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< BACHELOR ACCOUNTING>

< SEPT 2020>

< BBPW 3203>

< FINANCIAL MANAGEMENT 11>

MATRICULATION NO : <960828016204001>

IDENTITY CARD NO. : <960828016204>

TELEPHONE NO. : <018-4654028>

E-MAIL  : <[email protected]>

LEARNING CENTRE : <JOHOR>

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                                                    Content                                                  
Pages              

1.0 Introduction of the selected companies

………………………………………………………………….          3-5

2.0 Computation of relevant ratios for analysis of the company’s capital

structure for years 2015, 2016, 2017, 2018 and 2019……………………………. 6-15

          
  3.0 Explanation of the company’s capital structure over the 5-year
period…… …………………………………. 16-19

 
4.0 Comparison of the company’s capital structure……… 20-21

5.0 Conclusion ………………………………………………………………. 21
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1.0 Ho Hup Construction Company was co-founded in 1960 by Mr. Low Chee. It has grown

to become one of the largest companies in construction and related services in Malaysia

which located at Level 18, HOHUP Tower, No.1, Jalan Persiaran Jalil 1, Bandar Bukit Jalil,

57000 Kuala Lumpur and the company size was 11-50 workers. As a market leader in

Malaysia, Ho Hup Construction Company brings together a comprehensive range of

capabilities in building, civil engineering, specialized intelligent building, trading and related

services. Ho Hup Construction Company also known as the company with a very

comprehensive fleet of light and heavy modern construction equipment. With strong roots in

its local markets and through its network of subsidiaries, Ho Hup Construction Company

Berhad also plays a significant role in the world market fir major engineering structures, civil

engineering, dredging, road building and infrastructure projects. To date, Ho Hup

Construction Company has successfully incorporated its subsidiaries in India, Madagascar,

Mauritius, China, South Africa, Thailand and Indonesia. Locally, Ho Hup Construction

Company has completed numerous projects from both the private and government sectors for

high-rise intelligent buildings, stadium, airports, highway & bridges, railways & light rapid

transit, off shore marine works, oil & gas works, commercial building development, deep

foundation works and many more. Ho Hup Construction Company is known as the company

with vast involvement in national projects namely the Petronas Twin Towers, National Sports

Complex, Kuala Lumpur International Airport (KLIA), Light Rail Transit System (LRT),

Malaysia-Singapore second crossing and major highways. “Our Projects” page highlights the

details of work executed at the projects of which have contributed in shaping history. The

company underwent a major transformation in 2009 and to date, the Group’s spectrum of

activities now consists of three main division namely; property development, construction &

civil engineering works and ready mix.

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Financial Highlights of Ho Hup Construction Company
Financial 2015 2016 2017 2018 2019
Highlight
(RM’000)
Revenue 298,546 241,366 179,677 260,815 371,368
Profit Before 86,761 78,017 48,755 39,315 76,083
Tax
Profit After Tax 70,274 65,072 38,538 28,263 51,586
Profit 70,934 65,791 40,075 28,891 51,500
Attributable to
Owners of the
Parent
Total Asset 523,153 683,179 895,691 1,087,972 1,305,500
Total Borrowing 134,965 218,471 306,102 382,055 372,356
Shareholders’ 228,276 295,849 335,267 363,719 432,584
Equity
Basic Earnings 20.67 18.84 10.69 7.71 13.50
per Share (sen)
Net asset per 65.83 78.92 89.44 97.02 104.90
share (sen)
Net Return on 31.07% 22.24% 11.95% 7.94% 12.87%
Shareholder’
Fund (%)
Gearing Ratio 0.50 0.63 0.81 0.96 0.68
(times)
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1.1 Vizione Holdings Berhad, formerly Astral Supreme Berhad was founded in year 1965

which located at Level 22, PJX-HM Shah Tower No. 16A, Persiaran Barat Petaling Jaya,

46050 Kuala Lumpur and the company size was 1.35k workers. The company is

principally engaged in the business of property development, construction and property

investment business. The company’s segments include Electronic and electrical,

Construction and Investment holding. The Electronic and electrical segment offers

electronic, electrical and industrial products. The Construction segment is engaged in

sub- contracting of the electrical, building and civil works for the construction projects.

The company’s geographic segments include Malaysia, Germany, Iraq, Australia and

others. The company’s subsidiary, Astral Supreme Construction Sdn.Bhd. (ASC), is

engaged in offering consumer and industrial products, and subcontracting of the

electrical, building and civil works for the construction projects.

Financial Highlight of Vizione Holdings Berhad

Financial 2015 2016 2017 2018 2019

Highlight
(RM’000) (RM’000) (RM’000) (RM’000) (RM’000)
Profit/Loss (916) 112 598 26,182 63,000
After
Taxation
Profit/Loss (180) 452 2,125 35,953 86,000
Before
Taxation
Revenue 96,361 36,708 49,104 413,186 594,000
Paid-up Share 58,372 58,373 87,486 418,636 543,000
Capital
Shareholder’s 16,100 16,214 75,084 433,025 521,593
Fund
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2.0 Leverage Ratio of Ho Hup Construction Company Berhad (2015)

i. Equity Ratios

= Total Equity x 100%

Total Assets

= 238,510,000 x 100%
523,153,000

= 45.6%

ii. Debts Ratio

= Total Debts* x 100 %

Total Assets

= 119,500,000
523,153,000

= 22.8%

iii. Debts to Equity Ratios

= Total Liability*
Total Share Holder Equity

= 284,643,000
238,510,000

= 1.19x

iv. Gearing Ratio

= Total Debts*
Total Share Holder Equity

= 119,500,000
238,510,000

= 0.50x
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Leverage Ratio of Ho Hup Construction Company Berhad (2016)

v. Equity Ratios

= Total Equity x 100%

Total Assets

= 311,769,000 x 100%
683,179,000

= 45.6%

vi. Debts Ratio

= Total Debts* x 100 %

Total Assets

= 197,600,000
683,179,000

= 28.9%

vii. Debts to Equity Ratios

= Total Liability*
Total Share Holder Equity

= 371,410,000
311,769,000

= 1.19x

viii. Gearing Ratio

= Total Debts*
Total Share Holder Equity

= 197,600,000
311,769,000

= 0.63x
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Leverage Ratio of Ho Hup Construction Company Berhad (2017)

i. Equity Ratios

= Total Equity x 100%

Total Assets

= 349,483,000 x 100%
895,691,000

= 39%

ii. Debts Ratio

= Total Debts* x 100 %

Total Assets

= 282,900,000 x 100%
895,691,000

= 31.6%

iii. Debts to Equity Ratios

= Total Liability*
Total Share Holder Equity

= 546,208,000
349,483,000

= 1.56x

iv. Gearing Ratio

= Total Debts*
Total Share Holder Equity

= 282,900,000
349,483,000

= 0.81x
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Leverage Ratio of Ho Hup Construction Company Berhad (2018)

i. Equity Ratios

= Total Equity x 100%

Total Assets

= 377,257,000 x 100%
1,087,972,000

= 34.7%

ii. Debts Ratio

= Total Debts* x 100 %

Total Assets

= 362,700,000 x 100%
1,087,972,000

= 33.3%

iii. Debts to Equity Ratios

= Total Liability*
Total Share Holder Equity

= 710,715,000
377,257,000

= 1.88x

iv. Gearing Ratio

= Total Debts*
Total Share Holder Equity

= 362,700,000
377,257,000

= 0.96x
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Leverage Ratio of Ho Hup Construction Company Berhad (2019)

i. Equity Ratios

= Total Equity x 100%

Total Assets

= 446,205,000 x 100%
1,305,500,000

= 34.2%

ii. Debts Ratio

= Total Debts* x 100 %

Total Assets

= 304,400,000 x 100%
1,305,500,000

= 23.3%

iii. Debts to Equity Ratios

= Total Liability*
Total Share Holder Equity

= 859,295,000
446,205,000

= 1.92x

iv. Gearing Ratio

= Total Debts*
Total Share Holder Equity

= 304,400,000
446,205,000

= 0.68x
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2.1 Leverage Ratio of Vizione Holdings Berhad` (2015)

i Equity Ratios
= Total Equity x 100%
Total Assets

= 16,100,037 x 100%
37,559,931

= 42.9%

ii Debts Ratio

= Total Debts* x 100 %

Total Assets

= (19,197,782)
37,559,931

= 51.1%

iii Debts to Equity Ratios

= Total Liability*
Total Share Holder Equity

= 21,459,894
16,100,037

= 1.33x

iv Gearing Ratio

= Total Debts*
Total Share Holder Equity

= (19,197,782)
16,100,037

= 1.19x
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Leverage Ratio of Vizione Holdings Berhad` (2016)

i Equity Ratios
= Total Equity x 100%
Total Assets

= 16,213,176 x 100%
24,737,213

= 65.5%

ii Debts Ratio

= Total Debts* x 100 %

Total Assets

= 6,598,993
24,737,213

= 26.6%

iii Debts to Equity Ratios

= Total Liability*
Total Share Holder Equity

= 8,524,037
16,213,176

= 0.53x

iv Gearing Ratio

= Total Debts*
Total Share Holder Equity

= 6,598,993
16,213,176

= 0.41x
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Leverage Ratio of Vizione Holdings Berhad` (2017)

i Equity Ratios
= Total Equity x 100%
Total Assets

= 75,083,943 x 100%
82,699,864

= 90.8%

ii Debts Ratio

= Total Debts* x 100 %

Total Assets

= (27,187,498)
82,699,864

= 32.9%

iii Debts to Equity Ratios

= Total Liability*
Total Share Holder Equity

= 7,615,921
75,083,943

= 0.10x

iv Gearing Ratio

= Total Debts*
Total Share Holder Equity

= (27,187,498)
75,083,943

= (0.36) x
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Leverage Ratio of Vizione Holdings Berhad` (2018)

i Equity Ratios
= Total Equity x 100%
Total Assets

= 433,024,892 x 100%
632,504,505

= 68.5%

ii Debts Ratio

= Total Debts* x 100 %

Total Assets

= 14,290,000
632,504,505

= 2.26%

iii Debts to Equity Ratios

= Total Liability*
Total Share Holder Equity

= 199,479,613
433,024,892

= 0.46x

iv Gearing Ratio

= Total Debts*
Total Share Holder Equity

= 14,290,000
433,024,892

= 0.033x
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Leverage Ratio of Vizione Holdings Berhad` (2019)

v Equity Ratios
= Total Equity x 100%
Total Assets

= 521,593,478 x 100%
857,586,846

= 60.8%

vi Debts Ratio

= Total Debts* x 100 %

Total Assets

= 53,531,000
857,586,846

= 6.24%

vii Debts to Equity Ratios

= Total Liability*
Total Share Holder Equity

= 335,993,368
521,593,478

= 0.64x

viii Gearing Ratio

= Total Debts*
Total Share Holder Equity

= 53,531,000
521,593,478

= 0.103x
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3.0
I. Equity Ratio
Company/Years 2015 2016 2017 2018 2019
Ho Hup Construction 45.6% 45.6% 39% 34.7% 34.2%
Company Berhad
Vizione Holdings 42.9% 65.5% 90.8% 68.5% 60.8%
Berhad

The equity ratio throws light on a company’s overall financial strength. Besides, it is also
treated as a test of the soundness of the capital structure. Equity ratio of Ho Hup
Construction Company Berhad remains the same in year 2015 and 2016 which is 45.6%. In
the year 2017, the equity ratio increased to 39% and the following years 2018, 2019 the
equity ratio started to decreased compared to previous year which is stated to 34.7% and
34.2%. Equity ratio of Vizione Holdings Berhad increased accordingly from year 2015 to
2017 which is 42.9%, 65.5% and 90.8%. In year 2018 the equity ratio started to decreased
compared to previous year which stated to 68.5%. In year 2019, the equity ratio is 60.8 %
lower compared in year 2018. The higher ratio or a higher contribution of shareholders to the
capital indicates the company’s better long-term solvency position. The companies with
higher equity ratio have to pay less interest thus having more free cash on hand for future
expansion, growth and dividends. The higher equity ratio generally indicates less risk and
greater financial strength than a lower ratio. The companies finance a greater portion of its
assets with equity and a lower portion with debt. Equity is safer than debt because it does not
require interest payments and does not need to be repaid. The low equity ratio, on the
contrary, includes higher risk to the creditors. The lower equity ratio, on the other hand,
makes it difficult for the companies to obtain loan from banks and other financial institutions.
If in any case, they manage to get a loan, it is at comparatively higher interest rates. Ho Hup
Construction Company Berhad in year 2015, 2016, 2017, 2018, 2019 and Vizione
Holdings Berhad in 2015 have an equity ratio value that is 50% below is considered
leveraged. The higher the value, the less leveraged the company is. In year 2016, 2017, 2018
and 2019 of Vizione Holdings Berhad equity ratio value is 50% above is considered a
conservative company because the company access more funding from shareholder equity
than they do from debt.
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II. Debt Ratio

Company/Years 2015 2016 2017 2018 2019
Ho Hup Construction 22.8% 28.9% 31.6% 33.3% 23.3%
Company Berhad
Vizion Holdings 51.1% 26.6% 32.9% 2.26% 6.24%
Berhad

In year 2018 debt ratio of Ho Hup Construction company berhad is higher which is 33.3%
compare to year 2015, 2016, 2017 and 2019 which is 22.8%, 28.9%, 31.6% and 23.3%. In
year 2015 debt ratio of Vizione Holdings Berhad is higher 51.1% compared to year 2016,
2017,2018,2019 which is 26.6%, 32.9%, 2.26% and 6.24%. The debt ratio is a financial ratio
that measures the extent of a company’s leverage. The debt ratio can be interpreted as the
proportion of a company’s assets that are financed by debt. A greater ratio shows that a
considerable portion of debt is funded by assets. In other words, the company has more
liabilities than assets. The high ratio indicates that the companies putting itself at a risk of
default on its loans if interest rates were to rise suddenly. If a company has a high debt ratio,
them it is often considered to be highly leveraged which means that most assets are financed
through debt, not equity. In some instances, a high debt ratio indicates that the business could
be danger if their creditors were to suddenly insist on the repayment of their loans. This is
one of the reasons why a lower debt ratio is usually preferable. Even though Ho Hup
Construction Company Berhad has higher debt ratio in year 2018 and Vizione Holdings
Berhad has higher debt ratio in year 2015 compared to other years, a debt ratio less than
100% indicates that a company has more assets than debt.

HHCCB Total Asset Debt VHB Total Asset Debt

2015 523,153,000 119,500,000 2015 37,559,931 19,197,782
2016 683,179,000 197,600,000 2016 24,737,213 6,598,993
2017 895,691,000 282,900,000 2017 82,699,864 (27,187,498)
2018 1,087,972,00 362,700,000 2018 632,504,505 14,290,000
0
2019 1,305,500,00 304,400,000 2019 857,586,846 53,531,000
0

The both companies’ have the low level of risk, and is linked to a more independent business
that does not need rely heavily on borrowed funds, and is therefore more financially stable.
These companies have low debt ratio, indicating that most of their assets are fully owned
which means financed through the firm’s own equity, not debt.
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III. Debt to Equity Ratio

Company/Years 2015 2016 2017 2018 2019
Ho Hup Construction 1.19x 1.19x 1.56x 1.88x 1.92x
Company Berhad
Vizione Holdings 1.33x 0.53x 0.10x 0.46x 0.64x
Berhad

Debt to Equity ratio is used to evaluate a company’s financial leverage. It is a measure of the
degree to which a company is financing its operations through debt versus wholly-owned
funds. It reflects the ability of shareholder equity to cover all outstanding debts in the event of
a business downturn. The debt to equity ratio of Ho Hup Construction Company Berhad in
year 2015 and 2016 remains the same which is 1.19x. In year 2017, the debt to equity ratio is
1.56x, which considered high 0.37x compared to year 2015 and 2016. In year 2018 the debt
to equity ratio is 1.88x increased by 0.32x which compared to previous year. The following
year 2019 ratio is 1.92x which increased by 0.04 x compared to 2018. The debt to equity ratio
of Vizione Holdings Berhad in year 2015 is 1.33x which decreased to 0.53x and 0.10x
following years of 2016 and 2017. The ratio has decreased by 0.8x in year 2016 compared to
2015and in year 2017 the ratio decreased by 0.43x compared to year 2016. Hence, it shows a
slight improvement in year 2016 and 2017. In year 2018 and 2019 the debt to equity ratio
increased to 0.46x and 0.64x. The both company’s high debt to equity ratio is often
associated with high risk, it means that the company has been aggressive in financing its
growth with debt.
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IV. Gearing Ratio

Company/Years 2015 2016 2017 2018 2019
Ho Hup Construction 0.50x 0.63x 0.81x 0.96x 0.68x
Company Berhad
Vizione Holdings 1.19x 0.41x (0.36x) 0.033x 0.103x
Berhad

The gearing ratio of Ho Hup Construction Company Berhad as at 2016 0.63x compared to
0.50x as at 2015. Total net debt which is calculated as total borrowings less fixed deposits,
cash and bank balances amounted to RM197.9 million as at 2016 (2015:RM119.5 million).
Total shareholders funds were calculated as the sum of total shareholders equity, which
amounted to RM311.8 million in 2016 (2015:RM238.5). The gearing ratio as at 2018 0.033x
compared to (0.36x) as at 2017. Total net debt which is calculated as total borrowings less
fixed deposits, cash and bank balances amounted to RM362.7 million (2017:RM282.9). Total
shareholders’ funds were calculated as the sum of total shareholders’ equity, which amounted
to RM377.3 million (2017:RM282.9). The gearing ratio as at 2019 0.103x compared to
0.033x as at 2018. Total net debt which is calculated as total borrowings less fixed deposits,
cash and bank balances amounted to RM304.4 (2018:362.7RM). Total shareholders funds
were calculated as the sum of total shareholders equity which amounted to RM 446.2 million
(2018:RM377.2) The gearing ratio of Vizion Holdings Berhad the gearing ratio decreased to
0.41x in year 2016 compared to 1.19x in year 2015 which the total net debt was
RM65,598,993 (2015:RM19,197,782) and the total shareholder equity was RM16,213,176
(2015:RM16,100,037). The gearing ratio increased to 0.033x in year 2018 compared to
(0.36x) in year 2017 which the total net debt was RM14,290,000 RM (2017:RM (27,187,498)
and the total shareholder equity was RM433,024,892 RM (2017:RM75,083,943). The
company’s ability to continue as a going concern in order to provide returns for shareholders
and benefits for other stakeholders and to maintain an optimal capital structure to reduce the
cost of capital. In order to maintain the capital structure, they may adjust the number of
dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets
to reduce debt. The gearing ratio increased to 0.103x in year 2019 which the total net debt
was RM53,531,000 and the total shareholder equity was RM521,593,478. The company
maintain a healthy net gearing which is lower than industry rate. Although the borrowings
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have increased by more than 2 times to RM54 million at end of the year, the group
maintained a healthy reserve for working capital and repayment of bank borrowings.

4.0 The capital structure of the company’s Ho Hup Construction Company Berhad and

Vizione Holdings Berhad are somewhat different to each other. Even though, the HHCS

equity ratio remains the same in year 2015 and 2016 (45.6%) it started to decreased

accordingly in year 2017, 2018 and 2019 (39%,34.7%,34.2%) but VHB equity ratio

increased accordingly in year 2015, 2016 and 2017 (42.9%,65.5%,90.8%). Even though, the

company’s equity ratio started to decreased in year 2018 and 2019 (68.5%,60.8%), there are a

massive different of equity ratio between both companies in year 2017 which is (HHCS:39%)

and (VHB:90.8%). Refer to financial position of HHCS year 2017 the total asset amounted to

RM82,699,864 and the total equity amounted to RM 75,083,943. Refer to financial position

of VHB year 2017 the total asset amounted to RM895,691,000 and the total equity amounted

to RM 349,483,000. The higher equity ratio of VHB in year 2017, 2018 and 2019 compared

to HHCS which shows that new investors and creditors that investors believe in the company

and are willing to finance it with their investment compared to HHCS equity ratio. The

following differences is that even though there are high-low level of debt to equity ratio of

VHB, it maintains a great ratio in year 2015 to 2019 compared to HHCS ratio. HHCS uses

debt to finance its growth which invest large amounts of money in assets and operations often

have a higher debt to equity ratio. For lenders and investors, it is riskier investment because

the business might not be able to produce enough money to repay its debts. But VHB hasn’t

relied on borrowing to finance operations. Besides, there is a different that VHB’s gearing

ratio shows negative ratio (0.36x) in year 2017 meanwhile HHCS’s gearing ratio shows high

ratio compared to VHB. Negative gearing ratio occurs when the company purchases and

investment using borrowed funds, and the borrowed money has a greater cost, or higher

interest rate than the return made on the investment. This sometimes occurs when companies
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use adjustable rates to purchase or construct property and interest rates rise rapidly. Refer to

financial position of VHB in year 2017 which negative ratio result from negative net debt

amounted to (RM27,187,498) and shareholders’ equity amounted to RM75,083,943. The

typically occurs when a company has had problems raising money to cover historical net

losses. Those net losses accrue and eventually surpass the equity from issued stock.

5.0 This study attempted to explore the analysis of capital structure which equity ratio, debt

ratio, debt to equity ratio and gearing ratio among selected construction company listed on

Bursa Malaysia for a period of 5 years. Capital structure of the companies, the first major

policy decision facing the firm is that of determining the appropriate level of debt. For most

of the companies, the decision involves a choice between the long-term debt and the equity.

The company’s debt capacity may be best defined not as the maximum amount which the

lenders or debt investors are willing to lend to the company, but as the amount of debt that

the company should use. The choice of an appropriate financing mix involves basically a

trade-off between tax benefits and the costs of financial distress. The optimal debt level

depends to an important extent on the operating risk of the company. The greater the

operating risk the less should be the degree of financial leverage. The company along with

several dimensions therefore, should analyse alternative financial plans. Hence, no such

standard form of capital structure can be prescribed, which takes care of all type of

company’s and situations. The financing mix for a particular company must be tailored made

to suit the requirements, situations and the position of the company. The operating efficiency

of the company, the capital market conditions, the expectations of different types of investors,

the liquidity position of the company, and the legal and regulatory framework and the

constraints, should all be factored in the evaluation of proposed capital structure.

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