A201

BWFF 1013 FUNDAMENTALS OF FINANCE

Group D

REPORT TOPIC:
Dutch Lady Milk Industries Berhad

PREPARED FOR:
En. Khairul Anuar Bin Desa

PREPARED BY:
Matrix no Name
252967 Suriyaa Naathan a/l M Arjunan
253330 Pang Jun Quan
254721 Pang Kai Shin
279235 Nurul Hidayah Binti Nor Isham
279619 Ooi Yong Mei
1.0 INTRODUCTION
 The aim of this project is to analyze the financial performance of Dutch Lady Milk

Industries Berhad (Dutch Lady). The data we collected from the website of Bursa Malaysia,

which is the annual company report. After that, the financial ratios of Dutch Lady company for 5

years, from 2015 to 2019, will be evaluated and interpreted. The company’s liquidity ratio, asset

management ratio, leverage ratio, profitable ratio and market value ratio will be calculated. The

results help us understand the company's financial position and we will present the data with

graphical to better understand each ratio of company’s financial performance.

1.1 Background of Company

Dutch Lady Milk Industries Berhad is among of the popular manufacturers in producing

cow milk and dairy products in Malaysia since the 1960s. There are various forms of dairy

products produced including yogurt, powdered milk, boxed milk and bottled milk. In Dutch Lady

Milk product, they have 2 types of milk which is low fat and full cream. The main focus of

Dutch Lady Milk Industries is consumers and marketing needs. They believe the most consumers

who needs dairy products fall into the category of children and adults so they produce products

that have a variety of nutrition that are good for health such as vitamins, calcium and protein that

helps to develop mind and strengthen bones. In addition, not only Dutch Lady sell dairy

products, it also comes with other many flavors such as chocolate, strawberry and vanilla which

it helps to attract more people to drink milk every day.

To prove the production of quality and nutritious dairy products, there are several

certificates that they obtained from the government such as certification under the ISO 9001

standards, ISO 14001:2004 Environmental Management System (EMS), OHSAS 18001:2007,

Hazard Analysis and Critical Control Point (HACCP) certification and the FSSC 22000 Food
Safety Management System. Dutch Lady Malaysia products have also been certified Halal by the

Halal Hub Division at the Department of Islamic Development Malaysia (JAKIM) which helps

increase consumer confidence, especially for Muslim.

With a workforce of around 600 employees, it can improve products quality and create

better market strategies. The main mission of Dutch Lady Malaysia is to increase the rate of milk

consumption among the people of this country which is proven to be beneficial to health. Dutch

Lady plans to further strengthen its position in the food and beverage (F&B) sector, particularly

in bakery sector. Dutch lady products are in high demand, especially in meeting the needs of

entrepreneurs such as hotels, cafes and bakeries. This proves that Dutch Lady products are the

main choice of all communities in Malaysia.

1.2 Core business

The main activities of the company are the processing of milk powder, condensed

sweetened milk, dairy products and fruit juice drinks for sale and export to the domestic market.

Figure 1: Dutch Lady Milk Products

 Figure 2: Dutch Lady Juice Milk Products

1.3 The biggest success of the company

The Dutch lady industry organization consists of chairman, managing director,

independent non-Executive director and several directors in various fields such as finance,

human resources and marketing. Dutch Lady has been awarded the Silver Award in the

Consumer Products Sector for Highest Equity Return for Three Consecutive Years by The Edge

Billion Ringgit Club. Besides that, for the second consecutive year as Gold Winner - Putra Brand

Awards for 2017, the Dutch lady also received the top People's Choice Award for the dairy

beverage category. JAKIM also recognized Dutch lady for the 2017 Halal White List Award and

Halal Fast Track Award and the highest recognition award given for the integrity of Halal

compliance to producers in Malaysia. Dutch lady company has also been involved in School

Milk Program (PS1M) and the 3K Awards program conducted with the Ministry Education, this

has provided the ideal platform for company to spread the awareness to the community about the

important drinks milk in daily life.

2.0 METHODOLOGY

Methodology describing how the data was collected to achieve the objectives of this project

which use to analyze the performance assessment of a company. Quantitative data are used for

this project.

I. Data Collection

The quantitative data used for this project was obtained from the annual financial reports

of the companies. We use four main financial statements from the annual financial report of

Dutch Lady Milk Industries Berhad which are Balance Sheet, Income Statement, Cash Flow

Statement and Statement of Shareholder’s Equity for this analysis. The years of annual

financial report which was used for this analysis was 2015, 2016, 2017, 2018 and 2019.

II. Data Analysis

Ratio analysis which represent the comparison of performance among companies for the

selected five years. Ratio analysis is a method of estimating by measuring key financial

details from the financial statements using statistical metrics and evaluating the results to

indicate the current financial positions of a company. Each ratio has different formula for

calculation and the analysis is needed for the investors who would like to invest their money.

Financial ratios can be used for comparison purposes to determine the financial performance

of the firm. There are five categories which are liquidity ratios, asset management ratios,

financial leverage ratios, profitability ratios and market value ratio.

2.1 Ratio Calculation

i) Liquidity Ratios

a. Current Ratio

Year 2015 2016 2017 2018 2019

Ratio RM’000 RM’000 RM’000 RM’000 RM’000

Current Assets 316,595 419,377 286,781 279,549 314,460

Current Liabilities 248,912 348,390 281,640 292,804 292,043

= 1.27 times = 1.20 times = 1.02 times = 0.95times = 1.07times

b. Quick Ratio

Year 2015 2016

Ratio RM’000 RM’000

Current Assets−Inventory 316,595−99,067 419,377−112,993

Current Liabilities 248,912 348,390

= 0.87 times = 0.87 times

2017 2018 2019

RM’000 RM’000 RM’000

286,781−115,839 279,549−131,050 314,460−135,024

281,640 292,804 292,043

= 0.61 times = 0.51 times = 0.61 times

ii) Asset Management Ratios

a. Average Collection Period (ACP)

Year 2015 2016 2017 2018 2019

Ratio RM’000 RM’000 RM’000 RM’000 RM’000

A ccount s Receivable 55,172 90,581 106,730 112,381 112,852

Sales 1,001,663 1,047,725 1,064,53 1,048,568 1,066,662
365 days 365 365 365 365 365
= 20.10 = 31.56 = 36.60 = 39.12
= 38.62
days days days days days

b. Receivable Turnover

Year 2015 2016 2017 2018 2019

Ratio RM’000 RM’000 RM’000 RM’000 RM’000

Sales 1,001,663 1,047,725 1,064,536 1,048,568 1,066,662

Receivable 55,172 90,581 106,730 112,381 112,852

= 18.16 times = 11.57 times = 9.97 times = 9.33 times = 9.45 times

c. Inventory Turnover

Year 2015 2016 2017 2018 2019

Ratio RM’000 RM’000 RM’000 RM’000 RM’000

COGS 580,947 603,852 663,372 632,317 661,942

Inventory 99,067 112,993 115,839 113,050 135,024

= 5.86 times = 5.34 times = 5.73 times = 5.59 times = 4.90 times
 d. Total Asset Turnover

Year 2015 2016 2017 2018 2019

Ratio RM’000 RM’000 RM’000 RM’000 RM’000

Sales 1,001,663 1,047,725 1,064,536 1,048,568 1,066,662

Total Asset 412,525 520,841 392,258 404,802 443,594

= 2.43 times = 2.01 times = 2.71 times = 2.59 times = 2.40 times

e. Fixed Asset Turnover

Year 2015 2016 2017 2018 2019

Ratio RM’000 RM’000 RM’000 RM’000 RM’000

Sales 1,001,663 1,047,725 1,064,536 1,048,568 1,066,662

Asset ¿
Net ¿ 95,930 101,464 105,477 125,253 129,134

= 10.44 times = 10.33 times = 10.10 times = 8.37 times = 8.26 times

iii) Leverage Ratios

a. Debt Ratio

Year 2015 2016 2017 2018 2019

Ratio RM’000 RM’000 RM’000 RM’000 RM’000

Total Debt 255,306 355,348 288,248 299,343 299,177

x 100 x 100
Total Assets 412,525 520,841 392,258 404,802 443,594

= 0.6190 = 0.6823 = 0.7348 = 0.7395 = 0.6744

= 61.90% = 68.23% = 73.48% = 73.95% = 67.44%
 b. Debt Equity Ratio

Year 2015 2016 2017 2018 2019

Ratio RM’000 RM’000 RM’000 RM’000 RM’000

Total Debt 255,306 355,348 288,248 299,343 299,177

Total Equity 157,219 165,493 104,010 105,459 144,417

= 1.62 = 2.15 = 2.77 = 2.84 = 2.07

c. Times Interest Earned

Year 2015 2016 2017 2018 2019

Ratio RM’000 RM’000 RM’000 RM’000 RM’000

EBIT 200,592 209,691 43,086 120,450 117,787

Interest 3,608 3,120 2,995 3,431 3640

= 55.60 times = 67.21 times = 14.39 times = 35.11 times = 32.36 times

iv) Profitability Ratios

a. Gross Profit Margin

Year 2015 2016

Ratio RM’000 RM’000
420,716 443,873
x 100 x 100
Gross Profit 1,001,663 1,047,725
x 100
Sales
= 42.00% = 42.37%

2017 2018 2019

RM’000 RM’000 RM’000
401,164 416,251 404,720
x 100 x 100 x 100
1,064,536 1,048,568 1,066,662

= 37.68% = 39.70% = 37.94%

b. Operating Profit Margin

 Year 2015 2016
Ratio RM’000 RM’000
Operating Profit 188,491 196,594
x 100 x 100 x 100
Sales 1,001,663 1,047,725

= 18.82 % = 18.76 %

2017 2018 2019

RM’000 RM’000 RM’000
157,405 173,865 140,842
x 100 x 100 x 100
1,064,536 1,048,568 1,066,662

= 14.79 % = 16.58 % = 13.20%

c. Net Profit Margin

Year 2015 2016

Ratio RM’000 RM’000
Net Income 140,980 149,074
x 100 x 100 x 100
Sales 1,001,663 1,047,725

= 14.07 % = 14.23 %

2017 2018 2019

RM’000 RM’000 RM’000
117,717 129,449 102,958
x 100 x 100 x 100
1,064,536 1,048,568 1,066,662

= 11.06 % = 12.35 % = 9.65%

d. Return on Asset (ROA)

 Year 2015 2016
Ratio RM’000 RM’000
Net Income 140,980 149,074
x 100 x 100 x 100
Total Asset 412,525 520,841

= 34.17 % = 28.62 %

2017 2018 2019

RM’000 RM’000 RM’000
117,717 129,449 102,958
x 100 x 100 x 100
392,258 404,802 443,594

= 30.01 % = 31.98 % = 23.21%

e. Return on Equity (ROE)

Year 2015 2016

Ratio RM’000 RM’000
Net Income 140,980 149,074
x 100 x 100 x 100
Common Equity 157,219 165,493

= 89.67 % = 90.08 %

2017 2018 2019

RM’000 RM’000 RM’000
117,717 129,449 102,958
x 100 x 100 x 100
104,010 105,459 144,417

= 113.18 % = 122.75 % = 71.29 %

v) Market Value Ratio

 a. Earnings Per Share (EPS)

Year 2015 2016 2017 2018 2019

Ratio RM’000 RM’000 RM’000 RM’000 RM’000

Net Income 140,980 149,074 117,717 129,449 102,958

Number of Shares 64,000 64,000 64,000 64000 64,000

= RM 2.20 = RM 2.33 = RM 1.84 = RM 2.02 = RM 1.61

3.0 FINDINGS AND ANALYSIS

i) Liquidity Ratios

a. Current ratio

The current ratio is a liquidity ratio that tests a company's ability to satisfy short-term or

due obligations within one year. The current ratio contrasts all a corporation's existing assets

with their current liabilities. These are usually known as assets that are cash or would be

converted into cash for a year or less, and liabilities that will be repaid in a year or less. The bar
chart showing the current ratio of Dutch Lady. The highest current ratio of Dutch Lady is 1.27

times in year 2015 and decreased yearly until 0.95 times in year 2018, and increased to 1.07

times in year 2019. The decreasing of current ratio is because Dutch Lady was increased their

short-term debts. Then, the highest current ratio in 2015 means that, with its current assets in

2015, Dutch Lady has the most abilities to pay off its short-term liabilities.

b. Quick ratio

Quick ratio is a calculation of how easily a firm can fulfilled its short-term financial

obligations. It does so by eliminating from consideration all but the most liquid of current assets.

The most significant exception is inventory, since it cannot be turned so quickly into cash and is

often sold on credit. This is essential for a firm to have ample cash on hand to meet the accounts

payable, interest payments and other bills when due. The higher the ratio, the shorter-term the

more financially stable a firm is. A common thumb rule is that companies with a quick ratio

greater than 1.0 are able to meet their short-term liabilities sufficiently. The bar chart above

shows the quick ratio of Dutch Lady increased slightly from 0.87 times to 0.88 times in year
2016 and then decreased for two consecutive years to 0.51 times in year 2018 but it increased

again to 0.61 times in year 2019. The decreasing in the quick ratio is due to a decrease in current

assets, and had reduced the cash generation capacity. Moreover, Dutch Lady meets its short-term

financial liabilities easily in year 2016 because of its quick ratio is 0.88 times which is the

highest compared to other years.

ii) Asset Management Ratios

a. Average Collection Period (ACP)

ACP is the average number of days between the dates that the money was received from

customers. This ratio was able to ensure company had adequate cash on hand to meet their

financial obligations and to ensure their company can operate smoothly. According to the chart

shown above, it shows that ACP of Dutch Lady increased significantly in the number of average

collection period in year 2015, 2016, 2017 and 2018, which were 20.10 days, 31.56 days, 36.6

days, and 39.12 days respectively but it has a slightly decreased to 38.62 days in year 2019. The

ACP of Dutch lady was at a good ratio in the year 2015 because it means that Dutch Lady can
receive money or payments from their customers faster than others year with the most effective

with 20.10 days. A lower ACP is generally more favourable than a higher ACP. A higher

number can indicate various things. The most basic thing is that consumers do not pay their bills

timely. If the number of days continuous increasing, more severe issues or possibilities may also

be found that may adversely affect the business. In order to make them more successful to ensure

that they do not become bad debt, the Dutch Lady must strengthen its credit policies.

b. Receivable Turnover

The receivable turnover ratio is an accounting method used to calculate the productivity

of a company in recovering its clients' receivables or money owed. It also illustrates how

effectively a company manages and uses the credit it provides to customers and how easily it

receives or pays short-term debt. To assess if a trend or pattern is emerging over time, a

company's receivables turnover ratio should be monitored and tracked. According to the bar

chart above, receivable turnover for the Dutch Lady is continue decreased year by year from

18.16 times in year 2015 to 9.33 times in year 2018 but it increased slightly to 9.45 times in year
2019. It is showing that the ratio 18.16 times in year 2015 was the highest ratio, the lowest ratio

was 9.33 times in year 2018. The decreasing of the receivables turnover ratio may be caused by

Dutch Lady’s weak collection method, bad credit policy, or the financial infeasibility or lack of

credibility of the customer.

c. Inventory Turnover

Inventory turnover is a ratio of asset management indicating how many times over a

given period a company has sold and replaced inventory. This allows companies make informed

choices on new inventory pricing, manufacturing, marketing, and buying. A vital indicator of

market success is the speed at which a firm can sell inventory. The bar chart above shows the

inventory turnover of Dutch Lady decreased from 5.86 times in year 2015 to 5.34 times in year

2016 and then increased to 5.73 times in year 2017. But the inventory turnover ratio decreased

again in the next two years again which is 5.59 times and 4.90 times for year 2018 and year 2019

respectively. Inventory turnover of Dutch Lady was being at the highest in year 2015 with 5.86
times and the lowest was 4.90 times in year 2019. A low inventory turnover means Dutch Lady

has excess inventory, also known as overstocking in year 2019. The amount of Dutch Lady’s

inventory in year 2019 is about RM135,024,000 and this also is the highest amount of the

inventory among these five years. This might mean an issue with the products to be sold or the

result of too little marketing.

d. Total Asset Turnover

Total asset turnover is a ratio that calculates the effectiveness of which a business utilizes

its assets to generate revenue. In contrast to rivals with a lower ratio, a business with a high asset

turnover ratio performs more effectively. This ratio will help investors understand and determine

how efficiently businesses use their assets to produce revenue.

According to the bar chart above, total asset turnover of Dutch Lady decreased from 2.43

times in year 2015 to 2.01 times in year 2016 and increased to 2.71 times in year 2017. But the

ratio decreased again for the next two years. The highest total asset turnover was 2.71 times in
2017 and the lowest was 2.01 in year 2016. The highest total asset turnover means that Dutch

Lady is generating more revenues or sales from its assets in year 2017 compare to others year.

e. Fixed Asset Turnover

Fixed asset turnover is a productivity ratio that demonstrates how a company uses a fixed

asset to produce revenue well or efficiently. This ratio divides net revenue, measured over an

annual period, by net fixed assets. According to the bar chart above, fixed asset turnover for

Dutch Lady was decreased significantly year by year from 10.44 times in year 2015 to 8.26 times

in year 2019. This indicate that Dutch Lady did not effectively used fixed assets investment to

generate their revenues and has more money tied up in fixed assets with each unit of currency of

sales revenue year by year.

iii) Leverage Ratios

a) Debt ratio

The debt ratio is a financial ratio used to measure a firm or company's degree of leverage.

The debt ratio is called the ratio of gross debt to total assets and is expressed as a decimal or

percentage. It could be described as the proportion of corporate assets financed by debt. A ratio

higher than 1 means that a substantial portion of the debt is funded by cash. A ratio below 1

highlights the fact that a larger portion of the company's assets are financed by equity. The bar

chart above shows that from year 2015 to year 2018, the debt ratio of Dutch Lady increased

significantly year by year which is from 61.90% to 73.95% respectively. Then, debt ratio

decreased to 67.44% in year 2019. The highest debt ratio of Dutch Lady is 73.95% in year 2018

mean that Dutch Lady company was faced the highest financial risk compare to others year and

this higher ratio would make it more difficult to raise funds for a new project in Dutch Lady

company because lenders may view the company as a risky asset.

 b) Debt equity ratio

The debt equity ratio is a financial ratio that shows the relative proportion of the equity of

a shareholder and the debt used to fund the assets of a company. It measures what proportion the

company uses of debt and common stock equity to finance its assets. By dividing total liabilities

by common stock equity, this ratio is calculated. The greater the debt-to-equity ratio, the greater

the use of financial leverage by the company. From the above bar chart, it can be clearly seen

that debt-to-equity ratio of Dutch Lady increased yearly from 1.62 in year 2015 to 2.84 in year

2018 but it dropped to 2.07 in year 2019. For every RM1 of common stock equity financing

Dutch Lady collects about RM1.62 from debt capital in the year 2015 and it increased to RM2.84

and dropped to RM2.04 in year 2019. It clearly shows that the lowest debt equity ratio is in 2015

which indicates Dutch Lady uses less leverage in this year and has a better equity position.
 c) Times Interest Earned

Time interest earned is measurement of the company’s ability to repay its debts. A higher

interest earned ratio is advantageous since it indicates that investors and creditors face less risk

of solvency in the business. According to the bar chart above, the highest time interest earned of

Dutch Lady is 67.21 times in year 2016. In year 2015, the time interest earned is 55.60 times

increased to 67.21 times in year 2016, after that, dropped to 14.39 times in year 2017 and

increased to 35.11 times in year 2018 but it dropped again to 32.36 times in year 2019. The

lowest time interest earned is in 2017 which is 14.39 times and it shows the Dutch Lady more

unable to pay its interest payments when they come due compare to others year. Moreover, the

time interest earned not stable because the firm is not utilizing excess income for reinvestment in

the company.
iv) Profitability Ratios

a. Gross Profit Margin

By dividing gross profit by revenue, the gross profit margin is determined. Generally, the

higher the value obtained, the more efficient a business can use its own resources to generate

profit. In other words, it has greater profits and lower costs than before. According to the chart

above, the overall view of Dutch Lady’s gross profit margin showed up and down trend. Gross

profit margin of Dutch Lady increased from 42% (2015) to 42.37% (2016), then it decreased to

37.68% (2017). After that it increased to 39.70% (2018) and decreased to 37.94% (2019). It can

be seen that there have a significantly increase about 2.02% (39.7-37.68) from year 2017 to year

2018 and this implies that management of company efficiently and effectively uses their own

resources to generate profits. Furthermore, the strong position of ringgit and decline of

commodity price in year 2018, resulting Dutch Lady can get the benefit such as their costs of

goods and expenses will be reduced with no such difference in sales between year 2017 and year
2018, which is equal to RM 1,064,536,000 and RM 1,048,568,000 respectively, thus, the gross

profit margin of Dutch lady increases to 39.7 % in year 2018.

b. Operating Profit Margin

The operating profit margin is determined by dividing operating income by revenues

which reflects the ability of company’s management to make profits without considering non-

operating costs. The higher the operating profit margin, the greater the company's sales. As the

graph shown above, the operating profit margin of Dutch Lady has been decreased within 3

years, which is from 18.82 % in year 2015 to 14.79 % in year 2017. Then it increased to 16.58%

in year 2018 but it decreased again to 13.20% in year 2019. The decreasing of operating profit

margin to 14.79 % in year 2017 influenced by the rising cost of materials as well as continuous

growth of operating expenses. Furthermore, the increasing to 16.58 % in year 2018, which is

mainly led by decline of commodity price, in this way, cost savings will contribute to obtain

more operating profit.

 c. Net Profit Margin

The net profit margin is the percentage of the remaining income after deducting all

operating costs, interest, taxes and preferred stock dividends from the overall revenue of a

company. The higher the net profit margin, the greater the company's sales. Net profit margin of

Dutch Lady increased slightly from 14.07% in year 2015 to 14.23% in year 2016 and it

decreased to 11.06% in year 2017. Then, it increased in year 2018 to 13.35% but it dropped

again to 9.65% in year 2019. The lowest net profit margin of Dutch Lady is 9.65% in year 2019

and the highest net profit margin is 14.23% in year 2016. Thus, the lowest net profit margin of

Dutch Lady influenced by the rising cost of materials as well as continuous growth of operating

expenses and the highest net profit margin which is mainly cause by the decline in commodity

price, so cost savings will contribute to obtain more operating profit.

 d. Return on Asset (ROA)

ROA as a profitability indicator is computed by dividing net income by total asset, which

measures the profit generated by each unit of asset, and then reflects how efficient the company’s

management using its own assets to generate profit (Gul, Irshad & Zaman, 2011). The table

above shows that ROA of Dutch Lady during the period of 2015 to 2019 and the overall trend of

ROA is fluctuated. ROA of Dutch Lady decreased from 34.17% in year 2015 to 28.62% in year

and then it increased for the next two years which is 30.01% and 31.98% for year 2107 and 2018

respectively. But it dropped significantly to 23.21% in year 2019. It can be said that Dutch Lady

performs well in year 2015 rather than others year because it generated the highest revenue with

34 cents on each RM1 of common stockholder’s asset investment. On the other hand, the lowest

ROA of Dutch Lady implies that the profit generated by each asset only gets about 23 cents on

each RM1 of common stockholder’s asset investment. This is mainly caused by inefficient

operations, in other words, the growth of costs does not bring the corresponding profit. As well

as the higher interest and tax expenses, which directly lead to decline in net income, ROA will

also decrease.
 e. Return on Equity (ROE)

ROE is also considered to be the return on net assets obtained by dividing net income by

common equity. It represents the efficiency of the company’s management to create profit

through its assets. The table above shows the ROE of Dutch lady during the period of 2015 to

2019, from overall view, ROE of Dutch Lady continuously increased within 4 years but

decreased in year 2019 which from 89.67% to 122.75%, and dropped to 71.29%. Then, the most

notable is the ROE of Dutch lady has exceeded “1” in year 2017 and 2018, this is because the net

income already stays above the common equity at that moment. It will be a good signal for the

stockholders because the profit has been above each unit of fund invested. On the other hand, the

lowest ROE of Dutch Lady is 71.29% in year 2019 which means that Dutch Lady not efficient in

using shareholder’s capital or investments to produce profits compare to other years.

vi) Market Value Ratio

a) Earnings Per Share (EPS)

Earnings per share are determined by dividing the company's profits by the amount of

common shares outstanding. The data obtained can be used as a measure of the company's

profitability. Besides, it is closely tracked by the investing public and is considered a significant

corporate performance measure. EPS that is adjusted for exceptional items and possible share

dilution is normal for a company to report. The higher the EPS of a company, the more it is

deemed profitable. According the bar chart above, EPS of Dutch Lady shown fluctuate up and

down. Firstly, EPS increased from 2.2 (2015) to 2.33 (2016), then dropped to 1.84 (2017) and

increased back to 2.02 (2018) but lastly it dropped again to 1.61 (2019). Dutch Lady has the

highest and its better profitability in year 2016 because it shown that the highest EPS with 2.33

and this indicate that Dutch Lady are most efficient in using its capital to generate profits in year

2016.
4.0 CONCLUSION AND RECOMMEDATION

To evaluate the financial status of Dutch Lady Milk Industries Berhad by analysing

their financial statements in five years (2015-2019). After comparing the outcome of the study

the company, here with the conclusion and recommendations for company to be improve their

performance.

The liquidity ratio is an indicator of the ability of the company to pay debt obligations,

as a simple way to say is how the company asset can be liquefying to be able to pay debt (long-

term and short-term) or for emergency used. Dutch Lady Milk Industries Berhad is having good

credit risk in short term. For example, its current ratio is decreasing from 1.27 in 2015, 1.2 in

2016, 1.02 in 2017, 0.95 in 2018 and then it increases to 1.07 in 2019. The decreasing may be

due to its liability is 1, the company will be unable to pay off its obligation if they came toward

that point. Quick ratio is current asset that can be converted in such short-term or within 90 days.

Apart from current ratio, quick ratio that are lower than 1 does not inherently means that the

company is in danger, it may just mean that the company relies heavily on its inventory or other

asset to pay its debt. The ratio of Dutch Lady is increasing from 0.87 in 2015 to 0.88 in 2016 and

then decreasing to 0.61 and 0.51 in 2017 & 2018 consecutively. It rises back in 2019 with 0.61.

These shows that Dutch Lady having good credit accessibility in short term wise.

Then, asset management ratio is used to measure the firm’s on how well they are

managing their asset in order to generate revenue. The higher the receivable is the better because

it shows that the firm collecting on its account receivables sooner. Unfortunately, Dutch Lady

Milk Industries Berhad didn’t well use the assets. This is because Dutch Lady’s receivable

turnover are decreasing rapidly for 4 years from 18.16 in 2015 to 9.33 in 2018. Meanwhile fixed

asset turnover measures the productivity of the company in managing its fixed asset to generate
revenues and the ratio is decreasing from 10.44 in 2015 to 8.26 in 2019. For its total asset

turnover, to measure how well the firm is managing all of its asset to generate sales.

Unfortunately, Dutch Lady Milk Industries Berhad, the ratio is more 1 and it is decreasing from

2.43 in 2015 to 2.4 in 2019. Dutch Lady Milk Industries Berhad, inventory turnover ratio also is

decreasing from 5.86 in 2015, 5.34 in 2016 and then rise to 5.73 in 2017. So, Dutch Lady failed

to use their company assets wisely.

Leverage ratio is used to calculate or determine how much capital comes in the form of

debt (loans) or to access a company’s ability to fulfill its financial obligation. Fortunately, Dutch

Lady Milk Industries Berhad able to pay of their long-term debt and pay interest as it is due.

Debt ratio is the measure of the extent of a company or consumer leverage. The higher the ratio,

means the more leverage the company is. Dutch Lady Milk Industries Berhad’s debt ratio is

increasing from 61.9% in 2015, 68.23% in 2016 and 73.48% in 2017 then highest ratio is

73.95% in 2018 and decline to 6.44% in 2019. Debt to ratio equity for Dutch Lady Milk

Industries Berhad, the ratio is increased yearly from 1.62 in year 2015 to 2.84 in year 2018 but it

dropped to 2.07 in year 2019. Time interest earned ratio is used to calculate the amount of

revenue that can be used in potential interest payments to cover interest expenses. For Dutch

Lady Milk Industries Berhad, the highest time interest earned of Dutch Lady is 67.21 times in

year 2016. Other years all are average ratio only. Lastly, Dutch Lady having more total assets

compare to debt and less equity compare to debt also.

Moreover, asset profitability ratio is a measure of profitability, which is a way to

measure a company performance. Unfortunately, Dutch Lady Milk Industries Berhad didn’t

performs well in terms of its ability to generate profit. Gross profit margin is a ratio of

profitability that determines how much money is left over after the cost of products sold is
charged. The higher the ratio indicated that company retain on each amount of sales to service its

other cost and obligations. Dutch Lady Milk Industries Berhad shows and increasing in gross

profit margin from 42% in 2015, 42.37% in 2016 and then it decreases 37.68% in 2017 to 37.945

in 2019. While operating profit margin of Dutch Lady Milk Industries Berhad is been decreased

within 3 years, which is from 18.82 % in year 2015 to 14.79 % in year 2017. ROA of Dutch

Lady is the overall trend of ROA is fluctuated for five years and ROE is continuously increased

within 4 years but decreased in year 2019 which from 89.67% to 122.75% and dropped to

71.29%. From this we can conclude that Dutch Lady didn’t generate big net income compare to

sales. Their sales were high but not enough for generate profits due to expenses.

For Dutch Lady Milk Industries Berhad, the market value ratio will give the investor

clear picture on investment. Unfortunately, Dutch Lady didn’t represent a good investment for

investors. Earnings per share is determined by dividing the company’s profit by the amount of

common shares outstanding. EPS of Dutch Lady shown fluctuate up and down. EPS increased

from 2.2 (2015) to 2.33 (2016), then dropped to 1.84 (2017) and increased back to 2.02 (2018)

but lastly it dropped again to 1.61 (2019). Dutch Lady has the highest and its better profitability

in year 2016 because it shown that the highest EPS with 2.33 and this indicate that Dutch Lady

are most efficient in using its capital to generate profits in year 2016. Lastly, their net income

infected the EPS of Dutch Lady. As we know, Dutch Lady failed to generate the profit and net

income, so its affected the market value.

So, the first recommendation for Dutch Lady Milk Industries Berhad to do improvement

is made a strategic plan for the following years. First, there are a needed to clear about how the

operations of the company for the current time. There will easier to make the strategic plan for

the future. Profits can be created from the strategic plan that has been implemented. In addition,
Dutch Lady must continue to review on the strategic plan that makes it possible to know if the

targets are accomplished. Therefore, Dutch Lady Milk Industries Berhad is recommended to

increase sales by to lower the receivable in order to shorter the day's sales outstanding. The

performance of the Dutch Lady Milk Industries Berhad in it is poor as they took a long period to

collect money. They should improve their performance by decreasing the receivable.

Last but not least, Dutch Lady should check their company’s budget from time to time to

ensure that it does not exceed. That’s because of the budget can help to control the expenses. The

budget should not different too much from the expenses to make sure that the financial situation

is always remaining normal. When the business generates or have more funds, the expenses can

be exceeding the budget. Then, the budget must be reviewed every month or every quarter to

ensure that the budget is consistent with the growth of the business.
References

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