This report provides a comprehensive analysis of the key ratios for accessing the financial performance and position of Old Chang Kee over the past 3 financial years, as well as a critical appraisal of the accounting policies used by Old Chang Kee. Stock performance and market perception are also discussed in the report. Old Chang Kee has a lower profitability in 2010, the key drivers were a huge reduction in government grants and higher cost of raw material. However Old Chang Kee maintained well at a lower gearing level and improved its efficiency in production. Old Chang Kee also had more sufficient liquid resources available to meet current obligations. With a higher P/E ratio, investors believe a better future prospect of the firm. Old Chang Kee faces high competitiveness due to more go-to snack shops opened. However the consistent quality of foods and its branding made Old Chang Kee becomes an over performer in the market. As more international events to be held in Singapore, this will boost the tourism industry, market performance of Old Chang Kee may also push upward.
Change in accounting Policies by Old Chang Kee
Old Chang Kee adopted new and revised Financial Reporting Standards (“FRS”) for both annual financial reporting in FY2009 and FY2010. The standards issued by the Singapore Accounting Standards Council (ASC), which are based on the International Financial Reporting Standards (IFRS). The mandate of ASC is to develop, review, amend and approve accounting standard, which will track closely the introduction of new IFRS for possible application in Singapore. It will take into account the Singapore’s local economic and business circumstances and the entity which the accounting standards would apply to. The FRS only gives rise to additional disclosure to accounting policies and not to have any effect on the company financial performance.
Gross Profit Margin increased slightly from 59.61% in FY2008 to 61.30% in FY2009 but declined again to 59.93% in FY2010. Gross Profit is the difference between sales revenue and cost of sales. Whilst revenue in FY2009 increased of 6.5% from FY2008, cost of sales increased of 2.1% in the same period. The increase of gross profit was mainly due to lower raw material costs incurred in FY2009. As for FY2010, the total sales revenue increased by 8.0%, which was mainly contributed by the retail division & delivery & catering services. However, cost of sales increased by 11.8% in FY2010, which was mainly due to the rise in raw material costs. From the figures, we can see that the sales revenue had increased at a lesser rate than Cost of sales. It means that cost of sales was higher relative to sales revenue in FY2010.
Net Profit Margin increased by 3.72% from FY2008 to FY2009 but declined by 3.21% from FY2009 to FY2010. There were increases in sales revenue in both FY2009 and FY2010, but a lower net profit attributed in FY2010. The Net profit attributable to shareholders dropped largely from $4.2m in FY2009 to $2.8m in FY2010 due to huge reductions in various government grants and a higher operating expense in FY2010. As an official caterer for Singapore 2010 Youth Olympic Games and National Day Parade 2010, Old Chang Kee had an increase of 16.9% in advertising and promotion expenses in sales events. In addition, operating lease expenses also increased by 6.2% from FY2009 to FY2010, mainly due to an increase in the number of outlets opened.
ROE ratios increased from 13.95% in FY2008 to 21.66% in FY2009 but declined to 13.40% in FY2010. This represented that less profit generated that attributable to shareholders. Return on capital employed ratios increased by 1.22% in FY2009 but decline by 3.94% in FY2010, which was mainly due to less operating profit generated in FY2010 as compared to FY2009. It revealed that Old Chang Kee was less effective on the deploying of funds in FY2010. •Liquidity
The current ratios...