Risks Profile And Hedging Example For Free

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F J Benjamin Holdings Ltd listed on the Singapore Exchange on 14 November 1996, founded in 1959 headquarters in Singapore and it has offices in nine cities with more than 2000 employees. This Company is one of the leaders in building and management, and development system of retail and distribution networks for international luxury and lifestyle brands across Asia. The company participates in importing, exporting, licensing, distribution and retailing of consumer fashion wear and accessories household furnishing, timepieces, eyewear and multimedia storage product and operation of cafes and entertainment outlets.

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Especially, FJ Benjamin has four main segments is Luxury and Lifestyle Fashion Retailing and Distribution such as: Banana Republic, Gap and Givenchy..Timepiece Distribution such as: Bell & Ross, Chronotech and DeWitt. Creative and Design such as Raoul and Investing in Lifestyle Concepts.

Company’s information analysis

2.1 Scenario of FJ Benjamin

In FJ Benjamin Holdings Ltd’s wants to growth its portfolio by expanding business on Europe and the United States. In first of 2013, the company has some investment project to opened store located in Malaysia with required amount of SGD$ 15 million initial capital. FJ Benjamin needs more capital to implement these projects by borrowing SGD$ 10 million from bank for long-term loan for 5 year. To running and remaining new store in Singapore, in first of February 2013 FJ Benjamin need to imports 10milion luxury fashion wear of Céline brand from French with due date at first of March . When order is accepted the company submit Trust Receipt to bank as a short term loan. At the due date, Bank on behalf of FJ Benjamin payoff 10 million for exporter.

2.2 Financial information analysis

About general financial situation of FJ Benjamin, based on annual reported for 2011/2012, FJ Benjamin Holdings Ltd. reached $ 393,237,000 turnover in 2012. In 2011, turnover increased 22 % to $353.9 million from $289.4 million. In 2012, company’s operating profit was $ 22,046,000 and in 2011 reached $ 18,102,000 increase $3,944,000. Profit before tax was $19,670,000 compared to $17,042,000 a year ago. Net profit after tax rose 55% to $12.8 million from $8.3 million last year. Operating profit strengthened to $18.3 million from $5.1 million in FY 2010. Gross margins rose to 43 % from 41% in the previous financial year. Cost-to-revenue ratio improved to 39% from 42%. Based on all financial information mention above, it reflects that the quality of the business has improved and become more stable in 3 years ago. In Financial ratio analysis: Return On Equity (ROE) (%) of FJ Benjamin in 2012 was 10.13% increase 0.3% compared 2011 was 9.71%. The return on equity evaluated a FJ Benjamin’s profitability by showing how much profit it generates with the amount shareholders have invested. Debt Ratio of this company in last 3 year was approximately 80% in 2012, 72 % in 2011 and 2010. Debt ratio increase 8% from 2010 to 2012 mean that FJ Benjamin has very high debt ratio. Current Ratio is used to measure the ability to pay short-term debts of the FJ Benjamin. Generally acceptable current ratio is from 1 to 2. During last 3 year, FJ Benjamin’s current ratio was above 1.5. However, from 2010 to 2012 this ratio was decrease significantly.

Net profit Ratio

Company’s Risks Profile and Hedging

3.1 Internal risk

In fashion industry, business risk is a risk totally can occur with any group if they do not have a risk management strategy correctly. Business risk is a risk that FJ Benjamin might have to face. The FJ Benjamin is belonging to fashion industry. Therefore, Benjamin’s revenues are affected directly by consumer sentiment and purchasing power as well as changing on trend of fashion and lifestyle trends. Especially, competitors also is a risk might affect to Benjamin because a lot of new brands are opened and growth quickly today. In the other words, customer satisfaction is most importance to increase profit and ability to meet customer’s need is a first mission of this company to against with this risk as well as increasing competitor opportunities.

3.2 External risk

The Company has to face with a lot of risks arising from its operations from that Fj Benjamin uses of financial instruments to against all these risk. The main External risks include credit risk, currency exchange risk, interest rate risk and liquidity risk. Credit Risk: Credit risk is the risk of loss that can occur on financial instruments should a partners default or non-performance on its obligations. Especially, The Company’s credit risk arises directly from trade and other debtors. Based on annual report, the trade and other receivables of FJ Benjamin shows that all its not past due, unimpaired and creditworthy debtors with very well payment record. Generally, amount of cash and fixed deposits are put in banks and financial institutions with good credit rating. In addition, FJ Benjamin use the ways to manages its credit risk by application of credit approvals, credit limits and monitoring procedures. However high debt ratio is a disadvantage of FJ Benjamin, it reflects that this company has many debts and possible to non performance or default. Foreign Exchange risk: FJ Benjamin is an import and export company so that it has a lot of transactional using foreign currency .The company import, export between Asia’s countries, US and EU and most of the group’s overseas purchases by in Swiss Franc, US Dollar and the Euro. Therefore, FJ Benjamin maybe face with foreign exchange risk when exchange rate movement. The FJ Benjamin always find out the ways to maintain a natural hedge by keeping the balance of liabilities against assets in the same currency or against the entity’s functional currency. In order to reduce the company’s exposure to foreign currency fluctuations, FJ Benjamin used foreign currency forward contracts based on purchase commitments for periods ranging from three to six months forward to minimize this risk. Liquidity Risk: Liquidity risk is the risk that the Company will not meet financial obligations at maturity date because of not enough of funds. Although in 3 years ago the company has enough current assets to meet the payment schedule of current liabilities with a margin of safety. However, current ratio in 2012 fall meaning is amount of liabilities increase more than 2 years ago and current assets decrease in 2012 lead to level of liquidity risk may be increase in the near future. But FJ Benjamin manages its liquidity risk by maintaining a healthy balance of cash and cash equivalents and an sufficient amount of committed credit facilities. Moreover, follow annual report of 2012, the Company assessed the level of risk with respects to refinancing its debt and concluded it to be low. Approaching to sources of funding is enough and available and debt maturing within 12 months can be rolled over with existing lenders. Interest Rate Risk Interest rate risk is the risk that the value of cash flows of the company in the future and all company’s financial instruments will go up or go down without predictable because of changes in market interest rates. With the FJ Benjamin also may face with this risk and relates to amount of borrowing which is subject to floating interest rates and are re-priced at intervals of less than 1 year.

Recommendation

FJ Benjamin’s earnings remained resilient despite the European debt crisis; this company still is leader by strong brand portfolio and growing in the ASEAN economies. Looking at business result in last 3 year, almost signal are good. However, FJ Benjamin’s financial still exists some problems and risk can be occurring with this business. With high ROE indicates that all investment project of this company can recover capital and gain profit in the future With debt ratio too high that reflects that the company has much debt and bank borrowing than their equity. Bank has to consider very carefully before lending to this company and high interest rate to cover credit risk. Then company needs to provide more collateral and margin account to ensure that can pay off the loans. However,.

Conclusion

In sum up, FJ Benjamin is a good company in Fashion Industry in around the world. This Company is more and more developed with stable and solid business. Company is assessed that which will become a most successful and has new prospect in the future. Although, looking at business result in last 3 year, almost signal are good. Besides that, FJ Benjamin

Appendix

Current ratio: Current Assets / Current Liabilities

Year

2010

2011

2012

Current Assets

192,846 212,857 209,940 Current Liabilities 95,264 121,998 127,998 Current ratio 2.024332 1.744758 1.640182 Return on Equity (ROE ): (Net Income/Shareholder’s Equity) x 100

Year

2010

2011

2012

Net Income 8,260 12,770 13,541 Shareholder’s Equity 137,209 131,458 133,607 Return on Equity (ROE ) % 6.02% 9.71% 10.13% Debt Ratio: (Total Liabilities / Shareholders Equity) x 100

Year

2010

2011

2012

Total Liabilities 76,385 80,752 85,907 Shareholders’ Equity 105,684 111,667 106,819 Debt Ratio (%) 80% 72.3 % 72.2% Net profit Ratio: (Net Profit / Net Sales ) x 100

Year

2010

2011

2012

Net Profit

8,260 12,770 13,541

Net SalesÂ

295,386 360,003 403,281 Net profit Margin 2.8 % 3.56% 3.36%

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