QUEST INTERNATIONAL UNIVERSITY PERAK

Faculty of Business, Management, and Social Sciences

PRINCIPLE OF ACCOUNTING

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.

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

Currency in Millions of Malaysian Ringgits Revenues TOTAL REVENUES Cost of Goods Sold GROSS PROFIT Selling General & Admin Expenses, Total Other Operating Expenses OTHER OPERATING EXPENSES, TOTAL OPERATING INCOME INCOME STATEMENT AS OF : 31-Dec 2009 2,297.40 2,297.40 1,078.50 1,218.90 1,037.30 -15.6 1,021.80 197.2 31-Dec 2010 2,522.40 2,522.40 1,167.90 1,354.40 1,144.90 -31.1 1,113.80 240.6

Interest Expense
Interest and Investment Income NET INTEREST EXPENSE Other Non-Operating Income (Expenses) EBT, EXCLUDING UNUSUAL ITEMS Gain (Loss) on Sale of Assets Other Unusual Items, Total EBT, INCLUDING UNUSUAL ITEMS Income Tax Expense Minority Interest in Earnings Earnings from Continuing Operations NET INCOME NET INCOME TO COMMON INCLUDING EXTRA ITEMS ---

-5.4
0.4 -5 -192.2 -2.1

-4.4
0.4 -4

236.7 -3.9 -10.9

190 57.2 -2.4 132.8 130.4 130.4

221.8 62.1 -2.9 159.7 156.8 156.8

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

Currency in
Millions of Malaysian Ringgit

BALANCE SHEET AS OF:-

31-Dec
2009

31-Dec
2010

Assets
Cash and Equivalents Short-Term Investments 123.4 45.7 131.7 52.9

TOTAL CASH AND SHORT TERM INVESTMENTS

Accounts Receivable Notes Receivable Other Receivables TOTAL RECEIVABLES Inventory Other Current Assets

169.2
50.3 15 23.2 88.4 172.3 17.7

184.6
46.5 6.6 24 77.1 200.8 23.7

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 --

447.7
1,183.00 -409.8 773.2 43.4

486.1
1,468.70 -468.7 1,000.00 50 22.4

25.3 0.9

23.6 0.9

LIABILITIES & EQUITY Accounts Payable Accrued Expenses Short-Term Borrowings Current Portion of Long-Term Debt/Capital Lease Current Income Taxes Payable Other Current Liabilities, Total 145.3 111.3 4.2 27.9 12.2 65 155 127.8 10.7 36 12.7 75.1

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

365.8
84.4 12.5 3.1 32.9 486.2 198.3 18.7 547.5 27.2 791.8 804.2 1,290.50

417.2
105.8 15 2.9 51.8 577.8 396.6 0.4 482.2 111 990.2 1,005.30 1,583.00

THE DEFINITIONS OF FINANCIAL RATIOS

LIQUIDITY RATIO (LR)

i.

Net Working Capital

current assets current liabilities 2009

2010

447.7 365.8 = 81.9

486.1 417.2 = 68.9

Analysis shows that the net working capital reduces 13 units in 2010 from the year 2009. 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

2009
447.7 / 365.8 = 1.224

2010
486.1/417.2 = 1.165

Analysis shows that the current ratio reduces 0.059 units in 2010 from the year 2009. 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]

2009
447.7 (172.3 + 45.7) / 365.8 = 447.7 218 / 365.8 = 229.7 / 365.8 = 0.628

2010
[486.1 (200.8 + 52.9) / 417.2] = 486.1 253.7 / 417.2 =232.4 / 417.2 = 0.56

Analysis shows that the quick ratio reduces 0.068 units in 2010 from the year 2009. 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
2009
2297.40 / 50.3 = 45.673

2010
2522.40 / 46.5 = 54.23

Analysis shows that the account receivable turnover increase 11.557 units in 2010 from the year 2009. 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

2009
360 / 45673 = 7.882

2010
360 / 54.23 = 6.64

Analysis shows that there is reduction of 1.242 units in the average collection period in 2010 from the year 2009. 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

2009
1078.50 / 172.3 = 6.259

2010
1167.90 / 200.8 = 5.82

Analysis shows that there is a reduction of 0.439 units in inventory turnover in 2010 from the year 2009. 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

2009
486.2 / 1290.50 = 0.377

2010
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

2009
120.4 / 791.8 = 0.152

2010
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, the money that shareholders have invest can pay the debts.

iii.

EQUITY MULTIPLIER
1/1 Debt ratio

2009 1/1 0.377 = 0.623

2010
1 / 1 0.37 = 0.63

Analysis shows that there is an increase of 0.007 units in equity multiplier in 2010 from the year 2009. Since there is a 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

2009
1218.90 / 2297.40= 0.531

2010
1354.40 / 2522.40= 0.54

Analysis shows that there is a 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.

ii.

EARNINGS PER SHARE

Profit available to ordinary shareholder / number of ordinary shares issued

2009
130.4 / 198.3 = 0.658

2010
156.8 / 396.6 = 0.395

Analysis shows that there is a reduction of 0.263 units of earning per share in 2010. This shows that the company generated less profit in 2010 from the year 2009.

iii. RETURN ON EQUITY

Profit after tax / shareholders equity

2009
130.4 / 791.8 = 0.165

2010
156.8 / 990.2 = 0.158

Analysis shows that there is a reduction of 0.007 units in return on equity in 2010 from the year 2009. Since there is a reduction, the profit which the company generate with the money shareholders have invested is reduce as well.

CONCLUSION
We had compare the ratios between two years. It shows that the current ratio and quick ratio of KFC Holdings is reduced in the year 2010 compare to 2009. Also having trouble of poor sales and therefore excess inventory as the inventory turnover of the company is reduced in the year 2010 from 2009

Reduce

in return on equity in the year 2010 from 2009 shows that the profit which the company generate with the money shareholders have invested is reduced as well.

Thank You