FIN 809

10/17/2020
Assignment 1 – Financial Statement Analysis

Doyal Darshana Deo

ID: 2015128377
Part I
Amalgamated Telecom Holdings Limited (ATH) Group of Companies
History
Amalgamated Telecom Holdings Limited is renowned as a business body investing in
telecommunications sector which was incorporated as a public company on 10 March 1998. This
business body was consolidated for the purpose of privatization under its public sector reform
programme. ATH instigated operations on 16 December 1998 whereby at this time the Fiji
National Provident Fund (FNPF) would redeem 49% of its strategic stake. To add on, by the year
1999, the FNPF strengthened its control over the company by acquiring further 2% of the issued
shares as per the contractual obligations rounding off to acquiring 51% of the strategic stake
whereas at this point in time, the Government of Fiji had its shareholding decreased to 49%. As
time elapsed, in December 2015, FNPF increased its shareholdings in the company to 72.6% while
the Government holds 17.3% interest remaining as ATH’s second largest shareholder. According
to ATH’s 2019 Annual Report, apart from the FNPF and the Government of Fiji, the company has
its remaining 10.10% shares distributed amongst other individuals that is equivalent to 1,466
shareholders.

Nature of the Business

ATH is well-known for its specialized services as the following:
- Voice, internet, and data related services
- Business communication solutions
- ICT and surveillance products
- Transaction management and prepaid services
- Directory information services
- Business processing outsourcing (BPO) including, call centre services
- International telecommunications facilities.
These services are delivered by the respective groups of the ATH that are divided into namely,
Telecom Fiji Ltd, Vodafone Pte Ltd, Fintel, Fiji Directories Pte Ltd, Telecom Vanuatu Ltd, Elandia
Technologies LLC. Each group is responsible for delivering its specialized field of services for
which the reports are delivered to the Board of Directors at every financial year end.

Corporate Governance Structure and Statements

- Role of the Board
To direct the company towards success by taking responsibility of the strategic routes as
well as assisting the management team to fulfill the objective to increase profit
shareholder values.
 - Board Composition and Membership
States the number of members involved to create the Board. ATH consists of seven (7)
Non-Executive Directors of which four (4) are Strategic Investor Directors appointed by
FNPF and three (3) are Fiji Directors appointed by the Government. This code also
highlights as to how a member is elected and appointed a position.

- Board Sub-Committees
Consists of three (3) committees i.e. the Corporate Governance committee, the Audit and
Finance and the Human Resource Committee. Each of these committee’s are responsible
for looking after the operational matters, ATH’s financial plans and strategies and
renumerations and conditions of employment matters, respectively.
- Register of Interest
This is maintained in the company by a code of conduct.
- Rights of Shareholders
This explains that all the shareholders of the company have possess a right to all the
market issues announcements and material information which is published at regular
intervals.

Directorship
ATH is a business body comprising of a seven (7) board of director’s members with hierarchy
structure as follows:
1. Chairman – Mr. Ajith Kodagoda
2. Director - Mr. Narsey
3. Director – Mr. Taito Waqa
4. Director – Tom Ricketts
5. Director – Umarji Musa
6. Director – David Kolitagane
7. Chief Executive Officer and Company Secretary – Mr. Ivan Fong

Financial Statement
A set of comprehensive financial statements are provided for studies. The set of financial
statements are provided with the Directors reports on profit & loss, consolidated cash flows
together with notes on the consolidated financial statements which makes it easier to
understand.
FMF FOODS LIMITED
History
FMF Foods Limited, formerly known as the Flour Mills of Fiji was founded in 1973 by Mr. Hari
Punja. FMF Foods Limited till date is one of the largest Group of companies consisting of six (6)
major manufacturing companies like Flour Mills, Biscuit Company of Fiji Limited, Snax Limited,
Pea Industries Limited, Rice Company Fiji Limited and Atlantic Pacific Packaging Limited and these
companies collectively employ over 1000 Fijians.

Nature of the Business

While flour still remains the main part of the business, FMF Foods Limited is also widely known
as a major supplier of a wide selection of packaged food and snacks ranging from FMF Breakfast
Crackers to a variety of rice supply such as Long Grain, Premium Medium Grain and Jasmine rice.
This is not only, some of the other famous products of the FMF Foods Limited and its subsidiary
companies are Finefare biscuits, Yellow split peas, bakery ingredients such as pancake mix and
packed potato chips. Each of the six (6) companies are well known for its own specialized
product.

Corporate Governance Structure and Statements

The FMF Foods Limited abides by the Reserve Bank of Fiji’s Corporate Governance Code to
produce its yearly corporate governance statement. Some of these are as follows:
- Role of the Board
The role of the board is same as stated above for the ATH Group whereby their role is to
direct the company towards success by taking responsibility of the strategic routes as well
as assisting the management team to fulfill the objective to increase profit shareholder
values.
- The Board
This defines how the directors of the company are selected by the shareholders at the
Annual General Meeting.
- Meetings of the Board
FMF Foods Limited board members have regular board meetings to discuss matters such
as business investments, strategic matters, governance, risk and compliance, financial
report and performance review of the company itself and its subsidiaries.
- Board and Company Secretary
The company has a qualified secretary employed who is a professional Chartered
Accountant graduate from the Institute of Chartered Accountants in India. He is
responsible for some of the vital processes of the company such as managing corporate
 secretarial functions as well as ensuring compliance with statutory and regulatory
requirements.

Directorship
FMF Foods Limited is also a publicly listed company which comprises of seven (7) board of
members as follows:
1. Chairman – Mr.Hari Punja
2. Executive Director – Mr. Rohit Punja
3. Managing Director – Mr. Ram Bajekal
4. Non-Executive Director – Mr. Ajai Punja
5. Independent Director – Mr. Gary Callaghan
6. Independent Director – Mr. Pramesh Sharma
7. Alternate to Chairman – Ms. Leena Punja

Financial Statements
The Financial Statements are provided for the FMF Group of Companies as comprehensively as
for the ATH Group of Companies mentioned in the earlier section. The set of financial statements
are provided with the Directors reports on profit & loss, consolidated cash flows together with
notes on the consolidated financial statements which makes it easier to understand.

PART II
Both the company’s financials are presented in an incredibly detailed manner. These financials
could be easily accessed by an interested stakeholder from the relevant financial website in a
thorough report format. The ATH and FMF Group of Companies financial reports were easily
understandable as each statement was classified as per its respective content. For instance, the
statements were categorized as:
- Statement of Profit or Loss and Other Comprehensive Income
This defined if the relevant company was making a profit or a loss by presenting its figures,
calculations and from where the company generated revenue or lost the funds for better
understanding.
- Statement of Financial Position
This statement elaborated on the company’s financial position at the end of their financial
year by stating its current assets, non-current assets, current liabilities, non-current
liabilities, net assets, and equities. This can simply make a person understand as to what
the company has and how much the company owes to other people or stakeholder’s at a
given point in time.
 - Statement of Changes in Equity
The purpose of this statement is to help users understand the reasons for the change in
owner’s equity over a period.
- Statement of Cash Flows
This statement helps one understand the flow of cash in and out of the company. It helps
organizations to gauge how well they can manage the cash movement to pay debts and
liabilities.

PART III

Based on the nature and type of financial statements provided by both the companies, it can be
said that it would be easier for the analyst to use the horizontal analysis methodology. Horizontal
analysis is well known for comparing sets of data over a series of reporting periods hence, this
would make it easier for the analyst as both ATH and FMF Group of companies have financial
data stated for 2018 and 2019 on each of its financial statements. To add on, using this
methodology, it will be easier for the analyst to make judgements based on the figures for each
year as both the data will be displayed side by side and it will be easier to calculate the variances
between the data sets presented.
PARTS IV & V: 32 Computations and its Explanations
A) Liquidity Ratio

1. Current (Working Capital) Ratio

= Total Current Assets
Total Current Liabilities

ATH (Group) FMF

2018 2019 2018 2019

= 210,355,000 = 306,487,000 = 95,056,000 = 114,505,000

248,850,000 308,243,000 33,156,000 57,734,000

= 0.85 : 1 = 0.99 : 1 = 2.87 : 1 = 1.98 : 1

Working Capital is basically the liquidity available for a business. This ratio shows the ability of a
company to pay its current liabilities with its current assets and is the amount of readily available
capital to use for the daily operations. The main rule for working capital is that it must be 1:1 or
> the ratio 1.

Va.)
• The ATH Group of companies is at risk for both the years as their computed working
capital ratio is below 1 therefore, it can be said that for every dollar of current liabilities
ATH group has 0.85 and 0.99 cents of current assets for the year 2018 and 2019
respectively. This can tend to be risky for the company as they might have to resort to
borrowing to pay off their current liabilities.
• FMF as shown is doing relatively well for both the years as their computed working capital
ratio is more than 1. In 2018, for every dollar of current liability, they had $2.87 worth of
current assets however, this decreased by $0.98 in 2019. This is still stable as they are
above the ratio benchmark.
Vb)
• When comparing the ratios of both the companies, it can be said that FMF is doing better
than ATH Group of companies as their working capital ratio is above benchmark showing
the stability of the company in terms of paying off their current liabilities.
2. Acid Test (Quick) Ratio
= Quick Assets (Current Assets – Stock – Prepaid Expense)
Total Current Liabilities

ATH (Group) FMF

2018 2018

= 210,355,000 – (23,903,000 – 20,000,000) = 95,056,000 – (36,741,000 –

248,850,000 4,208,000)
33,156,000
= 166,452,000 = 54,107,000
248,850,000 33,156,000

= 0.67 : 1 = 1.63 : 1

2019 2019

= 306,487,000 – (36,790,000 – 34,959,000) = 114,505,000 – (38,813,000 –

308,243,000 11,112,000)
57,734,000
= 234,738,000 = 86,804,000
308,243,000 57,734,000

= 0.76: 1 = 0.67: 1

Acid Test Ratio, also known as the Quick Asset Ratio, is the financial measure basically to see if
the company has enough cash to pay off its most immediate liabilities. In short, it compares its
short-term assets with its short-term liabilities. Just like the working capital ratio, the benchmark
for the Acid Test Ratio would be 1:1 or > 1.

Va.)
• The ATH Group of companies computed ratio for both the years is less than 1 therefore,
they are at risk of not being able to pay off their quick liabilities with their quick assets. In
the year 2018, for every dollar ATH has $0.67 worth of quick assets while this improved
by $0.09 in the year 2019. Even though the quick asset amount is less than 1, ATH has
shown $0.09 of improvement therefore, it can be said that they are now working towards
increasing their Acid Test Ratio.
• FMF seemed to be stable in 2018 as for every dollar of their quick liabilities, they had
$1.63 worth of their quick assets however, there was a drastic reduction in the year 2019
 by $0.96. This does not show a stable condition for FMF as they moved below the
benchmark by $0.96.
Vb)
• While comparing both the companies, it can be said that ATH has shown some
improvement by the financial year end in 2019 whereas FMF has shown totally opposite
results. ATH needs to ensure that the positive increment in their ratio continues while
FMF needs to work towards getting a higher ratio in order secure their quick current
assets and have enough cash to pay their quick liabilities so they do not resort to
borrowing.

A) Liquidity Ratio (CONT’D)

3. Inventory Turnover
= Cost of Goods Sold
Average Inventory

ATH (Group) FMF

2018 2019 2018 2019

= 162,676,000 = 190,055,000 = 120,025,000 = 128,863,000

(18,537,000+23,903,000)/2 (23,903,000+36,790,000)/2 (42,876,000+36,741,000)/2 (36,741,000+38,813,000)/2

= 162,676,000 = 190,055,000 = 120,025,000 = 128,863,000

21,220,000 30,346,500 39,808,500 37,777,000
= 7.67 times = 6.26 times = 3.02 times = 3.41 times

Inventory turnover is the method to determine how many times the company can buy the goods
and completely sell those good within a given period. This method is used to make better
decisions in the company with subject to the pricing of goods and buying of new stock. Also, an
important aspect to note with inventory turnover is that low inventory turnover would imply
weak sales or excess inventory whereas a high inventory turnover would imply good sales or
insufficient inventory.

Va.)
• ATH Group of companies computed ratio shows that in 2018 they were able to buy and
sell off their inventory 7.67 times whereas in 2019 the ratio was reduced to 6.26 times. It
can be said that probably in 2018, they had special pricings for their products and services
which sold off their items fast whereas in 2019, it could be due to the pricing that their
inventory did not move much or it could be that excessive inventory was bought.
 • For FMF, in 2018 their computed ratio for inventory turnover was 3.02 whereas in 2019
it had a slight increase by 0.39. It can be implied that probably due to less inventory
turnover in 2018, FMF changed its pricing and marketing strategies who which in 2019
they could see the result increase by 0.39
Vb.)
• In comparison between both the companies, it can be said that the ATH Group of
companies has more inventory turnover than that of FMF in both the mentioned years.
This could be due to the high demand of its unique products and services together with
the unique pricing strategy offered by the company.

B) Equity Ratio

1. Shareholder’s Equity Ratio

= Shareholders Equity
Total Assets

ATH (Group) FMF

2018 2019 2018 2019

= 341,472,000 = 459,542,000 = 134,009,000 = 136,591,000

682,586,000 1,121,468,000 180,187,000 206,593,000

= 0.50:1 or 50% = 0.41:1 or 41% = 0.74:1 or 74% = 0.66:1 or 66%

The shareholder’s equity ratio shows how much of a company’s asset has been funded by the
issuing stocks or shares rather than getting assets of the company by taking debts. In short, this
describes how much of the company’s asset is funded by the shareholders.

Va.)
• Taking into consideration the computed equity ratio for the ATH Group of companies in
the year 2018, it shows 50% of the assets were funded by issuing stocks while the other
50% could have been bought by taking debts. This further decreases in 2019 since, the
calculations show that the equity ratio decreased to 41%. This shows that the company
is heading towards a risk as the shareholder’s equity is decreasing which means that the
company might be getting into debts to buy company assets.
• The same situation is with FMF. In the year 2018, their equity ratio was 74% which
indicated that they had only 26% stock financed on debt. This was good for the company.
 However, in 2019 the ratio decreased by 8%. This is not a positive change as it would
mean that the company is slowly financing its stock either by borrowing or taking debts.
Vb.)
• Both companies were doing well in the year 2018 however, this changed in the year
2019. In 2019 it can be said that most of the stocks were financed by either borrowing
or taking debts hence, the shareholders would then have less control over the company’s
assets.

C) Profitability Test

1. Net Income to Net Sales (Net Profit Margin)

= Net Profit after tax
Net Sales
ATH (Group) FMF
2018 2019 2018 2019

= 89,787,000 = 84,739,000 = 8,490,000 = 6,826,000

460,416,000 523,950,000 186,654,000 191,662,000

= 19.50% = 16.17% = 4.55% = 3.56%

The Net Profit Margin is basically a means to calculate the revenues of a business. This is the
profit of the company.

Va.)
• The ATH Group of companies seemed to be doing well in the year 2018 as they made a
profit of 19.50% unfortunately this decreased by 3.33% in 2019, reaching the net profit
of only 16.17%.
• The same scenario was for FMF as the business did well in 2018 with net profit of 4.55%
while the net profit dropped in 2019 reaching up to only 3.56%.

Vb.)
• Taking into consideration both the companies, the ATH Group of companies did better
than FMF in making net profit for the business.
 2. Return on Average Common Stockholders’ Equity (ROE)
= Net Profit after tax
Average Common Stockholders’ Equity

ATH (Group) FMF

2018 2019 2018 2019
= 89,787,000 = 84,739,000 = 8,490,000 = 6,826,000
(292,481,000+341,472,000)/2 (341,472,000+459,542,000)/2 (128,772,000+134,009,000)/2 (134,009,000+136,591,000)/2

= 89,787,000 = 84,739,000 = 8,490,000 = 6,826,000

316,976,500 400,507,000 131,390,500 135,300,000
= 28.33% = 21.16% = 6.46% = 5.05%

This ratio is used to measure the company’s performance based on the average shareholder’s
equity i.e. creating for every dollar of the shareholder’s equity.

Va.)
• ATH Group of companies faced a decreased in the ROE in 2019 when compared to 2018.
This could be due to the profit being carried forward, so the equity keeps increasing but
profit usually remains the same therefore the ROE keeps decreasing.
• FMF displays the same result as ATH Group as we can see a decrease in the ROE
computations in comparison of 2018 and 2019.
Vb.)
• In comparison of both the companies, it can be said that ATH Group of companies is
performing better than FMF in terms of ROE as ATH has a variance of more than 10% for
both 2018 and 2019 than that of FMF.

3. Earnings Per Share

= Operating profit after tax – preference dividend
Average number of ordinary shares

ATH (Group) FMF

2018 2019 2018 2019
= 89,787,000 = 84,739,000 = 8,490,000 = 6,826,000
422,104,868 422,104,868 150,000,000 150,000,000
= 21.27 cents = 20.08 cents = 5.66 cents = 4.55 cents
Earnings per in simple words would mean the amount of money a company makes for each of its
shares presented in the market. This is calculated by dividing the net profit of the company with
the company’s available shares. The higher the value, the better it is for the company as the
investors will be paying more for each of the shares.

Va.)
• The ATH Group of companies did quite well in 2018 as they made 21.27 cents for each
share however, this decreased to 20.08 cents in 2019. Since, there is not much difference
between both year’s share values, it can be said that ATH Group of companies is doing
quite well.
• FMF in 2018 made 5.66 cents on each of its share whereas in 2019 the earnings per share
decreased to 4.55 cents. These values do not seem to be pleasing as this would allow
investors to buy shares for less value while the company does not get the chance to make
much profit out of the shares sold. FMF would need to work on strategies to increase the
values for each of its shares.
Vb.)
• Upon comparison of both the companies, it can be said that the ATH Group of companies
is doing far well than FMF. In 2018 FMF is lagging ATH Group of companies with 15.61
cents whereas in 2019 the difference is of 15.53 cents. From these differences, it is shown
that FMF is not performing as efficient as ATH and this can be a downfall for the company
in terms of profit.

D) Market Tests
4. Price Earnings Ratio

= Market Price per share

Earnings per share

ATH (Group) FMF

2018 2019 2018 2019

= 3.28 = 2.28 = 1.36 = 2.13

21.27 20.08 5.66 4.55

= 0.15 : 1 = 0.11 : 1 = 0.24 : 1 = 0.47 : 1

The Price Earnings Ratio is used to what is the growth ratio for each stock or share of the company
i.e. the stock valuation. This helps investors determine the market value of a stock based on
company’s earnings per share. If the PE ratio is higher, this indicates higher earnings hence higher
stock price.

Va.)
• In 2018 the ATH Group of companies were growing with 0.15 price earnings per ratio
however, this decreased in 2019. This means that the value of the company’s shares were
devaluating leading to a decrease in earnings per share.
• FMF proved to improve its price earnings ratio in 2019 compared to that of 2018 with an
increment of 0.24. This showed that the company’s stock values were increasing hence,
this could attract a lot of investors into buying the stocks which would be profitable for
the company as this would allow the FMF to increase it’s earnings per share accordingly
based on the number of investors interested.
Vb.)
• As per the above computations, it can be said that FMF performed better than ATH Group
of Companies as shown by the calculation of its price earnings ratio for both the years.

PART VI
Ways to improve the above computed Ratios

Working Capital Ratio

- Working on earning additional profits
- Monitor that all debts are paid on time to avoid getting penalties.
- Be smart in choosing vendors for supplies, choose vendors who offer good discounts.

Acid Test Ratio

- Ensure not to give customer’s long-term debts as this can delay in payment resulting
in inability to meet company expenses.
- Abandon assets that do not add or serve as a revenue to the company.
- Increase current assets and decrease current liabilities

Inventory Turnover
- Smart and efficient pricing strategy to sell the old goods that have been stocked for a
while and contributing to low inventory turnover.
- Plan and prepare effective marketing strategies
- Monitor stocks periodically.
Shareholder’s Equity Ratio
- Work towards trying to decrease liabilities. If the liabilities i.e. the amount of money
a company owes to others decrease, the shareholder’s equity will increase.
- Evaluate and increase capital contributions so these can increase the company’s cash
assets. For instance, when a company issues 5,000 shares at $5 per share, collectively
it would receive $25,000 for the shares. This increases the company’s cash assets
hence, increasing the shareholder’s equity.
- Work on increasing the profit margins of the company and improve the asset
turnover.

Net Profit Margin

- Research on new ways to produce goods with cheaper raw materials as this would
reduce production costs.
- Work on increasing revenues by selling unique products and services as well
increasing price of the fastest selling product accordingly.
- Enhance vendor relationships to get good discounts for operating at a lower cost and
getting the items at a reduced price.

Return on Average Common Stockholders’ Equity

- Work on improving the profit margin of the company. Increasing the profit margin
will voluntarily increase the ROE.
- Plan and order inventory by being mindful that too much inventory would mean
getting debts and having increased liabilities.
- Work on improving the revenue performance of the company control all unnecessary
costings.

Earnings Per Share

- Have a control on the total count of your company’s share in the market for example,
at times the company’s buy back its own shares to reduce equity financing costs.
- Work on increasing the net income of the company
- Companies can increase the EPS by earning or expanding their margins by lowering
costs.

Price Earnings Ratio

- Explore companies’ growth that can attract new investors as this is one of the
influential aspects for price earnings ratio.
- Monitor and evaluate company debt as investors would be concerned that if the
company is in a higher debt, it will be a negative impact on the company’s future
earnings.
- Companies need to focus on improving their earnings as this is also one of the
methods to improve price earnings ratio.
References
The following stated links were used as a guide in compiling this assignment.

1. file:///C:/Users/doyal.deo/Desktop/FIN809%20Assignment%201/ATH%202018%20Fina
ncials%20.pdf
2. file:///C:/Users/doyal.deo/Desktop/FIN809%20Assignment%201/ATH%202019%20Fina
ncials%20.pdf
3. file:///C:/Users/doyal.deo/Desktop/FIN809%20Assignment%201/FMF%202018%20Fina
ncials%20.pdf
4. file:///C:/Users/doyal.deo/Desktop/FIN809%20Assignment%201/FMF%202019%20Fina
ncials%20.pdf
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