Finance_and_Strategy

ASSIGNMENT COVER SHEET(to be completed by the student) | AIB student ID number: | A13137 | | | Student name: | Imran Saccoor | | | Course name: | MBA Generic | | | Subject name: | Strategic Finance Issues | | | Subject facilitator: | Ms. Deslyn Griffith | | | Teaching Centre: University | Nation’s University | | | No. of pages: | | | | Word count: | | | | DECLARATION | I, the above named student, confirm that by submitting, or causing the attached assignment to be submitted, to AIB, I have not plagiarised any other person’s work in this assignment and except where appropriately acknowledged, this assignment is my own work, has been expressed in my own words, and has not previously been submitted for assessment. | ASSESSMENT SHEET(to be completed by the examiner) | Student name: | | | | Course name: | | | | Subject name: | | | | Assessor/marker: | | | | COMMENTS | Principles learnt (for example, number and understanding of principles referred to, their influence on the structure of this paper, number and correct citations of references, use of appropriate jargon)    | | /4 | | | Application of principles. That is, the analysis and evaluation of the example problem based on the principles, including the final recommendations and their justification | | | /8 | | | How well the example problem was described, including the extent and depth of information (including the data) about it that was accessed | | | /4 | | | Structure and presentation | | | /2 | | | Style, grammar  and language | | | /2 | | | Total | | Less penalties | | GRAND TOTAL | /20 | General comments | | | | FOR MODERATOR’S USE ONLY | I agree with the assessor’s assessment I disagree with the assessor’s assessment and the new mark is as follows for the following reasons: | /20 | | Moderator: | | Executive Summary This paper sets out to evaluate the annual financial performance of Zingmobile Group Limited and its Subsidiaries , a company that specialises in software and services incorporated in Singapore. The specific objectives were to examine its’ performance for the last two years and evaluate the business from various perspectives namely; profitability, efficiency, short term solvency, long term solvency and market based ratios. This document also indentifies the strengths and weakness of the Zingmobile Group Limited and its Subsidiaries and contains recommendations for improving the business based on the analysis of the financials. Table of Contents 1.0 Introduction.........................................................................................................................5 2.0 What are financial statement / medium of analysis............................................................6 3.0 Background on Zingmobile Group Limited and its Subsidiaries ......................................7 4.0 Analysis of Zingmobile Group Limited and its Subsidiaries Annual Report 2011-2012...8 5.0 Structured Approach -Analysis identifying strengths and weakness and recommendations to Zingmobile Company Limited......................................................... 6.0 Recommendations ............................................................................................................. 7.0 Conclusion......................................................................................................................... 8.0 References.......................................................................................................................... 1.0 Introduction A Financial Statement is a document reporting business financial performance and resources. It consists of three main components namely; a balance sheet, a trading profit and loss account and a cash flow statement. This paper examine the Financial Statements of Zingmobile Group Limited and its Subsidiaries , a software and services company incorporated in Singapore and listed under the Australian Securities Exchange. The aim of this paper is to evaluate and analyse Zingmobile Group Limited and its Subsidiaries performance and to determine the future viability and sustainability of that organisation. This paper consists of five sections namely; (1) explaining a Financial Statement and medium of analysis, (2) a background is provided on Zingmobile Group Limited and its Subsidiaries , (3) an analysis of the Company’s Financial Reports for 2011 and 2012 examining the company from perspectives of ratios analysis (4)indentifying strengths and weaknesses and (5) recommending changes to management tailored at improving the business. 2.0 What are Financial Statements / Medium of Analysis Financial statements are records that provide an indication of an individual’s, organization’s, or business’ financial status. There are four basic types: balance sheets, income statements, cash-flow statements, and statements of retained earnings. “A balance sheet, shows business's assets, liabilities, and owner's equity or retained earnings; an income statement, shows the sales and expenses of a business over a period of time; and a cash flow statement, shows the cash in and out of a business over a period of time”. (US Business Laws and Tax Guide –Financial Statement by Jean Murray). Additionally various business models made several pronouncements for instance “a balance sheet gives information about a company’s financial position as at a point in time and is only valid at that point in time” (Contemporary Accounting Mike Bazley and Phil Hancock 8th Edition p.342). “Income statement must be current and in that case it will have meaningful data to aid good analysis. “As with balance sheet, the information in the statement of comprehensive income is quite old by the time it is published” (Contemporary Accounting Mike Bazley and Phil Hancock 8th Edition p.342). The Financial statements also analyses the business from various perspectives of which the information will enable directors of the company to determine future investments, expansion, share sales and also works as a meaningful tool useful to monitor, track and evaluate the business activities and trends. Financials are analysed using various methods including (1) Horizontal Analysis –i.e absolute dollars and percentage and (2) Vertical Analysis –i.e Income Statement and balance sheet. It is also to understand industry analysis, trend analysis, and Environment Analysis when analysing financial reports. In this paper we have utilised both methods of analysis. 3.0 Background on Zingmobile Group Limited and its Subsidiaries. Founded in 2002, Zingmobile Group Ltd is the leading pioneer for publishing value-added mobile content, services and applications for today’s dynamic mobile market. Dedicated in providing first class entertainment, informative and relevant mobile content; ZingMobile works with MNOs, content developers and suppliers to ensure that they are working with the latest technology in providing the most enhanced solutions in delivering mobile content. With headquarter based in Singapore, Zingmobile operates throughout the Asia Pacific region with offices in Malaysia, Indonesia, China, and Bangladesh. Mobiletainment© contents are being delivered through major networks operating within the region serving more than 500 million subscribers. Zingmobile is a profitable and growing public company that develops and markets mobile content direct to consumers. Zingmobile has developed its own content library of over 100,000 unique items across 25 applications and service and over 90% of sales are from its own content. With a strong commitment to innovation, research and development and marketing, Zingmobile continuously strives to enhance the Mobiletainment© experience through value-added interactive media applications. 4.0 Analysis of the Zingmobile Group Limited Financial Reports 2011-2012. Referencing to online financial statement (printed and attached) for Zingmobile Group Limited and its subsidiaries, we highlight below some of the key ratios and statistics of this business. We also presented below the summarised balance sheet and income and expenditure statement which are key drivers in analysing the report. | | From Financial Statement($US) | 2011 | 2012 | Ratios | Current Assets | 3,483,292 | 4,343,663 | Current Ratio | Total Assets | 5,928,213 | 7,834,029 | | Current Liabilities | 2,680,153 | 2,263,027 | Net Worth | Total Liabilities | 3,182,741 | 3,478,047 | | Sales/Revenue | 5,950,536 | 5,766,580 | Total Debt/Equity Ratio | Gross Profit | 4,482,300 | 3,945,130 | | Net Profit | 52,845 | 206,320 | | Earnings Before Interest/Taxes | 74,289 | 355,026 | Debt Service Coverage Ratio | Interest Expense | 5,423 | 54,338 | | Average Gross Receivables | 2,827,674 | 3,876,983 | Receivable Days | Annual Net Sales | 5,950,536 | 5,766,580 | | Average Accounts Payables | 2,489,079 | 2,014,577 | Payable Days | Purchases | 1,468,236 | 1,821,450 | | Average Inventory | 655,618 | 466,680 | Inventory T/O | Cost of Goods Sold | 1,468,236 | 1,821,450 | | FINANCIAL ANALYSIS | | (US$) | 2011 | 2012 | | Assets | 5,928,213 | 7,834,029 | | Liabilities | 3,182,741 | 3,478,047 | | Net Worth | 2,745,472 | 4,355,982 | | Total Debt/Equity Ratio | 1.16:1 | 0.8:1 | | Sales/Revenue | 5,950,536 | 5,766,580 | | Gross Profit | 4,482,300 | 3,945,130 | | Gross Margin % | 75.33 | 68.41 | | Net Profit | 52,845 | 206,320 | | Net Margin % | 0.89 | 3.58 | | Debt Service Coverage Ratio | 13.7:1 | 6.53:1 | | Current Ratio | 1.3:1 | 1.92:1 | | Receivable Days | 38 | 18 | | Payable Days | 5 | 3 | | Inventory T/O | 1 | 1 | | Analysis-000’Omitted Profitability Sales in 2012 was $5,766K as compared to $5,950k in 2011, this reflected a decline of $184k or 3.09% over the period in review. Despite the sales being lower in 2011 over 2012, the Company managed to declared profits. We note a negative decline in gross profits from 75.33% in 2011 to 68.41% in 2012. This declining position was due to significant increases on cost of sales moving from $1,468k in 2011 to $1,821k in 2012 or an increase of 19.20%.On the hand the company has declared a higher net profitability margin.Net Profits after Tax in 2012 was $206K as compared to $53k in 2011. This positive movement of $153k represents 74.27% in 2012 over 2011 or movements from 0.89% in 2011 to 3.58% which was highly attributed to significant cost savings in area of administrative expenses declining from $3,388k in 2011 to $2,334k over 2012. This was due to management tightening on internal resources and investing more on technology. We also note an increase in interest payable on loans in 2012 over 2011 by $48k due to increases in borrowing which was used to facilitate the company continued operations. Given the nature of the Industry in which the company operates it was strategic to invest in modern technology and this is seen as a positive initiative by the Company and has contributed significantly to growth in profitability. Profit Margins 2011 (%) 2012(%) Gross 75.33 68.41 Net 0.89 3.58 Efficiency Efficiency ratios measure how effectively a company manages its assets and liabilities. Some of the common efficiency rations include asset turnover ratio inventory turnover, working capital turnover ratio, accounts receivables turnover ratio, accounts payable turnover ratio. Total assets turnover ratio 2011 Net Sales = 5,950 1.03% Total Assets =5,928 2012 Net Sales = 5,766 0.73% Total Assets =7,834 The analysis above shows that the company was much more efficient in 2011 than in 2012. The turnover was 1.03 times sales as compared to 0.73 times sales in 2012. Short Term Solvency In determining short term solvency ratios the following are relevant pint to note: * “Does the entity has enough cash to repay the loan tomorrow * Will the entity have enough cash to repay the loan if it becomes due in six months * Will the enitity have enough cash to repay the loan if is due in five years” (Contemporary Accounting Bazley and Hancock 8th edition p.365) In short term solvency emphasis is placed on two key ratios (1) current ratio and (2) quick ratio. 2011 2012 Current Ratio = Total Current Assets = Total Current Assets Total Current Liabilities Total Current Liabs = 3,483 = 4,343 2.680 2.263 = 1.29:1 = 1.91:1 Current ratio represents current assets to current liabilities, therefore the ratio represent assets to liabilities. Zingmobile Group Limited solvency position has show improvements in 2012 over 2011 which means the company is in a more liquid position and can take care of its short term liabilities against it current assets. However though this is not ideal or desired ratio the Company needs to bring this ratio line to somewhere about 5:1 making it more solvent and liquid. However at minimum accounting standards the current ration should be greater than one. Quick Ratio Quick ratios measure the businesses ability to meet its short term obligations from the liquid means like cash and receivables less inventory. 2011 2012 Quick Ratio = Total Current Assets- Inv = Total Current Assets – Inventory Total Current Liabilities Total Current Liabs = 3,483-0 = 4,343-0 2.680 2.263 = 1.29:1 = 1.91:1 We note from the financial statement that Zingmobile Group Limited maintained no inventory hence the quick and current ratios remains the same. Long Term Solvency In this ratio we determine “will the entity have enough cash to repay a loan that is due in five years” (Contemporary Accounting Bazley and Hancock 8th edition p.368). We examined a few areas of the company to determine long term solvency as follows; 2011 2012 Debt / Equity Ratio = 3,182/2,745 = 1.15:1 3,478/4,355 =0.79:1 Debt / Total Assets = 3,182/5,928 =0.53:1 3,478/7,834 =0.44:1 Cash Flow / Liabilities = 9,801/3,182 =3.08 Times 10,849/3,478 =3.17 Times The rations above are reflective of a business that can manage if obligations comfortably. We note a marginal improvement in 2012 over 2011 in the area of debt to equity ratio. This has placed the company in a more solid and positive direction. This improvement was highly attributed to issuance of new shares bring capital into the business, increases in trade receibavles and increases in intangible assets. The business in continues to maintain assets more than liabilities and therefore at any point in time it can comfortably satisfy its obligations to its creditors. Market based ratios 2011 2012 Price /earnings (P/E) = market price per share market price per share Earnings per share earnings per share = 5.93 6.06 0.128 0.230 = 46.32 26.34 Earnings Yield = earnings per share earnings per share market price per share market price per share = 0.128 0.230 5.93 6.06 = 2.15% 3.97% 5.0 Structured Approach -Analysis identifying strengths and weakness and recommendations to Zingmobile Company Limited In assessing the performance of Zingmobile Company Limited, the company’s performance was analysed using various measurements; namely profitability, efficiency, short term solvency, long term solvency and market based ratios. The analysis found that the Company continues to profitable albeit some subsidiaries generating losses. The Company’s performance improved significantly in 2012 over 2011 and this was attributed to injection of capital by shareholders and reduction in administrative expenses. For 2012 the Group showed an increased in its profitability from $52k to $206k reflecting a positive growth in profitability. The company also trended in a positive direction and continues to display a high efficiency rate of 1.03 (2011) and 0.73% (2012). The efficiency rate declined in 2012 due to additional loans, increases in company receivables and increases in intangible assets over the corresponding period. Zingmobile Group Limited solvency position has shown improvements in 2012 over 2011 which means the company is in a more liquid position and can take care of its short term liabilities against it current assets. Albeit the ratios depict a company with high liquidity this is not ideal or desired ratio. However at minimum accounting standards the current ration should be greater than one; a more desired ratio will be 5:1. The Company’s quick ratio has showed continuous improvements over the last 2 years moving from 1.27 in 2011 to 1.91 in 2012. Long term solvency debt to equity ratio for 2011 was 1.15:1 times and this has move in a positive direction in 2012 to 0.79:1. Also the cash flow to liabilities has moved from 3.07:1in 2011 to 3.17:1in 2012; again a positive trend. Market shares has increased and the dollar value per share has moved from $5.93 in 2011 to $6.06 in 2012. The Company strengths has been cited as; profitability of its operations recording net returns of 3.58% in 2012 as compared to 0.89 in 2011, the business has substantial net worth (debt/equity ratio) reporting at 1.51:1 in 2011 and 0.79:1 in 2012 and debt to asset ratio of 0.53:1 in 2011 to 0.44:1 in 2012. The business is also liquid and is complemented by its subsidiaries around various parts of the world. Like strengths we have identified a few weaknesses within the operations of Zingmobile Group Limited to include; high trade receivables which can have an impact on the working capital, some subsidiaries are reported losses and are not clearly outlined in the consolidated financial statement, the company fixed asset base is weak, most of its value is in intangible assets. Generally the business of Zingmobile Company Limited is a profitable operation albeit reported losses by some subsidiaries. 6.0 Recommendations After analysing the report the following recommendations are made to the directors of Zingmobile Group Limited:- * Conduct a full review of subsidiary operations that are operating at a loss to determine whether it is feasible to continue their operations. * Company need to relook at the credit plan that they offer to minimise the high volume of receivables with protracted period for receipts. When the receivables are high it places strain on the working capital and more reliance on bank overdrafts (interest) * Company need to relook at the payables period to coincide with the receivables period * Minimise the use of the Bank Overdraft to save on interest cost (interest cost moved from 5k in 2011 to 54k in 2012) * Consider investing in real estate properties since the company’s fixed asset base is weak and comprises mainly of intangibles (software improvements etc) * Introduce a quarterly management figures system to track performance rather than waiting on year end. This will assist with cost and performance management. * Introduce a commission based system at subsidiaries that ate operating at loss where you incentivise employees to recommend new business. 7.0 Conclusion From the evidence above and from the findings of Zingmobile Group Limited, we can conclude that the Company operations in the long term appear sustainable. The ratio analysis also points to a profitable company which shows that the business has managed to meet is short term commitment and maintains a debt to equity leverage in accordance with the norms of the business industry. Zingmobile Group Limited operates in a competitive environment and high demanding environment and we have seen the company taking a positive direction in 2012 to boost its software capacity thereby aligning the business to deal with ongoing technological transformation. Therefore prospects for future of Zingmobile Group Limited appears very good but the management must continue to exercise prudent management review its subsidiaries operations periodically. 8.0 References Contemporary Accounting by Mike Bazley and Phil Hancock – 8th Edition (US Business Laws and Tax Guide –Financial Statement by Jean Murray). http://www.readyratios.com/reference/analysis/solvency_ratio.html http://financelearners.blogspot.com/2011/08/how-to-calculate-efficiency-ratio.html http://www.zingmobile.net/ http://www.asx.com.au/