Financial Analysis Of Two Listed Firms Finance Essay - Free Essay Example

Sample details Pages: 5 Words: 1375 Downloads: 2 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? The field of corporate social responsibility (CSR) has grown exponentially in the last decade. A larger number of companies have previously engaged in a serious effort to define and integrate CSR into all aspects of their businesses. An increasing number of shareholders, analysts, regulators, activists, labor unions, employees, community organizations, and news media are asking companies to be accountable for an ever-changing set of CSR issues. Don’t waste time! Our writers will create an original "Financial Analysis Of Two Listed Firms Finance Essay" essay for you Create order There is increasing demand for transparency and growing expectations that corporations measure, report, and continuously improve their social, environmental, and economic performance.CSR mean that treating its employees well, preserving the environment, developing sound corporate governance, supporting philanthropy, fostering human rights, respecting cultural differences and helping to promote fair trade, among others. Besides, its also mean to have a positive impact on the communities, cultures, societies and environments in which companies operate. Using the word of Holme and Richard Watts, defined CSR is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large (Baker, n.d). In this report, I have made comparison between two listed firms from Bursa Malaysia based on their financial analysis. One has disclosed the information about CSR and another did not which is, Frazer and Neave Bhd and Caely Holding Bhd respectively. Financial analysis is an analysis conducted to examine the companys internal situation of the business. By carrying out this analysis, we can know how well the business is doing. It is normally used to summarize the information of an organizations financial statements in evaluating its financial position (H. Christine Hsu, 1999). We can make conclusion about how companys performing and what is the companys current financial situation after conducting the financial analysis. First of all, the first comparison have been made is based on the profitability ratio Profitability ratios are used to determine that whether a firm has used its ability well in order to generate profit and spot any fault in expenses. Under profitability ratios, there are three major areas: Return on Capital Employed (ROCE), Net Profit Margin (NPM) and Gross Profit Margin (GPM). ROCE is used to indicate how well the management team has utilized the total assets efficiently. This is also the key ratio which potential investor use to decide whether or not to make the investment and how much should invest in the company. Based on the graph above, the ROCE of the FN has fluctuated from year to year. The graph shows the trend of increase and decrease in a minor percentage from year 2007 to 2008 and it was continued increase by a slightly momentous to 17.74% in year 2009. However, from the graph, the ROCE of Caely was decrease from 1.61% to 1.37%. The increase was caused by the good performance of companys profit and caused the reserves in the capital employed are increase. The situation indicated that FN had performed in a high profitability position as compare to the Caely. Although, the changeable of the FNs ROCE is considerably low, the company still has the space and ability to improve its companys performance. Futhermore, CSR able to draw consumers away from competitors and thereby improve profitability (Brine, Brown and Hackett, n.d). Next is the GPM. This ratio shows the profit a company made on its cost of goods sold. It clearly tells us how much profit each dollar of turnover of the business is earning. FNs GPM has slightly decreased from 2007 to 2008, but the ratio then jumped up to 29.67% in year 2009. However, Caelys GPM has also experienced an increasing rate. This indicated the company tended to get higher efficiencies and productivity gained from the higher production degree and economies of scale from the expanded its business. As compare between FN and Caely, FN performance was better than Caely as it have the higher ratio, this shown that FN are able to earn more with every $1. With CSR, FN are able to offer opportunities to reduce present and future costs to the business thereby increasing operational efficiency (Brine, Brown and Hackett, n.d). The NPM indicates the amount of sales dollar that can be shown up as net earnings after deducting all the expenses. The companys NPM declined from year 2007 to 2008 until 7.15% and it slightly rose up again in 2009 to 8.40%. The increase of profits was due to the rising sales revenue in year 2009. This indicated that the company has the ability in control their profit margin as 9 the profit before interest, taxation, fair value adjustment and exceptional items (PBIT) in quarter four in that year imposed an increase of 42%, causing the PBIT for the year to be higher. Therefore, the company has successfully pulled back the margin from continuously dropping down. By applying CSR, FN can offers more effective management of risk in order to assists companies in reduce avoidable losses, identify new emerging issues and use positions of leadership as a means to gain competitive advantage (Brine, Brown and Hackett, n.d). However, the Caely are unable to control its profit margin, there was a decreased from 1.13% to 0.92%. This shown that the company was making bad performance and unable to stay competitive because do not apply CSR. Next financial analysis is the investment ratio, which are specific to the interest of the shareholders. It is used to calculate the amount of the funds that contributed to a firm by the investors. These ratios include earnings per share (EPS) and price/earnings ratio (P/E). EPS are to measures the amount of profit earned for each ordinary share. EPS is a good measure of profitability and gives a view of earnings power of the firm with competitors. FNs EPS has a slightly increase from 42.9 cent to 46.8 cent. The increase is due to the FNs excellent performance and investors have more confidence toward FN as there are positive earnings they might generate from buying the shares. On the other hand, Caelys EPS was increase from a negative -3.75 to 0.2 cent. However, as compare between both companies, FNs EPS clearly shown that is better than Caely because investors will more willing to invest in FN. In fact, CSR offers a means by which companies can manage and influence the attitudes and perceptions of their stakeholders as well as building investors trust and enabling the benefits of positive relationships to deliver business advantage (Brine, Brown and Hackett, n.d). Moreover P/E is the most common measure of how expensive a stock is. This ratio is used to evaluate the market confidence of the companys share. The higher the ratio, the more attractive the share it is and the market expectation future earning is prospective (Investor World, nd). According to the figures, we found that the P/E ratio for FN is 16.78 in year 2007, while it increases to 18.33 during the year 2008. This shown that the company is an efficient business since the P/E ratio is increasing. But, there is decrease from 2008 to 2009; however, FNs P/E still remains high. In the point of view of investor, they will be more willing to pay more for the FNs earnings as it can have the higher rate of return as compared with the Caely which have only smaller P/E ratio. In conclusion, after compare between the both companies financial analysis, its shown that the firm that offers CSR has the ability to endure threats and maintain a good financial performance. It is because among companies, financial performance is positively associated with social performance, since consumers can directly reward a companys socially positive behavior by purchasing its products (Brine, Brown and Hackett, n.d).CSR companies also have less risk of negative rare events. The risks related to CSR could be grouped into three categories which are corporate governance, environmental aspects, and social aspects. Companies that adopt the CSR principles are more transparent and have less risk of corruption. Besides, they also have less risk of negative social events which damage their reputation and cost a millions of dollars in information and advertising campaigns (Tsoutsoura, 2004).