University of x

Analysing Organisational Performance

Assessment 1/9/2012

Semester I, Year I

Summary of Report

This report mainly consists of 6 parts. Part 1 is a short and brief introduction into the history of the company, while Part 2 introduces the workin s of ! financial ratios, and analyses the performance of the company. Part " and # deal with an e$planation into cash flow statements and mar inal costin , and their importance in predictin the financial position of a company. The fifth part deals with capital bud etin and financial in%estment appraisal and i%es a short o%er%iew in the methods used to carry out capital bud etin alon with their si nificance. The last part of the report, i.e. Part 6, is simply a pro forma spreadsheet with the formulas re&uired to calculate the different methods i%en in the fifth part. This will be attached to the report in a spreadsheet format. This will be followed by an appendi$ which will include the full copies of my company's financial statements alon with any other necessary information. (eferences in )ar%ard style will be included after that, followed by a short biblio raphy with some recommended readin . *ll sources are %erifiable, and I ha%e used published books, online news articles, colle e notes, +ournals and publications as sources and references for my assi nment.

Contents List

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Title

Pa e ,umber

Title Pa e Summary -ontents .ist Introduction Part I / )istory of 0i i Telecommunications Part II / -alculated (atios Part II / *nalysis of 0i i 2hd. Part III / -ash flow statements Part I3 / 4ar inal -ostin Part 3 / In%estment *ppraisal -onclusion *ppendi$ / includin Part 3I / Spreadsheet 2iblio raphy

1 2 " # 1 6 12 11 16 15 22 2" 26

Introduction

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This report is a short analysis of the telecommunications company, 0i i. I ha%e written this report in order to assess the performance 0i i as well as to +ud e its past, present and future performances. The aim of my report is to pro%ide a comprehensi%e outlook of 0i i and its performance between the two years a%ailable, 266572616. This report was written a re&uirement for the first semester of analy8in or ani8ation performance. 4y aims and ob+ecti%es of this report are to calculate ratios for 0i i 2hd and hence use the same in order to find the financial position of the company. The report co%ers si$ 96: parts, and each part is clearly labeled with indicators as to the content of that specific parts. ;here%er needed, I ha%e added notes for further reference. I ha%e used a wide %ariety of sources of information for structurin my report, such as the company's online reports, financial accountin books, +ournals, news articles and colle e notes. I aim to pro%ide an unbiased and comprehensi%e %iew to the structurin and workin s of the company.

Part I

History of Digi Telecommunications:

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0i<i Telecommunications is a communications ser%ice pro%ider in 4alaysia. 0i i is well known in 4alaysia as they are one of the leadin telecommunications companies, pro%idin ser%ices to millions of 4alaysians all o%er the country. 0i i was the first company to launch a di ital cellular network in 4alaysia. 0i i=s achie%ements are well known in the local market and they are one of the leadin mobile ser%ice pro%iders to consistently win awards from local bodies. * recent report from The 2orneo Post re%ealed that >0i<i is the only Telco -ompany that mana ed to record double7di it re%enue rowth at the e$pense of its ri%als...,?

Part II

9I: Financial Ratios of Digi Bhd for the years !!" # !$!:

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,ote@ *ll fi ures e$pressed are in =666s of (in

its

1: -urrent (atio A -urrent *ssets B -urrent .iabilities

2665@ -urrent ratioA !C#656 B 2621C!6 A6.#"@1

2616@ -urrent ratioA 1""6C!2 B 22C11!5 A 6.15@1

2: ,et Profit (atio A 9,et profit B ,et sales: D 166

2665@ ,et sales A #,565,161 ,et Profit (atio A E91,666,#C1B#,565,161: D 166F

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A26."CC556!2!6"56 or app$. 26."!G

2616@ ,et sales A 1,#66,#1C ,et Profit (atio A E91, 1C!, 66#, B1,#66,#1C: D 166F A 21.C!!!"16516CC21 or app$. 21.C5G

": 0ebtors Turno%er (atio A Total Sales B *%era e 0ebtors

2665@ *%era e 0ebtors A 9#26,""6H#26,!6C:B2 A !#1,1#"B2 Total Sales A #,565,161 #,565,161B#26,1C1.1 A 11.6C Times

2616@ *%era e 0ebtors A 9#"C,655H#26,""6:B2 A !1C,#"1B2 Total Sales A 1,#66,#1C 1,#66,#1CB#2!,C1C.1 A 12.61 Times

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#: Ii$ed *ssets Turno%er (atio A Sales B ,et Ii$ed *ssets

2665@ Ii$ed *ssets Turno%er (atio A Sales B ,et Ii$ed *ssets A #,565,161 B 2,908,174 A 1.6!5 Times

2616@ Ii$ed *ssets Turno%er (atio A Sales B ,et Ii$ed *ssets A 1,#66,#1C B 2,959,894 A 1.!2C Times

1: (ate of Stock Turno%er A -ost of <oods soldB*%era e Stock

2665@ 1,1C6,!1! B 91",661H1C,61": B 2 A1,1C6,!1! B 9"6,11#: B 2

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1,1C6,!1! B 11,61CA CC.C61C6111562C65 ACC.C62 times

2616@ 1,#6#,151 B 9#",655H1",661: B 2 A 1,#6#,151 B 916,166: B2 A 1,#6#,151 B 2!,6!6 A 16.6665########## Times A 16 times

6: 0ebt (atio A Total .iabilities B Total *ssets

2665 ",216,5C6 B #,C"2,### A 6C.!16265""225#26G or 6C.!1G

2616

",C56,611B1,1"6,6"" A C".C!"511"61"1#2G or C".C!#G

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C: (eturn on net assets A Profit after ta$ B 9Ii$ed assets H workin capital: ;orkin capital A 9-urrent *ssets / -urrent .iabilities:

2665@ 1,666,#C1 B 2,56!,1C#H 9!C#656 7 2621C!6: A1,666,#C1 B 1,C16,#!# A 16.51G

2616@ 1,1C!,66# B H 2,515,!5#H 91""6C!2 7 22C11!5: A1,1C!,66# B 2,615,6!C A1!."#G

!: .i&uid (atio A .i&uid *ssets B -urrent .iabilities

.i&uid *ssets A -urrent *ssets / 9Stock H Prepaid J$penses:

2665@
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.i&uid (atio A 9!C#656 7 1"661: B 2,621,C!6 A !61,6"1 B 2,621,C!6 A 6.#21@1

2616@ .i&uid (atio A 91,""6,C!2 7 #",655: B 2,2C1,1!5 A 1,2!C,6!" B 2,2C1,1!5 A 6.16C@1

9II: %nalysis of Digi Bhd for the year !$!:

&%ll 'alues in millions of ringgits(

4y forecast for the year 2616 is that 0i<i is doin well, stable performance and it's able to cut their losses from pre%ious years. The net profit of 0i<i has increased from 1666 (4 to 11C! (4 in 2616. This can be seen as a stable increase, howe%er if we compare the net
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profit for 266! which is 11#1, we can merely infer that 0i<i mana ed to cut their losses in the year 2665, which had an economic slowdown. The forecast for the year 2611 is oodK with si ns of the 4alaysian economy ettin back on track, as well as news of the sale of the co%eted iPhone in 0i i, will surely attract customers in the dro%es to 0i<i. 0i<i continued to stren then its market position and market share increased to 21.6G. This will surely ha%e a positi%e impact in the telecommunications market as 0i<i further pro%es its domination in the market. 4ore and more 4alaysians are ettin connected, and 0i<i is the forerunnin factor for such a mo%e in 4alaysia. Ior the financial year ended 0ec "1, 2616 9IY16:, 0i i's re%enue increased 16.1G to (41.# billion, amid hi her take7up of smart phone bundles, increased data usa e and a lar er subscriber base. ,et profit sur ed 1C.CG to (41.1! billion from (41.6 billion the pre%ious year. In%estors of 0i i can also re+oice, as their earnin s per share ha%e increased to 111.1 sen from 12!.C sen in 2665, alon with net di%idend per share of (41.6" or total di%idend of (41.26C billion, representin a di%idend pay7out ratio of 16!G. <roup re%enue increased by 16.1G to (4 1.# billion, while 0i i=s customer base rew by 1#.2G to !.! million compared to the pre%ious year. J2IT0* mar in for the year held firm at ##.#G, dri%en by positi%e results from our cost efficiency initiati%es. 0espite 0i i's 16.1G measures. *ccordin to a report, L0i<i.-om 2hd said it will pay out 1"!G of its 2665 net profit as di%idends after postin full7year earnin s that were in line with analysts' e$pectations but which showed the effects of last year's economic slowdown. The full7year di%idend payout, at (41.C! per share and totalin (41."!bil, is 0i<i lar est in terms of proportion to its net profits and i%es its shares a di%idend yield of !G based on yesterday's closin price of (421.16 per share. 0i<i used its stron cashflows and raised a little more debt to pay out its di%idends. It is likely to maintain, if not increase, its di%idend payments in 2616.L The hi her current ratio in 2616 is a statement of the fact that 0i i mana ed to increase its current assets by 12.21G between the two years. The bulk of the increase is attributed to the hi her %alue of cash e&ui%alents, which almost doubled from #"6,656 in 2665 to !16,1!# in 2616. )owe%er in%entory also recorded a 225.5!G increase between 2665 and 2616 which may
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rowth in re%enue, operational

e$penses remained the same as in 2665, thus hi hli htin the efficiency of 0i i's cost effecti%e

also indicate an o%erstocked in%entory, and the inability to sell stock off at a steady rate. Trade and e&ui%alents remained stable, recordin a ".5!G increase. The hi h %alue of current liabilities may pro%e to be a cause of concern for 0i i 2)0. as current liabilities continue to out %alue current assets for the second consecuti%e year. Trade and payables accruals amount for the ma+ority of current liabilities, clockin in at 1,#61,25C and 1,12!,16" for 2616 and 2665 Eaccordin to note 21F. This mi ht pro%e to be a disad%anta e for 0i i unless they mana e to pay them off, as accruals ha%e recorded an increase of 25.#5G. .oans and borrowin s in 2616 increased to 1,6C6,!6" from CC2,616 in 2665. )owe%er loans and borrowin s maturin between two to fi%e years may pro%e to be a difficulty for the company in future years, as they increased from 122,!C6 to C5C,615 between the two years Enote 1!F The stable increase of 0i i's 0ebtor turno%er ratio indicates that 0i i was able to satisfactorily handle its debtors and recei%ables and mana e them efficiently. It would be ad%isable not to make any chan es with re ard to trade recei%ables, notin the satisfactory pro ress for the year. Ii$ed *ssets remained relati%ely stable, recordin a (m 16,666 increase from last year. The hi h amount of fi$ed assets may pro%e to be a cause of worry, as fi$ed assets are less li&uid and cannot be easily con%erted to cash. It was also a ma+or factor in the %alue of the depreciation, which also remained hi h at about 61!,666 (in their fi$ed assets. The company is also committed to becomin a leader in sustainable business practices and ethics. Since 2661, the company has returned more than (46.! billion in cash to shareholders as a result of their capital discipline to ensure that enerated stron operatin cash flow to fund our in%estment acti%ities. .on 7term shareholder capital would ha%e en+oyed total returns to about "66G since 2661. its for the year. 0i<i mi ht want to think about con%ertin their fi$ed assets into current assets, or reducin the %iability of

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Part III

Role of Cash Flo) Statements:

The cash flow statement is a statement used in financial analysis, and it shows the cash aspect of companies business. It is broken down into operatin , financin and in%estin acti%ities and shows how the chan es in the final accounts affect the cash funds of the company. The cash flow statement is %ery useful in bud etin analysis, as the company can make use of it to predict and analy8e the future cash inflows and outflows of the company.
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4any such

companies rein%est all of their cash flow into rowin the business, lea%in them little or no free cash 77 but that doesn=t necessarily make them poor in%estments. Mne has to take a closer look at the company in order to determine their usa e of resources. 2y calculatin incomes, e$penses, earnin s, capital and cash, the in%estor can et an accurate and concise %iew of what is considered the most important facet of a company@ the amount of cash enerated, and, the amount of cash earned from its core operations -ash flow statement helps us in different ways such as@ It tells us about the li&uidity and sol%ency amount of the firm, and the chan e in the cash flow in future bud ets. It also i%es us more useful date for mappin and analy8in chan es in capital and e&uity. The cash flow helps us compare different companies operatin performance by remo%in the differences in accountin procedures between firms. It also helps us in understandin the rate, timin and le%el of future cash flows.

Part I*

The Importance of +arginal Costing as a tool to support decision ma,ing:

The 4ar inal cost is the amount of cost re&uired to produce one e$tra unit of the ood. In other words, 4ar inal costin distin uishes between fi$ed costs and %ariable costs as con%ention ally classified. 4ar inal costin is formally defined as@ Nthe accountin system in which %ariable costs are char ed to cost units and the fi$ed costs of the
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period are written7off in full a ainst the a re ate contribution. Its special %alue is in decision makin * company en a ed in production of multiple products is interested in the study of the relati%e profitability of its products so that it may suitably chan e its production and sales policies in case of those products which it considers less profitable or unproducti%e. ;hile takin this decision the concept of profit %olume ratio can be applied. *n ob+ecti%e of the enterprise is to et ma$imum profits, so, the mana ement would prefer that product mi$ which is an ideal one in the sense which yields ma$imum profits. In this case ma$imi8in -ontribution is ma$imi8in profit. The attractions of usin mar inal costs are as follows@ 1. In the short term, rele%ant costs are re&uired for decision makin and fi$ed o%erheads are lar ely irrele%ant because they cannot be a%oided They are best seen as committed cost of the period 2. Profit calculation is not dependant on chan es in stock le%els. They ha%e a practical effect of disentan lin fi$ed costs from stock %alues. ". There is no risk of carryin forward in stock an element of fi$ed production o%erhead cost which may not be reco%ered throu h sales 4ar inal costin is particularly useful in internal decision makin of the firm. 2y wei htin and analy8in a products mar inal cost, the company will be able to ha%e an effecti%e cost comparison of different products of the company and the most effecti%e product to produce which brin forward hi hest returns. The cost7%olume7profit analysis is the systematic e$amination of the relationship between sellin prices, sales, production %olumes, costs, e$penses and profits. This analysis pro%ides %ery useful information for decision7makin in the mana ement of a company. Ior e$ample, the analysis can be used in establishin sales prices, in the product mi$ selection to sell, in the decision to choose marketin strate ies, and in the analysis of the impact on profits by chan es in costs. In the current en%ironment of business, a business administration must act and take decisions in a fast and accurate manner. *s a result, the importance of cost7%olume7profit is still increasin as time passes.
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. This mar inal cost analysis pro%ides %ery useful information for decision7makin in the mana ement of a company. Ior e$ample, the analysis can be used in establishin sales prices, in the product mi$ selection to sell, in the decision to choose marketin strate ies, and in the analysis of the impact on profits by chan es in costs. In the current en%ironment of business, a business administration must act and take decisions in a fast and accurate manner. *s a result, the importance of mar inal costin is becomin more and more important. 0i i 2hd can use mar inal costin as a %iable tool to decide on product outlays, howe%er this is sli htly restricted due to the fact as it is a telecommunications company, there is an inability of calculation mar inal costs for some products, as it earns its re%enue throu h different means other the products.

*n e$ample of the mar inal costin approach is tabulated in the below table

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Period 1 O Mpenin Stock -ost n -losin Stock -ost oods Ii$ed costs period Total -osts Sales <ross Profit of 2"66 #666 1C66 ,il of 26C6

Period 2 O 2C6 2#"6

Period " O !16 2"#6

Period # O !16 2166

Period 1O #16 2216

Total O nil 11216

Productio 92C6: of 1!66 166 9!16: 1!56 166 9!16: 2"#6 166 9#16: 2126 166 ,il 2C66 166 ,il 11216 2166

2"56 #266 1!16

2!#6 1266 2"66

"626 1666 21!6

"266 6666 2!66

1"C16 21666 11216

Part *

In'estment %ppraisal methods:

In modern times, the efficient allocation of capital resources is a most crucial function of financial mana ement. *ll these assets are e$tremely important to the firm because, in eneral, all the or ani8ational profits are deri%ed from the use of its capital in in%estment in assets which represent a %ery lar e commitment of financial resources, and these funds usually remain in%ested o%er a lon period of time. ,ew pro+ects such as in%estment decisions of a firm fall
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within the definition of capital bud etin or capital e$penditure decisions. 2usinesses ha%e limited financial resources, they ha%e to decide how to best in%est the limited resources. *t any i%en time, a business will ha%e the choice allocatin its resources between alternati%e pro+ects or capital in%estments. The proper choice of in%estment is necessary to ensure that the business earns optimum returns. Two mains factors are re&uired to be considered by a business before makin any in%estment. They are@ 7(ate of (eturn 7-ost of -apital. The rate of return is the minimum return on the in%estment of a business. If a pro+ect or business is unable to earn minimum rate of return, then the pro+ect may be re+ected unless other sub+ecti%e factors re&uire the pro+ect to be undertaken. The rate of return %aries between enterprise to enterprise and from pro+ect to pro+ect. The cost of capital is another important factor to consider before makin any in%estment or plan. The minimum rate of returns must be hi her than the cost of capital. *nother factor to consider is the time %alue of money, as in%estments and returns are spread o%er a period of time. *lso, the purchasin power of money diminished in times of risin prices.

In'estment %ppraisal:

In%estment appraisal in%ol%es@ 7 7 0ecidin on the pro+ects to be undertaken *mount of finance to commit to the pro+ects

.on term profitability of a business depends on the ability of the business to e%aluate and appraise the %arious capital in%estment opportunities To assess the %iability of pro+ects, the cash
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outlay, that is in%estment, and the cash inflow of the pro+ect are determined. ,on7cash e$penses are e$cluded. The amount of cash in%ested in a pro+ect can be readily calculated. )owe%er estimatin future cash inflow is a difficult e$ercise, especially for new pro+ects.

* number of techni&ues can be used to e%aluate in%estment opportunities, some of the commonly used methods are@ 1: Payback 4ethod 2: ,et Present %alue 4ethod ": Internal (ate of (eturn The payback method is the simplest appraisal techni&ue, and maybe the most popular techni&ue. Payback period is the len th of time re&uired for cash flow from the in%estment to e&ual the initial cash in%estment in the product. Pnder this method, the time period to reco%er initial in%estment is found. The ad%anta es are that is easy to understand and popular and wisely used but it has some disad%anta es like the failure to reco ni8e the time %alue of money. The net present %alue method is ma the present %alue of cash inflow matched with the initial in%estment. Pro+ects will be considered successful if the present %alue of the cash inflow e$ceeds or is e&ual to the net cash inflow. Pro+ects with positi%e ,P3 should be accepted and ones with ne ati%e %alue should be reconsidered or re+ected. The Internal rate of return method is another method that uses the time %alue of money. 2ut the results are e$pressed in percenta es. Pnder the ,P3 method the decision is based on absolute amount of ,P3. Some decision makers prefer to use a percenta e rather than absolute amounts. The cash inflows are discounted usin %arious discount rates. In other words, a company has to determine the discount rate which when applied to cash flows from the proposed in%estments, will i%e neither positi%e or ne ati%e ,P3.

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Conclusion

Irom my findin s, I can conclude that 0i i has done well for the year 2616. Its outlook is also bri ht for forthcomin years. I can conclude that 0i i was a ood choice for my report, and my findin s are all concurrent with the fact that in%estors seem to be flockin in the dro%es to 0i i. I also found out that -ash Ilow statements are %ery %ital in calculatin a company's financial position, and the impact on mar inal costin in decision makin . In%estment appraisal strate ies ha%e also been included in report, and my findin s seem to point to the fact that they are critical for appraisin the company's in%estments and pro+ects.

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Appendix:
,otes@ 1: *ll fi ures included in the (atios sections are calculated in =666s of (in its

2: *s information for Total Sales were not readily a%ailable, as 0i i is a telecommunications company, (e%enue was replaced by Sales where%er necessary ": Iull referencin ha%e been i%en, as per )ar%ard referencin , where%er information such as the location of the publisher were not a%ailable, they ha%e been omitted. #: The spreadsheet was formulated on 4S J$cel and con%erted in 4S word,. Ior comprehensi%e reference. 1: Iull copies of annual reports ha%e been attached, includin parts of the notes, where%er needed.

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Part *I
Cash Inflows Project A x x x x x

Spreadsheet

Year 1 2 3 4 5

Project B x x x x x

Project A Year 1 2 3 4 5 Inflow In$t$al In%est&ent

Cash Flow "# x x x x x

Present al!e Factor

Present al!e of Cash Flow

x x x x x

x x x x x x 'x(

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)et Present al!e

Project B Year 1 2 3 4 5 Inflow In$t$al In%est&ent )et Present al!e

Cash Flow "# x x x x x

Present al!e Factor

Present al!e of Cash Flow

x x x x x

x x x x x x 'x( x

)et *resent al!e r , ann!al rate of $nterest n , t$&e *er$o-

1/'1+r(n

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Bi-liography

;eetman, Pauline 92666:. Financial and Management Accounting - An Introduction . #th ed. 4adrid@ Prentice )all. 11C7121. )eakal, (eem . 92616:. What Is A Cash Flow Statement?. http@BBwww.in%estopedia.comBarticlesB6#B6""16#.asp. .ast accessed 26th 0ecember 2611. *%ailable@

Jpstein, 2arry Q. 9266C:. Interpretation and Application of International Financial eporting Standards . Qohn ;iley R Sons .td.

2orneoPost Mnline. 92611:. Migration to !"# imminent for telco pla$ers. *%ailable@ http@BBwww.theborneopost.comB2611B12B2#Bmi ration7to7lte7imminent7for7telco7playersB. .ast accessed "rd Qan 2612.

;ood, Irank R San ster, *lan 92661:. Fran% Wood&s 'usiness accounting( )olume *. 16th ed. Prentice )all. (oyal, Qim. 92612:. Meet the Cash +ings of ,il. *%ailable@ http@BBwww.dailyfinance.comB2612B61B6CBmeet7the7cash7 kin s7of7oilB. .ast accessed 6th Qan 2612.

)elfert, Jrich *. 92661:. LThe ,ature of Iinancial Statements@ The -ash Ilow StatementL. Iinancial *nalysis 7 Tools and Techni&ues 7 * <uide for 4ana ers. 4c<raw7)ill. p. #2.

<anachari, 4.*.. 92611:. Marginal Costing - A "ool For .ecision Ma%ing. http@BBiifm lobal.comBblo Bmar inal7costin 7a7tool7for7decision7makin . .ast accessed Cth Qan 2612.

*%ailable@

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