Adventure Works Marketing Plan

Paradigm Sdn. Bhd. , Financial Ratio Analysis1

Table of ContentsIntroduction2Findings3Discussing the Main Financial Statements and Comparing Appropriate Formats Of Financial Statements for Different Types of Business.3Income Statement5Balance Sheet12Cash Flow Statement16Statement of Changes in Equity17Notes To The Accounts19Interpreting Financial Statements Using Appropriate Ratios And Comparisons, Both Internal And External20Assets Management Ratio21Profitability Ratio23Liquidity Ratio25Debt Management Ratio26Conclusion28Recommendations29References30Appendices32

IntroductionThe main goal of all business organisation is profit maximization, in order to achieve this goal the organisations need funds which can be raised through debt or equity. In order for a company or people to decide whether to invest in an organisation or not, financial statements and financial ratio analysis will be use. Financial statement analysis may be used to help forecast the firms financial position for the future and determine earnings and dividends for the future. As for financial ratio analysis, it helps managers to analyse, control and improve the organisations. As a Finance Officer at Paradigm Sdn. Bhd. this will be a report for an overview of financial statements of the company and the financial performance of the company. This report will tells about the 5 main components of financial statements and more detailed on Income Statement and Balance Sheet. There will also be comparisons between the types of financial statements for different types of business. A revision on the financial statements for 2014 and 2013 of Paradigm Sdn. Bhd. also will be done throughout this report. A financial ratio analysis will be done which covers the profitability, efficiency, debt management and liquidity aspects. The internal and external comparison also will be done. Also will be included the suggestion based on the analysis for the company.

Findings Discussing the Main Financial Statements and Comparing Appropriate Formats Of Financial Statements for Different Types of Business. Financial statements are a collection of reports about an organization's financial results, financial condition, and cash flows. They are useful for the following reasons: To determine the ability of a business to generate cash, and the sources and uses of that cash. To determine whether a business has the capability to pay back its debts. To track financial results on a trend line to spot any looming profitability issues. To derive financial ratios from the statements that can indicate the condition of the business. To investigate the details of certain business transactions, as outlined in the disclosures that accompany the statements.(AccountingTools, 2010)

Figure 1.0 : Links and Relationships Between Types Of Financial Statements. Sources: (Accounting-Simplified.com, Relationship between Financial Statements, 2012). There are 5 main types of financial statements which are:i. Income Statement Companies financial performance over a period. It includes revenues, expenses, profits and losses. Also known as profit and loss statement. Deducting expenses form income will get net profit or net loss. The purpose of income statement is it shows profitability of a company during a specified time. Consists of two elements, revenues and expenses. Firstly, revenues are the total earned by a business over a period. Examples are dividend, sales revenue, interest received, etc. Next is expense which defines as the total cost that is been expense over a period. Examples are salaries, wages, depreciation, utilities, etc.ii. Balance Sheet Financial position of a company at a given date. It includes assets, liabilities and equity. Also known as statement of financial position. The purpose of balance sheet is to help company in terms of financial position that display what the company owns and owes. It consists of three elements, assets, liabilities and equity. firstly, assets are what a company owns or controls. Examples are plant and machinery, inventory, cash, debtor, etc. as for liabilities, it defines as what a company owes to other company or someone. Examples are creditors, bank loans, etc. lastly, equity is what a company owes to its owners. Represents the difference between assets and liabilities. Amount of capital that will remain after assets are used to pay off the liabilities. Examples are retained earnings, share capital, etc.iii. Cash Flow Statement Movement in and out of cash for the year and bank balances over period. Examples are cash in hand, cash at bank, short term investments and bank overdrafts. Can be classified into 3 segments, operating activities, investing activities and financing activities. Operating activities are cash flow of primary activities; a main activity of a business to get money. Example is receipts from sales revenue. Next is investing activities, which define as cash flow of purchases and sales of assets other than main activity of the business. Example is purchases of machinery. Lastly, financing activities are the cash flow that is spent or generated on repaying and rising share capital and debt with the payments of interests and dividends. iv. Statement of changes in equity Movement in owners equity over a period. Also called as Statement of Retained Earnings. The movement includes; net profit or loss in the income statement, share capital issued or repaid, dividend payments, gains or losses in equity and changes in accounting policy and accounting error.v. Notes to the accounts Relate accounting policies used and explanation notes. A note given for a further details on the number given in the accounts. The accounts are not complete without the notes as, if the investors dont refer to it, they will find themselves misled.Income StatementIncome Statement, also known as Profit & Loss Account, is a report of income, expenses and the resulting profit or loss earned during an accounting period (Accounting-Simpllified.com, Income Statement | Profit & Loss Account, 2013). The time period is usually for a month, quarter or a year. Income statement is important because if a company shows net loss or wasnt able to operate profitably, baker or creditor will be hesitant to give credit to the company. On the other hand company that able to operate profitably or shows net profit shows the ability to pay back the borrowing amount or invest successfully. The information in the single-step income statement only shows the one category of income and one category of expenses. Whereas, the information in the multi-step income statements are revenue, cost of sales, gross profit, expenses, operating income, other income and expense, income tax expense and net profit or loss. Income statement does not show cash receipts and cash disbursements but shows revenues, expenses, gains and losses. If the last net amount is positive, then it indicates the company is getting net profit, but if the net amount is negative then it indicates the company is getting net loss. Both the heading is the same which will be stated the name of the company, the types of the statement and the period and the end of the period.

Pubic company Astro Malaysia Holdings Berhad.

Figure 1.1 : Multi-step Income Statement of public company, Astro Malaysia Holdings Berhad for the year ended 31 January 2013. Sources: (Astro Malaysia Holdings Berhad, 2014)Firstly is the revenue. Revenue contains the income earned from the main activity of a business. The calculation of revenue is the sales minus with the discounts, returned machines, etcetera and then will get the net profit. In examples in figure 1.0, Astro is a media entertainment group, so the revenues for the company are the sales of their digital satellite radio, the first television services and etcetera and will be total RM 679,859,000 in 2013. As stated, it declined from the year 2012; RM 942,423,000. As when they earn the interest on their bank account, it will be classified as other income. Revenues and receipts are different. Revenues are something a company earned or delivered, whereas receipts are when the cash is collected. Put simply,revenuesoccur when money isearned,receiptsoccur when cash isreceived (AccountingCoach, 2005). Secondly is the cost of sales. Cost of sales represents the cost of goods sold or services rendered during an accounting period (Accounting-Simpllified.com, Income Statement | Profit & Loss Account, 2013). As in Figure 1.0, to get the amount RM 7,000 in 2013 increased from the year 2012 which it doesnt stated in the figure, the cost of sales would be the sum of inventory at the start of the period and purchases during minus the closing inventory. It will be also includes the production costs; direct labour, direct material consumption, depreciation of plant and machinery, etc. Thirdly is the gross profit or be called as gross margin or gross income. To calculate the gross profit is by deducting cost of sales with net sales. As in Figure 1.0, the gross profit is RM 679,852,000 in 2013 which also decrease form 2012; RM 942,423,000 after deducting revenue and the cost of sales. Fourth are the expenses. The economic costs that a business incurs through its operations to earn revenue. In order to maximize profits, businesses must attempt to reduce expenses without also cutting into revenues (Investopedia, 2006). The expenses occur when they are used not when they are paid. There are three elements of expenses which are Selling and Distribution Expenses, Administrative Expenses and Finance Expenses. Selling and distribution expenses are all expenses associated with developing, selling and distributing a product. Examples include shipping, advertising, staff salaries and wages. In Figure 1.0, it is the marketing and distribution costs which are RM 1,543,000 in 2013 increased from the year 2012; RM 563,000. As for administrative expenses, all expenses associated with business administration such as purchases of office equipment, depreciation of office furniture and insurance expenses. In Figure 1.0, it is the administrative costs which are RM 15,403,000 in 2013 also increased from the year 2012; RM 3,812,000. And lastly finance expenses all business outlays associated with the business' financing and cash flow activities. For example, the recording of bad debts, rent expense, and interest expense paid to creditors. In Figure 1.0, it is the finance costs which are RM 179,477,000 in 2013 also increased from the year 2012; RM 111,157,000 (SmallBizConnect, 2009). As stated the Fifth is the operating income or also be called as earnings before interest and taxes (EBIT) or operating revenues. It can be calculated by deducting gross income with operating expenses and depreciation and amortization. It is revenue from primary activity of a company. as for Astro, the operating income would be the service revenues or fees earned. Based on figure 1.0, Astro didnt have any operating income. Sixth is the other income and expenses. Other income is an income that is earned not from the main activities of the company. Whereas other expenses is a residual category in which expenses that are not suitably classifiable elsewhere are included (Accounting-Simpllified.com, Income Statement | Profit & Loss Account, 2013). In examples, buying or disposal of fixed assets, interest income on bank deposits, etc. As stated in figure 1.0, there is no other income and expenses stated for Astro.Seventh is the income tax expense. Income tax expense is the tax that is calculated and recognised by the company. Income tax expense consists of 3 elements which are current periods estimated tax charge, prior period tax adjustments and deferred tax expense. As stated, there is no income tax expense for Astro based on Figure 1.0.Last but not least, net profit or loss. To get net profit or loss, gross profit need to deduct expenses, other expenses and income before tax. From the Figure 1.0, Astros net profit is RM 620,045,000 for the year 2013 decreased form the year 2012; RM 928,722,000. To get that, gross profit need to deduct expenses, other expenses and finance cost.

Sole Trader company Christinas Consulting Service

Figure 1.2 : Single-step Income Statement of Sole Trader company, Christinas Consulting Service for the year ended 30 June 2007.Revenues or be called as income can be separated into three which are revenues from primary activities, revenues from secondary activities and gains. First the revenues from the primary activities are operating revenues. Primary means the main activity of the business, the sales that they got in specified period. For example, the sales revenues or sales. Second, the revenues from secondary activities, also be called as non-operating revenues. Its the amount of money gets that is not from the main activity of the company. As an example, interest received. Lastly, gains. Gainssuch as the gain on the sale of long-term assets, or lawsuits result from a transaction that is outside of the primary activities of most businesses. A gain is reported on the income statement as the net of two amounts: the proceeds received from the sale of a long-term asset minus the amount listed for that item on the company's books (book value). A gain occurs when the proceeds are more than the book value (AccountingCoach, 2005). As for Christinas company, based on Figure 1.1, the revenues of the company are consulting fees; $256,394 and interest received; $234,640 which equals to $256,453 to be total for the year 2007. Next are expenses. Expenses are also separated into three which are expenses from primary activities, expenses from secondary activities and losses. First are expenses from primary activities. Expenses incurred so that can get normal operating revenues. The expenses occur when they are used not when they are paid. As an examples, utilities that is been used for the month of April need to be calculated in that month of income statement, even the meters are not yet read and the bill is paid later. Its different with depreciation, because it will be recorded from the start until the end of the period of time. Next is expenses from secondary activities. It is also be called as non-operating expenses. It is money that spent not because of the main activity of the business, example is interest expense. Lastly are losses. It happened after long-term assets cannot be paid anymore or on a lawsuits result. It occurs when the revenues are less than the book value. As an example, in Figure 1.1, it stated that there are fines and penalties that costs $70 in the year 2007rather than in 2006; none. Based on figure also, the expenses are $44,360 in the year 2007, decreased from the year 2006; $44383 after totalling up every expenses that occur. It will be later the total of income minus with the total of expenses to get the net profit before income tax expense. As in Figure 1.1, to get $212,093 in the year 2007which increase from the year before; $190,257, the total of income; $256,453 will be minus with the total of expenses: $44,360. There is the existence of income tax expense, then it will be deduct with the net profit before income tax expense and get $125,643 for the net profit after income tax expense which increase from the year 2006; $109,472.

Figure 1.3 : Comparison Between Extracted Income Statement Of Sole Trader Company From Figure 1.2 And Public Company From Figure 1.1.The difference here based on Figure 1.3 is shown at income and the expenses. At the left side of the figure is the income statement for the sole trader company, Christinas Consulting Service and at the right side is the income statement for public company, Astro Sdn. Bhd. The differences are at the way the income (the orange boxes colour on figure 1.3) and the expenses (the green boxes colour on figure 1.3) of the company are stated in the income statement. As for the single-step income, sole trader income, the way the income stated is that it adds every income together under one section. As for the multi-step income, public company, the income or the revenue is stated differently and not under one section. It divides the types of the income into sets of revenue and finance income as an example of the income statement for Astro. As for the expenses for Christina, it is also like how the income, which it puts all the expenses in one section and total it up. On the other side, the expenses for Astro, it divides the way it stated at the statement. The expenses is divide to the segments of marketing and distribution costs, administrative expenses and finance costs. In addition, the single step format is less useful for the external users as the limited data doesnt give accurate efficiency and profitability ratios and it often use for a smaller company. As for the Multi-step income statement, it is a usable for the external users as it separated each segment, is more relevant and easily understood and it often use by bigger company. By using this method, the external user can know the gross profit, operating income and the net income. Balance SheetBalance sheet or statement of financial position is report that shows assets, liabilities and equity. The purpose of balance sheet is to estimate the liquidity of the business. It is stated at the end of the period, different from income statement and cash flows that cover the entire reporting period. As stated before, balance sheet consists of 3 elements. Assets; what a company owns or controls, liabilities; what a company owes to other company or someone and equity; what a company owes to its owners. The items in the balance sheet of companies that have the same activities are mostly similar because theyre dealing with the same transactions. The total amounts of assets need to be equal with the total of liabilities and equity. If it doesnt balance than there is some error inside the balance sheets.Public company Astro Malaysia Holdings Berhad.

Figure 1.4 : Balance Sheet of public company, Astro Malaysia Holdings Berhad for the year ended 31 January 2013. Sources: (Astro Malaysia Holdings Berhad, 2014)Sole Trader company Christinas Consulting Service

Figure 1.5 : Balance Sheet of Sole Trader company, Christinas Consulting Service for the year ended 30 June 2007.The first element in Balance Sheets is the assets. Assets are something that a company owns or controls to get benefits from it. There are non-current and current assets. Non-current assets are the long-term assets which are the benefits use are more than one year. It is usually a physical asset such as plant and equipment, property, etc. Whereas current assets are the short-term assets which the benefits use are less than one year use. Examples are cash, trade receivables, inventories, etc. Inventories may include raw material, finished goods, works in progress, etc. As for cash, it includes cash in hand, short-term investment, etc. And for trade receivables, it is the amounts that recoverable from customers upon credit sales. The amount will be deducted from allowance of bad debts. Examples in Figure 1.3, the total of current assets for the year 2013 for Astro is RM1,218,174,000 which increase from the year before in 2012; RM 431,878,000. The non-current assets in 2013 decrease from the year 2012, RM 8,889,995,000 from RM9,808,477,000. Examples in Figure 1.4, the current assets for Christina in 2007 is $36,072 increase from the year 2006; $32,841. The non-currents assets, on the other hands, decrease in 2007 from the year 2006, $49,683 from $61,531. Which the total of assets would be $85,755 in 2007 which decrease from the year before in 2006 with $94,372.The second elements in Balance Sheet is the liabilities. It is the amount of money that company owes to someone or banks or any sources that its settlement involves transfer of cash. There are non-current and current liabilities. The liabilities that will be settled for a long-term is non-current liabilities and to be settled within one year is the current liability. Current liability includes bank overdrafts, short-term bank loans, trade payable, etc. Non-current liability includes long-term borrowings, instalment, etc. For current tax payable, sometimes it will be stated at separate line item as due to materiality of the amount. As for trade payables, it is the amount that is credit billed for the company because of goods or services provided to the company. Example in Figure 1.3, for Astro, the current liabilities in 2013 is RM110,008,00 decrease from the year 2012; RM 319,994. As for non-current liabilities, it is states that it is also decrease from the year before, in 2013 RM 2,932,928 from 2012 RM 3,072,841. Example in figure 1.4, the current liabilities in 2007 is $30,789, better than the year before in 2006 which is $24,723. So the total liabilities is the same with the total of current liabilities as Christina doesnt have any non-current liabilities.Lastly, is the equity. Equity is what the business owes to the owner. Equity can be calculated by deducting liabilities from assets. It also can be defined as residual interest of a company that belongs to its owners. Share capital is the amount invested by the owners. Retained earnings on the other hands are the total net profit or loss after distribution the owners in the form of dividends. Example from Figure 1.3, the equity for Astro in 2013 is RM 7,065,233,000 increase from 2012 which is RM 6,847,520. As stated there is a lot of equity for Astro as it is a public company. Example from figure 1.4, the equity for the year 2007 for Christina is $54,966 decrease from the year 2006, $69,649. As stated, Christina is a sole trader company, so the equity is only for the owner alone.

Figure 1.6 : Comparison Between Equity Extracted From Balance Sheet Of Public Company From Figure 1.4 And Sole Trader Company From Figure 1.5.The difference between the balance sheet of a sole trader company or a public company clearly shown at the equity. The ownerships are different based on types of company. The term of Owners equity will be used by a Sole Trader company and Stockholders equity is for the Public company. In the end of every period, they need to divide the equity for the public company to all the stockholders, whereas the sole trader owns alone the equity. As for the beginning, the sole trader need to use their own capital or modal to start the company but as for public company, its different as the share is from the stockholders. A sole proprietorship is very limited in the ways it can obtain cash. By definition, a sole proprietorship cant raise funds by selling ownership in the business to someone else (as it can only have one owner). Unless the owner has a large amount of cash available, a loan is usually the only way for a sole proprietorship to obtain necessary funds (Kucker, 2011). Owners can lose the amount of money they invest, whereas for a company, if they fails, owners wont be required to pay anything. This will reduce the risks, thats why investors are more to invest in company.

Cash Flow StatementThe cash flow statement reports thecashgenerated and used during the time interval specified in its heading. The period of time that the statement covers is chosen by the company. For example, the heading may state "For the Three Months Ended December 31, 2014" or "The Fiscal Year Ended September 30, 2014" (AccountingCoach, 2005). Or also can be define as movement in and out of cash for the year and bank balances over period. Examples are cash in hand, cash at bank, short term investments and bank overdrafts.

Figure 1.7 : Categories of Cash Flow Statements. Sources: (AccountingCoach, 2005)Can be classified into 3 segments, operating activities, investing activities and financing activities. Operating activities are cash flow of primary activities; a main activity of a business to get money. Example is receipts from sales revenue. Next is investing activities, which define as cash flow of purchases and sales of assets other than main activity of the business. Example is purchases of machinery. Lastly, financing activities are the cash flow that is spent or generated on repaying and rising share capital and debt with the payments of interests and dividends. Here are a few ways the statement of cash flows is used.1. The cash from operating activities is compared to the company's net income. If the cash from operating activities is consistently greater than the net income, the company's net income or earnings are said to be of a "high quality". If the cash from operating activities is less than net income, a red flag is raised as to why the reported net income is not turning into cash.2. Some investors believe that "cash is king". The cash flow statement identifies the cash that is flowing in and out of the company. If a company is consistently generating more cash than it is using, the company will be able to increase its dividend, buy back some of its stock, reduce debt, or acquire another company. All of these are perceived to be good for stockholder value.3. Some financial models are based upon cash flow.(AccountingCoach, 2005)Statement of Changes in EquityAlso been called as Statement of Retained Earnings. The change in owners' equity over an accounting period by presenting the movement in reserves comprising the shareholders' equity (Accounting-Simplified.com, Statement of Changes in Equity, 2012). Can be define only as movement in owners equity over a period. Also called as Statement of Retained Earnings. The movement includes; net profit or loss in the income statement, share capital issued or repaid, dividend payments, gains or losses in equity and changes in accounting policy and accounting error. The purpose of statement of changes in equity is to help users of financial statement to find the factors that effect a change in the owners' equity over the accounting periods. Statement of changes in equity reveals significant information about equity reserves that is not presented in the financial. Examples of such information include share capital issue and redemption during the period, the effects of changes in accounting policies and correction of prior period errors, gains and losses recognized outside income statement, dividends declared and bonus shares issued during the period (Accounting-Simplified.com, Statement of Changes in Equity, 2012).Movement in shareholders' equity over an accounting period comprises the following elements:Opening BalanceThis represents the balance of shareholders' equity reserves at the start of the comparative reporting period as reflected in the prior period's statement of financial position. The opening balance is unadjusted in respect of the correction of prior period errors rectified in the current period and also the effect of changes in accounting policy implemented during the year as these are presented separately in the statement of changes in equity (Accounting-Simplified.com, Statement of Changes in Equity, 2012).Effect of Changes in Accounting PoliciesSince changes in accounting policies are applied all together, an adjustment is required in stockholders' reserves at the start of the comparative reporting period to restate the opening equity to the amount that would be arrived if the new accounting policy had always been applied (Accounting-Simplified.com, Statement of Changes in Equity, 2012).Effect of Correction of Prior Period ErrorThe effect of correction of prior period errors must be presented separately in the statement of changes in equity as an adjustment to opening reserves. The effect of the corrections may not be netted off against the opening balance of the equity reserves so that the amounts presented in current period statement might be easily reconciled and traced from prior period financial statements (Accounting-Simplified.com, Statement of Changes in Equity, 2012).Restated BalanceThis represents the equity attributable to stockholders at the start of the comparative period after the adjustments in respect of changes in accounting policies and correction of prior period errors as explained above (Accounting-Simplified.com, Statement of Changes in Equity, 2012).Changes in Share CapitalIssue of further share capital during the period must be added in the statement of changes in equity whereas redemption of shares must be deducted therefrom. The effects of issue and redemption of shares must be presented separately for share capital reserve and share premium reserve (Accounting-Simplified.com, Statement of Changes in Equity, 2012).DividendsDividend payments issued or announced during the period must be deducted from shareholder equity as they represent distribution of wealth attributable to stockholders (Accounting-Simplified.com, Statement of Changes in Equity, 2012).Income / Loss for the periodThis represents the profit or loss attributable to shareholders during the period as reported in the income statement (Accounting-Simplified.com, Statement of Changes in Equity, 2012).Changes in Revaluation ReserveRevaluation gains and losses recognized during the period must be presented in the statement of changes in equity to the extent that they are recognized outside the income statement. Revaluation gains recognized in income statement due to reversal of previous impairment losses however shall not be presented separately in the statement of changes in equity as they would already be incorporated in the profit or loss for the period (Accounting-Simplified.com, Statement of Changes in Equity, 2012).Other Gains & LossesAny other gains and losses not recognized in the income statement may be presented in the statement of changes in equity such as actuarial gains and losses arising from the application of IAS 19Employee Benefit (Accounting-Simplified.com, Statement of Changes in Equity, 2012).Closing BalanceThis represents the balance of shareholders' equity reserves at the end of the reporting period as reflected in the statement of financial position (Accounting-Simplified.com, Statement of Changes in Equity, 2012).Notes To The AccountsRelate accounting policies used and explanation notes. A note given for a further details on the number given in the accounts. The accounts are not complete without the notes as, if the investors dont refer to it, they will find themselves misled.Notes include: A reconciliation ofoperating profittooperating cash flowwhich can be used to calculateearnings before interest, tax, depreciation, and amortisation (EBITDA), andworking capital movements, A geographic breakdown of sales which can give investors an idea of exposure to different national economies, Details of assets and liabilities.(moneyterms.co.uk, 2006)The notes can change one's interpretation on the item just by reviewing of the numbers in the financial statements, a very effective way of understanding a set of financial statements is toread the notes first.

Interpreting Financial Statements Using Appropriate Ratios And Comparisons, Both Internal And External

Figure 2.0 : Financial Information of the year ended 2014 of Paradigm Sdn. Bhd.

Paradigm Sdn. Bhd. Financial Ratio Analysis for the year 2013/2014. (Every calculation is based on Figure 2.0)Assets Management RatioAssets Management Ratio How effective a firm manage its assets.

Inventory Turnover How many times the company replace its stock.

Total Assets Turnover How many times use total assets to generate sales.

2013(RM)

2014(RM)

Industries(RM)

2013(RM)

2014(RM)

Industries(RM)

Fixed Assets Turnover How efficient using assets to generate income.

Debtor Payments Period How many days did the debtor pay back.

2013(RM)

2014(RM)

Industries(RM)

2013(RM)

2014(RM)

Industries(RM)

Inventory Turnover (IT) in 2013 is better than in 2014 at the rate of 13.15 times and 9.30 times respectively. It has a difference at 3.85 times lower. Even 2014 is low than in 2013, yet it is still lower than in industry at the rate of 12.65 times with the difference of 3.35 times lower. By that stated that the unproductive inventories in 2014 and the suggestion would be to sell some of the unused inventories. Because, it can add more income than keeping inventories that have zero rate of return on investment. Selling unused inventories can help to fund some activities.Total Assets Turnover (TAT) in 2014 stated at the rate 2 times which is lower than in 2013 and in industry at the rate of 2.51 times and 4.3 times respectively. The differences of 2013 with 2014 are 0.51 times lower and for industry at 2.3 times lower which is at a very high differences. By that it shows that paradigm in 2014 have too much assets and less in sales, so by that the suggestion to increase sales and get rid of some unused assets. When increasing sales, we can sell variety more products and do more promotion to get more customers. As for the unused inventories, selling it might help to create variety more products and manage the promotion. Fixed Assets Turnover (FAT) in 2014 stated as 4.34 times which also lower than in 2013 and industry at 4.72 times and 5.3 times. The differences between 2014 with 2013 and industry is 0.38 times lower and 0.96 times lower respectively. By that the company doesnt use fixed assets as intensively as in 2013 and in industry. The company is over investing in property, plant and equipment. As a suggestion, the company should increase the revenue by doing more sales, improve the efficiency or also could do leasing.Debtor Payments Period (DPP) in the year 2014 for Paradigm is at the worst as it is at the rate of 16.61 days which is way to higher than at the year 2013 and in industry at the rate of 3.03 days and 10.5 days respectively. The differences between 2014 with 2013 and industry is 13.58 days more and 6.11 days more respectively. By that it shows the customers of Paradigm pays late for their debt or they have financial problems. The suggestion to improve this are enforce a new policies on collecting debt and shortening bank processing time. As stated, the asset management of Paradigm is not that good and is worse than the year before and loss with the industry. Assets management is important to a company as a good asset management means assets perform better, risks are managed more effectively and regulators are happier (Racounteur, 2014). Low assets management ratios means inefficient utilisation of assets. The company is operating below its full capacity. The suitable references to improve the business are total assets turnover and inventory turnover. Because total assets turnover is calculating on how many times the company use total assets to generate sales. It indicates how well a company has used its fixed and current assets to generate sales. As for the inventory turnover, it calculate on how many times the company replace its stock. It indicates the effectiveness of the inventory management practices of the firm.Profitability RatioProfitability Ratio Measuring companys ability to generate earnings based on assets, sales and equity.

Return on Assets Percentage that generates income from assets.

Return on Equity The amount of net income returned of Shareholders equity.

2013(RM)

2014(RM)

Industries(RM)

2013(RM)

2014(RM)

Industries(RM)

Net Profit Margin How many percentages that a company keeps in earnings.

2013(RM)

2014(RM)

Industries(RM)

Return on Assets (ROA) in 2014 is decreasing a lot from the year 2013 at the rate of 1.74% and 8.17% respectively. The differences between 2014 with 2013 and industry is 6.43% lower and 5.24% lower respectively. By that we can see that the company does not manage its assets effectively to produce greater amounts of net income or profits. The suggestion is that the company should reduce expenditure or reduce the inventory. Why keep unused inventories when we can make money by that inventory. If reduce the expenditure on unnecessary activities, the money can help to improve the lack of business. Also same goes to reducing unused inventories. Return on Equity (ROE) in 2014 is at 4.91% decrease from the year before in 2013 which is 21.07%. The rate in 2014 is also less than the rate in the industry which is at 17.5%. The differences between 2014 with 2013 and industry are 16.16% lower and 12.59% lower respectively. It shows that the company isnt using the equity financing effectively to fund operations and grow the company. The suggestions are increase the sales. When increase the sales, company can make promotions or buy something that is more efficient for the company. The company also can take advantages on this situation to higher the level of debt as it will decrease shareholders equity which will higher ROE.Net Profit Margin (NPM) in 2014 is at 0.87% while in 2013 it is higher at 3.25% which difference at 2.38% lower. Industry also got a higher rate at 2.89% which difference from 2014 at 2.02% lower. As clearly be seen that the percentages of the profit is decreasing. The company still cannot control its cost compared to the competitors. The suggestions are increase the sales and reduce the unwanted expenses.Profitability ratio for Paradigm is low than in 2013 and in industry. Profitability Ratio is a calculation in terms of profit. How much profit the company makes based on the amount of money invested on sales, assets and equity. High profitability ratio means the company generates the profits, revenue and cash flows very well. The suitable references to improve the business are return on assets and return on equity. Because return on assets shows the percentage that generates income from assets. It is a calculation which reflects how well a manager has used all available funds to generate profits including both equity & debt. As for return on equity, the definition is the amount of net income returned of Shareholders equity. It measures the return on the owners investment in the firm

Liquidity RatioLiquidity Ratio Determine how many times a company can pay off its short-terms debts.

Current Ratio Measure company ability to pay short term debts.

Acid Test ratio Determines whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory (Investopedia, 2011).

2013(RM)

2014(RM)

Industries(RM)

2013(RM)

2014(RM)

Industries(RM)

On the other hand, Current Ratio (CR) in 2014 for Paradigm is higher than in 2013 which are at 1.63 times and 1.54 times respectively. The differences are at 0.09 times higher. As for industry, 2014 rate is still lower than in industry at the rate of 1.8 times higher at a difference on 0.17 times. It can be seen that the companys ability to pay short term debt is low than the competitors. The suggestions are decrease the expenditure of unused activities and decrease the liabilities. When a company is high in liabilities, the company should minimize the borrowing at that period. When they minimize it, they can have more fund to pay the debts or also can pay off bank overdraft as soon as possible if there are bank overdrafts. Decreasing the expenditure of unused activities can help to generate more fund to pay off debts and increase income.Acid Test ratio (ATR) in 2014 which is at the rate of 0.98 times is also higher than in 2013 but lower than in industry which is at 0.91 times and 1.1 times respectively. The differences between 2014 with 2013 and in industry are at 0.07 times higher and 0.12 times lower respectively. It shows that the company has a problems meeting up with short term debt. The company need raise the value of its current assets or reducing the value of current liabilities. Negotiating lower payments to creditor is also a suggestion to improve Paradigm. Making sure the account receivable is paying on time. Liquidity ratio is a calculation to determine on how many times the company can pay it short terms debts. The higher the rate, the higher the margin of safety. As for Paradigm, the company is not in a good financial condition. Generally, the higher the liquidity ratios are, the higher the margin of safety that the company possess to meet its current liabilities. Liquidity ratios greater than 1 indicate that the company is in good financial health and it is less likely fall into financial difficulties (ReadyRatios, 2011).The suitable reference to improve the business is current ratio. Because current ratio is measuring the company ability to pay short term debts. It shows a firms ability to cover its current liabilities with its current assets.

Debt Management RatioDebt Management Ratio A measurement of a companys amount compared to its financial amount.

Total Debts To Assets Percentage on the debts over the assets.

Time Interest Earned How many time the ability of a firm to pay interest.

2013(RM)

2014(RM)

Industries(RM)

2013(RM)

2014(RM)

Industries(RM)

Total Debts To Assets (TDTA) in 2014 is higher than in 2013 at 64.58% and 61.22% respectively. The differences are at 3.36% higher. Whereas industry is at higher percentage which is at 68% with the difference at 3.42% higher than in 2014. Clearly can see that the company is financed by debts and this will bring a low borrowing capacity towards a company and a greater risk. Creditor might start to demand repayment of debt. The suggestions are the company to start looking for an equity financing and considering carefully at the future investment. Equity financing is issuing share that helps to finance the company. When we issuing share, it will help to generates more fund or income for the company, thus less the debt. More about the issuing share will be explained at recommendations. Considering carefully for the next investment will help to decrease the debts that might be lead to loss. So Paradigm might want to think carefully on future investment.Time Interest Earned (TIE) in 2014 for paradigm is at 1.83% which is way lower than in 2013 and industries respectively at 7.04% and 8.35%. The differences between 2014 with 2013 and industry are 5.21% lower and 6.52% lower. Can see that the company could go to bankrupt if not treat it sooner as they have low rate to pay interest payments when its due. The solution is for the company to increase the sales.Debt management is a measurement of a companys amount compared to its financial amount. Debt is called Financial Leverage because the use of debt can improve returns to stockholders in good years and increase their losses in bad years. Debt generally represents a fixed cost of financing to a firm (Business Finance Online, 2002). The suitable reference to improve the business is total debts to assets. Because total debts to assets shows the percentage on the debts of the company over the assets of the company. It suits to be the reference because it measures the percentage of funds provided by the creditors.Overall, the company performance is bad based on the financial ratio analysis that had been done at asset management ratio, profitability ratio, liquidity ratio and debt management. Even though in liquidity ratio the company is better than the year before, but the company still cannot compete with the industry. The industry is their competitor, so if they want to compete with their competitor they need to improve sales and a lot of thing and some of the ways to overcome and the benefits already stated above and some of it will be stated at the recommendations.

Conclusion The company performance overall is in bad condition. Almost all of the outcome is decreased from the year before. There are several of the performance that is improve from the year before, which are at current ratio and acid test ratio from the liquidity ratio and totall debts to assets from debt management ratio. The company also loss with their competitors, industries at every aspect. As stated before, to success in the market, business need to compete or be better than the competitors.Thus, this report already stated the overview of financial statements of the company and the financial performance of the company in the task 1. This report already tells about the 5 main components of financial statements which are the income statement, balance sheet, cash flow statement, statements of changes in equity and notes to the accounts. And detailed more on the Income Statement and Balance Sheet. There are also comparisons between the sole trader company and public company between the financial statements or balance sheets and income statements. A revision on the financial statements for 2014 and 2013 of Paradigm Sdn. Bhd. also has done on the task 2 of this report. A financial ratio analysis done already covers the profitability, efficiency, debt management and liquidity aspects. The internal and external comparison is also done by comparing with the company ratio and the industry ratio. Also already included the suggestion on some of the financial ratio.

RecommendationsBased on Figure 2.0, the net income for 2014 is only RM444. Paradigm Sdn. Bhd. must control their costs and increase their efficiency. They should spend more efficiently in their marketing in order to increase their sales and profits to earn earnings. They should focus more on the developing products to increase the sales which have a declining market or creating new products. Their products compete in an average competitive market and hence because of that they need to try venture in the market and be dare improve to their financial statements. The expenses on unused assets and activities should be decreased. Paradigm need to spend more on their marketing and promotion activities. Especially for the account receivables, Paradigm needs to change the policy towards the debtor. The requirement to lend money from Paradigm need to be tightens and firm. The period of the loan also can be shorten or increase the interest. By that, the company can have more income or at least can manage account receivable well.There are also few more recommendations, which are a new location for the business to increase sales and also issuing share to increase the money that the company may borrow also enables the company to trade. New location is a good idea for Paradigm to improve their business because their sales decrease from the previous might be because of the customers there in the area of their business most of them are not the target market of the company. By that, sales can be increase and can bring the name of the business more wide.Lastly, Paradigm can issuing share. Issuing share can increase the fund for the company thus, increasing the money that can be borrow for the companys activities. By that, the company can pay back all or some of the debt of the company. Issuing share also can get more fund to grow the business to be a better competitor in the industry.

NUR AAINAA DIYANA BINTI ABD RAHMANFinance Officer,Paradigm Sdn. Bhd.

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Appendices

Figure 3.0 : Examples of Cash Flow Statement. Source: www.google.com

Figure 3.1 : Examples of Statement of Change in Equity. Source: www.google.com

Figure 3.2 : Examples of Income Statement. Source: www.google.com

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