FINANCE FOR MANAGER

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COMPANY: malayan flour mills berhad


FIRST PART: CORPORATE GOVERNANCE ANALYSIS

Objective

  • To analyze the corporate governance structure of the firm and to assess where the power in the firm lies, with incumbent management or with stockholders in the firm
  • To find out whom the average and marginal investors in the company are. This is relevant because risk and return models in finance assume that the marginal investor is well diversified.
    • Who is the CEO of the company? How long has he or she been CEO?
    • If is it a “family-run company”, is the CEO part of the family? If not, what career path did the CEO take to get to the top? (Did he or she come from within the organization or from outside?)
    • How much did the CEO make last year? What form did the compensation take? (Salary, bonus, and option components)
    • How much stock and options in the company does the CEO own?

Key Question

  • Analyse the responsiveness of the management to stockholders. (Hint: Is this a company where there is a separation between management and ownership)
  • Examine how management handle if there is a potential conflict between stockholders and lenders to the firm.
  • Analyse on how the firm interacts with financial markets? How do markets get information about the firm? (Hint: investing, financing and operating activities)
  • Who is the average investor in this stock? (Individual or pension fund, taxable or tax-exempt, small or large, domestic or foreign)

Framework for Analysis

(Hint: Justify the below answers on how does the decision made to accelerate the growth of the selected company.)

  1. The Chief Executive Officer (5 marks)
  1. The Board of Directors (10 marks)
  • Who is on the board of the company? How long have they served as directors?
  • How many of the directors are “inside” directors?
  • How many of directors have other connections to the firm?
  • How many of the directors are CEOs of other companies?
  • Do any of the directors have large stockholdings or represent those who do?
  1. Bondholder Concerns(5 marks)
  • Does the firm have any publicly traded debt?
  • Are there are bond covenants that have been imposed on the firm as part of the borrowing?
  • Do any of the bonds issued by the firm come with special protections against stock-holder expropriation? (What kind of bond does the company have?)

  1. Financial Market Concerns (5 marks)
  • How many analysts follow the firm?
  • How much trading volume is there on this stock?
    • How many stockholders does the company have?
    • What percent of the stock is held by institutional investors?
    • Does the company have listings in foreign markets? (If you can, estimate the percent of the stock held by non-domestic investors.)
  1. Stockholder and Insider Holdings Concerns (20 marks)
  • Who are the insiders in this company? (Besides the managers and directors, anyone with more than 5% is treated as an insider.)
  • What role do the insiders play in running the company?
  • What percent of the stock is held by insiders in the company?
  • What percent of the stock is held by employees overall? (Include the holdings by employee pension plans)
  • Have insiders been buying or selling stock in this company in the most recent years?

SECOND PART: FINANCIAL STATEMENT ANALYSIS

Framework for Analysis

(Hint: Justify the below answers on how does the decision made to accelerate the growth of the selected company.)

  1. Assess the company’ yearly Free Cash Flow (FCF). (10 marks)
  2. Evaluate each major category of the below financial ratios. (15 marks)
    1. Liquidity ratio
    2. Asset management ratio
    3. Debt management ratio
  • Interpret and conclude your analysis. (15 marks)

Sources of information: Bursa Malaysia, Annual Reports, Bursa Malaysia web-site, etc.

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