CompanyIntroduction
Financial management is referred to as effective and efficient management of the funds in a way that assists in the attainment of business objectives. It is referred to as a specialized function that is directly attached with top management. In addition to this, financial management is also considered as planning, directing, organizing as well as controlling of financial activities that are related with procurement and utilization of funds within the business. In the present report, financial management has been discussed with respect to banking industry in Malaysia. In this regard, two local banking firms have been taken into account.
Task 1
The corporation and its business competitors
This includes Cimb Group Holdings Berhad and Malayan Banking Berhad. Cimb group is a leading ASEAN universal bank. Further, it is one of the largest Asian investment banks which is headquartered in Kuala Lumpur, Malaysia. Corporation provides consumer banking, wholesale banking, Islamic banking and asset management products as well as services. Cimb is the fifth largest banking group in ASEAN that has over 40000 staff in around 17 locations. Malayan Banking Berhad is one of the competitors of Cimb group. It is leader in Malaysia's regional financial services and serves around 22 million customers. The firm possesses international network of over 2200 branches in across 20 countries.
Industry background
Banking industry in Malaysia can be traced back to early 1990s during the era of rapid economics development. This has been mainly because of increase in profit accrued from the plantation of rubber as well as tin industry. This has led to open the branches of foreign banks within the country and assist in the establishment of first domestic bank in the country. In Malaysia, there is greater transformation of banking industry which has led to introduction of new financial services and products that include investment banking, trade as well as share financing and Islamic banking. Increase in deregulation and enhancement in liberalization play a crucial role in increasing flexibility of financial institution. Further, it also offers opportunities for the new investments and enhancing the competitiveness of banking sector. Recent developments in banking sector in Malaysia have led to positive outcomes for financial system. In recent times, financial sector has revolutionized from traditional role that relates with enabler of economic growth to crucial sources of own growth and expansion. In Malaysia, banking sector is offering employment to at least 123000 citizens of the country. Instead of global financial challenges in the initial decades, Malaysian banking sector has been consistent at solid financial grounds. It has risk weighted capital ratio of 13%.
Task 2
Cimb Group Holdings Berhad
Balance sheet of Cimb group presents that in 2014, total assets of the company was 414156000. This was lower in case of year 2013 which was 370913000. Further, it can be examined that cash and cash equivalent in the year 2013 was 29907000 and in the year 2014, it was 29303000. This presents that cash with the company in 2014 was less in comparison with 2013. Thus, it can be said that sales of the company was lower in 2014 which has reduced the amount of cash in the particular financial year. On the other hand, total liabilities of the company in the year 2013 was 313553000 which has increased to 348604000 in the year 2014. This implies an increase in the liability of Cimb Group which is due to increase in long term debt of the company to a greater extent.
Malayan Banking Berhad
From the analysis of balance sheet of Malayan Banking Berhad, it can be interpreted that in 2014, total assets of the company was 640300000. Further, in the year 2013, it was lower down and which was 560319000. Along with this, it can be examined that cash and cash equivalent in the year 2013 was 50870000 and in the year 2014, it was 61547000. This presents that cash with the company in 2013 was less as compared to 2014. Thus, it can be said that sales of the company was lower in 2013 which has reduced the amount of cash within that particular year. In contrast to this, total liabilities of the company in the year 2013 was 512576000 which has increased to 58559000 in the year 2014. This implies an increase in the liability of Malayan Banking Berhad which is due to increase in long term debt of the company to a significant level.
Comparison of both the companies
With the comparison of balance sheet of both the companies that are Cimb Group Holdings Berhad and Malayan Banking Berhad, it can be interpreted that financial position of Malayan Banking Berhad is sound in comparison with Cimb Group Holdings Berhad. This is due to increase in major asset of the firm that relates with cash and cash equivalent.
Income statement
Cimb Group Holdings Berhad
From the analysis of profit and loss account, it has been examined that total revenue of the firm in the year 2013 was 13970000. This was 12589000 in the year 2014. Such implies that sales of the company in 2013 was higher as compared to 2014. In addition to this, gross profit of Cimb Group Holdings Berhad in the year 2014 was 12139000 which was greater in case of year 2014 that was 13547000. Operating profit of the company in 2013 was 5491000 whereas in 2014, it was 4289000. This is due to increase in the operating expenses of the firm which has reduced the profitability of organization to a significant level. On the other hand, net income of Cimb Group Holdings Berhad in 2013 was 4540000 and in 2014, it was 3107000.
Malayan Banking Berhad
By carry out analysis of the income statement of Malayan Banking Berhad it has been gained that the total revenue of the firm in the year 2013 was 17656000. This was 18054000 in the year 2014. Such implies that sales of the company in 2014 was higher in comparison with 2013. Along with this the gross profit of Malayan Banking Berhad in the year 2013 was 17511000 which was higher in case of year 2014 that is 17915000. The operating income of the company in 2013 was 8934000 whereas in 2014 it was 9180000. This is due to increase in the operating expenses of the firm which has resulted in affected profitability of the firm to a significant level. On the other hand the net income of the company in 2013 was 6552000 which was 6716000 in the year 2014.
Comparison of both the companies
By making comparison of income statement of both the companies that is Cimb Group Holdings Berhad and Malayan Banking Berhad it can be interpreted that profitability of Malayan Banking Berhad is sound as compared to Cimb Group Holdings Berhad. This is because of increase in the sales of the company.
Shareholders equity statement
Cimb Group Holdings Berhad
In order to make analysis of the shareholders equity statement of Cimb Group Holdings Berhad the retained earning of the firm has been compared. In the year 2013 the retained profit was 18892000. This was greater in case of year 2014 that is 20305000. This implies that value of retained earning in 2014 is higher. This is because the company has made huge profitability that has allowed it to make greater saving out of the profits. This would assists the business in meeting contingencies for future course of time.
Malayan Banking Berhad
For the purpose of making analysis of the shareholders equity statement of Cimb Group Holdings Berhad the retained earning of the firm is being compared. In the year 2013 the retained profit was 21322000. This was greater in case of year 2014 that is 23093000. This implies that value of retained earning in 2014 is greater. This is because the company has made huge profitability that has assisted it in making greater saving out of the profits. This would act as an aid for the business in meeting contingencies in longer span of time.
Comparison of both the companies
With the comparison of shareholder equity statement of both the companies that is Cimb Group Holdings Berhad and Malayan Banking Berhad it can be examined that retained profit of Malayan Banking Berhad is higher as compared to Cimb Group Holdings Berhad. This is because its profitability is greater which has resulted in increasing the amount that could be saved for future course of time.
Cash flow statement
Cimb Group Holdings Berhad
With the evaluation of the cash flow statement of Cimb Group Holdings Berhad it has been examined that net income of the firm in 2014 was 3107000 whereas this was 4540000 in 2013. In addition to this it has been gained that total cash flow from operating activities is greater in 2014 that is (26819000) which was (16312000) in the year 2013. This figure is negative which presents greater amount of cash outflow in both the years. On the contrary cash flow from investing activities in the year 2014 is (9278000). This was (2909000) in 2013. Further the total cash from financing activities in 2013 and 2014 was 23209000 and 34358000 respectively. This present inflow of cash from financing activity as the particular figures is positive.
Malayan Banking Berhad
By making analysis of the cash flow statement of Malayan Banking Berhad it has been examined that net income of the firm in 2014 was 6716000 whereas this was 6552000 in 2013. In addition to this it has been gained that total cash flow from operating activities is greater in 2014 that is (53942000). This was (48150000) in the year 2013. The particular figure is negative which implies greater amount of cash outflow in both the years. In contrast to this cash flow from investing activities in the year 2014 is (292000) which was (880000) in 2013. Further the total cash from financing activities in 2013 and 2014 was 56754000 and 63855000 respectively.
Comparison of both the companies
With the evaluation of cash flow statement of both the companies which includes Cimb Group Holdings Berhad and Malayan Banking Berhad it can be said that net income of Malayan Banking Berhad is increasing from previous year as compared to Cimb Group Holdings Berhad that has decreasing net income. This is because of increasing expenses of the organization to a greater extent (Lee and Hwan, 2005).
Task 3
Malayan Banking Berhad
Interpretation
Current ratio is effective measure of the firms ability to make payment of its short term liabilities with its current assets. Current assets with the organization includes cash, cash equivalents and marketable securities that can be easily converted into cash in short run. This ratio is effective in shedding light on the overall debt burden of the organization. From the analysis of above table it can be gained that current ratio of Malayan Banking Berhad in 2014 is 0.25 which is higher in comparison with year 2013 that is 0.23. This implies the liquidity position of the company in 2014 is favorable. This is due to the reason that it reflects that firm possess ability to make payment towards its current debts. In contrast to this current ratio of Cimb Group Holdings Berhad in 2014 is 0.28 which is lower in comparison with 2013 that is 0.30. This reflects that liquidity position of the company is unsound as it reflects that Cimb Group Holdings Berhad is not able to make current debts payments.
On the other hand quick ratio is another liquidity ratio that measures the firm's ability to pay its current liabilities when they only possess quick assets. Quick assets involves the current assets which can be transformed into cash within 90 days. This includes cash, short term investment, cash equivalents, marketable securities as well as current account receivables. By analyzing the table above it can be gained that quick ratio of Malayan Banking Berhad in 2014 is 0.25 which is higher in comparison with year 2013 that is 0.23. This presents that the liquidity position of the company in 2014 is favorable. This reflects that firm can pay off its current liabilities without making sales of any long term assets. In contrast to this current ratio of Cimb Group Holdings Berhad in 2014 is 0.28 which is lower in comparison with 2013 that is 0.30. This reflects that liquidity position of the company is unsound as it demonstrates that Cimb Group Holdings Berhad has to sale its long term assets to pay off its current liabilities.
Task 4
Malayan Banking Berhad
Interpretation
Debt to equity ratio is referred to as financial liquidity ratio that makes comparison among organization's total debt to total equity. This ratio reflects percentage of company financing that is received from creditors as well as investors. Debt equity ratio is being computed by dividing the total debt by total equity. Every industry possess varied debt to equity ratio benchmarks. This is due to the reason that certain industries tend to make use more debt financing as compared with others. It has been examined that lower debt to equity ratio implies more financially stable position of firm. Firms that possess higher debt equity ratio are regarded as more risky to creditors as well as investors. The firms that are leveraging greater amount of debt may not able to pay the amount.
By analyzing the table above it can be gained that Debt to equity ratio of Malayan Banking Berhad in 2014 is 0.67 which is higher in comparison with year 2013 that is 0.58. This presents that the financial position of the company in 2014 is unfavorable. This is because as the company has higher debt equity thus it is considered more riskier by the investors and creditors. In contrast to this debt to equity ratio of Cimb Group Holdings Berhad in 2014 is 0.61 which is lower in comparison with 2013 that is 0.72. This reflects that financial position of the organization is sound as it demonstrates that Cimb Group Holdings Berhad is regarded as lesser riskier business that attracts investors as well as creditors towards the firm.
Task 5
Malayan Banking Berhad
Interpretation
Gross profit ratio is referred to as the profitability ratio that makes comparison of gross margin of the firm to net sales. It is the ratio that measures the extent to which the company is profitable when it makes sales of its inventory. It is considered as the percentage markup on the cost of inventory. By analyzing the table above it can be gained that Gross profit ratio of Malayan Banking Berhad in 2014 is 99.23 which is higher in comparison with year 2013 that is 99.18. This presents that the financial position of the company in 2014 is favorable. This implies that company possess the ability to make payment towards its operating expenses that includes rent, salaries as well as utilities. On the other hand gross profit ratio of Cimb Group Holdings Berhad in 2014 is 96.43 which is lower in comparison with 2013 that is 96.97. This reflects that financial position of the organization is unsound as it reflects that Cimb Group Holdings Berhad does not have enough cash to meet its operating expenses.
Operating profit ratio is regarded as another profitability ratio that examines the extent to which total revenues is made up by operating income. Operating ratio presents the amount of revenue that are left over all entire cost of operating is being paid off. From the analysis of table above it can be interpreted that operating profit ratio of Malayan Banking Berhad in 2014 is 50.85 which is higher in comparison with year 2013 that is 50.60. This implies that the financial position of the company in 2014 is sound and stable. This presents that firm make adequate amount of cash from its ongoing operations in order to make payment for its variable and fixed costs. On the other hand operating profit ratio of Cimb Group Holdings Berhad in 2014 is 34.07 which is lower in comparison with 2013 that is 39.31. This reflects that financial position of the organization is unsound as it reflects that Cimb Group Holdings Berhad does not have enough cash to make payment for variable and fixed costs.
Net profit ratio is also referred to as profit margin ratio. It is another profitability ratio that measures the amount of net income earned with each dollar of sales which is being generated through the comparison of net income and net sales of the organization. By carrying out analysis of table above it can be gained that net profit ratio of Malayan Banking Berhad in 2014 is 37.20 which is higher in comparison with year 2013 that is 37.11 (Profit margin ratio, 2015). This implies that the financial position of the company is sound in 2014. Further it presents that organization is able to manage its expenses in relation to its net sales. On the other hand net profit ratio of Cimb Group Holdings Berhad in 2014 is 24.68 which is lower in comparison with 2013 that is 32.50. This reflects that financial position of the company is unsound as it reflects that Cimb Group Holdings Berhad does not have enough cash in order to meet its expenses.
Task 6
Valuation analysis
In case of valuation analysis firms stock price enters in the investment analysis. Valuation ratio includes different ratios such as price earning ratio, price to growth, price to sales and price to book. By carrying out analysis it can be gained that earning per ratio of Malayan Banking Berhad in 2014 is -2.11 which is higher in comparison with year 2013 that is 4.13. This implies that the financial position of the company is sound in 2013. Further it presents that organization is able to earn greater amount from its shares. On the other hand earning per share of Cimb Group Holdings Berhad in 2014 is -37.50 which is lower in comparison with 2013 that is 2.74. This reflects that financial position of the company is unsound as it reflects that Cimb Group Holdings Berhad does not have ability to earn from the investment made in shares.
Conclusion and Recommendation
It can be concluded from the study that the role of financial management is effective in managing the business funds to a greater extent. It has been inferred from the report that management of financial is important in attaining organization targets to a greater extent. This acts as an aid in enhancing the survival of the business in the market for long run course of time. The study carried above makes analysis of the financial position of the company. For this liquidity, debt analysis, profitability as well as valuation analysis has been carried out. By making analysis of the balance sheet it has been gained that financial position of Malayan Banking Berhad is sound as compared to Cimb Group Holdings Berhad. This is because there is major increase in assets that are related with cash and cash equivalents. In addition to this by making evaluation of the income statement of both the firms it has been gained that Malayan Banking Berhad's profitability position is sound in comparison with its competitor that is Cimb Group Holdings Berhad. This is because the sales of the firm is increasing to a greater extent. The analysis of shareholder equity statement provides the information with respect to retailed earning made by both the banks. It can be concluded from the study that retained profit of Malayan Banking Berhad is higher as compared to Cimb Group Holdings Berhad which is due to increase in the profitability that results in enhancing the amount which could be saved in order to meet future contingencies. It has been inferred from the analysis of the cash flow statement that net income of Malayan Banking Berhad is increasing as compared to Cimb Group Holdings Berhad that possess decreasing net income.
Based upon the analysis carried above there are several recommendation that can be made to both the firms that is Malayan Banking Berhad and Cimb Group Holdings Berhad in order to improve their performance. The company like Cimb Group Holdings Berhad has unsound financial position. Thus it suggested to the company to keep a track on its expenses so that it can increase its profitability to a greater extent. Further the bank can make use of several promotion strategy in the market so as to enhance its sales to a significant level. On the other hand the financial position of Malayan Banking Berhad is sound but it is important to maintain the current position in order to sustain in the market for long period of time.
References
- Athanasoglou, P. P., Brissimis, S. N. and Delis, M. D., 2008. Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of international financial Markets, Institutions and Money.
- Belkhir, M., 2009. Board of directors' size and performance in the banking industry. International Journal of Managerial Finance.
- Bertrand, M., Schoar, A. and Thesmar, D., 2007. Banking deregulation and industry structure: Evidence from the French banking reforms of 1985. The Journal of Finance.
- Brigham, E. and Houston, J., 2011. Fundamentals of financial management. Cengage Learning.
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