group.

Ratio Analysis & Interpretation

As a potential investor, we will focus to analysis their profitability ratios

and their market value ratios.

Profitability Ratios

1) Gross Profit Margin (GPM)

2004 2005GPM 23.2% 18.5%

This will measure how much profit remains out of each sales after

deducting of the cost of the goods sold. The ratio shows there is a decrease from

23.2% in 2004 down to 18.5% in 2005. In 2005, the turnover decreased, but the

decrease rate of COGS is not correlated with the turnovers but it is higher.

2) Net Profit Margin (NPM)

2004 2005NPM 17.8% 9.6%

The ratio indicates the profit available to shareholders including taxes. The

ratio shows the margin is dropped nearly half dramatically as there is an increase

in the overhead expenditure.

Liquidity Ratios:

1) Current Ratio (CR):

2004 2005

CR 1.31:1 0.879:1The current ratio shows us how well a company is able to pay off its short-

term debt using its most liquid assets

A ratio of 1 would indicate that the company has exactly enough cash (or

assets that is relatively easy to turn into cash) to pay off its debt. CR of the year

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


6/15


------------------------------------------------------------------------------------------------------------

2004 is higher than 1 which means the company can successfully pay off its

debt while at the same time still has cash left over to continue operating.

However, CR of the year 2005 is under 1, then investors should be weary of the

fact that the company cannot pay off its short-term debt if necessary.2) Quick ratio (QR ):

Lets start to take a look at the companys solvency and how well they can

pay off their debt. Well be using the more stringent test out of the two ratios

(quick versus current) in this case.

2004 2005QR 0.753 0.491

The benchmark of quick ratio is 1:1 however both of the years 2004and 2005 are below the industry average which means the company has

insufficient cash to meet client liabilities or short term debts.

Efficiency ratio

1) Stock turnover ratio (STR):

2004 2005STR 5 times 4 times

A financial ratio that shows how much a company pays out individends each year relative to its share price. In the absence of any capital

gains, the dividend yield is the return on investment for a stock.

Higher the STR is better which means faster selling of stock. The STR

of New Toyo in 2005 is lesser than 2004 however the difference is trivial.

2) Stock turnover days( STD ):

2004 2005STD 76 days 93 days

Firstly, the result of this calculation is that the answer is instantly in

terms of the number of days, on average, that the stocks are held in the

business.

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


7/15


------------------------------------------------------------------------------------------------------------

Secondly, we use the cost of sales figure because stocks are bought

and shown in the profit and loss account and the balance sheet at cost; so we

need to compare like with like

This ratio has fallen from 76 days to 93 days over the two years and thatis probably a good thing. If there's less stock to worry about, lower investment in

stocks meaning that the money they used to have tied up in the stock room is

now free to spend somewhere else.

STD of the year 2004 is better than the year 2005 that means New

Toyo keeps goods in store in 2004 is lesser than 2005.

3) Debtors collection period( DCP):

2004 2005

DCP 39 days 41 days

Debtors Collection Period ratio, is the year's sales which were

outstanding at the balance sheet date, expressed in days. A rough measure

of the days of credit that a firm's offers to its suppliers/clients. Lesser the debt

collection period in days better for the company from the calculation, the debt

collection period in 2004 is lesser than 2005 but the different is small in

number.

4) Creditors payment period (CPP)

The Creditor Payment Period is a 'performance ratio', which means

that it indicates the efficiency of a business. Efficiency and performance

are linked, as efficient businesses are usually more profitable.

This ratio gives you one insight into your business. To determine the

full financial performance of your business, you will also need to analyze

your financial statements and calculate the other financial ratios.

2004 2005CPP 72 days 106 days

CPP of the year 2005 is better than the year 2004 because

Company has more days delay payment to customer.

5) Fixed assets ratio (FAR)

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


8/15


------------------------------------------------------------------------------------------------------------

This ratio is a rough measure of the productivity of a company's fixed

assets (property, plant and equipment or PP&E) with respect to generating sales.

For most companies, their investment in fixed assets represents the single

largest component of their total assets. This annual turnover ratio is designed toreflect a company's efficiency in managing these significant assets. Simply put,

the year 2004 is higher than the year 2005, the better.

2004 2005FAR 2,68% 1,89%

6) Debtors turnover ratio (DTR ):

Debtor Turnover Ratio measures the number of times receivables turn

over during the year. The higher is the turnover of receivables, the shorter isthe time between sales and cash collection. Debtor Turnover is a good way to

gauge the effectiveness of your company's payment terms. If this ratio is low,

it may indicate that you are offering lenient payment terms or have trouble

collecting debts. Both circumstances have a negative impact on cash flow.

2004 2005DTR 9 times 8 times

. In general terms, the greater this ratio is the better. The DTR in theyear 2004 is better than the year 2005 which means more cash collection

leads to effective or the quicker debts are recovered the more cash you will

have at hand. However, longer lines of credit may be a more attractive option

to customers.

7) Creditor turnover ratio (CTR):

In the course of business operations, a firm has to make credit purchase

and incur short-term liabilities. A supplier of goods, i.e., creditors, is naturally

interested in finding out how much time the firm is likely to take in repaying its

trade creditors

2004 2005DTR 5 times 3 times

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


9/15


------------------------------------------------------------------------------------------------------------

The average payment period ratio represents the average number of

days taken by the firm to pay its creditors. Generally, lower the ratio, the

better is the liquidity position of the firm and higher the ratio, less liquid is the

position of the firm. But a higher payment period also implies greater creditperiod enjoyed by the firm and consequently larger the benefit reaped from

credit suppliers. But one has to be careful in interpreting this ratio, as a higher

ratio may also imply lesser discount facilities availed or higher prices paid for

the goods purchased on credit. To make correct interpretation of this ratio, a

comparative analysis of different firms in the same industry and the trend may

be found for various years.

Lower the CTR is better for the company, the CTR in the year 2005 is

better than the year 2004 because of less in liabilities.

Investment Ratio:

1) Return on Equity (ROE)

We already know that ROE is calculated as Net Income divided by

Total Equity. However, as a common shareholder, I want to take a look at this

ratio from that specific point of view. Hence, we will be using the calculation

(Net Income Preferred Dividends)/Total Equity.

2004 2005ROE 34.6% 14%

It measures the rate of return that the Group earns on its owners equity.

This ratio shows a decrease from 2004 to 2005. This ratio is crucial for

investors as we will know to 1 dollar we invest in the Group, in 2005, we only

get 14cents in return. This return is 20.6cents less than in 2004.

2) Earning Per Share (EPS)

2004 2005EPS $9.87 $4.45

This ratio represents the number of dollars earned on behalf of each

outstanding share of common stock. EPS of 2005 is dramatically reduced.

This indicates that dividend is paid for shareholders are falling nearly half. In

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


10/15


------------------------------------------------------------------------------------------------------------

2004, 1 share earns $9.87, but in 2005, 1 share earns $4.45. It is should be

considered negatively by the investor.

All of the Groups ratio profitability has declined in 2005 relative to

2004. This is a very negative sign for the companys performance.3) Price/Earning Ratio

2004 2005PE 4.86:1 7.07:1

Essentially, this ratio tells us how much investors are willing to pay for

every one dollar of earnings the company pulls in. Investors are willing to pay

more than simply matching dollar for dollar because they expect the company

to appreciate in value, i.e., the stock price to go upThe PE ratio of 4.86 in 2004 shows that the investor had lower

expectations of future growth in the PE ratio of 7.07 in 2005. It represents that

investors has a favorable opinion of the Company.

4) Dividend Yield Ratio & Dividend per share

A financial ratio that shows how much a company pays out in

dividends each year relative to its share price. In the absence of any capital

gains, the dividend yield is the return on investment for a stock.

2004 2005Div per share $3.03 $3.08

Div Yield 6.3% 9.7%

In 2005, there is an increase in the Dividend yield. This indicates that

the Group is mature and the shareholders can be confident about its growth.

Group Development

However, looking at the development of the Group with lots ofinvestment in Vietnam and China, this is the Groups strength as it is

expected to growth next year. Vietnam and China are their two key markets.

Vietnam operations are the largest contributor to the Group,

accounting for 55.2% in 2005, just dropped 1.9% compared to the previous

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


11/15


------------------------------------------------------------------------------------------------------------

year. The cigarette paper plant is expected to be operational in 2006. This

can offer good growth prospects for the Group in 2006.

To China, the contribution of this 2005 is dropped due to the de-

consolidation of SAH. However, in the future looks positive for the Group inChina as the Mongolian corrugation in Jan 2006 is expected to contribute

positively to the Groups revenue and profitability.

V. SHAREPRICE PERFORMANCE:

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


12/15


------------------------------------------------------------------------------------------------------------

Looking at the graph of share price performance below of New Toyo

International Holdings, we can see its share prices for 4 years from 2003 to 2006.

The share prices are unstable and fluctuated. From 2003 to 2004, the price

increased and reached it peaks at the early months of 2004. Then the pricecontinued to fluctuate but the trend was downward. At present as of 26 Dec

2006, the price is rather low compared to prices within 2 recent years. This

performance is not so good. However, it is expected to grow as the Group are

investing more on many key markets in Vietnam and China.

Relating to responses from the analyst community, there is not many

responses as their market share price is rather low. In www.shareinvestor.com,

some shareholders still believe that the price will go up soon but some still feel

unconfident about their future as it dropped dramatically in 2005 and 2006.

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung
http://www.shareinvestor.com/http://www.shareinvestor.com/


13/15


------------------------------------------------------------------------------------------------------------

VI. RECOMMENDATION & CONCLUSION:

Overall, the group does not appear to be performing well at the moment,

most of the trends reflected in the ratios are unfavorable. The only ratio that has

positive sign is PE. The revenue decreased due to the big drop of printingrevenue in China as the de-consolidation of SAH and its weaker performance.

This turnover of the printing division must be improved in the year 2006, if not; it

will pull down the Group performance.

Besides, COGS increased a bit in the year 2005, the Company should

consider it and need to reduce this cost, as if it remains unchanged in 2006, the

profitability of the Group can not be improved.

However, the year 2004 and 2005 is the year of investment. In 2006,

some plants in the key markets in Vietnam and China will start their operation

that can be a confidence for the Group.

Moreover, we can believe the Group business as it is currently holding

major customers such as big corporations. The confidence of the Group is not

only reflected by its operations but also the customers it is serving.

Relating to the market share, though it is decrease currently, it can be

expected to grow in the future. As an investor standpoint, we can invest in this

Group without taking any high risks. At the time of writing this report, the shareprices are at the low price, it is a change for us to invest to buy the shares. Doing

investment is taking risks, but the risks we are taking if we invest in this Group is

a risk with hopeful good returns.

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


14/15


------------------------------------------------------------------------------------------------------------

Reference

Gallagher, T.J & Andrew, J.D. (2003), Financial Management, 3 rd Edition,

Prentice Hall

New Toyo International Holdings, Annual Report 2005

Soon, L.K. (2006), Introduction to Accounting and Finance

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung


15/15


------------------------------------------------------------------------------------------------------------

Management development institute of SingaporeAnd

University of Wales

Name: Nong Thi Hong Nhung

Fin: G0545399U

Hp number: 82628779

Batch: MBWD5_0717A

Lecture: Dr.Desti

Course: Accounting for managerial decisions.Date: 14-02-2008

------------------------------------------------------------------------------------------------------------

Nong Thi Hong Nhung
http://www.mdis.edu.sg/index.phphttp://www.mdis.edu.sg/index.php

ACCOUNGTING

Documents

Transcript of ACCOUNGTING