The company has been practicing 4 fundamental rules which ultimately assisted to earn the title of being the top of rubber glove industry. They are, “Do not waste our shareholder’s money’, “Do not lose our health”, “Do not lose our temper and finally, “Do not lose our customer”, as mentioned by the chairman of Top Glove Corporation Bertha, Tan Sir Lam Wee Chic (“Mission & Vision”, n. D. ). In order to maintain their customer’s loyalty and shareholder’s faith, Top Glove has and will continue to put In lots of hard work and effort in investing in their researches to bring a product that is Roth the money paid.
As stated in their company profile, the final objective of Top Glove is to pursue for an extensive and complete range of high-quality, high value- added and cost-effective rubber gloves (“Corporate profile”, n. D. ). Subsequently, we aim to evaluate the company with ratios of profitability, liquidity, efficiency and some other ratios. And to analyze the outcome to provide Mr.. Alex for constructive advice whether it is appropriate to invest his capital in Top Glove. There are 3 ratios involved and they are gross profit margin, net profit margin and return of capital employed (ROCK).
Gross Profit Margin, in others word it calls gross profit as a percentage of sale. This represents the gross profit before deducting any expenses, for every sale earned. A higher ratio shows a better financial performance. Gross profit margin of Top Glove Corporation Bertha for the year 2010-2011 has decreased from 21. 11% to 11. 4%. There are few factors to influence gross profit margin. For the year 2010-2011, there is a decrease in gross profit margin for Top Glove Corporation Bertha which due to discounts for bulk purchase by customers.
Besides that, decrease in selling price in order to sell the old or slow moving inventory may cause a lower gross profit margin for the company. However, the gross profit margin of Top Glove Corporation Bertha for the year 2011-2012 has increased from 11. 4% to 16. 6%. During the period there has been an increase in gross profit margin for Top Glove Corporation Bertha which was due to increase in selling price due to superior products. Besides that, decrease in cost of sales due to better cost control may also raise up the gross profit margin.
Net profit margin is also known as net profit as percentage of sales. This represents the net profit after deducting The main concept of this indicator is much similar to the gross profit margin. Likely to the gross profit margin, during year 2010-2011 net profit margin of Top Glove Corporation Bertha has decreased from 14. 67% to 7. 08%. Due to high interest payment and increase in borrowings the company’s net profit margin may decreased. Moreover, a bad control of expenses can cause the drop during the year.
Lastly, high depreciation charge due to purchase of additional fixed assets also will lower the net profit margin. On the other hand, net profit margin of Top Glove Corporation Bertha has increased from 7. 08% to 10. % during the year 2011-2012. This may happen because the profit is relatively increased due to increase in selling price and lower cost. Besides that, Top Glove Corporation Bertha had an efficient management in controlling the operating expenses (good control expenses). Lastly, a higher net profit margin may be due to lower interest expense due to borrowings.
As those ratios show decrease during year 2010 and 2011, but during year 2012, Top Glove Corporation Bertha has improved its management and achieved a higher profit margin. This also suggests that the company has a potential to get a better level of reference in future. The third profitability ratio is return on capital employed (ROCK). It measures how efficiently the capital has been used by the business to generate income. ROCK of Top Glove Corporation Bertha for the year 2010-2011 has fallen from 26. 5% to 12. 2%. However, it has risen up from 12. 2% to 18. 9% during the year 2011-2012. Results of year 2010-2011 may be frustrating because decrease in ROCK may indicate the company is not efficient in utilization of its capital to generate profit. However, for the year 2011-2012, Top Glove Corporation Bertha has successfully managed performance by indicating better utilization of company’s capital to generate profit and made an increase in ROCK. This shows a positive potential for a secure investment as well. Glove Corporation Bertha on the next step. The current ratio is an indication of the business ability to pay its debts.
Current ratio of Top Glove Corporation Bertha for the year 2010-2011 has a decrease from 3. 41 times to 3. 12 times. During 2011-2012 it again decreased up to 2. 95 times. There is few factor cause the current ratio of Top Glove Corporation Bertha to meet a fall in year 2010- 2012. A lower current ratio may be due to decrease in current assets as result of weaker financial performance e. G. Sales, profit. Besides that, Top Glove Corporation Bertha has an increase in tax payable, dividend payable so that they met a fallen in current ratio. The current ratios of the Top Glove Corporation Bertha show positive figures.
A ratio lesser than 1 means the business is having liquidity problems. The ideal current ratio is 2:1 . Although the ratios have been decreasing from 2010, the amount of asset has increased more than those in previous years. Furthermore, the ratio is 2. 95 showing hat it is still able to pay debts efficiently. Quick ratios also called liquid or acid test ratio. The quick ratio shows the ability of the business to pay its current debts with current assets that are easily convertible into cash. Quick ratio of Top Glove Corporation Bertha for the year 2010 – 2011 has met a fallen from 2. 4 times to 2. 35 times, and it again decreased to 2. 30 times. As likely as current ratio, the quick ratio has been decreasing from 2011 to 2012. However, we can assume that the company can still pay its debts and even asset has increased more than previous period. This wows that the company is still financially secure. Lastly we assessed to efficiency ratios of the Top Glove Corporation Bertha. The first efficiency ratio is inventory turnover ratio which provides the number of times a company can sell off its inventory in a year.
Inventory turnover period in days is an alternative way to calculate the efficiency ratio of Top Glove. Through calculating the inventory turnover period in days, we can measure the number of days Top Glove holds the goods on average. The inventory turnover ratio of Top Glove Company is 10. 5 in year 2010, 10. 6 in 2011, and 10. 7 in 2012. These figures signal that Top Glove Company is constantly growing in selling off inventory at a faster pace. In addition, the inventory turnover opened 35. 22 in year 2010, 34. 42 in 2011, and 33. 57 in 2012.
These figures indicate that Top Glove Company held their inventory for 35 days in year 2010, 34 days in 2011 and 33 to 34 days before selling it off in respective year. The decrease in figures proves the goods are held for a shorter period while allowing the company to save up some costs. In comparison, the inventory turnover ratio of year 2012 has increased rather than 2011 and 2010. This increase indicates that the goods are sold at a faster rate; in other words, the company is able to sell more goods compared to the previous years.
Subsequently, the inventory turnover period shows a sign of decrease which proves that the company did not hold their goods for long before selling it out. In a nutshell, both outcomes serve as a desirable result to Mr.. Alex since it is indicating that the company has more available funds compared to previous years. The second indicator to evaluate is the trade receivable collection period or also known as account receivable collection period. This method assesses the number of days a company has taken to collect debts from the debtors after sales.
