FINANCE ACCOUNTING COACH | Free Online Accountant Reference Site

Updates on PN17 Firms & Some Reasons For Firms being classified under PN17 (Practise Note No 17)

slang — Tue, 20 Jul 2010 02:42:58 +0000

Major Reasons For Companies/Firms to Fail

Extracted from Bursa Saham Malaysia, the total PN 17 companies/firms:

(List updated as at 13 July 2010)

ARK RESOURCES BHD ¹
AKN TECHNOLOGY BERHAD ²
AXIS INCORPORATED BERHAD ²
EVERMASTER GROUP BERHAD ²
FOUNTAIN VIEW DEVELOPMENT BERHAD ³
HAISAN RESOURCES BERHAD ³
HO HUP CONSTRUCTION BERHAD ²
HOCK SIN LEONG GROUP BERHAD ³
GULA PERAK BHD ³
IBRACO BERHAD ³
JPK HOLDINGS BERHAD ³
KENMARK INDUSTRIAL CO. (M) BERHAD ³
LCL CORPORATION BHD ³
LIMAHSOON BERHAD ³
LINEAR CORPORATION BERHAD ³
LUSTER INDUSTRIES BHD ²
MALAYSIAN MERCHANT MARINE BERHAD ³
NAM FATT CORPORATION BERHAD ³
NGIU KEE CORPORATION (M) BERHAD ³
NIKKO ELECTRONICS BHD ²
OCI BERHAD ²
OILCORP BERHAD ³
RAMUNIA HOLDINGS BERHAD ³
RHYTHM CONSOLIDATED BERHAD ²
SATANG HOLDINGS BERHAD ²
SELOGA HOLDINGS BERHAD ²
STAMFORD COLLEGE BERHAD ²
SYARIKAT KAYU WANGI BERHAD ²
THE AYER MOLEK RUBBER COMPANY BERHAD ³
TRACOMA HOLDINGS BERHAD ³
TRANSMILE GROUP BERHAD ³
TRIPLC BHD ²
VTI VINTAGE BERHAD ³
WWE HOLDINGS BERHAD ²

¹ Companies that triggered any of the criteria pursuant to Practice Note 17/2005 of the Listing Requirements of Bursa Malaysia Securities Berhad which came into effect on 3 January 2005

² Companies that triggered any of the criteria pursuant to Amended Practice Note 17/2005 of the Listing Requirements of Bursa Malaysia Securities Berhad which came into effect on 5 May 2006.

³ Companies that triggered any of the criteria pursuant to Practice Note 17 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad which came into effect on 3 August 2009.

Some of the major reasons for firms or companies falling into PN17 categories in Bursa Saham Malaysia includes the following:

Companies’ shareholders’ funds are less than 25% of their total paid up capital;
Winding up of some of their subsidiaries and associated companies;
Default in loan interest and principal repayments;
Companies have suspended or ceased their operations;
Companies do not have any significant business or operations;
Receivers have been appointed to take control of the companies’ assets;
Auditors have expressed adverse opinions on the companies

Interestingly, the above are just the outcomes when the companies turned into PN17 companies, the basic underlying reason is that companies are not properly managed – refer to my other articles on what are the mains reasons for companies to fail

How To Check For Companies Who Might Propose Bonus Issue

slang — Wed, 19 May 2010 07:56:21 +0000

Zhulian Corp Bhd, a public listed direct selling company has proposed:

• A one-for-three bonus issue of 115 million shares of 50 cents each

• As at 30 th April 2010, Zhulian’s issued and paid-up capital stood at Rm172.5mil comprising 345 million shares and with the proposed bonus issue enlarging the issued and paid-up capital to Rm230mil

• The proposed bonus issue would be wholly capitalized from the company’s retained profit accounts

So as a public investor, is there way(s) or likely symptoms/telling tales to understand whether a company intends to have bonus issue – read my article on how to check for companies who might propose bonus issue.

Accounting Fraud In Malaysia:DIS Technology Holding Bhd

slang — Wed, 21 Apr 2010 05:44:21 +0000

Accounting fraud in malaysia:DIS Technology Holding Bhd

DIS Techology Holding Bhd (DIST)(0063) which is listed on Bursa Malaysia’s ACE Market, intend to reinstate its financial results in the past few quarters due to an alleged sales fraud in Hong Kong. The fraud is pertaining to billing to an external customer Starlight Marketing Ltd located in Hong Kong.

Append below the HEAVILY overestimated figures on sales and profit before tax(extracted from Bursa Saham):-

Potential Financial Impact to Sales & PBT Due to Misstatement

DIS Working Capital BEFORE HEAVILY OVERSTATING TRADE RECEIVABLES

As this is an artificial non cash transaction, the double entry is to reverse the group sales and trade receivables leaving an adjusted NET CURRENT LIABILITIES where the group will not able to service its bankers, creditors and other lenders. According to its group managing director Dustin Cheah of the RM131.33 million, the balance still owed to it as of end-December 2009 stood at RM82.07 million. Imagine what is DIS group sales for year ended 31 st December 2009 and 2008 -RM181 million RM139 million, hence this mistatement/fraud has tremendous financial impact to its company financial performance.

A little bit of history of DIS Technology Holding Bhd:

DIS Technology Holdings Berhad (“DIST”), an MSC status company( achieved MSC status in 2002)
Listed in MESDAQ or now called ACE in year 2004
A leading electronic device innovator and trendsetter in Malaysia.
Located in Penang – the Silicon Valley of Malaysia
DIST comprises of seven wholly owned subsidiaries – Digital Integrated System Sdn. Bhd. (“DIS”), Dis Technology (HK) Limited, Modern Solution Sdn. Bhd. (“MSSB”) and Zeon Computer (M) Sdn. Bhd, Home Touch Solution (North) Sdn. Bhd., DIS B2B Int’l (HK) Limited and Unieksoft Solutions Sdn. Bhd.
Achieved numerous prestigious awards like the Asia Pacific International Honesty Enterprise-Keris Award 2004, Business of the Year Award 2004, Asia Pacific e-Entrepreneur Excellence Brand Award 2005, PIKOM – Computimes ICT Award 2005, PIKOM – Finalist Award in 2006, Asia Pacific Super Excellent Brand 2006 / 2007, 5th Asia Pacific International Honesty Enterprise Keris Award 2006, Platinum Recognition for Malaysia’s Top 50 Enterprise Award and Malaysia Independence Award 2009 being the latest accolade.

My two cents worth:

If these fraudulent figures are reinstated, both the income statement and balance sheet will turn very ugly. With this ugly side revealed, investors can then see clearly that DIS group will not be able to services it debts providers/other lenders and if no further fresh capital injection might turn to a PN17 company. However, the question ultimately lies with whats really has happened. In the listing requirement at least one third of the board belongs to non-independent directors but yet this MASSIVE reinstatement happens. We are not talking about kacang puteh figures. Its really quite scary to think of it! BTW -would you want to be CFO in that group – I bet you will be having nightmares!

How to achieve more interest yield by placing company’s surplus fund into tax exempt fund

slang — Tue, 20 Apr 2010 10:55:57 +0000

Conventional FD vs Placing into Tax Exempt Fund to increase interest yield

One of the way we can increase the net interest yield of our company’s surplus cash fund is to place them under a tax exempt fund of a professional run investment management company. The logic is simple as the tax exempt fund is fully exempted from the normal corporate tax rate of 25% – in more technical jargon the company is getting “tax shield” by placing such cash into the such tax exempt fund compared to placing into the conventional fixed deposits.

To be even on a safer end, you can place the company’s cash into tax exempt fund account which has its entire net underlying assets 100% fixed deposits. If you feel that your managment are less risk adverse then do place them into a tax exempt fund with underlying assets with the different types of money market instruments like bonds and commercial papers.

Below are some of the benefits/advantages by placing funds into tax exempt fund:

Able to enjoy tax exempted income
Enhanced returns comparing to fixed deposits,repo and current account ( reason being the tax exempt fund has the financial muscle to get better interest rate than individual)
Do not have to worry about late placement of funds
Portfolio diversification
Relieve treasurer the time to place funds into conventional fixed deposits ( calling and placing with various financial institutions)
Able to withdraw easily re: some tax exempt funds provide easy withdrawl within the next day
No front end charges or exit fees
Managed by experienced fund managers.

What is a Group Treasurer job? What is the Group treasurer job description?

slang — Tue, 20 Apr 2010 07:42:05 +0000

Group treasurer job and job description

Normally a group treasurer job includes some of the following:

Ensure existing treasury procedures comply with group Head Office
Cash flow management: cash forecast or projections
Placement and investment policy
Foreign exchange management: mitigation FX risk
Minimize borrowings cost and ensure availability of correct quantum and cheap fund
Maintaining close relationship with bankers and lenders of the group
Close liason with CFO, tax agent
Reporting on treasury performances

Below tabulate in details the group treasurer job description:-

Borrowings/Sources of Financing:

External Financing:

Ensure the Group has long term external funding in place, ensuring appropriate amount, maturity, currency,
interest rate, tax and counterparty risks
Manage the interest rate risk profile
Service the debt on regular basis
Maintain relationships with providers of debt capital
Monitor compliance to debt facilities
Measure and understand the WACC rate

Internal Financing:

Ensure the internal financing framework is in place and understood
Manage the internal funding balances
Control the limits and foreign exchange exposures

Liquidity Management:

Ensure the Group always has sufficient short term liquidity to service the debt and operation
Manage cash forecasting

Cash and Bank Management:

Manage group`s cash at bank
Manage repatriation of overseas cash aligned with tax objectives
Manage control environment
Manage the group`s global banking relationships

Foreign Exchange & Risk Minimization

Manage group`s foreign exchange exposures in local and central books
Balance external borrowings to Net Asset foreign exchange exposure
Balance group foreign exchange exposures to minimise tax risk
Report on foreign exchange impact on results
Understand market forecasts

Close Liason with CFO,Tax and other senior level of management:

Besides bankers and lenders, the group treasurer should work very closely with the head of finance/CFO, tax agents and other level of management so as to:

Ensure no conflict with tax objectives
Work with CFO to ensure compliance with Accounting standards, internal control and risk requirements.

Management Reporting:

Collate reports for weekly Investment Committee meetings, including portfolio performance and FX exposure writing. Responsible for the validation and presentation on Interest and FX numbers in Group financial statements. Manage FX, Money Market, investment & other dealing activity and develop and implement strategies for management of foreign exchange exposure.

Produce full reports detailing the Group’s exposure to foreign exchange risk on anticipated cash flows and balance sheet values. Provide input into and review of long-term cash flow forecast. Play a key role in implementing, as required, Treasury workstations and/or management systems. Develop and write Treasury procedures and maintain records of compliance.

In Trade Finance, explain what is Open Account

slang — Tue, 13 Apr 2010 15:27:51 +0000

Trade Finance Payment Tool-OPEN Account

In trade finance, there are a few major payment used of which one is called Open account.

Basically, when settlement takes place on open account, it means that the exporter will ship his products to the importer before any payment has been received. The exporter then presents the required documentation to the importer, rather than involving a commercial bank in the process. The importer pays the exporter when the documentation has been received. In US, Europe and even China, Open account is a widely used trade finance technique. However, due to the recent financial crisis many have now opt for traditional methods of trade finance like the letter of credit. By doing so, there will be less risk of counterparty defaults.

What is Price-to-cash flow ratio? How useful is this ratio?

slang — Mon, 12 Apr 2010 08:32:52 +0000

MARKET RATIO: Price-to-cash flows-ratio

One of the business ratio analysis which we often come across is the Price-to-cash flow ratio.

Append below in summary what is this market ratio is all about:-

Ratio	Purpose	Formula
Price-to-cash flow ratio	To measure whether a company’s share price is high or low in the context of its cash flow. Useful as it indicates the company’s market value plus enabling competitor analysis among companies. Important as this ratio can also indicate the future financial health of a company	Price-to-cash flow ratio =Share price/Cash flow per share{ Cash flow per share = (Operating cash flow-preferred dividend)/Number of common shares outstanding
Simple illustration:
ABC Ltd has share price as $20 per share and its cash flow per per share is $10.ABC Ltd’s price-to-cash flow ratio =20/10=2Its indicates how much an investor will paid for its $1 of cash flow generated by the company i.e. $2 in stock.
Interpretation: The lower the price-to-cash flow ratio means the more the company may be undervalued which poses good opportunity for investment.
Salient points to note: This business ratio is useful as it does not need to go through the process of using net income less depreciation and amortization charge The disadvantages is that cash flow is not static and different industries are associate with different price-to-cash flow level Note that to be comparable the price-to-cash flow ratio should be used in companies which sells similar products and services A related ratio is the price-to-free cash flow which is cash that is available to benefit the shareholders and after deducting capital expenditures from operating cash flow. This price-to-free cash flow ratio shows how much investors must pay for each $1 of free cash flow)

What is Price-to-sales ratio? How useful is this market ratio?

slang — Mon, 12 Apr 2010 03:25:09 +0000

Market ratio: Price-to-sales-ratio

One of the business ratio analysis which we often come across is the Price-to-sales ratio.

Append below in summary what is this market ratio is all about:-

Ratio	Purpose	Formula
Price-to-sales ratio	Measures the relationship between the value of stock and the level of company. PS: note that sales volume is an operating activity of a company	Price-to-sales =Current share price/ Revenue per shareOrPrice-to-sales =Market Capitalization/Annual revenue
Simple illustration:
ABC Ltd has:-Its current share price is $20 and the revenue per share is $10.ABC Ltd’s price-to-sales ratio =20/10=2-
Interpretation: Generally, a low Price-to-sales ratio indicates that a company has better value. In another word, if a company’s price-to-sales ratio is high, the investor is paying more for the company’s sale than if the business market ratio is low.
Salient points to note: This business ratio is ideal for computing the value of a company with no earnings history.In the past, this ratio being frequently used for internet based companies which has no or low earnings records as earning per share, etc cannot be used effectively. The underlying assumption of this price-to-sales ratio is that profits will be made once market share is established. A few considered this as a good business ratio as sales statistics are difficult to manipulate. Unfortunately, nowadays, we also see many public listed companies manipulating their sales figures as the sales figure also form one part of the key performance metric/KPA/KPI.

What is Price-to-book ratio? How Useful is this ratio?

slang — Sun, 11 Apr 2010 12:30:03 +0000

MARKET RATIO:Price-to-book ratio

One of the business ratio analysis which we often come across is the Price-to-book ratio.

Append below in summary what is this market ratio is all about:-

Ratio	Purpose	Formula
Price-to-book ratio (P/B ratio)	Measures the value that the stock market places on a company relative to its book value. Also known as price-equity ratio Frequently used by investors to find undervalued companies	Price-to-book =Current share price/ Book value per share{ Note:(a) Book value= total assets-( liabilities + intangible assets)(b) Book value per share=Book value/ No of common shares outstanding }
Simple illustration:
ABC Ltd has:-Total assets of $100,000: Liabilities & Intangible assets of $50,000. There are currently 10,000 ABC Ltd’s shares outstanding and the market price for one share is $2.00ABC Ltd’s book value per share=($100,000-$50,000)/10,000=$5P/B ratio of ABC Ltd =5.00/2.00=2.5
Interpretation: Generally, a high P/B indicate that a company is overvalued and a low P/B ratio an undervalued company.
Salient points to note: This business ratio is relatively simplistic High P/B might not mean overvalue as the public might view the company’s future are good and earning potential is high Also, in bull market, normally high P/B but during bear markets P/B be similar re: nearer to 1 Also be aware that some consumer and service orientated companies have negative P/B ratio because they have relatively more liabilities than assets This ratio cannot be used singly and should analyzed together with other financial measurements like return on equity, etc and also cash flow and volatility of earnings must be considered too.

What Is Meant by Asset-based Finance? What Are some of the differences between Asset-based finance and Cash Flow-based Loans/Finance

slang — Sat, 10 Apr 2010 03:23:15 +0000

Both asset based finance and cash flow finance are important sources of funding for a business for its short term(working capital) and long term(capital assets) sustainability.

Asset-based finance is a source of funding that is secured by a company’s assets.

This article looks at what is asset based finance and see the difference between the more traditional source of finance namely cash flow loan or finance.

Asset based finance:Accounts Receivables,Inventory,etc

Some features of asset-based finance include:

Lender generally has the right to seize the borrower’s asset(s) in the event that the commitments under the loan agreement is unfulfilled;
Normally referring to the financing by a borrower’s account receivable through factoring or invoice discounting facilities;
However it also includes many more assets like inventory, equipment, plant and machinery, real estates, etc which can also be used to arrange asset-based loans on a revolving or term basis;
Often used when traditional bank financing and other forms of raising finance are difficult to find or expensive. The most common forms of asset-based finance are asset-based loans, factoring and invoice discounting.

Compared to asset-based finance:

Cash flow-based loan is the more traditional one where the lender merely imposes covenants and linking the availability and volume of credit lines to specific earnings and liquidity levels and other metrics relating to the financial results of the borrower.

Cash Flows based finance:PROFIT/EARNINGS?

Below tabulated some of the major differences between Asset-based finance and Cash Flow Finance/ loan:

	Asset-based Loan	Cash Flow-based Loan
1.	An asset based loan is normally structured as a revolving line of credit and secured by tangible short-term(or current) assets such as accounts receivable and inventory.
2.	Borrowers can even raise additional funds or stretch or over-advance loan by using intangible assets like patents, intellectual property or trade names as collateral.
3.	Asset based loan mainly rely on the quality and value of the borrower’s assets	For Cash flow-based loan, depend largely on its earnings/cash flows
4.	Lesser number of restrictive financial covenants linking the availability of funds to the borrower’s financial performance.	Many more number of restrictive financial covenants linking the availability of funds to the borrower’s financial performance.
5	Asset-based loan affected by asset value rather than operational performance hence increase market valuation, etc can helps to increase the volume of credit from lender	Compared to Asset-based, in a cash flow loan, companies often borrow against a multiple of their earnings. Any downwards earnings can results in lesser funds from lender.
6.	Asset-based loan can be more flexible as they are linked to asset value of the collateral. Companies are less affected by quarterly results and less restricted in terms of the availability ad the use of borrowed funds.
7	Asset-based loan is usually the last option for Treasurer to deploy. The traditional cash flow loan usually come first as the mindset is “ the company is doing well, why should we charge our assets to the lenders….