GROUP SARAWAK PLANTATION BERHAD 2019 Question Analysis of Cash Flow Statement (Sarawak plantation Bhd} The Sarawak Plantation nancial report extracted from the annual report 2019 from page 71-79. You are required to analyse the Cash Flow Statement (Page 75-79) of Sarawak Plantation hd annual report for 2018 and 2019 respectively. Critically comments where appropriate on how the cash ow of the company was managed and give proper recommendationsi'suggestions as to how the company should improve its cash ow positionl Your study and comments will be based on the GROUP's performance. Your analysis will be divided into two parts as follows: Part 1 Study the Cash Flow Statement of Sarawak Plantation @1151 for 2018 and 2019 respectively. Critically comments where appropriate on how the cash ow of the company was managed Part 2 Provide proper recommendationsfsuggestions as to how the company should improve its cash ow position, so that the company will be sustainably protable. Rue stion Analysis of Cash Flow Statement (CMS Bhd) Study the Cash Flow Statement oi CMS mfor 2017 and 2018 respecvely. Provide necessary comments where appropriate on how the cash flow of the company was managed and give proper recommendationsisuggestions as to how the company should improve its cash ow position. Part 1 Study the Cash Flow Statement ocf OMS mic]: 2017 and 2018 Page 1 4 respectively. Provide necessary wmments where appropriate on how the cashilow ofthe company was managed Part2 Give proper recommendationsfsuggestions as to how the Page 5 10 company should improve its cash ow position. Operating activities In the year 2018, CMSB generated net cash from operating activities is RM126.923 million compares with the year 2017 the gure decreased by RM155.216 million from 111311282139 million. Although prot before tax increased by RMElJlB'l million from the year 2017 RM321.290 million to 11101372324 million in the year 2018. Based on the comparison or both years, one of the reasons because of adjustment in cash ows before changes in working capitaL There are changes in working capital under the cash ow of operating activities including changing in stock movement, other current assets, account receivable, account payable and other current liabilities. For example, the company unable to manage its debtors very well in the year 2018 led to an increase in account receivable. This indicates cash outow compares with the year 2011'. By taking comparison in between the year 2017 and 2018, total changed in working capital in the year 2017 at a positive gure, RM54.096 million turned to negative gure, 7RM95.503 millinn. This indicates the eliciency of cash flow management is not very encouraging in the year 2018, although both year 2017 and 2018 shows positive net cash flow. Investing activities CMSB conducted massive acquisition activities in the year 2018 compares with the year 2017. The company increases acquisition of property, plant and equipment by the total amount of 111121.318 million from 111159.966 million in the year 2017 to RIMS-1.284 million in the year 2018. Besides, the new acquisition ocl' additional interests in an associate reached RM45.54-2 million and the acquisition of prepaid land Lease payments RM28365 million. These three acquisition activities reect the company is keen on increasing productivity and business expansion. For example, acquisition ocf xed assets is to sell more which requires to boost production line. Acquisition of additional interest in an associate {means invest in other companies), this acquisition activity implies the company able to seek good companies to invest All these acquisition activities will produce future income or generate prot to the company. Thus, the company will yield (ash inows for future business activities purposes and as a source of dividend payment. Financing activities CMSB pays a high dividend to its shareholder. By studying the statements of cash flows Ior the ymr 2013 and 2017, the dividend payout was high. Addinnally, in the year 2018, the payout dividend increased by 26.98% from RMS'TBE million in the year 2017 to EMBEQED million. However, the company able to reduce the repayment of borrowings to \"57.431 million in the year 2018 by RM1901365 million from M48296 million in the year 2017. This reduction expresses the company able to use daily generated revenue to m its business without requiring massive loan borrowing, 1n the meantime, the company able to pay its loan borrowing through its prot. In summary, the most critical activities in the statements of cash flows are the operating activities. Any business if it cannot sustain its net cash ow from operating activities, then the company has cash flow problem links to its capability to generate prot. Always bear in mind, any changing ofcurrent assets and current liabilities relates to operating activities, any changing of noncln'rent assets and investments relates to investing activities, and any changing ocf long-term liabilities and equity accounts relates to nanring activities As for CMBS case study, cash ows from operating activities is positive cash ows liar both year 2017 and 2018. However, there was a 55% reduction in net cash ow generated from operating activities in the year 2018 due to changing in account payables, account receivable, other current liabilities and property development cost. The below bar chart1 illustrates three years of cash ows activities or CMIBS. 1 The bar chart is retrieved from https:ffwww.shareinvemr.mmlindamenlslfnandnlahnnl Shareinvesbornamisaproesmalonnephtormfmmdersmcaphneredme informational surksperrrmanm. Thisonlineplatumuera fundamental andmchmsalanalyaismsubsnibers inrluding stock screening tools. Give proper recominendationslsuggestions as to how the company should inlprove its cash ow position. [01] Reduce administrative expenses and cut interest cost By studying the statement ad prot or loss and other comprehensive income, administrative expenses for both year 2017 (RMBBTES million) and 2018 ('RM5415B million) is high. In additional, nance cost increases from RMZ'JDSU million in the year 201'? to \"37.285 million in the year 2018. One out the ways to reduce administrative expenses is by applying IT technology to automate administrative jobs. However, the initial cost of adaption IT technology could be high as the initial stage requires massive ofcapital's investment. Meanwhile, the company incurred a high nance cost, which increased from RMMBBD million in the year 2017 to RMETZS million in the year 2018. The company can cut its high- interest rate payout by seeking oi new lower interest rate oer through renancing of I-ting loan borrowing. With recent, the cutting of OPR rate by 25 basis points1 to 1.75% by the central hank of Malaysia, BNM. The opportunity to seek low-interestrate debt nancing through banks is very encouraging. [02] Manage account payables By studying account payables for CMBB on both year 2017 and 2018, there is a vast difb'erence between both gures; the year 2018 is a. negative gure (-RM105.741 million) andthe year 2017 is a positive gure {81112135532 million). These account payables reect the company decrease account payables means cash outow to pay the creditors in the year 2018, and compare with the year 201'? which acco'Lmt payabla are increasing. The company should take full advantage of credit or negotiate with its creditors on discount rate on earlier payment settlement. Longer credit term can create a cushion ir mash outow for the company and gain from discount rate uses to ofset purchasing cost. [03] Improve account receivables As we all know sales transaction through instant cash payment, then we would never have a cash flow problem. But in the real world, most of the sales are in the credit term. The longer time the trade debtors pay us, the likely the trade debtors will turn bad debts. Thus, a good manageth team usually very concern about assets conversion cycle. Usually, trade debtors should be given shnrtrterm credit period, and trade creditors should offer us a long repayment period. In other words, the debtors' payment period should shorten than the creditorsr repayment period. By analysing the statements ocf nancial position for CMSB, trade and other receivables for both year 201'? and 2018 are high. The account receivable increases ahuut 16% from the year 2017, 1051270737 million to 11151311038 million in the year 2018. Here raises the questinn on the effectiveness ufmanagement when coming to inventory management and also the completion of contract projects. There are many methods CMSB can applyto expedite the debtors on debts' payment as follows: (1) Give a discount rate to debtors who pay early. (2) Sell invoices to factoring house to cash out invoices to receive the cash test. [3) Always conduct credit checks through credit agency like RAMCI or CTOE to all potential customers before any selling. Meanwhile, the company should expedite the completion of contracts' project to claim cash back since massive capital invested in the acquisition of xed assets to generate income. [04] Do not overtrading Business expansion or sales more is good :for any business. However, sometimes over- expansion of business or massive unnorlnal sales without suicient business planning and risk management can lead to a shortage of cash in hand. CMBS can plan to expand business or sales more only aer careful planning, organizing, implementing and monitoring. Business expansion or sales more on reecting prots in accrual accounting but not true cash receive. As a general practice, the company should always consider cash convention cycle to prevent unforeseen overloading in business. [05] Perform cash flow forecast A good cash flow forecast is good practice in any company. CMSB can do a cash flow forecast for each of its contract projects. Cash ow is like blood. Without sufcient cash ow can lead to a shortage offlmds. This shortage may disrupt daily business operation activities. As we know, although sales up and prot increase, this protability business does not express through cash in hand. Usually, cash goes out upfront but when cash can collect from trade receivable is another story. CMSB can plan for a 12 months cash ow forecast in advance to confront any unpredictable event happening. [07] Reduce dividend payout Both year 2017 and 2018, CMSB declared high dividends payments, specially to the shareholders of the company. As we agreed, one of the reasons, Why shareholders invest in the company is to increase shareholders' wealth. However, if the top management of the wmpany can reduce the dividend payout and reinvest operating revenue into the company, the company can use the retained earnings to increase the value ofthe company. In the long-term, the shareholders can increase their wealth accumulation by holding the company's shares. For example, Warren Buffet holds good stocks in the long-term through his holding company, Berkshire Hathaway. A lot odgood companies like Coca-Cola, Ban]: ofAmerica, Apple, etc. are under Warren BirEEet's investment porblio. Conclusion As an investment holding company with majority business activities are located in the State of Sarawak, CMSB has contributed many the state development from cement producer sole provider up to contract projects like building boidges since it was established in 1974. One of the key reasons why the company able to carry on its business is because the company has sufcient expertise and resumes, including the source of funds. The contribution of CMSB also provides job opportunities and contributes taxes to the government. Revenue can sustain for the past so many decades. However, the impact of global pandemic COVE-19 caused severe damage to the company business performance due to lockdown of the whole of Malaysia's country with the release of Movement Control Order on 18th March 2020. Temporary ceased otfbusiness activitia without any income will hit many companies cash ow, including CMSB. The future revenue will be affected. However, the revenue will only recover after all projects and business activities resume to normal gradually. In a nutshell, the daily business activities will continue to generate prot with plus and minus on cash outow and inow. By studying through the past two years of nancial statement 2017 and. 2018, the company shows a positive net cash ow in the operating activities, However, the net cash ow gure decreased from 201'? to 2018 because ofhigh payout oftrade payable. Most importantly, CMSB continues to generate positive net cash ows which reect in the company nancial statement, The strong net cash ows for operating activities indicates the company able to generate cash to serve and serves its short-term loan obligations and also longrterm debts. Always controlling the cash ow is one of the (oitiml things in running the business successfully. Meanwhile, other business elements required to integrate into the business. For example, good and clear business directicms with a realistic business plan, understand the current company position, how to retain talents employee, practice good corporate governance and business expansion. All these suggested steps can improve the company cash ows without wasting the most valuable resources. Finally, always hear in mind no matters What happen in the organization, the essential thing never running out of cash in doing business