Felda Ratio Analysis Interpretation

2014

2015

2016

Return on Common Equity

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There is no preferred share issue by the company, hence there is no preferred dividend. The company return on common equity is directly derive from the net income over the average shareholders’ equity. Felda Global Ventures Holdings Berhad return on equity has reduced from 0.09 to 0.01. This means that every ringgit of common shareholder’s equity earned about 1 sen in 2016. In other words, shareholders saw a one percent return in their investment. Felda Global Ventures Holdings Berhad ratio is considered low in the industry. This could indicate that the company is not growing much. Investor expects higher ROE ratios over the years in order to show growth in the company. The company retained earnings reduced from 7.98% to 7.64% from 2015 to 2016. The dividend should increase as the retained profit has reduced.

Operating Performance

Gross Profit Margin

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Gross profit margin is an important indicator to show management and investors how the company runs its business. The efficiency of the business can be reflected on the company profitability. In this case, Felda Global Ventures Holdings Berhad profitability has reduced. This is because the gross profit margin has reduced from 12.95% in 2014 to 9.10% in 2016. Felda Global Ventures Holding Berhad achieving 9.10% gross profit on its business. This means that for every ringgit of sales Felda Global Ventures Holdings Berhad produces, the company makes 9.10% in revenue before other business costs are paid.

Net Profit Margin

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Net profit margin is one of the instruments for investors and analysts to compare the efficiency of management in the company and predict future profitability based on the sales forecasts. Investors can see the proportion of revenues contribute to operating and non-operating expenses and the remaining is for dividend pay-out or retained earnings by comparing the net income to the total sales. From the historical analysis of Felda Global Ventures Holdings Berhad, the net profit margin has gone down from 3.29% to 0.40% between year 2014 and 2016. The company is unable to convert more sales into profits. Therefore, the company’s profitability is declining; the business model is not sustainable in the plantation industry. This also implies higher competition, inefficient cost base of a company and also declining bargaining power.

Asset Utilization

Accounts Receivable Turnover

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Accounts receivable turnover is derived by dividing total sales for a period by averaging the accounts receivable. From the analysis, the accounts receivable turnover has reduced from 13.41 to 9.45 between year 2014 and 2016. This shows that the company is not efficient and effective on selling on credit and collecting from customers. It is important that the company need to improve by collecting receivable at a faster rate to obtain actual cash for further operations. Therefore, the company face higher credit risk. Furthermore, the ratio also shows the quality of the customers. The low accounts receivable turnover ratio indicates the company having difficulties to collect to money from customers. The company may face liquidity problem if the customer is non-creditworthy.

PPE Turnover

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Property, plant and equipment turnover ratio is to indicate a company’s return on their investment in property, plant and equipment by comparing the net sales and also with average property, plant and equipment over the years. From the analysis, the PPE turnover ratio has reduced from 2.71 to 1.79 between 2014 and 2016. Felda Global Ventures Holdings Berhad is inefficient in producing sales with its machines and equipment. The company is not fully utilizing their equipment to generate sales. This can be due to the nature of business of plantation company. The company has a lot of land but the palm tree is still in growing stage hence it is unable to produce high sales because there is no production of palm oil fruits.

Total Asset Turnover

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Total asset turnover ratio is to measure the company’s ability to generate income from its assets by comparing total sales with average total assets.  The analysis shows that the total asset turnover has increased from 0.79 to 0.83 between 2014 and 2016. This means that Felda Global Ventures Holdings Berhad is more efficient in using assets to generate sales over the years. The company is generating RM0.83 of sales for every ringgit invested in assets. The ratio gives investors and creditors an idea of the company is managed and uses its assets to produce products and sales.