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MBG Corporation Business and Financial Analysis

I. Company Background
MBG Corporation was incorporated in 1974 and listed on Bursa Malaysia in 1993. It is today one of the leading property development and construction company and undertake project in building and infrastructure & works in investment in manufacturing facilities. Apart from ongoing development and construction project, the corporation has na total land bank of approximately 1,500 hectares at various planning stages. It is also owned a number of office and retail assets.

CORPORATE STRUCTURE
Property Development 100% Company A Sdn.Bhd 100% Company B Sdn.Bhd 100% Company C Sdn.Bhd 100% Company D Sdn.Bhd 70% Company E Sdn.Bhd 100% Company F Sdn.Bhd 100% Company G Sdn.Bhd 60% Company H Sdn.Bhd 100% Company I Sdn.Bhd 100% Company J Sdn.Bhd 100% Company K Sdn.Bhd 80% Company L Sdn.Bhd 100% Company M Sdn.Bhd 70% Company N Sdn.Bhd 100% Company O Sdn.Bhd 55% Company XA Sdn.Bhd 70% Company XB Sdn.Bhd 100% Company XC Sdn.Bhd

55% Company DX Sdn.Bhd 100% Company EX Sdn.Bhd 100% Company FX Sdn.Bhd 55% Company MX Sdn.Bhd 100% Company NX Sdn.Bhd 100% Company LX Sdn.Bhd

Construction & Infrastructure

55% Company PX Sdn.Bhd 100% Company QX Sdn.Bhd 100% Company RX Sdn.Bhd

Manufacturing Investment Property Management

100% Company P Sdn.Bhd 80% Company Q Sdn.Bhd 100% Company R Sdn.Bhd 70% Company S Sdn.Bhd

55% Company WB Sdn.Bhd 50% Company WC Sdn.Bhd 100% Company WD Sdn.Bhd

Fig 1. MBG Corporate Structure

II. Corporate Structure of the Company in Relation to Corporate Objectives and Business Strategy
Based on the form of shares ownership by MBG Corporation, it appears that corporate business is investing in three core business which is intended to support the corporate vision to be the leading property development and construction company. MBG Corporation invested in a wide range of companies, even reaching the lining of the subsidiary companies that have invested before. Sharing MBG Corporation invested in each company also seems to dominate. 1|Page

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Of the nine companies that invested by MBG Corporation in the property development sector, seven companies are fully controlled by these corporate. It is certainly strengthen their bargaining position in all companies where MBG Corporation invested. One thing that should become an important concern is that there are many similar companies within the similar sector or core business. It certainly can be a negative impact when the nine companies are in the same market segment. This will result in a company must compete with other companies that are still in the same business group.

The negative thing that was expressed above will turn into a positive if the nine companies, are on the different market segments. Let's say that if Company A play in High price property development, while Company B playing in the middle high price property development, and company C play in the middle or low price property development. If this strategy can be done then surely MBG Corporation will be a reliable company that can fill any gaps or existing market segmentation. This strategy will ultimately be able to increase the value of company branding that automatically will generate performance to the amount of profit and revenue to be achieved.

In order to support the corporate objective of MBG Corporation then surely any invested cores of businesses have to be analyzing properly in terms of the amount of profit generated. As well as Manufacturing investment and property management, this sector needs to be analyzed more deeply related to its role in supporting the objective of MBG Corporation. The resulting product by this sector should also be used by the other core business is in property development or construction sector and infrastructure. The resulting product by some company in it also needs to be analyzed whether the quality and price is accordance with the market expectation. If it is appropriate, then surely MBG Corporation can add more investments into companies that include inside that core business.

In order to create a good management system and control, in all of the three core business which is owned by MBG Corporation, then it certainly needs to be appointed the management team who responsible for each of the core business and then be able to monitor the level of revenue and profit generated from each company invested. This is very useful in monitoring the company that has a high potential for profit or otherwise, to analyze what company that should be drawn its shareholding, as less prospective business.

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Finally there is one conclusion and recommendations that can be given to the MBG Corporation, where the structure of the company listed in the MBG Corporation itself is a structure that can complement and fill in any existing market segmentation, so that the existing level of profit can be generated from various sectors. This will be very useful in enhancing investor confidence inside, because if one company collapses then there are still other companies that can contribute to profits in order to cover the losses that occur.

A structure owned by MBG Corporation also has large potential losses if corporate management is not keen in analyzing the company that is not prospective or profitable anymore. If it is allowed, then certainly a potential time bomb that threatens MBG Corporation happen and it will be difficult to be inevitable, but through an optimal periodic and careful control system off course the threat can be turned into something very profitable and increase the confidence of investors involved.

III. Corporate Performance (2007 2011) Trend

In analyzing the performance of MBG Corporation then there are two important points that must be analyzed, the two important points are the business performance and financial performance. Both of these can be said almost similar by the common people, but if we examine further the two things are different and cannot be used in one to assess the existing corporate performance.

financial performance looks at how the financial resources are being managed, in other words financial performance only focuses on the financial resources of the business while business performance looks at the entire sections or departments within the business, business performance can look at human resources, production, marketing, sales management and other such sections.1

Ben McClure, How To http://www.investopedia.com

Analyze

Company's

Financial

Position,

June

12

2011,

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Year Ended 31 Dec (RM'000) 1 Revenue 2 Profit Before Tax 3 Profit Attributable to Shareholders 4 Paid Up Capital 5 Shareholder's Equity 6 Total Assets Employed 7 Total Net Tangible Assets 8 Earning Per Share (sen) 9 Gross Dividend Per Share (sen) 10 Net Tangible Assets Per Share (RM)

2011 2,232,473 430,594 327,973 1,374,544 3,446,442 5,585,657 3,439,486 19.20 14 14

Increase 486,603 99,627 76,160 611,938 1,257,169 1,199,595 1,251,073 (5.60) (6.00) 12

% 27.87 30.10 30.24 80.24 57.42 27.35 57.17 (22.58) (30.00) 551.16

2010 1,745,870 330,967 251,813 762,606 2,189,273 4,386,062 2,188,413 24.80 20 2.15

Increase 337,455 99,855 80,580 2 152,052 433,811 152,062 8.00 6.00 0.15

% 23.96 43.21 47.06 0.00 7.46 10.98 7.47 47.62 42.86 7.50

2009 1,408,415 231,112 171,233 762,604 2,037,221 3,952,251 2,036,351 16.80 14 2.00

Increase (62,942) (66,755) (42,223) 80 61,879 391,367 61,889 (4.20) (3.00) 0.06

% (4.28) (22.41) (19.78) 0.01 3.13 10.99 3.13 (20.00) (17.65) 3.09

2008 1,471,357 297,867 213,456 762,524 1,975,342 3,560,884 1,974,462 21.00 17 1.94

Increase 166,142 (38,706) (46,614) 258,070 134,459 427,531 134,469 (4.80) (8.00) (0.80)

% 12.73 (12) (18) 51.16 7.30 13.64 7.31 (18.60) (32.00) (29.20)

2007 1,305,215 336,573 260,070 504,454 1,840,883 3,133,353 1,839,993 25.80 25 2.74

Table 1. MBG Corporate Business and Financial Performance (2007 2011)

On table that has been processed above, at least it may demonstrate the business and financial performance of MBG Corporation from 2007 to 2011. Some indicators show an increase in performance from year to year, but for some indicators it is undeniable that there was a considerable reduction, especially for the period 2008 - 2009 where the red indicator shows the value and the percentage of decline. A more detailed discussion related to the business and financial performance will be covered in the description below.

III.1 MBG Corporation Business Performance

When we look on the business and financial performance table above, it appears that there was a pretty good upside trend on revenue indicator. The greatest improvement happened in the period 2010 - 2011, where the increase in revenue is equal to 27.87%, it raised progressively compared with the previous increase in revenue in the period 2009 to 2010 that touched the percentage increase of 23.96%.

Decrease in revenue is not too large in the period 2008 - 2009 which ranged in the range of 4.28%. It is still very reasonable and not too large when compared with the revenue increases that occurred in two periods thereafter. It can be shown that the corporate management has been quite adaptive in response to the decline in revenue that occurred, which later changed it to increase revenue in the next two periods.

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Fig 2. Revenue Indication in Corporate Business Development

In harmony with the existing revenue indicator, the indicator of profit before tax showed a rhythm, it looks in the period 2010 - 2011 where 30.3% increase in profit before tax, is slightly down when compared to the prior year period amounting to 43.21%. The vinegary reality of course may seen in the previous two periods between 2007 to 2009, which looks from the red indicator, where a decline in profit is significant enough reached 22:41%.

One very interesting thing was happened in the period 2007 to 2008. From the table it appears that although there was an increase in revenue, but the resulting of profit was decline, it may indicate that the efficiency conducted in MBG Corporation could not run optimally. The thing that should be happened is if the revenue generated automatically increases the level of profit in corporate will be increased as well.

David E. Coffman, How to Analyze the Performance of Your Business, 2005, http://managing4results.net

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MBG Corporation Revenue and Profit Before Tax

3,000,000 2,500,000

(RM '000)

2,000,000 1,500,000 1,000,000 500,000 2007 336,573 1,305,215 2008 297,867 1,471,357 2009 231,112 1,408,415 2010 330,967 1,745,870 2011 430,594 2,232,473

MBG Profit Before Tax MBG Revenue

Chart 1. MBG Corporation Revenue and Profit before Tax

When we talk in the next three indicator which are shareholders' equity, total assets employed, and the total net tangible assets, it appears that there is no decreasing trend at all indicators from the period 2007 - 2011, it is a very positive indication that the assets of the company is continues growing up which means, it can provide more confidence to investors who wish to join or add the value of shares in it. The three positive indicators is also giving a description that, MBG Corporation relatively has a high level of adaptation in the construction industry, it can be proved through the revenue and profit decline occurred in the period 2008 - 2009 did not affect the development of assets owned by MBG Corporation.

The best investment period was happened in the period 2010 - 2011 where an increase in shareholder's equity are very sharp reached 57.42% and the increase was the most aggressive during the period 2007 to 2011. This can indicate the great confidence of the shareholders or investors to invest their money in MBG Corporation. This Momentum is also very suitable for MBG Corporation to develop their business, in the period where there is a large enough of cash inflows and would be very unfortunate if it was not used in business expansion, especially in two core business of MBG Corporation which are Property Development and Construction &

infrastructure sectors. One thing that must be observed is that the flow of incoming investors should not just settle in the banks and be a non-liquid flow of investment money.

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6,000,000 5,000,000 4,000,000

MBG Shareholder's Equity

3,000,000 2,000,000 1,000,000 2007 2008 2009 2010

Total Assets Employed Total Net Tangible Assets

2011

Chart 2. MBG Corporation Assets (RM000)

Business Indicators that must be observed and has a high potential in reducing the level of investor confidence are the earnings per share, gross dividend per share, and net tangible Assets per share. Based on the data that is processed above, it appears that the amount of gross earnings and dividend per share showed a positive value only in one period which was the period 2009 2010. It is unfortunate able considering in the period 2010 - 2011 there was a very significant additional amount of investment, where the total net tangible assets increased precipitously reached 57.17%

It is most likely caused by an increasing number of profits which is disproportionate to increase in the number of existing investment. As a result of the greater divisor then of course the amount of profit that can be received per share would also be decreased. This should be a particular concern in the preparation of business plan next year in the period 2011 - 2012, where a large increase in investment is expected to be accompanied by a proportional increase in profit, so the investor expectation is always maintained in the MBG Corporation.

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MBG Corporation Shares

30.00 25.00 20.00 Earning per share (sen) 15.00 10.00 5.00 Gross dividend per share (sen) Net tangible assets per share (RM)

2007

2008

2009

2010

2011

Chart 3. MBG Corporation Shares

III.2 MBG Corporation Financial Performance

In analyzing the financial performance of the MBG Corporation then we will talk more into the existing ratio of the indicator. The ratio could at least give us an overview in how the endurance and financial liquidities of these corporate.

Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. Ratio analysis may provide the all-important early warning indications to investor and shareholders that allow them to solve their business problems before their business is being collapsed.

Table 2. MBG Corporation Extract Balance Sheet

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MBG 1533 Some of the ratios that will be a high concern of us in MBG Corporation are:

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Liquidity Ratios
These ratios indicate the ease of turning assets into cash. They include the Current Ratio, Quick Ratio, and Working Capital.
1.

Current Ratios
The Current Ratio is one of the best known measures of financial strength. It is figured as shown below:

Current Ratio = Total Current Assets / Total Current Liabilities

Base on the balance sheet extract from MBG Corporation

Current Ratio =

= 2.43

The main question this ratio addresses is: "Does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losses in current assets, such as inventory shrinkage or collectable accounts?" A generally acceptable current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on the nature of the business and the characteristics of its current assets and liabilities. The minimum acceptable current ratio is obviously 1:1, but that relationship is usually playing it too close for comfort.3

Based on the results of the existing calculations above it appears that the current ratio of MBG Corporation could be said relatively safe or even very safe, it is seen from the current ratio, which reached a value of 2:43. This can be judged is a bit exaggerated because the value of current ratio which is considered the most optimal ratio is 2:00. A high current ratio may mean that cash is not being utilized in an optimal way. For example, the excess cash might be better invested in equipment.

Peter Engel, Budgeting and Finance (1st Books for Business), McGraw-Hill, 1996

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Quick Ratio
The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of liquidity. It is figured as shown below:

Quick Ratio = Cash + Government Securities + Receivables / Total Current Liabilities

Base on the balance sheet extract from MBG Corporation

Quick Ratio =

= 0,64

The Quick Ratio is a much more exacting measure than the Current Ratio. By excluding inventories, it concentrates on the really liquid assets, with value that is fairly certain. It helps answer the question: "If all sales revenues should disappear, could my business meet its current obligations with the readily convertible `quick' funds on hand?"4

An acid-test of 1:1 is considered satisfactory unless the majority of your "quick assets" are in accounts receivable, and the pattern of accounts receivable collection lags behind the schedule for paying current liabilities.

Based on the results of calculations performed on MBG Corporation quick ratio, it appears that conditions are not sufficient to limit of the normal quick ratio that is equal to 1. This proves that the total cash held by the MBG Corporation was not enough to cover their liabilities. Therefore the strategic steps that need to be done is to sale the fixed assets of the company to make cash flow of MBG Corporation become more liquid, because on the previous current ratio calculation this corporate experience an over of current ratio of current ratio where MBG Corporation has a number more than two, resulting the number of fixed assets are not liquid in the corporate capital structure.

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3.

Working Capital
Working Capital is more a measure of cash flow than a ratio. The result of this calculation must be a positive number. It is calculated as shown below:

Working Capital = Total Current Assets - Total Current Liabilities

Base on the balance sheet extract from MBG Corporation

Working Capital (RM million) = (762,6+ 2189,3 + 1058,5) (1637) = 2373,4

o Bankers look at Net Working Capital over time to determine a company's ability to weather financial crises. Loans are often tied to minimum working capital requirements.5 o Based on the results of these calculations the working capital of MBG Corporation is still be positive, which means total current assets held is still able to pay the total current liabilities in the current period. o A general observation about these three Liquidity Ratios is that the higher they are the better, especially if you are relying to any significant extent on creditor money to finance assets.

Leverage Ratio
This Debt/Worth or Leverage Ratio indicates the extent to which the business is reliant on debt financing (creditor money versus owner's equity):

Leverage Ratio = Total Liabilities / Net Worth

Base on the balance sheet extract from MBG Corporation Leverage Ratio =
o

= 0,476

Generally, the higher this ratio, the more risky a creditor will perceive its exposure in your business, making it correspondingly harder to obtain credit.

Based on the above calculation it appears that the Leverage Ratio of MBG Corporation is still relatively low with a ratio below one, this means that investors or bank lenders could have a relatively high confidence of this corporation.

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Return on Investment (ROI) Ratio

The ROI is the most important ratio of all. It is the percentage of return on funds invested in the business by its owners. In short, this ratio tells the owner whether or not all the effort put into the business has been worthwhile. The ROI is calculated as follows:

Return on Investment = Net Profit before Tax / Net Worth

Base on the balance sheet extract from MBG Corporation

Return on Investment =

x 100 = 12,52%

Based on the results of existing calculations it appears that, MBG Corporation has a ROI ratio at 12.52%, the figures were apparently not very significant when compared with the prevailing interest rate on commercial banks ranging between 6% - 8%, but this rate is still better when compared with the investor money in bank

If the ROI is less than the rate of return on an alternative, risk-free investment such as a bank savings account, the owner may be wiser to sell the company, put the money in such a savings instrument, and avoid the daily struggles in business management.

IV. Capitalization of MBG Corporation

Capitalization in corporate comprises of share capital, debentures, loans, free reserves, etc. Capitalization represents permanent investment in companies excluding long-term loans.6 Capitalization can be distinguished from capital structure. Capital structure is a broad term and it deals with qualitative aspect of finance. While capitalization is a narrow term and it deals with the quantitative aspect. If we analyze it further so that there are three forms of capitalization in the MBG Corporation, which are: 1. Equity Capital Otherwise known as net worth or book value, this figure represents assets minus liabilities. There are some businesses that are funded entirely with equity capital (cash written by the shareholders or owners into the company that have no offsetting liabilities.)
6

Jim Blasingame, Capitalization in Finance, April 15, 2003, http://www.managementstudyguide.com,

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Although it is the favored form for most people because you cannot go bankrupt, it can be extraordinarily expensive and require massive amounts of work to grow your enterprise.

MBG Corporation Total Nett Tangible Assets

(RM'000)
3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 2007 MBG Corporation Total Nett Tangible 1,839,993 Assets 2008 1,974,462 2009 2,036,351 2010 2,188,413 2011 3,439,486

Chart 4. Capitalization of MBG Corporation through the Increase of Total Nett Tangible Assets

Base on the data processed above, it appears that the total net assets in the form of tangible assets owned by MBG Corporation for 2011 is RM 3.44 Billion in which these assets continue to grow when compared with net tangible assets owned at the beginning of 2007 that is equal to 1.84 RM billion, an increase in the number of assets increases also may indicate that the capitalization of the corporation MBG is progressively from year to year, which makes this corporate can invest the assets into other business sectors as well as to increase the confidence of shareholders and the bank as a lender.

2. Debt Capital This type of capital is infused into a business with the understanding that it must be paid back at a predetermined future date. In the meantime, the owner of the capital (typically a bank, bondholders, or a wealthy individual), agree to accept interest in exchange for you using their money.

The chart below could show the trend of increasing debt to capital through the paid up capital indicators on Financial performance tables from 2007 to 2011. Indicator paid up capital showed an increasing trend that is also quite progressive. At the end of 2011 the paid up capital amounts to be paid was 1.37 Billion RM and nearly three times when we compared with a paid up capital in 2007 that was just 500 Million RM. 13 | P a g e

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The Business is growing and certainly have consequences in the form of increased in financial liquidity through an increase in the amount of debt that should have a positive connotation to the amount of revenue and profit generated.

MBG Corporation Paid Up Capital

1,400,000 1,200,000

(RM'000)

1,000,000 800,000 600,000 400,000 200,000 2007 504,454 2008 762,524 2009 762,604 2010 762,606 2011 1,374,544

MBG Corporation Paid Up Capital

Chart 5. Capitalization of MBG Corporation through the Increase of Paid Up Capital

3. Retained Earnings Capital This is the profits which company has made, and which you have left to accumulate in the company; which is to say, that the profits didn't take out as salary, bonus, dividend, or other distribution. Of all the forms of capital the company should have it; this is the best kind, because this it is the old fashioned way, that the company earned it.7 The banker will like seeing retained earnings capital on the company balance sheet even more than equity capital because it says two things: The company had the ability to produce retained earnings by operating profitably; As the owner, we had the discipline to leave this capital in the company instead of distributing it.

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MBG Corporation Profit

500,000 400,000 300,000 200,000 100,000 2007 2008 2009

(RM'000)

2010

2011 2010 330,967 251,813 2011 430,594 327,973

Profit Before Tax Profit Attributable to Shareholders

2007 336,573 260,070

2008 297,867 213,456

2009 231,112 171,233

Chart 6. Capitalization of MBG Corporation through the Increase of Profit

Based on the increasing trend that occurred in the profit indicator, it appears that retain earning capital of MBG Corporation's increased from year 2007 - 2011, the decline had occurred in 2009, but increased again in the next two years. This indicates that the capitalization of MBG Corporation is quite progressive and able to increase the confidence of investors and banks to lend to this corporate, besides of the corporate disciplines to remain invested some of the profit into the liquid assets or cash flow that will ultimately positively correlated to the level of corporate liquidity and investor confidence.

V. Borrowing Portfolio of MBG Corporation in 2011

Based on MBG Corporation borrowing structure 2011 table, it appears that the type of loan made by a corporate is not only limited to the long term borrowing, but also carried out on short term borrowing that is used to maintain liquidity levels of MBG Corporation. MBG Corporation also uses the revolving credit mechanism which revolving credit is a type of credit that does not have a fixed number of payments, in contrast to installment credit. Corporate revolving credit facilities are typically used to provide liquidity for a company's day-to-day operations.

One positive thing that can be viewed at a glance that the amount of secured borrowing is still greater than the amount of unsecured borrowing, it can be said to be positive, because in general, unsecured borrowing is borrowing that comes from personal loans, bank overdrafts, credit facilities or lines of credit and corporate bonds, where the Interest rates on unsecured 15 | P a g e

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loans are nearly always higher than for secured loans, because an unsecured lender's options for recourse against the borrower in the event of default are severely limited. This happened because an unsecured lender must sue the borrower, obtain a money judgment for breach of contract, and then pursue execution of the judgment against the borrower's unencumbered assets. In insolvency proceedings, secured lenders traditionally have priority over unsecured lenders when a court divides up the borrower's assets. Thus, a higher interest rate reflects the additional risk that in the event of insolvency, the debt may be uncollectible.
Borrowings @ 31Des 2011 RM '000 Long Terms Borrowings Term Loan 831,098.00 Bridging Loan 96,718.00 Short Term Borrowings Secured Current Portion of LongTerm Borrowing 53,303.00 Revolving Credit 96,000.00 Short Term Loan 5,433.00 Unsecured Short Term Loan 50,000.00 Revolving Credit 5,000.00 TOTAL 1,137,552.00

1 1.1 1.2 2 2.1 a b c 2.2 a b

Table 3. MBG Corporation Borrowing Structure in 2011

In measuring the optimality of borrowing portfolio some of the experts use the gearing ratio as the first indicator for this thing. The gearing ratio is the proportion of a company's debt to its equity, where a high gearing ratio represents a high proportion of debt to equity, and a low gearing ratio represents a low proportion of debt to equity. The most comprehensive form of gearing ratio is one where all forms of debt - long term, short term, and even overdrafts - are divided by shareholders' equity. Gearing Ratio = (Long-term debt + Short-term debt + Bank overdrafts)/ (Shareholders' equity)

MBG Corporate Gearing Ratio =

= 0,33

Based on the calculation above it appears that the MBG Corporation gearing ratio is still at a relatively small value and less than one, which means the total equity owned by MBG 16 | P a g e

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corporation is still very good to be able to pay the total borrowing by the corporate owned. Gearing ratio will be important considerations in delivering banks loan, because high levels of gearing ratio may be one indication of corporate inability to pay its debts..

Lenders or bank are particularly concerned about the gearing ratio, since an excessively high gearing ratio will put their loans at risk of not being repaid. Possible requirements by lenders to counteract this problem are the use of restrictive covenants that prohibit the payment of dividends, force excess cash flow into debt repayment, restrictions on alternative uses of cash, and a requirement for investors to put more equity into the company.
Year Ended 31 Dec (RM'000) Revenue Profit Before Tax Profit Attributable to Shareholders Paid Up Capital Shareholder's Equity Total Assets Employed Total Net Tangible Assets Earning Per Share (sen) Gross Dividend Per Share (sen) Net Tangible Assets Per Share (RM) 2011 2,232,473 430,594 327,973 1,374,544 3,446,442 5,585,657 3,439,486 19.20 14 14 Increase % 486,603 27.87 99,627 30.10 76,160 30.24 611,938 80.24 1,257,169 57.42 1,199,595 27.35 1,251,073 57.17 (5.60) (22.58) (6.00) (30.00) 12 551.16 2010 Increase % 1,745,870 337,455 23.96 330,967 99,855 43.21 251,813 80,580 47.06 762,606 2 0.00 2,189,273 152,052 7.46 4,386,062 433,811 10.98 2,188,413 152,062 7.47 24.80 8.00 47.62 20 6.00 42.86 2.15 0.15 7.50

1 2 3 4 5 6 7 8 9 10

Table 4. MBG Corporation Financial performance 2010 - 2011

If we look at financial data performance above, precisely in the period 2010 - 2011 it seems a trend that feels quite negative and need to watch out in particular indicator which are shareholder's equity and gross dividend per share, which at two indicator occurs what we called as early indication to overcapitalization in which the magnitude of capital inflows cannot be supported with the comparable increase in profit that caused gross dividend per share to be decreased when compared with the previous year.

In that period an increasing number of shareholder's equity reaches 50%, but the increase in profit that occurs only reached 30%, which is probably due to MBG Corporation cannot optimal in changing the flow of investment into a profit with a comparable increase in value. Trend of Overcapitalization is needed to be avoided not only to the corporate, but also to the shareholders inside. Some of the disadvantage could be explained bellow:

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o Since the profitability decreases, the rate of earning of shareholders also decreases. o The market price of shares goes down because of low profitability. o The profitability going down has an effect on the shareholders. Their earnings become uncertain. o With the decline in goodwill of the company, share prices decline. As a result shares cannot be marketed in capital market. On Company o Because of low profitability, reputation of company is lowered. o The companys shares cannot be easily marketed. o With the decline of earnings of company, goodwill of the company declines and the result is fresh borrowings are difficult to be made because of loss of credibility. o In order to retain the companys image, the company indulges in malpractices like manipulation of accounts to show high earnings. o The company cuts down its expenditure on maintenance, replacement of assets, adequate depreciation, etc.

Finally based on the borrowing portfolio owned by MBG Corporation, it appears that the corporate is quite good at managing its debt. Gearing ratio is quite low and it can also be an early indication of the strength of the corporate capital in facing the economic crisis condition which sometimes makes the drastic increase in interest rates that will also affect the total debt to be paid by the corporate. A relatively low gearing ratio may also give more confidence to the shareholders or bank to add the value for its investment in this corporate.

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VI. Final Opinion of MBG Corporation

By looking at some of the indicators which are analyzed and calculated previously, it appears that the MBG Corporation is a corporate which have a great expectations to continue to grow in the future. Level of revenue, profit and assets of the company that continues to grow from year to year can provide its own optimism for investors and banks to invest in this corporate. Some of the business and financial performance indicators show a fairly good value where the corporate has sufficient equity to cover or pay its debts.

Indicator rate of investment (ROI) also showed a similar thing where the rate is above the interest rate of return offered by commercial banks in general. If we compare with other business sectors it is of course the existing rate of investment will be relative depending on the type of business carried on. For a corporate who is engaged in the construction industry, the level of ROI that can be generated by the MBG Corporation is considered to be quite progressive.

The rate of investment value is not exceeding for the rate offered by business in other sectors as well as in the retail business, information technology, or mining, which generally have a relative higher degree of ROI. Looking at the facts that have been described previously then it will depend on the preferences of investors who will enter therein. One thing that may be noted is that the business in the construction industry is a business relatively massive in capital and has a relatively increased level of demand from year to year.

One analysis that should be the concern of MBG Corporation is the reality that it has a corporate capitalization trend known as overcapitalization, which is a condition where a corporate cannot optimally make use of investment that goes into it so that the resulting profit cannot be run directly proportional to investment flows that enter therein. It happened in the period 2010 2011 where the capital flows that go through an increasing number of shareholders equity reached 50% but not followed by a comparable increase in profit, which increased profit that occurs only reached 30%.

The Consequences caused by the overcapitalization is a decrease in the value of earnings per share which reached 22% from the prior year period. It should be a serious concern for the MBG Corporation as if it persists then it is likely to attract investors to withdraw their share, because they feel what has been invested cannot provide the level of profit in accordance with what the 19 | P a g e

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previous investor expectations. Through good management process, it is expected that MBG Corporation can increase revenue and profit levels are through the optimization of each business unit contained therein in addition to trying to invest the assets of shareholders equity and capital into other business sectors are more prospective with a higher profit rate.

Finally with some pretty progressive increase in the indicator that takes place between the period 2007 - 2011, it can be concluded that MBG Corporation is a prospective corporate which the rate of investment is quite competitive, within give high confidence to investors who want to invest in it as well as providing comfort to investors who have invested shares in it.

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References

Ben

McClure,

How

To

Analyze

Company's

Financial

Position,

June

12

2011,

http://www.investopedia.com David E. Coffman, How to Analyze the Performance of Your Business, 2005,

http://managing4results.net Jim Blasingame, Capitalization in Finance, April 15, 2003,

http://www.managementstudyguide.com, Peter Engel, Budgeting and Finance (1st Books for Business), McGraw-Hill, 1996

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