SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN

FOUNDATION IN NATURAL BUILD ENVIRONMENT

MODULE: BASIC ACCOUNTING [ACC30205/FNBE0145]

ASSIGNMENT: FINANCIAL RATIO ANALYSIS

COMPANY: AMWAY (MALAYSIA) HOLDINGS BERHAD

LECTURER: CHANG JAU HO

SUBMISSION DATE: 4 JUNE 2015

GROUP MEMBERS:

NAMES STUDENT ID

PANG KAI YUN 0319802

SAM WEI YIN 0320364

TAN YONG CHIEN 0320200

Content

No. Title Page

1. Company Background 2

2. Recent Development 3

3. Ratio Analysis 4

4. Interpretation 6

5. Investment Recommendation 9

6. Appendices 11

7. Reference 22

Company Background

1

AMWAY is one of the world's largest and oldest multilevel marketing companies

(MLM).  Rich DeVos and Jay Van Andel founded AMWAY in 1959, in Ada, Michigan. In

1959, AMWAY launched a business model fuelled through the power of relationships. The

original product offered in this model, was Liquid Organic Cleaner (L.O.C.). It was the first

concentrated, bio-degradable, and environmentally friendly cleaning product. Since then,

AMWAY has expanded from home products to a global leader in the categories of health

and beauty.

AMWAY Malaysia is founded in 1976, beginning with just five employees, in a small

office and warehouse facility in Jalan Ipoh. Amway Malaysia operates as a direct selling

company, which engages in the distribution of consumer products. Its products include

nutrition and wellness products, skin care and cosmetics, personal care products, home care

products, personal accessories, food and beverages, garments, and household appliances.

Since its humble inception in 1976, AMWAY Malaysia has expanded to support the

business of its Distributors with an extensive network of AMWAY Retail Shops and

Regional Distribution Centres throughout Malaysia and Brunei. AMWAY Malaysia stands

tall within the AMWAY worldwide group as one of the top 10 performing affiliates backed

by impressive indicators, such as sales turnover, profitability, and an ever-expanding

Distributor force. In 1996, AMWAY Malaysia became the first-ever direct selling company

to be listed on the Main Board of the Kuala Lumpur Stock Exchange. AMWAY is also the

first direct selling company to be awarded a 10-year Direct Selling License by the Ministry of

Domestic Trade Cooperatives and Consumerism (MDTCC) in 2010.

Recent Development

2

In May 2009, Amway opened the pick and pay concept Amway Shop in Bintulu as

part of company’s strategy to enhance Amway’s physical presence and Distributors’ and

customers’ accessibility to Amway products.

In 2010, AMWAY Malaysia has built a new headquarter at the new address 28, Jalan

223, 46100 Petaling Jaya, Selangor Darul Ehsan. This new Amway Malaysia headquarters was built at a cost of approximately RM100 million, which included land acquisition,

construction and interior design. The new headquarters with its built up of 202,500 square

feet, in addition to its warehouse and office blocks, it includes many enhanced facilities such

as the R&J Café, the Van Andel & DeVos Training Centre, a flagship AMWAY Shop as well

as an exclusive AMWAY Brand Experience Centre.

As you step into AMWAY Malaysia's Corporate Headquarters, the first thing that

catches your eye would be the ceiling pieces. Stand at a precise angle, you will see these

pieces merging into an image of faces - the faces of the AMWAY Opportunity - which is for

everyone, everywhere. Reflecting AMWAY’s desire for greener and eco-friendly

surroundings, it is dotted with a large number of trees and shrubs and is designed with floor

to ceiling windows to allow for natural lighting. Another sustainable feature is the energy-

efficient air conditioning. The building incorporates facilities for the disabled including a

ramp, special toilets, reserved parking lots as well as tactile flooring for the visually impaired.

Ratio Analysis

3

Profitability Ratios

Profitability Ratios

2013(RM ’000)

2014(RM ’000)

Return on Equity (ROE)

net profit

avg .owne r ' senquityX 100

¿ 109.0234.311+227.971÷2

X 100

= 47.2%

net profit

avg .owne r ' senquityX 100

¿ 99.8231.520+234.311÷2

X 100

= 42.8%

Net Profit Margin (NPM)

net profitnet sales

X 100

¿ 109.0834.0

X 100

= 13.1%

net profitnet sales

X 100

¿ 99.8855.80

X 100

=11.7%

Gross Profit Margin (GPM)

gross profitnet sales

X100

¿ 266.037834.20

X100

= 31.9%

gross profitnet sales

X100

¿ 258.463855.8

X 100

= 30.1%

Selling Expense Ratio (SER)

total selling expensenet sales

X 100

¿ 83.961÷2834.2

X100

= 5.0%

total selling expensenet sales

X 100

¿ 90.655÷2855.8

X 100

= 5.3%

General Expense Ratio (GER)

total general expensenet sales

X100

¿ 83.961÷2834.2

X100

= 5.0%

total general expensenet sales

X100

¿ 90.655÷2855.8

X 100

= 5.3%

Financial Expense Ratio (FER)

total financial expensenet sales

X100

¿ 110.677834.2

×100

= 13.2%

total financial expensenet sales

X100

¿ 78.010855.8

×100

= 9.1%

Stability Ratios

Stability Ratios 2013 2014

4

(RM ’000) (RM ’000)Working Capital total current asset

totalcurrent libailities

¿ 247.74394.629

= 2.62 : 1

total current assettotalcurrent libailities

¿ 286.135131.039

= 2.13: 1

Total Debt total liabilitiestotal asset

X 100

¿ 94.629328.940

X 100

= 28.8%

total liabilitiestotal asset

X 100

¿ 131.039362.559

X 100

= 36.1%

Stock Turnover365÷[ COGS

avg . inventory ]¿365÷[ 568.185

(64.651+68.019)÷2 ]= 42.7 days

365÷[ COGSavg . inventory ]

¿365÷[ 597341(84.429+66.651 )÷2 ]

= 46.2 days

Debtor Turnover365÷[ credit salesavg .debtors ]¿365÷[ 834.222÷2

(30.209+31.755 )÷2 ]= 27.1 days

365÷[ credit salesavg .debtors ]¿365÷[ 855.804÷2

(28.434+30.269 )÷2 ]= 25.0 days

Interest Coverage- -

Interpretation

5

Profitability Ratios

Profitability Ratios 2013 2014 InterpretationReturn on Equity (ROE)

47.2% 42.8%

During the 2013-2014 periods, the ROE has decreased from 47.2% to 42.8%. This means that the owner is getting less return on his/her capital compare to last year.

Net Profit Margin (NPM)

13.1% 11.7%

During the 2013-2014 periods, the NPM has decreased from 13.1% to 11.7%. This means that the business is getting worse in controlling its expenses compare to last year.

Gross Profit Margin (GPM)

31.9% 30.1%

During the 2013-2014 periods, the GPM has decreased from 31.9% to 30.1%. This means the business is getting worse in controlling the COGS expenses compare to last year.

Selling Expense Ratio (SER)

5.0% 5.3%

During the 2013-2014 periods, the SER has increased from 5.0% to 5.3%. This means that the business has getting worse in controlling its selling expenses compare to last year.

General Expense Ratio (GER)

5.0% 5.3%

During the 2013-2014 periods, the GER has increased from 5.0% to 5.3%.This means that the business is getting worse in controlling its general expenses compare to last year.

Financial Expense Ratio (FER)

13.2% 9.1%

During the 2013-2014 periods, the FER has decreased from 13.2% to 9.1%. This means that the business is getting better in controlling its financial expense compare to last year.

Stability Ratios

Stability Ratios 2013 2014 Interpretation

6

Working Capital

2.62 : 1 2.13: 1

During the 2013-2014 periods, the Working Capital decreased from2.62 : 1 to 2.13 : 1. This means that the business ability to pay off its current liabilities is getting worse. In addition, it satisfy the minimum 2 : 1 ratio.

Total Debt

28.8% 36.1%

During the 2013-2014 periods, the Total Debt has increased from 28.8% to 36.1%. This means that the business total debt has increased. However, it does not exceed the maximum 50% limit.

Stock Turnover

42.7 days 46.2 days

During the 2013-2014 periods, the Stock Turnover has increased from 42.7 days to 46.2 days. This means that the business is selling its stock slower.

Debtor Turnover

27.1 days 25.0 days

During the 2013-2014 periods, the Debtor Turnover has decreased from 27.1 days to 25 day. This means that the business is using less time to collect debt.

Interest Coverage There are no interest expenses in the company.

P/E Ratio

Price/Earning or P/E Ratio

7

= Current share priceEarnings per share

= 10.860.68

= 15.97

The Price Earning Ratio (P/E Ratio) for Amway (Malaysia) Holdings Berhad as of 2nd June 2015 is 15.97. This means that an investor who bought a share of Amway Malaysia needs to wait for 15.97 years to recoup his investment.

*figure obtained from http://data.cnbc.com/quotes/AMWA-MY at 2 June 2015

Investment Recommendation

a) Profitability

Based on the ratio analysis, Amway (Malaysia) Holdings Berhad does not demonstrate

a good profitability from the period 2013 to 2014. The return on equity has decreased for

8

4.4%. This means that the owner is getting less return on his/her capital compare to last year.

Next, the company is getting worse at controlling its overall expense compare to last year as

their net profit margin decreased for 1.4%. Besides, the business’s gross profit margin has

decreased for 1.8% which means the business is getting worst in controlling the COGS

expenses compare to last year. Moreover, the business is getting worse in controlling its

selling expenses and general expenses compare to last year as it has increased for 0.3%.

However, the business is getting better in controlling its financial expenses compare to last

year as it has decreased for 4.1%.

b) Stability

Based on the ratio analysis, Amway (Malaysia) Holdings Berhad does not have strong

financial stability from the period 2013 to 2014. The working capital of the company has

decreased which means the business ability to pay off its current liabilities is getting worse.

However, it satisfy the minimum 2 : 1 ratio. Besides, the total debt of the company has

increased for 7.3%. However, it does not exceed the maximum 50% limit. Moreover, the

company is selling its stock slower compare to last year as their stock turnover has increased

3.5 days. On the other hands, the company is using less time to collect debt as their debtor

turnover has decreased 2.1 days. Lastly, the company has no interest expenses.

c) Share price

The Price Earning Ratio (P/E Ratio) for Amway (Malaysia) Holding Berhad as of 2nd

June 2015 is 15.97. This means that an investor who bought a share of Amway Malaysia

needs to wait for 15.97 years to recoup his investment. However, it is higher than what a

conservative investor would pay, which is below 15 years.

Conclusion

In conclusion, Amway (Malaysia) Holdings Berhad’s shares are not suitable for

investment because the company does not demonstrate a good profitability and strong

financial stability from the period 2013 to 2014. Besides, the company’s shares are quite

9

expensive as it takes 15.97 years for the investor to recoup his investment. It takes a longer

time than a conservative investor would wait, which is below 15 years.

Appendices

Appendix 1 : Quarterly Performance

10

11

Appendix 2 : 5-Year Financial Highlights

12

13

14

Appendix 3 : Balance Sheet

15

16

Appendix 4 : P&L Statement

17

18

Appendix 5 : Cash Flow Statement

19

20

Appendix 6 : Share Price

21

Reference

1. CRADOR NETWORK. (n.d.). Retrieved May 31, 2015, from http://cradorglobal.blogspot.com/2011/09/amway-history-and-its-business.html

2. Arveena M. (2010, January 22). Amway Malaysia officially opens its new HQ. Retrieved June 3, 2015, from http://www.theborneopost.com/2010/01/23/amway-malaysia-officially-opens-its-new-hq/

3. Amway (Malaysia) Holdings Bhd (AMWA-MY :). (n.d.). Retrieved June 1, 2015, from http://data.cnbc.com/quotes/AMWA-MY

4. AMWAY Malaysia. (n.d.). Retrieved June 1, 2015, from http://www.amway.my/about-amway/our-company/amway-malaysia

5. AMWAY Malaysia. (n.d.). Retrieved June 3, 2015, from http://www.amway.my/about-amway/our-company/amway-malaysia

6. AMWAY Malaysia. (n.d.). Retrieved June 1, 2015, from http://www.amway.my/about-amway/our-company/amway-malaysia

7. Amway (Malaysia) Holdings Bhd (AMWA-MY :). (n.d.). Retrieved June 2, 2015, from http://data.cnbc.com/quotes/AMWA-MY

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