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Financial Management

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  • Level: High school
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Introduction

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 to top management. In addition to this, financial management is also considered as planning, directing, organizing as well as controlling financial activities that are related to the procurement and utilization of funds within the business. In the present report, financial management has been discussed with respect to the 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. The 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 a leader in Malaysia's regional financial services and serves around 22 million customers. The firm possesses an international network of over 2200 branches across 20 countries.

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Industry background

The banking industry in Malaysia can be traced back to the early 1990s during the era of rapid economic development. This has been mainly because of the increase in profit accrued from the plantation of rubber as well as the tin industry. This has led to opening the of branches of foreign banks within the country and assisting in the establishment of the first domestic bank in the country. In Malaysia, there is a greater transformation of the banking industry which has led to the introduction of new financial services and products that include investment banking, trade as well as share financing, and Islamic banking. An increase in deregulation and enhancement in liberalization play a crucial role in increasing the flexibility of financial institutions. Further, it also offers opportunities for new investments and enhancing the competitiveness of the banking sector. Recent developments in the banking sector in Malaysia have led to positive outcomes for the financial system. In recent times, the financial sector has revolutionized from a traditional role that relates to an enabler of economic growth to a crucial source of growth and expansion. In Malaysia, the banking sector is offering employment to at least 123000 citizens of the country. Instead of global financial challenges in the initial decades, the Malaysian banking sector has been consistent on solid financial grounds. It has risk weighted capital ratio of 13%.

Task 2

Cimb Group Holdings Berhad

The balance sheet of Cimb Group presents that in 2014, the total assets of the company were 414156000. This was lower in the case of the 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 shows that cash with the company in 2014 was less in comparison with 2013. Thus, it can be said that sales of the company were lower in 2014 which has reduced the amount of cash in the particular financial year. On the other hand, the 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 an increase in long-term debt of the company to a greater extent.

Malayan Banking Berhad

From the analysis of the balance sheet of Malayan Banking Berhad, it can be interpreted that in 2014, the total assets of the company were 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 shows that cash with the company in 2013 was less than in 2014. Thus, it can be said that sales of the company were lower in 2013 which reduced the amount of cash within that particular year. In contrast to this, the total liabilities of the company in the year 2013 was 512576000 which increased to 58559000 in the year 2014. This implies an increase in the liability of Malayan Banking Berhad which is due to an increase in long-term debt of the company to a significant level.

Comparison of both companies

With the comparison of the balance sheet of both the companies that are Cimb Group Holdings Berhad and Malayan Banking Berhad, it can be interpreted that the financial position of Malayan Banking Berhad is sound in comparison with Cimb Group Holdings Berhad. This is due to an increase in the major assets of the firm that relate to cash and cash equivalents.

Income statement

Cimb Group Holdings Berhad

From the analysis of the profit and loss account, it has been examined that the 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 were higher as compared to 2014. In addition to this, the gross profit of Cimb Group Holdings Berhad in the year 2014 was 12139000 which was greater in the case of the year 2014 which was 13547000. The operating profit of the company in 2013 was 5491000 whereas in 2014, it was 4289000. This is due to an increase in the operating expenses of the firm which has reduced the profitability of the organization to a significant level. On the other hand, the net income of Cimb Group Holdings Berhad in 2013 was 4540000 and in 2014, it was 3107000.

Malayan Banking Berhad

By carrying out an 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 were 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 the case of the year 2014 which is 17915000. The operating income of the company in 2013 was 8934000 whereas in 2014 it was 9180000. This is due to an 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 companies

By making a comparison of the income statements of both the companies that is Cimb Group Holdings Berhad and Malayan Banking Berhad it can be interpreted that the profitability of Malayan Banking Berhad is sound as compared to Cimb Group Holdings Berhad. This is because of an increase in the sales of the company.

Shareholders equity statement

Cimb Group Holdings Berhad

In order to make an analysis of the shareholder's equity statement of Cimb Group Holdings Berhad the retained earnings of the firm have been compared. In the year 2013, the retained profit was 18892000. This was greater in the case of the year 2014 which is 20305000. This implies that the value of retained earnings in 2014 is higher. This is because the company has made huge profitability that has allowed it to make greater savings out of the profits. This would assist the business in meeting contingencies for the future course of time.

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Malayan Banking Berhad

For the purpose of making an analysis of the shareholder's equity statement of Cimb Group Holdings Berhad the retained earnings of the firm are being compared. In the year 2013, the retained profit was 21322000. This was greater in the case of the year 2014 that is 23093000. This implies that the value of retained earnings in 2014 is greater. This is because the company has made huge profitability that has assisted it in making greater savings out of the profits. This would act as an aid for the business in meeting contingencies in a longer span of time.

Comparison of both companies

With the comparison of shareholder equity statements of both the companies that is Cimb Group Holdings Berhad and Malayan Banking Berhad, it can be examined that the 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 the 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 was greater in 2014 that is (26819000) which was (16312000) in the year 2013. This figure is negative which presents a 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 are positive.

Malayan Banking Berhad

By making analysis of the cash flow statement of Malayan Banking Berhad it has been examined that the 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 was greater in 2014 that is (53942000). This was (48150000) in the year 2013. The particular figure is negative which implies a greater amount of cash outflow in both 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 companies

With the evaluation of the cash flow statement of both the companies which include Cimb Group Holdings Berhad and Malayan Banking Berhad, it can be said that the net income of Malayan Banking Berhad has increased from the previous year as compared to Cimb Group Holdings Berhad has decreased 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

The current ratio is an effective measure of the firm's ability to make payments of its short-term liabilities with its current assets. Current assets with the organization include cash, cash equivalents, and marketable securities that can be easily converted into cash in the short run. This ratio is effective in shedding light on the overall debt burden of the organization. From the analysis of the above table, it can be gained that the current ratio of Malayan Banking Berhad in 2014 is 0.25 which is higher in comparison with the year 2013 which 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 the firm possesses the ability to make payments 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 which is 0.30. This reflects that the liquidity position of the company is unsound as it reflects that Cimb Group Holdings Berhad is not able to make current debt payments.

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On the other hand quick ratio is another liquidity ratio that measures the firm's ability to pay its current liabilities when it only possesses quick assets. Quick assets involve 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 the quick ratio of Malayan Banking Berhad in 2014 is 0.25 which is higher in comparison with the year 2013 which is 0.23. This presents that the liquidity position of the company in 2014 is favorable. This reflects that the 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 which is 0.30. This reflects that the liquidity position of the company is unsound as it demonstrates that Cimb Group Holdings Berhad has to sell its long-term assets to pay off its current liabilities.

Task 4

Malayan Banking Berhad

Interpretation

The debt-to-equity ratio referred to as the financial liquidity ratio makes a comparison of an organization's total debt to total equity. This ratio reflects the percentage of company financing that is received from creditors as well as investors. The debt-equity ratio is computed by dividing the total debt by total equity. Every industry possesses varied debt-to-equity ratio benchmarks. This is due to the reason that certain industries tend to make use of more debt financing as compared with others. It has been examined that a lower debt-to-equity ratio implies a more financially stable position for a firm. Firms that possess higher debt-equity ratios are regarded as more risky to creditors as well as investors. The firms that are leveraging greater amounts of debt may not be able to pay the amount.

By analyzing the table above it can be gained that the Debt-equity ratio of Malayan Banking Berhad in 2014 was 0.67 which is higher in comparison with the year 2013 which 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 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 which is 0.72. This reflects that the financial position of the organization is sound as it demonstrates that Cimb Group Holdings Berhad is regarded as a lesser riskier business that attracts investors as well as creditors towards the firm.

Task 5

Malayan Banking Berhad

Interpretation

The gross profit ratio is referred to as the profitability ratio which makes a comparison of the 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 the Gross profit ratio of Malayan Banking Berhad in 2014 was 99.23 which is higher in comparison with the year 2013 which is 99.18. This shows that the financial position of the company in 2014 is favorable. This implies that the company possesses the ability to make payments toward its operating expenses including rent, salaries as well and utilities. On the other hand gross profit ratio of Cimb Group Holdings Berhad in 2014 was 96.43 which is lower in comparison with 2013 which is 96.97. This reflects that the 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.

The operating profit ratio is regarded as another profitability ratio that examines the extent to which total revenues are made up of operating income. The operating ratio presents the amount of revenue that is left over all the entire cost of operating is being paid off. From the analysis of the table above it can be interpreted that the operating profit ratio of Malayan Banking Berhad in 2014 was 50.85 which is higher in comparison with the year 2013 that is 50.60. This implies that the financial position of the company in 2014 is sound and stable. This presents that the firm makes an adequate amount of cash from its ongoing operations in order to make payments for its variable and fixed costs. On the other hand operating profit ratio of Cimb Group Holdings Berhad in 2014 was 34.07 which is lower in comparison with 2013 which is 39.31. This reflects that the financial position of the organization is unsound as it reflects that Cimb Group Holdings Berhad does not have enough cash to make payments 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 an analysis of the table above it can be gained that the net profit ratio of Malayan Banking Berhad in 2014 was 37.20 which is higher in comparison with the year 2013 which is 37.11 (Profit margin ratio, 2015). This implies that the financial position of the company was sound in 2014. Further, it presents that the 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 which is 32.50. This reflects that the 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 the case of valuation analysis firms' stock price enters the investment analysis. The 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 earnings per ratio of Malayan Banking Berhad in 2014 was -2.11 which is higher in comparison with the year 2013 is 4.13. This implies that the financial position of the company was sound in 2013. Further, it presents that an organization is able to earn a greater amount from its shares. On the other hand earnings per share of Cimb Group Holdings Berhad in 2014 was -37.50 which is lower in comparison with 2013 which is 2.74. This reflects that the 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.

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Conclusion and Recommendation

It can be concluded from the study that the role of financial management is effective in managing business funds to a greater extent. It has been inferred from the report that the management of finances is important in attaining organizational targets to a greater extent. This acts as an aid in enhancing the survival of the business in the market for the long run course of time. The study carried out above makes an 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 the financial position of Malayan Banking Berhad is sound as compared to Cimb Group Holdings Berhad. This is because there is a major increase in assets that are related to cash and cash equivalents. In addition to this by making evaluation of the income statements of both 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 are increasing to a greater extent. The analysis of the shareholder equity statement provides information with respect to retailed earnings made by both banks. It can be concluded from the study that the retained profit of Malayan Banking Berhad is higher as compared to Cimb Group Holdings Berhad which is due to an increase in profitability that results in enhancing the amount that could be saved in order to meet future contingencies. It has been inferred from the analysis of the cash flow statement that the net income of Malayan Banking Berhad is increasing as compared to Cimb Group Holdings Berhad which possesses a decreasing net income.

Based upon the analysis carried out above there are several recommendations 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 that the company keep track of its expenses so that it can increase its profitability to a greater extent. Further, the bank can make use of several promotion strategies 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 a 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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