1.

0 LIQUIDITY RATIO

Liquidity ratio can be defined as a ratio that measures the extent a business
can cover its current liabilities in certain period usually short-term obligation, with
current assets readily convertible to cash.

1.1 Current Ratio

Current ratio shows the proportion of current assets of a business in relation to
its current liabilities.

Formula;

Year
Calculation
(Current assets / current liabilities)
Current Ratio
2004 RM 149,170,568 / RM 75,538,919 2.0x
2005 RM 107,209,784 / RM 69,967,284 1.5x
2006 RM 119,624,208 / RM 68,742,750 1.7x
2007 RM 146,674,157 / RM 137,820,103 1.1x
2008 RM 115,288,312 / RM 90,908,395 1.3x
2009 RM 131,550,067 / RM 85,367,079 1.5x
2010 RM 162,555,247 / RM 94,499,244 1.7x
2011 RM 172,475,884 / RM 116,876,768 1.5x
2012 RM 151,985,653 / RM 99,463,121 1.5x
2013 RM 213,542,510 / RM 128,291,042 1.7x




Current Assets
Current Liabilities


Comments;

Traditionally a current ratio of 2:1 is considered to be a satisfactory ratio
because it means the firm is adequately luquid. If the current ratio is less than
that, it means the firm has difficulties in meeting its current obligation. The
highest current ratio for SBC Corporation is 2.0 times in 2004 but it remain
lower for the next nine years which is the latest ratio for the year of 2013
shows that the current ratio only 1.7 times. The graph shows that for the year
of 2005 and 2006 the current ratio was relatively constant with 1.5 times and
1.7 times before it took a downturn in 2007 where the company recorded only
1.0 times. Altough the total amount of current assets decreasing in 2008 to
2009 by 10% to 21% but the current ratio is increasing with 1.3 times and 1.5
times. The firm managed to increase the total current assets in 2010 and
reduce their current liability For the year of 2010 to 2012, total amount of
current assets is the highest compared to the years before, thus increasing the
ratio to 1.7 times, and 1.5 times each for the year of 2011 and 2012.
Current ratio is the best indicator to show that the company has ability to pay
their short term liability. Increase in current ratio over a period of time may
suggest improve liquidity of the company.
0
0.5
1
1.5
2
2.5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Group's Current Ratio
Group's Current Ratio
A company with a current ratio below median of industry average is
considered undercapitalised and may experience financial problems in the
future. However, a current ratio of greater than 1 provides an advantage if
there is a unforeseeable contigencies.
This company relies heavily on property development where more than half of
their current assets as stated in their statements of financial position come
from investment in the development projects.
The company should decrease their liabilities if possible and increase total
cash in hand by investing in other sectors. These liabilities resulting from bank
loan, bonds, bank overdraft and account payable to the creditors.
If a company is getting into financial difficulty, it will begin paying it bills
more slowly, borrowing from financial institution and increase current
liabilities.
Creditors such as supplier prefer high current ratio for this industry in order to
extend credit. But if the ratio is getting lower, the company will have a
difficulty to borrow from a creditor.
To improve the ratio, SBC Corporation should selling additional capital stock,
borrowing long term debt and disposing of unproductive fixed assets.
If the current liabilities raising faster than current assets, the current ratio is
expected to fall in the future. It can be reduced by retaining a greater portion
of allocated saving.






















1.2 Quick Ratio or Acid Test Ratio

Quick ratio is a measure of a companys ability to pay its current liabilities in
short notice. This ratio is more reliable than current ratio to measure liquidity for a
firms or corporation that have relatively high levels of inventory, work in progresss
and amount receiveable.

Formula :


Year
Calculation
(Current Assets - Inventory / Current Liabilities)
Quick
Ratio
Industry average - 4.0x
2004 (RM 149,170,568 RM 8,604,731) / RM 75,538,919 1.9x
2005 (RM 107,209,784 RM 4,359,492) / RM 69,967,284 1.5x
2006 (RM 119,624,208 RM 1,283,422) / RM 68,742,750 1.7x
2007 (RM 146,674,157 RM 726,148) / RM 137,820,103 1.1x
2008 (RM 115,288,312 RM 659,001) / RM 90,908,395 1.3x
2009 (RM 131,550,067 RM 2,580,572) / RM 85,367,079 1.5x
2010 (RM 162,555,247 RM 4,226,492) / RM 94,499,244 1.7x
2011 (RM 172,475,884 RM 10,658,749) / RM 116,876,768 1.4x
2012 (RM 151,985,653 RM 10,578,209) / RM 99,463,121 1.4x
2013 (RM 213,542,510 RM 17,698,459 / RM 128,291,042 1.5x
Current Assets - Inventory
Current Liabilities







Comments;

SBC Corporation Berhad has a lower quick ratio than industry average. The
highest ratio is 1.9 times in 2004 but it remain lower for the next nine years
which is the latest ratio for the year of 2013 shows that the quick ratio only 1.5
times compared to industry average. The graph shows that for the year of 2004
to 2013 the quick ratio is more than half below industry average. The lowest
ratio is in 2007 where the company recorded only 1.1 times, but slightly
increase in 2008 to 2010 and decrease from 2011 to 2012 with 1.4 times each.
Lower quick ratio than industry average suggest that SBC Corporation taking
too much risk by not maintaining an appropriate buffer of liquid resources.
This company also have a lower ratio due to better credit terms from the
supplier.
More than half of their current assets come from property development while
inventory contributed only slightly from the total current assets.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Group's Quick Ratio
Group's Quick Ratio
Inventory is the least liquid of a companys current assets, hence the company
must increase the amount of cash through debt financing or converting it
assets to cash.
If a company is getting into financial difficulty, it will begin paying it bills
more slowly, borrowing from financial institution and increase current
liabilities.
The company also relying on the sale of inventory to pay off their short term
obligation. But if not possible, SBC Corporation still have account
receaveable and amount owing by the contract customers, subsidiaries and
associated to be collected.
If the current liabilities raising faster than current assets, the quick ratio is
expected to fall in the near future.



1.3 Conclusion

Liquidity ratio measure the companys ability to convert their current assets to
a reasonable value quickly. Liquidity ratio pattern for SBC Corporation company is
not stable over the last ten years. This company have insufficient cash capital to
finance their project development and are highly dependent on debt capital such as
bank loan, private bond and creditors. They need to increase the amount of current
assets, especially cash in order to have ability to repay their short-term loan or debt.
Cash can be raised either by borrowing from financial institutions, money invested by
the owner or by selling their assets and converting it to cash. But the liabilities will
also increasing by debt financing. Financial regulations by the government body such
as Bank Negara Malaysia (BNM) may imposed restriction on financial institutions to
lend credit facilities if the potential borrowes that have a low current ratio. Therefore,
the company must take profitable investment from construction projects that can bring
high return or attract new investors to get additional fund to the company.