Bonia corporation berhard creditors perspective the

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Bonia Corporation Berhard Creditors’ perspective The overall liquidity ratio of Bonia Corporation berhad had improved slightly from year 2014 to 2015. However, quick ratio of 1.48 times in 2015 still seems to be low which indicates that the company is bearing high risk of failure in meeting its short term obligation. 15
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Besides that, almost 50 percent of Bonia’s current asset consist of inventory in both years. Since inventory is a less liquid asset, having a high percentage of inventory means that Bonia might face difficulty in converting its asset into cash. Therefore, the possibility of the company unable to generate enough cash to settle all its short-term debt will be high. In terms of financial leverage ratio, Bonia experienced slight decrease in both debt ratio and debt to equity ratio from 2014 to 2015 but still both are considered high especially in the fashion industry where cash flow is volatile. Thus, creditors may perceive Bonia as a company that faces high financial risk currently. The times interest earned ratio of Bonia shows a significant decrease due to the company generating lesser profit while interest expenses increases over the year. Anyhow, times interest earned ratio of 7.97 times for Bonia in 2015 is still acceptable because the profit earned by the company is more than enough to cover its interest and debt services payment. In creditors perspective, Bonia should not have any problem in making loan owing to its high times interest earned ratio. Investors’ perspective Bonia is less profitable in 2015 as compared to 2014 and this may affect investor’s confidence on the company since profitability is their main concern. In year 2015, Bonia generates 10 million dollars of profits lesser than that in 2014 even though it manage to maintain its sales revenue. The main factor for the decrease in profitability is the increase of overall selling and distribution cost due to poor in managing its expenses relative to its net sales by the company. As a result, the gross profit margin dropped followed by the net profit margin. On the other hand, the decrease in return on asset and return on equity indicates that Bonia did not use its assets and funds effectively. The profit generated in 2015 reduced although the company is holding relatively greater assets and shareholders’ fund as compared to the previous year. Inability of the company to utilize funds and assets given in order generate greater profit may leads to decline in the value of the company as perceived by investors. During year 2015, Bonia issued bonus share and implement share split resulting in the increase of number of shares without having any effect on the cash flow. Therefore, the earning per share ratio of the company had reduced significantly. This however does not affect the value of the firm as proven by the constant price to book value ratio. The price to book value ratio that is nearly equal to 1 indicates that the Bonia’s shares are fairly priced in the market. The implementation of split of shares reduced the share price of Bonia but it 16
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increases the price to earning ratio of the company. This means investors are expecting
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  • Summer '17
  • ms lau
  • Financial Ratio, Generally Accepted Accounting Principles, Padini Holdings Berhad, Padini, Bonia Corporation Berhad

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