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BWFF3023 CREDIT MANAGEMENT

Table of Contents

1.0 INTRODUCTION 2

1.1 COMPANY PROFILE 2

1.2 QUALITY AND STANDARDS: 2


2.0 BALANCE SHEET OF APOLLO FOOD HOLDINGS BERHAD 2010 TO 2012 4
2.1 APOLLO FOOD HOLDINGS BERHAD BALANCE SHEET OF COMMON SIZE 2010 TO
2012 5
2.2 APOLLO FOOD HOLDINGS BERHAD INCOME STATEMENT 2010 TO 2012 6
2.3 APOLLO FOOD HOLDINGS BERHAD COMMON SIZE OF INCOME STATEMENT
2010 TO 2012 6
2.4 APOLLO FOOD HOLDINGS BERHAD CASH FLOW STATEMENT 2010 TO 2012 7
3.0 FINANCIAL RATIOS OF APOLLO FOOD HOLDINGS BERHAD 2011 TO 2012 8
4.0 APOLLO FOOD HOLDINGS BERHAD KEY RATIOS FOR CREDIT ASSESSMENT 9
4.1.0 LIQUIDITY RATIO 10
4.1.1 ACTIVITY RATIO 12
4.1.2 LEVERAGE RATIO 14
4.1.3 PROFITABILITY RATIO 15
5.0 CREDIT SCORING 17
6.0 CONCLUSION 20
REFERENCE: 21

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1.0 Introduction
This assignment is dedicated to analyse the industry based on the past three (3) years
report between 2010 to 2012. However, the report will include the Profit & Loss,
Balance Sheet and Cash Flow Statement which all can help us to do the critical
research on the company’s credit assessment whether the company is capable to offer
a credit facility to a particular company. Moreover, we start by introducing the
company background, its industry nature, and the distribution of products to overseas
markets.

1.1 Company Profile


The principal activities of APOLLO are investment holding and provision of
management services to subsidiaries. The principal activities of the subsidiaries are
manufacture of and trading in compound chocolates and chocolate confectionery
products and cakes. Apollo Food Holdings Bhd (APOLLO) was incorporated on 5th
March 1994 as a private limited company under the name Apollo Food Holdings Sdn
Bhd. It subsequently converted into a public company on 8th September 1994 and
changed its name to present
Apollo Food Industries Sdn Bhd, The Company that is manufacturing compound
chocolate confectionery products and layer cakes based in Malaysia. Apollo’s product
mainly divided into two main categories, which are:
• Chocolate Wafer products
• Layer cake, Chocolate Layer Cake and Swiss roll products
As a leading manufacturer of the Chocolate Confectionery Products and Layer Cake
industry in Malaysia, the Apollo products are distributed in Malaysia and other
overseas market, which are Singapore, Indonesia, Thailand, Philippines, Vietnam,
China, Hong Kong, Taiwan, Japan, India, Middle East, Mauritius, and Maldives.

1.2 Quality and Standards:


Quality and innovation are one of the Apollo’s strengths.

The organization
constantly strives to determine and provide the resources needed

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a) Implement and maintain the quality management system and continually improve
its effectiveness.
b) Produce the products with top quality of raw & packaging materials
c) Using world class wafer and layer cake-manufacturing machinery from Europe
and constantly upgrade and improve to remain competitively.
d) Enhance customer satisfaction by meeting customer requirements.
e) Recognize our customers’ needs by introduce independence packaging.
f) Ensure the quality assurance procedures, the company had accredited with HALAL.

Our AIM
To always fulfilled the customer needs and requirement by using the latest equipment
and technology.

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2.0 BALANCE SHEET OF APOLLO FOOD HOLDINGS BERHAD 2010 to 2012


BALANCE SHEET OF APOLLO FOOD HOLDINGS BHD
2010 to 2012
DESCRIPTION 2010 2011 2012
ASSETS
Non Current Assets
Property, plant, and equipment 98,972,511 113,958,080 118,105,558
Investment Properties 13,206,429 14,165,224 13,952,841
Leasehold land use rights 11,648,849 5079204 2,399,690
Available-for-sale investments 971,688 899820 2,835,298
Deferred tax assets 6,600 36000 93,400
Total non current assets 124,806,077 134,138,328 137,386,787
Current Assets
Inventories 14,569,823 14,569,823 17,221,363
Trade Receivables 20,472,957 23,152,108 26,221,654
Other receivables, deposits and prepayments 1,846,001 1,058,136 2,642,793
Tax recoverable 2,953,003 1,205,418 383,986
Cash and cash equivalents 62,503,691 55,350,629 56,591,062
Total current assets 102,345,475 99,633,147 103,060,858
TOTAL ASSETS 227,151,552 233,771,475 240,447,645
EQUITY AND LIABILITIES
Shareholders’ Equity
Equity attributable to equity holders of the
company
Share capital 80,000,000 80,000,000 80,000,000
Reserves 123,176,465 124,478,300 135,133,353
Total Equity 203,176,465 208,478,300 215,133,353
Non current Liabilities
Retirement benefits obligations 1,205,585 1,308,168 1,411,747
Deferred tax liabilities 14,760,035 15,894,465 16,290,795
Total non current liabilities 15,965,620 17,202,633 17,702,542
Current Liabilities
Trade Payables 3,144,648 4,290,539 3,703,319
Other payables and accruals 3,217,520 3,538,628 3,594,711
Retirement benefits obligations 689,563 66,743 51,673
Current tax liabilities 957,736 194,632 262,047
Total current liabilities 8,009,467 8,090,542 7,611,750
Total liabilities 23,975,087 25,293,175 25,314,292
TOTAL EQUITY AND LIABILITIES 227,151,552 233,771,475 240,447,645

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2.1 APOLLO FOOD HOLDINGS BERHAD BALANCE SHEET OF COMMON SIZE


2010 to 2012

DESCRIPTION 2010 2011 2012


ASSETS
Non Current Assets
Property, plant, and equipment 43.57% 48.75% 49.12%
Investment Properties 5.81% 6.06% 5.80%
Leasehold land use rights 5.13% 2.17% 1.00%
Available-for-sale investments 0.43% 0.38% 1.18%
Deferred tax assets 0.00% 0.02% 0.04%
Total non current assets 54.94% 57.38% 57.14%
Current Assets
Inventories 6.41% 6.23% 7.16%
Trade Receivables 9.01% 9.90% 10.91%
Other receivables, deposits and 0.81% 0.45% 1.10%
prepayments
Tax recoverable 1.30% 0.52% 0.16%
Cash and cash equivalents 27.52% 23.68% 23.54%
Total current assets 45.06% 42.62% 42.86%
TOTAL ASSETS 100.00% 100.00% 100.00%
EQUITY AND LIABILITIES
Shareholders’ Equity
Equity attributable to equity holders
of the company
Share capital 35.22% 34.22% 33.27%
Reserves 54.23% 53.25% 56.20%
Total Equity 89.45% 89.18% 89.47%
Non current Liabilities
Retirement benefits obligations 0.53% 0.56% 0.59%
Deferred tax liabilities 6.50% 6.80% 6.78%
Total non current liabilities 7.03% 7.36% 7.36%
Current Liabilities
Trade Payables 1.38% 1.84% 1.54%
Other payables and accruals 1.42% 1.51% 1.50%
Retirement benefits obligations 0.30% 0.03% 0.02%
Current tax liabilities 0.42% 0.08% 0.11%
Total current liabilities 3.53% 3.46% 3.17%
Total liabilities 10.55% 10.82% 10.53%
TOTAL EQUITY AND LIABILITIES 100.00% 100.00% 100.00%

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2.2 APOLLO FOOD HOLDINGS BERHAD INCOME STATEMENT 2010 to 2012

DESCRIPTION 2010 2011 2012

DATE OF FISCAL YEAR END 4/30/10 4/30/11 4/30/12


REVENUE 159,531,255 176,291,985 200,548,462
COST OF SALES 114,034,444 136,036,306 155,455,466
GROSS PROFIT 45,496,811 40,255,679 45,092,996
OTHER INCOME 6,315,337 2,228,062 2,870,847
ADMINISTRATIVE EXPENSES 10,818,406 11,335,988 11,013,658
SELLING AND DISTRIVUTION EXPENSES 6,652,111 6,171,497 8,356,522
OTHER OPERATING EXPENSES 2,093,865 2,399,332 -
PROFIT BEFORE TAX 32,247,766 22,576,924 28,593,663
INCOME TAX EXPENSES 7,570,774 4,722,703 6,852,338
PROFIT FOR THE YEAR 24,676,992 17,854, 221 21,741,325
ATTRIBUTABLE TO: EQUITY HOLDERS OF THE 24,676,992 17,854, 221 21,741,325
COMPANY
EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY
HOLDERS
Basic, for profit for the year 30.85 22.32 27.18
Diluted 30.85 22.32 NA
Dividend Per Share 20 25 20

2.3 APOLLO FOOD HOLDINGS BERHAD COMMON SIZE OF INCOME


STATEMENT 2010 to 2012
DESCRIPTION 2010 2011 2012

DATE OF FISCAL YEAR END


REVENUE 100.00% 100.00% 100.00%
COST OF SALES 71.48% 77.17% 77.52%
GROSS PROFIT 28.52% 22.83% 22.48%
OTHER INCOME 3.96% 1.26% 1.43%
ADMINISTRATIVE EXPENSES 6.78% 6.43% 5.49%
SELLING AND DISTRIVUTION EXPENSES 4.17% 3.50% 4.17%
OTHER OPERATING EXPENSES 1.31% 1.36%
PROFIT BEFORE TAX 20.21% 12.81% 14.26%
INCOME TAX EXPENSES 4.75% 2.68% 3.42%
PROFIT FOR THE YEAR 15.47% 10.13% 10.84%
ATTRIBUTABLE TO: EQUITY HOLDERS OF THE COMPANY 15.47% 10.13% 10.84%

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2.4 APOLLO FOOD HOLDINGS BERHAD CASH FLOW STATEMENT 2010 to 2012

APOLLO FOOD HOLDINGS


DESCRIPTION 2010 2011 2012
DETAILED DETAILED DETAILED
DATE OF FISCAL YEAR END 4/30/10 4/30/11 4/30/12
CASH FLOWS FROM OPERATING ACTIVITIES
PROFIT BEFORE TAX 32,247,766 22,576,924 28,593,663
Adjustment for:
Depreciation of property, plant an equipment 8,491,033 8,724,462 9,290,859
Depreciation of investment properties 128,498 212,383 212,383
Amortisation of leasehold land use rights 616,905 283,355 163,842
Unrealised loss/(gain) on foreign currency translations 274,877 803,911 121,152
Provision for retirement benefits 240,525 169,193 160,992
Property, plant and equipment written off 402 220 20
Inventories written off 95,341 111,947 219,398
Bad debts written off 90,935 1,013 35,945
Gain on disposal of investments 4,199,604 217,010 212,424
Interest Income 1,212,449 1,304,210 1,579,998
Rental income from investment properties 315,400 320,700 314,400
Dividend income 141,369 23,364 106,881
Loss/gain on disposal of property, plant and equipment 1,850 6,999 7,550
Reversal of/allowance for diminution in value of 161,726 -
investments
Operating profit before working capital changes 36,157,584 31,011,125 36,347,797
Changes in working capital
Inventories 2,456,386 4,408,980 1,426,095
Receivables 190,788 2,021,999 4,648,627
Payables 665,717 1,466,999 531,137
Cash generated from operations 34,176,127 26,047,145 32,594,128
Interest received 1,134,545 1,385,662 1,591,745
Income tax refunded 2,078,032
Taxes paid 3,182,129 5,580,438 6,014,744
Payment of retirement benefits 16,358 689,430 72,483
Net cash generated from operating activities 32,112,185 23,240,971 28,098,646
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of available-for-sale investments 2,454,906
Proceeds from disposal of investments 16,760,231 527,851 807,859
Rental received from investment properties 315,400 320,700 314,400
Dividend received 109,647 23,031 106,881
Purchase of property, plant and equipment 14,341,284 14,066,592 9,703,331
Purchase of investment
Purchase of leasehold land use rights 3,100,000 1,050,000 -
Proceeds from diposal of plant equipment 400 7,000 3,000
Net cash used in financing activities 255,606 14,238,370 10,926,097

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CASH FLOWS FROM FINANCING ACTIVITIES


Dividends paid 12,000,000 15,400,000 16,000,000
Net cash used in financing activities 12,000,000 15,400,000 16,000,000
NET INCREASE IN CASH AND CASH EQUIVALENTS 19,856,579 6,397,399 1,172,549
Currency translation differences 210,803 755,663 67,884
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 42,857,915 62,503,691 55,350,629
CASH AND CASH EQUIVALENTS AT END OF YEAR 62,503,691 55,350,629 56,591,062

3.0 FINANCIAL RATIOS OF APOLLO FOOD HOLDINGS BERHAD 2011 TO 2012

Liquidity ratio

Liquidity Ratios 2010 2011 2012

1) Current ratio = Current assets/Current liabilities 12.78 12.31 13.54


2) Quick ratio = Current assets-inventory & other current assets/Current
10.96 10.51 11.28
liabilities
3) Cash ratio = Cash and equivalents/current liabilities 7.80 6.84 7.43
4) Receivable turnover = Revenue/Average receivable (times) 7 7 8
5) Average receivable collection period = 365 days/Receivable turnover (day) 50 51 48

Operating Efficiency Ratios 2010 2011 2012

1) Total asset turnover = net sales/total net assets (times) 0.70 0.75 0.83
2) Net fixed asset turnover = net sales/ total fixed assets (times) 1.28 1.30 1.46
3) Inventory turnover = COGS/Average inventory (times) 7.83 8.56 9.03
4) Account receivables turnover = Sales/Receivables (times) 7.79 7.61 7.65

Leverage ratio 2010 2011 2012

1) Debt ratio = Total debt/total assets 10.55 10.82 10.53


2) Debt to equity ratio = Total debt/total equity 11.80 12.13 11.77

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Operating Profitability Ratios 2010 2011 2012

1) Gross profit margin = gross profit/net sales (%) 28.52 22.83 22.48
2) Operating profit margin = operating profit/net sales
20.21 12.81 14.26
(%)
3) Net profit margin = net income/net sales (%) 15.47 10.13 10.84
4) Return on assets (ROA) = net income/total assets
10.86 7.64 9.04
(%)
5) Return on equity (ROE) = net income/total equity
12.15 8.56 10.11
(%)
Earning Per Share(EPS)= net income/common stock 9.52 9.99 7.39

4.0 Apollo Food Holdings Berhad Key Ratios For Credit Assessment
Ratio Analysis
Customer: Apoollo Holdings Berhad
2012 2011 2010 Comments
LIQUIDITY
1 Current ratio (times) 13.54 12.31 12.78 Improved
2 Quick ratio (times) 11.28 10.51 10.96 Improved

ACTIVITY
3 Inventory turnover (days) 9.03 8.56 7.83 Efficient
4 Average collection 48 51 50 Moderate
5 Total asset turnover 0.83 0.75 0.70 Least moderate
6 Fixed assets turnover 1.46 1.30 1.23 Well Managed
7 Account receivable turnover 7.65 7.61 7.69 Faster Cash

DEBT
Debt ratio ratio (%) 10.53% 10.82% 10.55%
Debt to equity ratio (%) 11.77% 12.13% 11.80%

PROFIT AND GROWTH


Gross profit margin 22.48 % 22.83% 28.52%
Operating margin (%) 14.26% 12.81% 20.21%
Net margin (%) 10.84% 10.13% 15.47%

Credit assessment of the company based on the key ratios plays an important role to
determine and avoid from the further disputes between counterparties. Therefore, I
have selected the key ratios to analyse the company from the above tables. These
selected ratios can help me to get the clear picture of the company credit worthiness
by comparing to its average industry ratios. Obviously speaking, whether the

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company is worth to get a credit loan or not. However, there are a lot of ratios given
in the tables above and it does not mean, unselected ratios will not mean anything but
in the case of giving a credit to the company, I, myself, meticulously decided to use
the pivotal financial ratios in order to reach a destination and get a clear picture of the
company. As you can see from the above table, financial ratios have been divided into
particular groups that specify the key roles of the company in terms of liquidity,
leverage, activity, and profitability.

4.1.0 Liquidity ratio

Liquidity – is concerned with the firm’s ability to meet its day to day operating
expenses and satisfy its short-term obligations as they come due. Of major concern is
whether a company has adequate cash and other liquid assets on hand to service its
debt and operating needs in a prompt and timely fashion. Subdivided groups of
liquidity are current ratio, acid ratio
Current ratio tells you about the company’s ability to meet debts from assets
becoming cash in the short-term. Current can be defined by dividing the currents
assets over current liabilities.
Current ratio 2010 2011 2012
LBH 0.72 0.94 0.58
OFI 3.79 2.96 2.64
AFH 12.78 12.31 13.54
Average 5.76 5.40 5.59

Time Series Analysis


London Biscuits Berhad’s current ratio is at the above table over the given years. For
their current ratio in 2010 was 0.72. The coming next year, in 2011increased to 0.94,
about 0.22 difference. In 2012, suddenly its decreased to 0.58 from the past year.
For Oriental Food Industries Berhad’s current ratio is 3.79 in 2010. The coming next
years, it dropped about 0.83 which is 2.96. In 2012, the company’s current ratio fell
down slightly to 2.64
For Apollo Food Holdings Berhad’s current ratio were 12.78 in 2010. At the next
year, its decreased ratio was 12.31, which was the difference 0.47. The company’s
current ratio increased back in 2012, becomes 13.54.

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Cross Sectional
However, as you can see the average industry ratio in 2010 was 5.76. In the next
following years, 2011, 2012 5.40 and 5.59 respectively. The companies’ current ratio
was less than the average industry except Apollo Food Holdings Berhad so that
Apollo’s current ratio is greater than the average industry current ratio and it indicates
that Apollo Food Holdings Berhad can able to meet their short-term obligations
successfully. In other terms, the company’s ability to meet its debt from assets is quite
good.
Quick ratio or Acid ratio – the more available cover for debts after excluding stocks
or inventory. A company should be able to meet most of its debts without selling
more stocks.
Quick ratio 2010 2011 2012
LBH 0.51 0.80 0.45
OFI 2.75 2.24 1.94
AFH 10.96 10.51 11.28
Average 4.74 4.52 4.56

London Biscuits Berhad’s quick ratio for 2010 was 0.51. After that, it has increased
by 0.80, in 2011. However, in 2012 its quick ratio decreased to 0.45.
Oriental Food Industries Berhad’s quick ratio started by 2.75, in 2010. Although, in
2011, decreasing about 0.51, by 2.24. Then, it has dramatically decreased to 1.94 in
2012, which was less than the previous years.
Apollo Food Holdings Berhad, however, the company started its quick ratio by 10.96.
Although, its decreasing the difference at the next years was 0.45, by 10.51. But it had
a positive increase in 2012, which set the quick ratio by 11.28
Thus, as you can see from the above table both companies London Biscuits and
Oriental Food Industries which can indicate the inability to meet its short term
obligations without their inventories being liquidated.
Cross Sectional
On the other hand, Apollo Food Holdings Berhad, has a higher quick ratio than the
average industry for three years. The average industry ratios were 4.74, 4.52, and 4.56
respectively. It merely indicates that the company has an ability to meet its short-term
obligations without its inventories being liquidated.

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4.1.1 Activity ratio

Activity ratio - that tells you the comparison of the company’s sales to various asset
categories in order to measure how well the company is utilizing its assets. I have
compiled the inventory turnover, fixed asset turnover, and total asset turnover.
Inventory turnover indicates a huge amount of attention over its management. More
importantly, controlling the inventory is important to the well being of a company and
is commonly assessed with the inventory turnover measure.
Inventory Turnover 2010 2011 2012
LBH 7.08 6.87 9.45
OFI 8.96 9.87 10.13
AFH 7.83 8.56 9.03
Average 7.96 8.43 9.54

Average industrial inventory turnover for 2010, 2011 and 2012 were 7.96 8.43, and
29.54 respectively. However, Apollo Food Holdings Berhad has shown its
improvement over three years by 7.83, 8.56, and 9.03 respectively but its turnover
rate in 2010 was slightly less than its average industrial rate at the same year, 2010,
which could indicate that the company was not effective in changes inventory to
sales. However, at the next following year, Apollo’s inventory turnover rate has made
a dramatic increase by 8.56 which is greater than average rate, 8.43 that would
indicate the company was effective in changes inventory to sales. In 2012, although, it
has suddenly dropped again from the industry average ratio by 5.03 from the average
industry ratio 9.54, that would be said that the company was not effective in 2012
On the other hand, total asset turnover shows how efficiently assets being use to
support sales.
Average Collection Period 2010 2011 2012
LBH 42.97 71.26 84.49
OFI 47.73 55.75 47.90
AFH 50.00 51.00 48.00
Average 46.90 59.34 60.13

Days sales outstanding for London Biscuits Berhad show that continues to increase,
from 2010 to 2012, by 42.97, 71.26, and 84.49 respectively.

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For the Oriental Food Industries company show that changes are not consistent. In
2010, was 47.73 and the next year it had increased to 55.75 but in 2012, its days sales
outstanding decreased to 47.90
For Apollo, in 2010, is days sales outstanding was 50 and increased slightly at the
following year. In 2012, its days sales outstanding decreased to 48. As comparison to
its average industry, LB is not effective to collect its account receivables. However,
OFI has shown good performance in 2010 and 2012 but 2011 its days increased.
Apollo’s collection period started by 50 in 2010, which means that greater than
average in that year, 2010. In 2011, the company has done well in collecting its
receivables because the collection period was less than the average industry period.
However, in 2012, the company has done again well comparing to the previous years
by 48 days which is good than the average period. Obviously, comparison to the
industry average rate was effective except 2010 because it might have taken the
company to collect its account receivables slower than other companies.

The last of the activity ratio is fixed assets. A financial ratio of net sales to fixed
assets. The fixed-asset turnover ratio measures a company's ability to generate net
sales from fixed-asset investments - specifically property, plant and equipment
(PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the
company has been more effective in using the investment in fixed assets to generate
revenues
Fixed assets 2010 2011 2012
LBH 0.57 0.62 0.51
OFI 1.47 1.80 2.27
AFH 1.23 1.30 1.46
Average 1.09 1.24 1.41

Average industry fixed asset turnover ratio in 2010, was 1.09 and in the following
year, 2011 was 1.24 and 1.41 respectively in 2012. If you see the above table all three
LBH was not effective the to manage its fixed assets however, it was the worst
company among other two companies and the rest of two companies OFI and AFH
are quite well to manage their fixed assets in contrast to its average industry fixed
asset turnover rate. For instance, Apollo Food Holdings, fixed asset turnover ratio was
1.23 in 2010 and it was good than its average ratio in the same year, by 1.09. At the
next year, 2011, the company’s ratio has been increased by 1.30, which was greater

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by the difference 0.06, 1.24. In 2012, the Apollo’s fixed asset ratio was 1.4 and it was
greater also from the average industry ratio.
Total asset turnover - the amount of sales generated for every dollar’s worth of
assets. It is calculated by dividing sales in ringgit by assets in ringgit.
Total asset turnover 2010 2011 2012
LBH 0.45 0.39 0.41
OFI 0.92 1.03 1.23
AFH 0.70 0.75 0.83
Average 0.69 0.72 0.82

Two companies are effective because its average industry ratios were less than each
company’s ratios. AFH has 0.70, 0.75 and 0.83 over three years, 2010, 2011, and
2012 respectively. The companies were effective or in other terms corporate resources
were being well managed that the firm would be able to realize a high level of sales
and ultimately, profits from its asset investments.

4.1.2 Leverage ratio

Leverage measures - which can composite of debt ratio and debt equity ratio. A ratio
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. Debt ratio can be defined by dividing the
total debt over the company’s total assets.
Debt ratio 2010 2011 2012
LBH 0.50 0.52 0.46
OFI 0.17 0.20 0.21
AFH 0.10 0.10 0.10
Average 0.26 0.27 0.26

Two companies were doing the good job to manage on their debt except London
Biscuit because had a ratio of 0.50 in 2010, at the next coming year; it has increased
to 0.52 slightly. However, the company’s debt ratio decreased to 0.46. The company
has not been managing its debt over three years in comparison to its industry average
ratio and it was greater than the average industrial ratio. However, OFI, the company
also did the good job in comparing the previous company and it is relatively low as
you can see from the above table. The company 0.17, 0.20 and 21 over three years
respectively. However, the best company to manage its debt in a low ratio is Apollo

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Food Holdings, the company has done the outstanding job in contrast to both previous
companies as well as average industry ratio. The company’s debt ratio for year 2010,
2011, 2012 are 0.10. Its average industry ratio 0.26, 0.27 and 0.26, which were good
for Apollo. It has become constant for the year continuously.
Debt to equity ratio – A measure of a company’s financial leverage calculated by
dividing its total liabilities by stockholder’s equity. It indicates what proportion of
equity and debt the company is using to finance its assets.

Debt to equity ratio 2010 2011 2012


LBH 1.27 1.48 1.02
OFI 0.20 0.24 0.27
AFH 0.12 0.12 0.12
Average 0.53 0.61 0.47

In year 2010, the debt/equity ratio for LBH is 1.27. For the next year, which is in
2011, it becomes increased to 1.48. Although, in 2012, the company’s debt/equity
ratio decreased sharply to 1.02 comparing to the previous years.
The OFI debt/equity ratio for 2010 is 0.20. It has been increased in year 2011, from
0.20 to 0.24. In year 2012, the company has set the ratio to 0.27
Apollo’s debt/equity ratio is constant over three years, which is started constantly by
0.12, in 2010 until 2012. Two companies were good on their debt/equity ratio, which
was less than its average industry ratio. However, the most preferable company is
Apollo, which has a relatively low debt/equity ratio in contrast to its counterparties.

4.1.3 Profitability ratio

Gross profit - The gross profit margin ratio is used as one indicator of a business's
financial health. It shows how efficiently a business is using its materials and labour
in the production process and gives an indication of the pricing, cost structure, and
production efficiency of your business. The higher the gross profit margin ratio the
better.

Gross Profit 2010 2011 2012


LBH 0.24 0.23 0.23
OFI 0.29 0.26 0.22
AFH 0.29 0.23 0.22
Average 0.27 0.24 0.22

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Apollo has less gross profit margin over three years in comparison to its average
industry ratio. However, Apollo has a ratio of 0.29, 0.23 and 0.22. In comparison to
its average industry ratio, in 2010, Apollo has done well because its gross profit
margin was 0.29 comparing to industry average. In the next year, 2011, the
company’s gross profit margin declined to 0.23 by showing the 2011, company’s
gross profit margin was less than the average industry ratio. In 2012, however,
Apollo’s gross profit margin dropped slightly by the difference 0.01 and equaled to
the average ratio. During two years, company’s gross profit margin was stable except
in 2010.
Operating income margin is a measurement of what proportion of a company's
revenue is left over after paying for variable costs of production such as wages, raw
materials, etc. A healthy operating margin is required for a company to be able to pay
for its fixed costs, such as interest on debt.
Operating Income 2010 2011 2012
LBH 0.01 0.03 0.03
OFI 0.02 0.00 0.01
AFH 0.20 0.13 0.14
Average 0.08 0.05 0.06

As you can see from the above table, 0.20 started Apollo’s operating income in 2010.
Although its decreasing ratio in the next year, 2011, by 0.13. In 2012, operating
income has started to make a slight improvement by 0.14. Thus, operating margin of
Apollo has done quite well in comparison to its average industrial ratio. For instance,
in 2010, the average industry ratio was 0.08, which less than the company by 0.12, at
the following years, the industry average ratio declined to 0.05 and comparing to the
company’s ratio 0.13, the average industry ratio looked less by 0.07.
In 2012, the average industry ratio was 0.06, which was less than the company-
operating margin by the difference 0.09.
Net profit margin - The net profit margin ratio is the net profit as a proportion of
sales. The net profit margin ratio shows the proportion of every dollar of sales that is
left after all expenses have been paid, and remains as net profit.
Net profit is used to pay for interest, tax and distribution to the owners. The higher the

net profit margin ratio the better.

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BWFF3023 CREDIT MANAGEMENT

Net profit margin 2010 2011 2012


LBH 0.08 0.07 0.05
OFI 0.10 0.06 0.07
AFH 0.15 0.10 0.11
Average 0.11 0.08 0.08

Net profit margin of Apollo has in three years are neither constant nor improved,
however, it has fluctuated three by decreasing and the next following by a slight
increase. Apollo’s net profit margin was greater than the industrial average ratio in
2010, by 0.15. It could show us that Apollo might have been dealt well with the
interest and tax expenses. At the next following year, although, it’s fallen to 0.10, by
the difference 0.05 but the ratio was still greater than the average industry ratio and it
had done quite well. In 2012, it has increased back to 0.11 by the difference 0.01 from
the previous year, although the industrial average ratio was less than Apollo’s net
profit margin. Therefore, Apollo Food Holdings Berhad profitability was good and it
has improved over three years.
However, Apollo has done well if you compare to its competitors during the three
years. Apollo has started by 0.15 in 2010. In the next following year, it has dropped
by 0.10, the difference 0.05. In 2012, the net profit margin has slightly increased back
by 0.11. Hence, the ratios of two companies over three years are less than the average
industrial ratios, which can indicate the company is not effective.
** LBH – London Biscuits Holdings (Bhd)
** OFI - Oriental Food Industries (Bhd)
** AFH – Apollo Food Holdings (Bhd)

5.0 Credit Scoring

The objective of the system may reduce bias. In practice, credit scoring, which is now
computerised, is practical when the number of applicant is large. Otherwise, it would
be too costly to develop the system. Computation of scores can be delegated and
response time can be reduced. Credit scoring is an important part of evaluating the
company’s risk. The Altman Z-Score remains the foundation of corporate scoring
principles. Altman defined the variables for both private and publicly quoted
companies.
 Current Assets (CA)

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BWFF3023 CREDIT MANAGEMENT

 Total Assets (TA)


 Interest (IN)
 Current Liabilities (CL)
 Market Value of Equity (VE)
 Earnings Before Taxes (ET)
 Retained Earnings
Using the above variables, Altman devised five major components for the Z-Score
formula.
1. X1 Working Capital/Total Assets (or CA – CL) divided by TA.

2. X2 Retained Earnings/Total Assets

3. X3 Earnings before Tax + Interest/Total Assets

4. X4 Market Value of Equity/Total Liabilities

5. X5 Net Sales/Total Assets

The Z-Score calculation in effect combines the above ratio factors, with each ratio
assigned a different weighting, and calculate a score, which itself then is the indicator
of likely failure or continued success. The formula devised by Altman is:
𝒁𝟐𝟎𝟏𝟎 = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.999X5

X1 = 102,345,475 – 8,009,467/227,151,552 = 41.5 %


X2 = Retained Earnings/Total Assets
= 113,800,000/227,151,552
= 50.1%
X3 = Earnings Before Tax + Interest/Total Assets
= 32, 247, 766/227,151,552 = 14.2%
X4 = Market Value of Equity/ Total Liabilities
= 80,000,000/23,975,087 = 333.6 %
X5 = Net Sales/Total Assets
= 159,531,255/227151,552 = 0.70

𝒁𝟐𝟎𝟏𝟏 = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.999X5

X1 = 99,633,147 – 8,090,542/233,771,475 = 39.2 %


X2 = Retained Earnings/Total Assets

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BWFF3023 CREDIT MANAGEMENT

= 116,000,000.8/227,151,552
= 49.6%
X3 = Earnings Before Tax + Interest/Total Assets
= 22, 576, 924/233,771,475 = 9.65 %
X4 = Market Value of Equity/ Total Liabilities
= 80,000,000/25,293,175 = 316.0
X5 = Net Sales/Total Assets
= 159,531,255/233,771,475 = 0.75
𝒁𝟐𝟎𝟏𝟐 = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.999X5

X1 = 103,060,858 – 7,611,750/240,447,645 = 39.6 %


X2 = Retained Earnings/Total Assets
= 129,000,000.6/240,447,645
= 7.37
X3 = Earnings Before Tax + Interest/Total Assets
= 28,593,663/240,447,645 = 11.8 %
X4 = Market Value of Equity/ Total Liabilities
= 80,000,000/25,314,292 = 316.02
X5 = Net Sales/Total Assets
= 200,548,462/240,447,645= 0.83

FYI: For publicly quoted companies, equity is deemed to be the market value of all
outstanding common and preference stock.

Now, we put the derived values into formula below table and get the scores in each
year.
Z – Score Summary 2010 2011 2012

Z= 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.999X5


4.4 4.1 3.7

Interpretations vary between analysts, and there can be influencing factors in differing
industries, but broadly speaking, the following can be deduced from final scores.
 3.0 or more – the most likely to survive

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BWFF3023 CREDIT MANAGEMENT

 2.7 to 3.0 - should survive, but bordering on a grey area, and certainly below
the line for more definite chances of survival
 1.8 to 2.7 – could well be heading for insolvency within two years. If the total
doubtful area is taken as 1.8 to 3.0, then this is more doubtful in order to be
sure of survival a company with this score may well have to take serious
action
FYI: For publicly quoted companies, equity is deemed to be the market value of all
outstanding common and preference stock.

6.0 Conclusion

To conclude, Apollo Food Holdings Berhad is financially healthy and safe company
to give a credit based on the above scoring data as well as the company’s financial
ratios and statements. As a credit manager, there would not be further disputes over
bad debts because the factual data is showing us about the company’s financial health
to be safe.

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BWFF3023 CREDIT MANAGEMENT

Reference:

http://www.securities.com/Public/company-
profile/MY/Apollo_Food_Holdings_Berhad_en_1660206.html
Bullivant, G. (2010). Credit Management (6th edition). Union Road Fanham Surrey,
England.

http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=A
POF:MK&dataset=balanceSheet&period=A&currency=native

http://www.apollofood.com.my

http://www.bursamalaysia.com/market/listed-companies/list-of-companies/plc-
profile.html?stock_code=6432

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