Fundamental Analysis


List of Tables
Page
Table 1: Debt to Equity Ratio
Table 2: Net Profit Margin
Table 3: Return on Assets
Table 4: Return on Equity
Table 5: Earnings per Share
Table 6: Price to Earnings Ratio
Table 7: Dividends per Share

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List of Figures
Page
Figure 1: Debt to Equity Ratio
Figure 2: Net Profit Margin
Figure 3: Return on Assets
Figure 4: Return on Equity
Figure 5: Earnings per Share
Figure 6: Price to Earnings Ratio
Figure 7: Dividends per Share
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Fundamental Analysis
Fundamental analysis is a technique that attempts to determine the value of a security by evaluating a company's financial statements. Ratio analysis is an effective method to evaluate a company's financial statements. Ratio analysis involves five different types of financial ratios; liquidity ratios, activity ratios, leverage ratios, profitability ratios and per share ratios. This report will include the calculation of Maybank's financial ratios from 2011 -2013. Fundamental analysis is important as it assist investors in understanding the financial condition of Maybank and the behavior of its shares. Before reading further, take note that in 2011, Maybank has announced a change in its financial year end from 30 June to 31 December (Nayagam & Lee 2011). '

Leverage Ratio
Debt to Equity Ratio
Debt to Equity Ratio = (Long term Debt)/(Shareholder^' s Equity)
FY2011 FY2012 FY2013
Long-term debt (RM'000) 27,396,000 31,873,000 30,486,000
Shareholders' equity (RM'000) 31,461,499 42,228,893 45,997,407
Debt-equity ratio (Times) 0.87 0.75 0.66
Table 1: Debt to Equity Ratio


Figure 1: Debt to Equity Ratio
The bar chart above shows Maybank's debt to equity ratio. Debt to equity ratio measures the proportion of debt and shareholder's equity the company is using to finance its assets. Figure 1 shows a declining debt to equity ratio, from 0.87 times to 0.66 times. This indicates that the proportion of assets financed by debt is decreasing. This is favourable for Maybank, as this means less risk for the business. A high debt to equity ratio can allow a company to generate greater income. However, it can also lead to bankruptcy, which would leave shareholders with nothing. A business with a debt to equity ratio of 1.00 is financing half of its assets by debts and half by shareholders' equity. Generally, sophisticated investors want to see a debt to equity ratio that is less than 1.00 (Investopedia Staff c.2014). Therefore, it is better for Maybank to have a lower debt to equity ratio; not greater than 1.00.'
Profitability Ratios
Net Profit Margin
Net Profit Margin = Net Profit after Tax/Total Revenue
FY2011 FY2012 FY2013
Net profit after tax (RM'000) 4,450,278 5,744,696 6,552,391
Total revenue (RM'000) 13,419,764 16,773,318 18,538,300
Net profit margin (%) 33.16 34.25 35.35
Table 2: Net Profit Margin


Figure 2: Net Profit Margin
The diagram above shows Maybank's net profit margin. Net profit margin is a profitability ratio that measures the percentage of net income to a company's total revenue. Based on Figure 2, Maybank's net profit margin has increased over the past 3 years, from 33.16% to 35.35%. This indicates that Maybank's performance is improving. From shareholders viewpoint, the higher the net profit margin, the better. This means that shareholders are more likely to receive higher dividends. In addition, net profit margin is also useful in comparing the profitability of competitors in the same industry. According to Yahoo! Inc. c.2014, the net profit margin of the financial and banking industry is 15.53%. This is favourable sign for Maybank's shareholders, as Maybank's net profit margin is high as compared to the banking industry.
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Return on Asset
Return on Assets = Net Profit after Tax/Total Assets
FY2011 FY2012 FY2013
Net profit after tax (RM'000) 4,450,278 5,744,696 6,552,391
Total assets
(RM'000) 411,958,694 494,910,963 560,443,226
Return on asset (%) 1.08 1.16 1.17
Table 3: Return on Assets


Figure 3: Return on Assets
The figure above shows Maybank's return on assets. Return of assets is a profitability ratio that measures the efficiency of a business in utilizing its assets to generate income. The diagram above shows that Maybank's return on assets has experience a year to year increased, from 1.08% to 1.17%. This indicates that the profitability of the business is improving over the past 3 financial year. Figure 3, shows a sharp increase in the return on assets during the financial year 2011 to 2012, from 1.08% to 1.16%. This is due to expanded by RM80 billion, from RM411.9 billion to RM494.9 billion. According to Maybank Annual Report 2012, the strong growth in Maybank's total assets is because of higher growth in financing, advances and loans, deposit placements and bank's securities with financial institutions. The three consecutive years increase in Maybank's return on assets will be an extra incentive for shareholders to invest in Maybank.
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Return on Equity
Return on Equity = Net Profit after Tax/(Shareholder^' s Equity)
FY2011 FY2012 FY2013
Net profit after tax (RM'000) 4,450,278 5,744,696 6,552,391
Shareholder's equity (RM'000) 411,958,694 494,910,963 560,443,226
Return on equity (%) 1.08 1.16 1.17
Table 4: Return on Equity


Figure 4: Return on Equity
The diagram above shows Maybank's return on equity. Net profit margin is a profitability ratio that measures the percentage of net income to a company's total revenue. Based on Figure 4, Maybank's have experienced an overall increase return on equity, from 13.71% to 14.25%. Investors usually favour a higher the return on equity, as it indicates that a company is efficient in generating income on new investment (Jan 2013). According to Yahoo! Inc. c.2014, the return on equity of the financial and banking industry is 8.44%. Maybank's return on equity over the past three years has outperformed the return on equity of the banking and financial sector by an average of 5.41% per year.

Source: Essay UK - http://ntechno.pro/free-essays/finance/fundamental-analysis.php


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