Tnb-Financial Analysis Essay Example

and services, repair and maintenance, research and development and project management services. TNB also offers higher education through its university – University Tenaga Malaysia (Uniten). The Group mission is “We Are Committed to Excellence in Our Products and Services” FINANCIAL ANALYSIS (1998 – 2007)The purpose of this chapter will cover the analysis of financial statement from year 1998 to 2007 of Tenaga Nasional Berhad (TNB) to help evaluate the operating performance and financial positions. Operating performance analysis focuses on how well the organization is matching revenues and expenses or expenditures while financial position analysis focuses on how well positioned the organization is to pay its bills.

The Group's principal activities are generating, transmitting, distributing, operating and selling electricity .Other activities include repairing, testing and maintaining power plants, providing engineering, procurement and construction services for power plants related products, assembling and manufacturing high voltage switchgears, coal mining and trading . Operations are carried out in Malaysia, Mauritius, Pakistan, India and Indonesia. Profitability Ratio And Sales Revenue Profitability ratio has increased tremendously from a negative 28% in 1998 to a positive 18% in 2007.

This shows how well TNB is performing by analyzing profit earned relative to sales, total assets and net worth. The Group recorded a 14. per cent growth in revenue to RM23,320. 4 million in FY2007 from RM20,384. 2 million in FY2006 and 110 per cent growth in revenue from RM11,075. 6 million in FY1998.

This can be seen in a staggered rise and was driven by various factors such as the implementation of the new tariff structure which took effect in the middle of Y2006, foreign exchange translation gains and a 5. 3 per cent increase

in electricity demand. This is also reflected by higher electricity sales which increased by RM2. 7 billion or 13. 6% and cost savings.

EBITDA increased to 37. 6 per cent compared to 35. per cent last year while net profit increased by 90. 9 per cent from RM2,126. 9 million (Y2006) to RM4,061. 1 (Y2007) million which is almost double the amount; and also a huge increase from a loss of RM3,093.

For the past 3 years, a major restructuring of loan has been done. As we can see of RM32. 4 billion in Y2004 to RM23. 9 billion in Y2007, reflecting a RM8. 5 billion or 26.

2 per cent reduction. During the same period, TNB has managed to collect RM553 million from major delinquent debtors and also eduction in theft. Due to the various cost management initiatives undertaken by the Management, the Company has realised around RM2. 4 billion in terms of value creation since 2004.

TNB also saw increasing foreign investors’ interest in its shares, when foreign shareholding reached 28. 4 per cent in May 2007; it’s highest since the Company’s privatisation. Given the continued strong financial outcomes, the Company is poised to undertake appropriate growth opportunities within its core business areas.

Earnings Per Share During the year 2007, the Board announced a dividend policy for the purpose of providing stable and sustainable dividends to shareholders while maintaining an efficient capital structure and ensuring sufficient funding for future growth.

Under this policy, TNB will distribute 40-60 per cent of the Company’s annual free cash flow as dividends. As such, the Board of Directors is recommending a final gross dividend of 16. sen per ordinary share less income tax

of 26 per cent to shareholders of the Company. Together with the interim dividend of RM632 million, the total dividend declared for this Financial Year amounts to an estimated RM1,154. 5 million. From track record Y1998 to Y2007, Y2007 has the highest payout.

Liquidity Ratio

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. It measures a company's ability to pay short-term obligations. Liquidity ratios measure the short-term ability of the entity to pay its maturing obligations and to meet unexpected needs for cash. As per the above calculation, current ratio and quick ration for TNB decrease from year 1998 to 2000 but increase from 2000 to 2007. The increase in both current and quick ratios from 2000 to 2007 indicates improvement in liquidity (Current ratio from 0. 5 times in 2000 increased to 1. Times in 2007; quick ration from 0. 4 times in 2000 to 1. 2 in 2007). The current ratio means for every dollar of current liabilities, in year 2007, TNB has $1. 50 of current assets compare to 1998 which has only $0.

While for quick ratio, TNB performed quite well too. Ratio increased from year 2000 to 2007. The peak was in year 2004 with the quick ratio of 1. 4.

The company is ‘cash rich’ and able to pay off short-term obligations without relying on the sale of inventories.

Fixed Assets

Turnover Assets management ratios measure how effectively TNB is managing its assets.

Fixed assets turnover ratio for the company is increasing from the year 1999 to 2007, from 0. 27 to 0. 41, 51% improvement over 9 years of

business operation. Over the 9 years TNB’s total assets turnover ratio increased from 0. 25 times in 1999 to 0. 34 times in 2007. This indicates that the company is generating sufficient volume of business given its total assets investment.Sales increased, some assets were sold, or a combination of these steps had been taken.

Executive Summary

In summary, it can be seen that Tenaga Nasional Berhad has increased its performance quite steadily for the past ten years. It has managed to improve its performance from losses to steady growth of earnings and profit.It has done by steadily increasing its tariff, earnings from foreign exchange translation gains and increase in electricity demand. Tenaga Nasional Berhad are also able to manage its debt by decreasing it quite considerably. The company managed to collect its debt from major delinquent debtors and also reduction in theft.

Though its total revenue increases, there is large escalation in total operating cost. This in turns has resulted into slight decrease of its profit margin. It has shift its operation towards fuel- fix in order to reduce the cost of coal usage and also maximizing its gas and hydro usage from its multi-fuel plants.The rising coal price has increase the total fuel cost.

However its foreign exchange gain and continued effort in cost management has increased its pre tax profit. TNB would need to resort to the capital market to finance its capital expenditure requirements due to increases in operating cost and requirement to enhance its electricity supply reliability. TNB also has plans to further increase its tariff in 2008 due to the incr