QUEST INTERNATIONAL UNIVERSITY PERAK

Faculty of Business, Management, and Social Sciences

PRINCIPLE OF ACCOUNTING

Vision To be the leading integrated food services

group in the Asia Pacific region based on consistent quality products and exceptional customer-focused service.

Mission To maximize profitability, improve

shareholder value and deliver sustainable growth year after year.

Financial Statements for KFC HOLDINGS (MALAYSIA) BHD (KFC)

Currency in INCOME STATEMENT AS OF : 31-Dec 31-Dec

Millions of Malaysian Ringgits

2009 2010

Revenues 2,297.40 2,522.40

TOTAL REVENUES 2,297.40 2,522.40

Cost of Goods Sold 1,078.50 1,167.90

GROSS PROFIT 1,218.90 1,354.40

Selling General & Admin Expenses, Total 1,037.30 1,144.90

Other Operating Expenses -15.6 -31.1

OTHER OPERATING EXPENSES, TOTAL 1,021.80 1,113.80

OPERATING INCOME 197.2 240.6

Interest Expense -5.4 -4.4

Interest and Investment Income 0.4 0.4

NET INTEREST EXPENSE -5 -4

Other Non-Operating Income (Expenses) -- --

EBT, EXCLUDING UNUSUAL ITEMS 192.2 236.7

Gain (Loss) on Sale of Assets -2.1 -3.9

Other Unusual Items, Total -- -10.9

EBT, INCLUDING UNUSUAL ITEMS 190 221.8

Income Tax Expense 57.2 62.1

Minority Interest in Earnings -2.4 -2.9

Earnings from Continuing Operations 132.8 159.7

NET INCOME 130.4 156.8

NET INCOME TO COMMON INCLUDING EXTRA ITEMS 130.4 156.8

NET INCOME TO COMMON EXCLUDING EXTRA ITEMS 130.4 156.8

Financial Statements for KFC HOLDINGS (MALAYSIA) BHD (KFC)  

Currency in BALANCE SHEET AS OF:- 31-Dec 31-Dec

Millions of Malaysian Ringgit 2009 2010

Assets    

Cash and Equivalents 123.4 131.7

Short-Term Investments 45.7 52.9

TOTAL CASH AND SHORT TERM INVESTMENTS 169.2 184.6

Accounts Receivable 50.3 46.5

Notes Receivable 15 6.6

Other Receivables 23.2 24

TOTAL RECEIVABLES 88.4 77.1

Inventory 172.3 200.8

Other Current Assets 17.7 23.7

TOTAL CURRENT ASSETS 447.7 486.1

Gross Property Plant and Equipment 1,183.00 1,468.70

Accumulated Depreciation -409.8 -468.7

NET PROPERTY PLANT AND EQUIPMENT 773.2 1,000.00

Goodwill 43.4 50

Long-Term Investments -- 22.4

Other Intangibles 25.3 23.6

Other Long-Term Assets 0.9 0.9

TOTAL ASSETS 1,290.50 1,583.00

LIABILITIES & EQUITY    

Accounts Payable 145.3 155

Accrued Expenses 111.3 127.8

Short-Term Borrowings 4.2 10.7

Current Portion of Long-Term Debt/Capital Lease 27.9 36

Current Income Taxes Payable 12.2 12.7

Other Current Liabilities, Total 65 75.1

TOTAL CURRENT LIABILITIES 365.8 417.2

Long-Term Debt 84.4 105.8

Minority Interest 12.5 15

Pension & Other Post-Retirement Benefits 3.1 2.9

Deferred Tax Liability Non-Current 32.9 51.8

TOTAL LIABILITIES 486.2 577.8

Common Stock 198.3 396.6

Additional Paid in Capital 18.7 0.4

Retained Earnings 547.5 482.2

Comprehensive Income and Other 27.2 111

TOTAL COMMON EQUITY 791.8 990.2

TOTAL EQUITY 804.2 1,005.30

TOTAL LIABILITIES AND EQUITY 1,290.50 1,583.00

THE DEFINITIONS OF FINANCIAL RATIOS

LIQUIDITY RATIO (LR)

i. Net Working Capital

current assets – current liabilities

2009 2010

447.7 – 365.8 = 81.9  486.1 – 417.2 = 68.9

Analysis shows that the net working capital reduces 13 units in 2010 from the year 2009. Since the working capital of the company is positive, the company is able to pay off its short-term liabilities. The company is operating in most efficient manner.

ii. CURRENT RATIO

Current assets / current liabilities

2009 2010

447.7 / 365.8 = 1.224 486.1/417.2 = 1.165

 Analysis shows that the current ratio reduces 0.059 units in 2010 from the year 2009. The capability of the company to pay its obligation is reduced. However the company is still able to pay all its obligations since the ratio is not under 1. The higher the current ratio, the more capable the company can pay its short-term liabilities.

iii. QUICK RATIO

[Current assets – (inventory + prepayments) / current liabilities]

2009 2010

447.7 – (172.3 + 45.7) / 365.8= 447.7 – 218 / 365.8= 229.7 / 365.8 = 0.628

 [486.1 – (200.8 + 52.9) / 417.2]= 486.1 – 253.7 / 417.2=232.4 / 417.2= 0.56

Analysis shows that the quick ratio reduces 0.068 units in 2010 from the year 2009. Since there is a reduction in the quick ratio, the position of the company is reduced as well since the quick ratio measures a company’s ability to meet it short-term obligation with its most liquid assets. The higher the quick ratio, the better the position of the company.

2. ASSET MANAGEMENT RATIO (AMR)

i. Account Receivable Turnover

Credit sales / accounts receivable

2009 2010

2297.40 / 50.3 = 45.673 2522.40 / 46.5 = 54.23

 Analysis shows that the account receivable turnover increase 11.557 units in 2010 from the year 2009. Since there is an increase, the company operates in a cash basis and that its extension of credit and collection of accounts receivable is efficient. 

ii. AVERAGE COLLECTION PERIOD

360 / account receivable turnover

2009 2010

360 / 45673 = 7.882 360 / 54.23 = 6.64

 Analysis shows that there is reduction of 1.242 units in the average collection period in 2010 from the year 2009. Therefore, possessing a lower average collection period is seen as optimal, because this means that it does not take a company very long to turn its receivables into cash.

iii. INVENTORY TURNOVER

Cost of goods sold / inventory

2009 2010

1078.50 / 172.3 = 6.259  1167.90 / 200.8 = 5.82

 Analysis shows that there is a reduction of 0.439 units in inventory turnover in 2010 from the year 2009. Since there is a reduction, the company faces poor sales and therefore excess inventory. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall.

3. LEVERAGE RATIO (LVR)

i. Debt Ratio

Total liabilities / total assets

2009 2010

486.2 / 1290.50 = 0.377 577.8 / 1583 = 0.37

 Analysis shows that the debt ratio of the company remain almost the same in the two years. Since the debt ratio is lower then 1, indicates that a company has more assets then debt.

ii. DEBT – EQUITY RATIO

Long-term liabilities / shareholder equity

2009 2010

120.4 / 791.8 = 0.152  160.5 / 990.2 = 0.162 

 Analysis shows that there is a increase of 0.01 unit in debt equity ratio. Since there is an increase, the money that shareholders have invest can pay the debts.

iii. EQUITY MULTIPLIER

1/1 – Debt ratio

2009 2010

1/1 – 0.377 = 0.623 1 / 1 – 0.37 = 0.63

 Analysis shows that there is an increase of 0.007 units in equity multiplier in 2010 from the year 2009. Since there is a increase, indicates higher financial leverage which means the company is relying more on debt to finance its assets.

4. PROFITABILITY RATIO (PR)

i. Gross Profit Margin

Gross profit / sales

2009 2010

1218.90 / 2297.40= 0.531  1354.40 / 2522.40= 0.54

 Analysis shows that there is a increase of 0.009 units in gross profit margin. Higher value indicates a higher efficient company. The company source of paying additional expenses and future saving is increased.

ii. EARNINGS PER SHARE

Profit available to ordinary shareholder / number of ordinary shares issued

2009 2010

130.4 / 198.3 = 0.658  156.8 / 396.6 = 0.395 

 Analysis shows that there is a reduction of 0.263 units of earning per share in 2010. This shows that the company generated less profit in 2010 from the year 2009.

 

iii. RETURN ON EQUITY

Profit after tax / shareholder’s equity

2009 2010

130.4 / 791.8 = 0.165  156.8 / 990.2 = 0.158

  Analysis shows that there is a reduction of 0.007 units in return on equity in 2010 from the year 2009. Since there is a reduction, the profit which the

company generate with the money shareholders have invested is reduce as well. 

CONCLUSION We had compare the ratios between two years. It shows that the current ratio and quick ratio

of KFC Holdings is reduced in the year 2010 compare to 2009.

Also having trouble of poor sales and therefore excess inventory as the inventory turnover of the company is reduced in the year 2010 from 2009

Reduce in return on equity in the year 2010 from 2009 shows that the profit which the company generate with the money shareholders have invested is reduced as well.

Thank You