Genting Group Comprises of Five Public Companies Finance Essay

The Genting Group comprises of five public companies that are involved in various industries. The main company of the group is Genting Berhad. Genting Berhad is an investment holding and management company (Genting Berhad 2012). It had made its investment in different industries such as hospitality, entertainment, plantation and many more through the other companies under "Genting"

The Genting group was founded by the late Tan Sri (Dr.) Lim Goh Tong in 1965 as he began to develop the summit of Mount Kila to build his very own resort known as Genting Highlands Hotel. The hotel operated as both a hotel and a casino. Later in 1980, Genting Group via Genting Berhad, involved itself in palm oil production after purchasing The Rubber Trust Group which consist of three Hong Kong plantation companies. Today, under the name Genting Plantations Berhad, the Genting Group is one of the primary palm oil producers in Malaysia with 166,000 hectares of land in Malaysia and Indonesia.

The Genting Group continued to venture into other industries such as electricity power generation and supply and the paper manufacturing businesses in 1994 through Genting International Paper Holding Limited and production of oil and gas in 1996 under Genting Oil and Gas Limited.

The Genting Group also made its way to obtain international recognition. Currently they have a company in Hong Kong known as Genting Hong Kong Limited and in Singapore known as Genting Singapore P.L.C..

Genting Berhad is said to have a positive future prospective. This is because the Genting group has began their plans to further expand their business into the western nations. In recent news (Walker E. 2013), The Miami Herald has reported that the Genting Group has made its first footprint in the country, Bahamas, by having a joint venture with a local company, RAV Bahamas, to open a resort and a casino. Bahamas is planning to have Genting Group to further invest into the other island of the country.

In addition, the financial statements of Genting Berhad are showing a positive outlook based on the financial ratios calculated. The result and the interpretation of the ratios will be further explained later in this report.

Genting Group Board of Directors consist of mainly six members which includes two executive directors and four independent non-executive directors. In general, the board is responsibility for the proper conduct of the company's business. They are also required to have formal schedule of matters specifically reserved for its decision, including overall strategic direction, annual operating plan, capital expenditure plan, acquisitions and disposals, major capital projects and the monitoring of the Group's operating and financial performance. (Genting Group Annual Report 2011)

The following table shows the list of Board of Directors and a brief description of their role.

No.

Name and Position

Description of role

1.

Tan Sri Lim Kok Thay

(Chairman and Chief Executive)

Ensure that the board is effective in its tasks of setting and implementing the company's direction and strategy

Set the agenda, style and tone of Board discussions to promote constructive debate and effective decision-making.

Develop and promote effective communication with shareholders and other relevant constituencies.

2.

Tun Mohammed Hanif bin Omar (Deputy Chairman)

Assist the Chairman in his task and help balance the chairman's dual role

3.

a. Dato' Dr. R. Thillainathan

b. Dato' Paduka Nik Hashim

Bin Nik Yusoff

d. Tan Sri Dr. Lin See Yan

e. Mr Chin Kwai Yoong

(Independent Non-Executive

Director)

Provide adequate view of the company's standing from an 'outsider' perspective

Give advice or guidance relating to board matters without biasness

 Independent Auditors

According to U.S Securities and Exchange Commission (2002), an auditor is a certified accountant who examines the financials statement of a company. This is to ensure that the information shown is truthful, accurate, complete and in accordance to the criteria set by the government. A large company like Genting Berhad has both internal and external (independent) auditors. Independent auditors are a group of auditors or accountants that do not have any kind of relationship with the company and are able to review the statements fairly. These auditors will first review and then write a report about the statements stating whether there is a problem with the statements or not.

The Independent auditor that is working with Genting Berhad is PricewaterhouseCoopers (Pwc). Auditors of Pwc are responsible to audit the financial statements of Genting Berhad and make sure that it is in accordance with the requirements set by the Malaysian Accounting Standard Board (MASB). They also obtain necessary evidence about the amounts and disclosure in the statements (Annual Report 2011). Lastly Pwc will provide their opinion regarding the statement and stating whether the statements are done accurately. All these are done based on the judgments of the auditors.

 Ratio Calculations and Analysis

Accounting ratios are used to compare different parts of the financial statements. For example, current assets and current liabilities. This allows the readers to understand the financial standings of the company better as well as how the company doing compared to other companies of the same field. Companies also calculates their own ratios to see how well they are doing compared to the previous years. There are a four different types of ratio that can be calculated. To have a clearer understanding of Genting Berhad's financial standings, this assignment will be comparing the ratios of year 2010 and 2011 (refer to appendix for the financial statements).

 Liquidity Ratio

The purpose of liquidity ratios is to measure the ability of the company to pay its liabilities (Wood F. 2012). There are two ways to calculate this ratio; current ratio and acid test ratio.

Current Ratio

Current Ratio is used to compare the current assets of the company and its current liabilities. If the ratio falls under 1, it means that the company is unable to pay its liabilities if it is due at that time.

Formula :

Current Asset

Current Liabilities

Current Ratio of 2010

Current Ratio of 2011

19189.7

=

3.2482

5907.8

18498.3

=

2.5569

7234.8

 

In both years, Genting berhad has the ability to repay its liabilities when it is due at that time. But the ratio decrease in 2011. This is due to the decrease in asset and increase in liabilities. However, it does not mean that it is bad have more liabilities. Genting Berhad could have taken more loans that increase its inflow of cash. It is not harmful as long as the ratio is more than 1.

3.1.2 Acid Test Ratio

Similar to the current ratio, the only difference is that the acid test ratio does not take into account the inventory held by the company.

Formula :

Current Asset - Inventory

Current Liabilities

Acid Test Ratio of 2010

Acid Test Ratio of 2011

19189.7-520.6

=

18669.1

=

3.1601

5907.8

5907.8

18498.3-539

=

17959.3

=

2.4823

7234.8

7234.8

Just like the analysis for current ratio, the ratio had decrease in 2011 but still above 1. The reason inventories is not taken into account in this calculation is because it is not as liquid as the other assets. Inventories comes in many form such as raw material, work in progress and finished goods which is difficult to be valued unless it is sold. Genting Berhad need not to worry about when its liabilities is due as it can be settled at any given time.

Asset Management Ratio

Asset management ratio is use to analyse how effectively is the company using its asset to generate revenue (Peavler R. 2013). There are a total of four ways to calculate this ratio but only two will be discussed.

Inventory Turnover

This measures how quickly the company sells its goods and clears the inventories from its shelves. It also shows how well the company is in managing their inventories. The higher ratio indicates how quickly is the inventories sold (Lane M.A.).

Formula :

Cost of Goods Sold

Average Inventory

Inventory Turnover of 2010

Inventory Turnover of 2011

8537.7

=

8537.7

(520.6+387.1)/2

453.85

=

18.8117

11733.2

=

11733.2

(539+520.6)/2

529.8

=

22.1465

Inventory turnover is read as the 'number of times' the inventory is sold and replaced during a certain period. For example, in 2010, the inventory turnover is 18.8117 times. The increase in the rate shows that there is a shorter time where inventory stayedsayeiz idle in 2011. It also means that Genting Berhad had done more sales and gain more revenue.

Asset Turnover

Asset turnover shows how efficiently the company is using its asset to make sales.

Formula :

Net Sales

Total Asset

Asset Turnover of 2010

Asset Turnover of 2011

15194.7

=

0.3100

49014.1

19559

=

0.3599

54344.7

Asset turnover is used to calculate the efficiency of using assets to generate revenue. Examples are the use of equipment, premises and others. Since the ratio in 2011 is higher than 2010, it can be said that Genting Berhad had better management of its asset during that year. However, the ratio of both years is considered to be low. It is possible that Genting Berhad is more dependent on the use of its capital (cash) rather than assets to generate revenue.

Five other measurements

Rather than using the ratio analysis, there are other ways to measure a company's financial standings and performances.

One of them is Free Cash Flow (FCF). Free cash flow can be defined as the cash available after subtracting the amount the company had used for its business (N.A 2010). Unlike profits, the FCF is the actual amount that the company has in hand or at the bank. FCF is used to make investments, expanding the business and paying the shareholders.

Besides that, there is the Capital Asset Pricing Model (CAPM). It is used to measure the expected return rate from buying the company's shares (McCraken M. n.d). This calculation is done by the investors. When performing investments, investors are expected to take certain amount of risks. They would want to evaluate the value of the risk and how much should be expected to be return to them for taking such a risk. The higher the risk, the higher the expected return value. If the investors feel that the company could not provide the expected return rate, they might choose to invest in something else.

The third is Market Value Added (MVA). MVA can be defined as the difference between the market value of the firm's stock and the capital invested by shareholders (Jermanis D. 2006). This can be seen as the amount the shareholders earn or get back if they were to sell their shares. The MVA shows how well the company is managing its scarce resources. The more efficient they are, the more MVA they have. It can only be used for publicly listed share prices as it is not easy to determine the value otherwise.

The fourth is Economic Value Added (EVA). Unlike MVA, EVA is used to measure a company's performance during a certain period of time. It is usually used by internal management. EVA can be calculated by subtracting capital invested times weighted average cost of capital from net operating profit after tax (EVA = Net Operating Profit After Tax - (Capital Invested x WACC)). The calculations for EVA will tell if the profit earned in a project is enough to cover the capital invested in it. A negative EVA number shows loss (Investing Answers n.d.).

A company's performance can also be evaluated through customers' perspective. If the company is doing well and treating their customers right, their customers will recommend the company to others. High profits only show the sales the company made. It does not mean that it has good customer retention plan. Without a good retention plan, the company will eventually lose all its customers to other companies. The company must also be able to deliver the promised level of satisfaction and handle the customers' complaint efficiently.

Recommendation

I would buy and recommend Genting Berhad's shares. The overall ratio analysis shows a positive outlook of the company. By comparing the two most recent financial statements which is 2010 and 2011, it can be seen that the company is improving through its assets acquisition and sales. The most important thing is the profitability ratio. It shows that the company is getting better at managing its cost which will lead to an increase of profit margin for the company. If the company is expanding and developing consistently, we as shareholders will be able to get more dividends in return. Moreover, there are news that Genting Berhad is expanding to other nations such as Bahamas which will provide the company with an international recognition. This will increase the market value of its shares and stocks.

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