QUEST INTERNATIONAL UNIVERSITY PERAK

Contents
KFC Holding Background ..3
The Income Statement ..4
The Balance Sheet Statement5
Definition of Financial Ratios....6-7
The Ratio calculation ...8-13
Conclusion14

KFC Holdings Background

Vision
To be the leading integrated food services group in the Asia Pacific region based on consistent
quality products and exceptional customer-focused service.
Mission
To maximize profitability, improve shareholder value and deliver sustainable growth year after
year.
About Company
The KFC chain of restaurants in Malaysia, Singapore, Brunei, Cambodia, and India (over 640
outlets). The Rasa Mas chain of restaurants in Malaysia and Brunei (27 outlets)
The Group also owns 74 Ayamas shop, making KFC the nation's first branded chicken and
chicken-based retail chain.
In addition, to support KFCs core activities, they are extensively involved in poultry production
and processing, as well as a host of ancillary businesses such as vegetable farming, baking and
sauce production.
After a successful restructuring exercise, KFCH has emerged as a strong player in the Malaysian
corporate, world with a high reputation for excellent products, efficient friendly service, and
financial strength. Indeed, KFCH is the only KFC restaurant operator in the world whose
Western Quick Service Restaurant market share is greater than that of McDonald's.
KFCH is part of QSR Brands Bhd (QSR Brands) a leading, fully integrated quick-service
restaurant enterprise and the local franchisee and operator of the KFC and Pizza Hut restaurants.
QSR Brands is in turn a subsidiary of Kulim (Malaysia) Berhad, a conglomerate focusing mainly
on palm oil operations, oleo chemicals, biodiesel production, and quick service restaurants.

Financial Statements for KFC HOLDINGS (MALAYSIA) BHD (KFC)

Currency in
Millions of
Malaysian
Ringgits

INCOME STATEMENT AS OF :

Revenues
TOTAL REVENUES
Cost of Goods Sold

GROSS PROFIT
Selling General & Admin Expenses, Total

Other Operating Expenses

OTHER OPERATING EXPENSES, TOTAL
OPERATING INCOME

Interest Expense
Interest and Investment Income
NET INTEREST EXPENSE
Other Non-Operating Income (Expenses)

Minority Interest in Earnings

Earnings from Continuing Operations

2,297.40
2,297.40

2,522.40
2,522.40

1,078.5
0
1,218.9
0
1,037.3
0
15.
6

1,167.9
0
1,354.4
0
1,144.9
0
31.
1

1,021.8
0
197.
2
5.
4
0.
4

1,113.8
0
240.
6
4.
4
0.
4

-5

-4
--

192.
2
2.
1

Gain (Loss) on Sale of Assets

EBT, INCLUDING UNUSUAL ITEMS

Income Tax Expense

31-Dec
2014

--

EBT, EXCLUDING UNUSUAL ITEMS

Other Unusual Items, Total

31-Dec
2013

-190
57.
2
2.
4
132.
8

236.
7
3.
9
10.
9
221.
8
62.
1
2.
9
159.
7

NET INCOME
NET INCOME TO COMMON
ITEMS

INCLUDING

EXTRA

NET INCOME TO COMMON EXCLUDING EXTRA

ITEMS

130.
4

156.
8

130.
4

156.
8

130.
4

156.
8

Financial Statements for KFC HOLDINGS (MALAYSIA) BHD

(KFC)
Currency in

BALANCE SHEET AS OF:-

Millions of Malaysian Ringgit

31-Dec

31-Dec

2013

2014

123.4
45.7
169.2

131.7
52.9
184.6

50.
3
15
23.
2
88.
4
172.
3
17.
7
447.
7
1,183.0
0
409.
8
773.
2
43.
4

46.5

Assets
Cash and Equivalents
Short-Term Investments
TOTAL CASH AND SHORT TERM INVESTMENTS
Accounts Receivable
Notes Receivable
Other Receivables
TOTAL RECEIVABLES
Inventory
Other Current Assets
TOTAL CURRENT ASSETS

Gross Property Plant and Equipment

Accumulated Depreciation

NET PROPERTY PLANT AND EQUIPMENT

Goodwill
Long-Term Investments
Other Intangibles
Other Long-Term Assets
TOTAL ASSETS
LIABILITIES & EQUITY
Accounts Payable

-25.
3
0.
9
1,290.5
0
145.
3

6.6
24
77.1
200.8
23.7
486.1
1,468.7
0
-468.7

1,000.0
0
50
22.4
23.6
0.9
1,583.0
0
155

Accrued Expenses
Short-Term Borrowings
Current Portion of Long-Term Debt/Capital Lease
Current Income Taxes Payable
Other Current Liabilities, Total
TOTAL CURRENT LIABILITIES
Long-Term Debt
Minority Interest
Pension & Other Post-Retirement Benefits
Deferred Tax Liability Non-Current
TOTAL LIABILITIES
Common Stock
Additional Paid in Capital
Retained Earnings
Comprehensive Income and Other
TOTAL COMMON EQUITY
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY

111.
3
4.
2
27.
9
12.
2
65
365.
8
84.
4
12.
5
3.
1
32.
9
486.
2
198.
3
18.
7
547.
5
27.
2
791.
8
804.
2
1,290.5
0

127.8
10.7
36
12.7
75.1
417.2
105.8
15
2.9
51.8
577.8
396.6
0.4
482.2
111
990.2
1,005.3
0
1,583.0
0

The definitions of financial ratios

1. Liquidity Ratio (LR)

i)

Net Working Capital

Is a measurement of the operating liquidity available for a company to use in
developing and growing its business? The working capital can be calculated very
simply by subtracting a companys total current liabilities from its total current
assets.

ii)

Current Ratio

The ratio is mainly used to give an idea of the company's ability to pay back its
short-term liabilities (debt and payables) with its short-term assets (cash,
inventory, receivables). The higher the current ratio, the more capable the
company is of paying its obligations.

iii)

Quick Ratio
A indicator of a company's short-term liquidity. The quick ratio measures a
company's ability to meet its short-term obligations with its most liquid assets.
The higher the quick ratio, the better the position of the company.

2. Asset Management Ratio (AMR)

i)

Account Receivable Turnover

An accounting measure used to quantify a firm's effectiveness in extending credit
as well as collecting debts. The receivables turnover ratio is an activity ratio,
measuring how efficiently a firm uses its assets.

ii)

Average Collection Period

The approximate amount of time that it takes for a business to receive payments
owed, in terms of receivables, from its customers and clients.

iii)

Inventory Turnover

A ratio showing how many times a company's inventory is sold and replaced over
a period.

3. Leverage Ratio (LvR)

i)

Debt Ratio
A ratio that indicates what proportion of debt a company has relative to its assets.
The measure gives an idea to the leverage of the company along with the potential
risks the company faces in terms of its debt-load.

ii)

Debt Equity Ratio

A measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' equity. It indicates what proportion of equity and debt
the company is using to finance its assets.

iii)

Equity Multiplier
Like all debt management ratios, the equity multiplier is a way of examining how
a company uses debt to finance its assets. Also known as the financial leverage
ratio or leverage ratio.

4. Profitability Ratio (PR)

i)

Gross Profit Margin

A financial metric used to assess a firm's financial health by revealing the
proportion of money left over from revenues after accounting for the cost of
goods sold. Gross profit margin serves as the source for paying additional
expenses and future savings.

ii)

Earnings Per Share

The portion of a company's profit allocated to each outstanding share of common

stock. Earnings per share serves as an indicator of a company's profitability.

iii)

Return On Equity
The amount of net income returned as a percentage of shareholders equity. Return
on equity measures a corporation's profitability by revealing how much profit a
company generates with the money shareholders have invested.

KFC Holdings Financial Ratio Analysis of Year 2009

1. Liquidity Ratio (LR)

i) Net Working Capital

current assets current liabilities

2013
447.7 365.8 = 81.9

2014
486.1 417.2 = 68.9

Analysis shows that the net working capital reduces 13 units in 2014 from the
year 2013. Since the working capital of the company is positive, the company is
able to pay off its short-term liabilities. The company is operating in most
efficient manner.

ii) Current Ratio

Current assets / current liabilities

2013

2014

447.7 / 365.8 = 1.224

486.1/417.2 = 1.165

Analysis shows that the current ratio reduces 0.059 units in 2014 from the year
2013. The capability of the company to pay its obligation is reduced. However
the company is still able to pay all its obligations since the ratio is not under 1.
The higher the current ratio, the more capable the company can pay its short-term
liabilities.
iii) Quick Ratio

[Current assets (inventory + prepayments) / current liabilities]

2013

2014

447.7 (172.3 + 45.7) / 365.8

[486.1 (200.8 + 52.9) / 417.2]

= 447.7 218 / 365.8

= 486.1 253.7 / 417.2

= 229.7 / 365.8
= 0.628

=232.4 / 417.2
= 0.56

Analysis shows that the quick ratio reduces 0.068 units in 2014 from the year
2013. Since there is a reduction in the quick ratio, the position of the company is
reduced as well since the quick ratio measures a companys ability to meet it
short-term obligation with its most liquid assets. The higher the quick ratio, the
better the position of the company.
2. Asset Management Ratio (AMR)

i) Account Receivable Turnover

Credit sales / accounts receivable

2013
2297.40 / 50.3 = 45.673

2014
2522.40 / 46.5 = 54.23

Analysis shows that the account receivable turnover increase 11.557 units in 2014
from the year 2013. Since there is an increase, the company operates in a cash basis
and that its extension of credit and collection of accounts receivable is
efficient.
ii) Average Collection Period

360 / account receivable turnover

2013
360 / 45673 = 7.882

2014
360 / 54.23 = 6.64

Analysis shows that there is reduction of 1.242 units in the average collection
period in 2014 from the year 2013. Therefore, possessing a lower average
collection period is seen as optimal, because this means that it does not take a
company very long to turn its receivables into
cash.
iii) Inventory Turnover

Cost of goods sold / inventory

2013
1078.50 / 172.3 = 6.259

2014
1167.90 / 200.8 = 5.82

10

Analysis shows that there is a reduction of 0.439 units in inventory turnover in

2014 from the year 2013. Since there is a reduction, the company faces poor sales
and therefore excess inventory. High inventory levels are unhealthy because they
represent an investment with a rate of return of zero. It also opens the company
up to trouble should prices begin to fall.
3. Leverage Ratio (LvR)

i) Debt Ratio

Total liabilities / total assets

2013
486.2 / 1290.50 = 0.377

2014
577.8 / 1583 = 0.37

Analysis shows that the debt ratio of the company remain almost the same in the
two years. Since the debt ratio is lower then 1, indicates that a company has more
assets then debt.
ii) Debt Equity Ratio

Long-term liabilities / shareholder equity

2013
120.4 / 791.8 = 0.152

2014
160.5 / 990.2 = 0.162

Analysis shows that there is a increase of 0.01 unit in debt equity ratio. Since
there is an increase, means that the company has been aggressive in financing its
growth with debt. This can result in volatile earnings as a result of the additional
interest
expens
e.

11

iii) Equity Multiplier

1/1 Debt ratio

2013

2014
1 / 1 0.37 = 0.63

1/1 0.377 = 0.623

Analysis shows that there is an increase of 0.007 units in equity multiplier in

2014 from the year 2013. Since there is an increase, indicates higher financial
leverage which means the company is relying more on debt to finance its assets.
4. Profitability Ratio (PR)

i) Gross Profit Margin

Gross profit / sales

2013
1218.90 / 2297.40=
0.531

2014
1354.40 / 2522.40= 0.54

Analysis shows that there is an increase of 0.009 units in gross profit margin.
Higher value indicates a higher efficient company. The company source of paying
additional expenses and future saving is increased.

12

ii) Earnings Per Share

Profit available to ordinary shareholder / number of ordinary

shares issued

2013
130.4 / 198.3 = 0.658

2014
156.8 / 396.6 = 0.395

Analysis shows that there is a reduction of 0.263 units of earning per share in
2010.

iii)
Return On Equity

Profit after tax / shareholders equity

2013
130.4 / 791.8 = 0.165

2014
156.8 / 990.2 = 0.158

Analysis shows that there is a reduction of 0.007 units in return on equity in

2014 from the year 2013. Since there is a reduction, the profit which the
company generate with the money shareholders have invested is reduce as
well.
Conclusion
Financial statement analysis is a tool used by accountants to interpret the financial performance
or position of a business entity. The analysis provides a meaningful data that can be used by users
to make informed and better decision.
KFC Holdings is in a secure financial position. However, improvements are needed in
some area for the company if it is intend to grow. KFC Holdings need to improve in the

13

capability of paying obligation and short-term obligation. The current ratio and quick ratio of
KFC Holdings is reduced in the year compare to 2013. The company may come out with some
strategy to overcome this problem because this will affect the financial performance of the
company.
KFC Holdings is also having trouble of poor sales and therefore excess inventory as the
inventory of the company is reduced in the year 2014 from 2013. Besides, the company has been
aggressive in financing its growth with debt and is relying more on debt to finance its assets
since there is an increase in debt equity ratio and equity multiplier in the year 2014 from 2013.
Furthermore, reduce in return on equity in the year 2014 from 2013 shows that the profit
which the company generate with the money shareholders have invested is reduced as well.
Overall, KFC Holdings should come with a strategy to overcome these problems to
improve the company growth.

14