The objective of this paper is to analyze the performance of two selected companies in food industry particularly in biscuit manufacturing industry within 2009 until 2010 financial years. Performance of these companies is measured using standard calculation of profitability and liquidity ratios. Those ratios that we are using are; Profit Margin, Asset Turnover, Return on Assets, Return on Common Stockholder’s Equity, Earning per Share (EPS), Price-Earnings Ratio and Payout Ratio, and these ratios are to measure the profitability of the companies. For Liquidity measurement, we are using Current Ratio, Acid Test Ratio, Receivables Turnover, and Inventory Turnover. Based on the result, we will then make some comparisons between the two companies and make our own conclusion. We as a group have selected two companies namely; Hup Seng Industries Berhad and Hwa Tai Industries Berhad.

1.1 Hup Seng Industries Berhad

This company was established in 1958, and has become one of Malaysia's leading biscuit manufacturers producing good quality biscuits. As a result of continuous improvement, the company has received numerous awards worldwide like the prestigious MS ISO 9002 Quality System Certification from SIRIM in 1995 and MS ISO 9001:2000 Quality System Certification in 2003. In 2005, the Prime Minister Dato' Seri Abdullah Badawi awarded Hup Seng with the Industry Product Excellence Award (Eminent Product Performance Award). In mid-2007, Hup Seng was accorded with the HACCP (Hazard Analysis Critical Control Points) and BRC (British Retail Consortium) Certification. This certification has leveled up consumer’s confidence towards Hup Seng’s products especially on food safety and hygiene. The company also exports its products to many countries throughout Asia, Africa, Oceania, Europe and North America.

1.2 Hwa Tai Industries Berhad

Hwa Tai Industries Berhad (HTIB) was established in 1962 and listed on the Stock Exchange Malaysia in 1992. Its products are marketed domestically and 50 countries internationally under the brand name or trademark of “HWA TAI” and “LUXURY”. The company has an extensive integrated supply chain of its products, from manufacture to sales to distribution throughout the entire trade channels. Due to its extensive and comprehensive distribution network, the company is also carrying products and brands by other principals for the Malaysian market. Today, its products can be found locally from small sundry shops to big hypermarkets, fast-food chains, airlines and other mass consumption industries. About 40% of company's production is exported to countries like China, Taiwan, Hong Kong, Singapore, USA and etc.

2.0 Performance Analysis

In this part we will make analysis on the companies’ profitability and liquidity ratios. We will then make two comparisons on the ratios; first comparison is between years for the individual company and second comparison is between the two companies based on their overall performance.

2.1 Profitability Ratios

Profitability Ratios
Ratios	Hup Seng Industries Berhad			Hwa Tai Industries Berhad
Ratios	2008	2009	2010	2008	2009	2010
Profit Margin	7.3%	12.6%	10.7%	0.5%	2.8%	0.5%
Asset Turnover	1.36 times	1.20 times	1.15 times	1.26 times	1.20 times	1.36 times
Return on Assets	10%	15%	12%	0.7%	3.4%	0.7%
Return on Common Stockholders' Equity	26.8%	44.8%	38.9%	1.0%	5.1%	1.0%
Earnings Per Share (EPS)	RM 0.27	RM 0.45	RM 0.39	RM 0.01	RM 0.05	RM 0.01
Price-earnings (P-E) Ratio	0.14 times	0.04 times	0.05 times	1 times	0.2 times	1 times
Payout Ratio	27.6%	39.1%	82.3%	0.0%	0.0%	0.0%

2.1.1 Hup Seng Profitability Performance

Based on the table shown above, most of the profitability performance recorded by Hup Seng in 2010 has decreased from 2009 and several ratios recorded slightly lower performance than 2008. For profit margin, the percentage of net income generated for each ringgit of sales in 2010 only about 10.7 % (RM 0.107 for every RM 1 of sales). Even it is higher than percentage in 2008 (7.3%) but it has decreased from 12.6% in 2009. The decline has also affected the asset turnover of the company when it further reduced from as high as RM 1.36 sales generated for every RM 1 asset invested in 2008 or 1.36 times to 1.20 times (2009) and now only about RM1.15 sales generated for every RM 1 asset invested in 2010. For return on asset, it recorded similar trend with profit margin. After has increased from 2008 by 5% in 2009, it decreased about 3% in 2010 but even so its overall return is higher than profit margin which is better for the company. Another two ratios are also indicating similar trend when they had increased in previous year but declined slightly in following year. Those are return on common stockholders’ equity and earnings per share. Only 38.9% return per equity given by the company as compared lower than 44.8% (2009) and higher than 26.8% in 2008. While only RM 0.39 was paid per share in 2010 and it is lower than RM 0.45 paid in 2009 and higher than RM 0.27 paid in 2008. Price-earnings ratio for the company continued to decline from 0.14 times in 2008 to 0.04 in 2009 and only slightly increased in 2010 about 0.05 times which indicates that the market price per share of that company has not been improved. Finally for payout ratio, the company has disbursed sum of big amount cash dividend over its net income in 2010. It doubles the ratio given in 2009 which only about 39.1% and four times higher than recorded in 2008 which only 27.6%. In summary, the profitability performance recorded by the company has declined in 2010 and 2009 was the best financial year even though the payout ratio was only half of the amount in 2010.

2.1.2 Hwa Tai Profitability Performance

Meanwhile for Hwa Tai, almost similar to the trend that has been experienced by Hup Seng, among the three financial years, the profitability performance in 2009 seems better than 2008 and 2010. The company has recorded the same figure of 0.5% profit margin for both in 2008 and 2010 while in 2009 it has performed better when recorded 2.8% of net income for every ringgit worth of sales. Hwa Tai has got the best asset turnover ratio in 2010 when every ringgit the company has spent on its asset, it generated about RM 1.36 in sales as compared RM 1.26 in 2008 and RM 1.20 in 2009. For return on assets, return on common stockholders’ equity and earnings per share, the performance for those ratios has declined as compared from previous year but recorded the same figure in 2008. In 2010 only 0.7% net income for every RM 1 invested in asset reduced from 3.4% in 2009. For stockholders, in 2010 they only enjoyed 1.0% return on their equity (the same figure in 2008) which has reduced about 4.1% from 2009. The company only able to pay RM 0.01 per share in 2010 which the same figure in 2008 while in 2009 was the best earning per share of RM 0.05. Price earnings ratio for Hwa Tai indicated 1 times in 2010 improved from 0.2 times in 2009. Lastly, there are no figures for payout ratio for this company as there is no cash dividend payout being mentioned in the financial reports. In summary, the profitability performance for this company in 2010 has decreased.

2.1.3 Overall Profitability Performance

Overall, Hup Seng has recorded a better profitability performance as compared with Hwa Tai. This is in line with the bigger sales volume generated by Hup Seng in average for the past three years as shown in the graph above. In average Hup Seng generated about 217 million in sales with net income of 22 million. The figure almost double the sales generated by Hwa Tai. But in 2010, both companies recorded a decline in profitability performance and the best performance was experienced in 2009. Nevertheless, Hup Seng has produced a better profitability performance than Hwa Tai. This can be seen when Hup Seng recorded double digit from Hwa Tai for almost all ratios. Among the ratios are profit margin, return on assets, return on common stockholders’ equity, earning per share and payout ratio, while the rest recorded almost the same performance. This has further proved that Hup Seng as an outstanding company which has been established longer and has a better market position than Hwa Tai in the biscuits manufacturing industry. In conclusion, Hup Seng Industries Berhad is more profitable company than Hwa Tai Industries Berhad.

2.2 Liquidity Ratios

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Liquidity Ratios
Ratios	Hup Seng Industries Berhad			Hwa Tai Industries Berhad
Ratios	2008	2009	2010	2008	2009	2010
Current Ratio	2.31 : 1	2.73 : 1	2.93 : 1	0.79 : 1	0.98 : 1	0.99 : 1
Acid-Test (quick) Ratio	1.65 : 1	2.04 : 1	2.23 : 1	0.65 : 1	0.84 : 1	0.8 : 1
Receivables Turnover	1.04 times	1.01 times	1.09 times	0.75 times	0.68 times	0.76 times
Inventory Turnover	7.71 times	6.35 times	5.87 times	10.90 times	8.76 times	9.48 times

2.2.1 Hup Seng Liquidity Performance

In 2010, the ability of the company to pay its current liabilities by current assets has increased. If using its entire current asset, the company has an extra payment up to RM 2.93 for every RM 1 of its current liabilities. The current ratio performance has been improved from only RM 2.31 in 2008 and RM 2.73 in 2009. The company also recorded improvement on its acid-test ratio where it can pay immediately (without consider its inventory) it’s per RM 1 current liabilities up to RM 2.23 in 2010. This has been improved slightly about RM 0.19 from 2008 and RM 0.58 in 2008. For receivables turnover, the collection period in 2010 is better than the previous years. The company can collect its receivables about 1.09 times or within 335 days in 2010 compared to only 361 days or 1.01 times (2009) and 351 days in 2008. But its inventory has experienced slower replacement in 2010 by only 5.87 times or about 62 days in a year. This is a decline performance as compared in 2008 when the company replaced its inventory 7.71 times in a year and in 2009 6.35 times. Overall Hup Seng’s liquidity has improved in 2010 where its payment ability has increased and its payment collection is faster than previous years. The only decline is the inventory turnover which we can see the inventory replacement in a year is getting slower.

2.2.2 Hwa Tai Liquidity Performance

In 2010, Hwa Tai’s current ratio has improved than the result recorded in 2009. But unfortunately, it is below than 1, whereby for every RM 1 current liabilities the company only able to pay about 99%. This situation gives similar effect to its acid-test ratio, when in 2010 without considering the inventory, the company only able to pay 8% for every RM 1 current liabilities and it was lower than result in 2009 and higher than 2008. For payment collection, the company recorded better collection period in 2010 and even better than 0.75 times in 2008. In 2010 the company can collect its receivables about 480 days (0.76 times in a year), 7 days faster than 2008 and 57 days faster than 2009. Even the company recorded better inventory turnover in 2010, but it still unable to beat its best in 2008. In 2010, the inventory has been replaced in average 39 days better than 42 days recorded in 2009 but the faster replacement days for inventory is still 33 days in 2008. Overall, the company has recorded bad result in 2010 especially when looking at its ability to repay its current liabilities. Its current assets cannot even match its total RM 1 current liabilities. Even though the collection payment period in 2010 recorded the best result among the three years but the inventory turnover ratio still lower than the result produced in 2008.

2.2.3 Overall Liquidity Performance

In summary, for liquidity performance, Hup Seng Industries Berhad still produces the best result as compared to Hwa Tai Industries Berhad. The liquidity ratios result are the true reflection of their average 3 years performance in term of current assets, current liabilities and inventory as shown in the table above. With almost triple current assets over its current liabilities, the current ratio and acid test ratio of Hup Seng has shown it has more than enough ability to repay its current liabilities unlike Hwa Tai which not even able to cover its total current liabilities. Hup Seng’s payment collection performance also shown better result than Hwa Tai which shows the Hup Seng’s debtor management is more efficient. Only the inventory turnover for Hwa Tai is better than Hup Seng, but it does not affect so much as the cost of goods sold and average inventory for Hup Seng are triple amount of Hwa Tai’s.

3.0 Conclusion

In this analysis, we have found that, Hup Seng Industries Berhad has performed better than Hwa Tai Industries Berhad in 2010 and in average for the past 3 financial years. There are several factors that lead to the result. First is the sales volume generated by Hup Seng is much bigger than Hwa Tai. Second, Hup Seng also owns a bigger value of current asset as in the same time its current liabilities is low which Hwa Tai even worse when current liabilities is more than current asset.

In order to improve, Hwa Tai might need to lower down its operational cost which will lead to reducing current liabilities. Other than that, Hwa Tai need to market its product aggressively in order to beat sales figure made by Hup Seng. Sales volume will play the most important role to turn Hwa Tai as a more competitive company and standing as high as Hup Seng. Finally, as we all know, biscuits industry in Malaysia is not small. We have many big players like Julie’s, Munchy’s, Danone and hundreds of local small medium enterprise producers. Company like Hwa Tai must get ready to be more competitive and benchmark their performance against big player like Hup Seng.

3.1 Islamic Perspective on Accounting

In surah Al-Baqara, verse 282, Allah has mentioned

“O ye who believe! When ye contract a debt for a fixed term, record it in writing. Let a scribe record it in writing between you in (terms of) equity. No scribe should refuse to write as Allah hath taught him, so let him write, and let him who incurreth the debt dictate, and let him observe his duty to Allah his Lord, and diminish naught thereof. But if he who oweth the debt is of low understanding, or weak, or unable himself to dictate, then let the guardian of his interests dictate in (terms of) equity. And call to witness, from among your men, two witnesses. And if two men be not (at hand) then a man and two women, of such as ye approve as witnesses, so that if one of the two erreth (through forgetfulness) the one of them will remind. And the witnesses must not refuse when they are summoned. Be not averse to writing down (the contract) whether it be small or great, with (record of) the term thereof. That is more equitable in the sight of Allah and more sure for testimony, and the best way of avoiding doubt between you; save only in the case when it is actual merchandise which ye transfer among yourselves from hand to hand. In that case it is no sin for you if ye write it not. And have witnesses when ye sell one to another, and let no harm be done to scribe or witness. If ye do (harm to them) lo! it is a sin in you. Observe your duty to Allah. Allah is teaching you. And Allah is knower of all things.

From the single longest verse in the Qur'an, surah Al-Baqara verse 282 above, Allah has mentioned on the importance of accounting in human life. In the earlier part of the verse Allah has instructed us to record in writing whenever we deal with each other, in transaction involving future obligations in a fixed period of time. In other words, it is in line with the conventional practice of accounting which is accounting is defined to be the identification, recording, classification, interpreting and communication economic events to permit users to make informed decisions. Which the key words are recording and reporting the transactions. Furthermore, the most important element in the Islamic accounting is to ensure the business is continuously operating in line with the requirement of the Islamic Maqasid Shari’ah. It also is a tool for Muslims to evaluate their own accountabilities to God and to pay Zakat.

According to Shahul Hameed (n.d), Islamic accounting must be holistic in its reporting Hence, both financial and non-financial measures regarding the economic, social, environmental and religious events and transactions are measured and reported.

In relation to this paper, analyzing the profitability and liquidity of a company does not mean we only interested to the performance of the company in term of monetary only. We as a Muslim will find this as our guidelines to perform our responsibilities like paying Zakat and to help other people with our profit earned from the business. As we all know, anything in this world including money, assets and etc are belong to Allah and we are only the trustee. As a Muslim entrepreneur, we should not only determining to maximize the wealth of the shareholders but also to maximize the Zakat and Sadaqah in order to distribute the “trusted rezki” to help many needy people.

4.0 Reference

Jerry J. Weygandt, Paul D. Kimmel and Donald E. Kieso (2010), Managerial Accounting: Tools for Business Decision Making – 5^th Edition, Wiley pp. 646 – 676

Shahul Hameed bin Mohamed Ibrahim (n.d). Islamic Accounting – A Premier, International Islamic University Malaysia

Surah Al Baqarah Verse 282, Retrieved from http://www.quranexplorer.com/quran/

Information about Hwa Tai Industries Berhad, Retrieved from http://www.hwatai.com/about.html

Information about Hup Seng Industries Berhad, Retrieved from http://www.hupseng.com/company.htm

5.0 Appendices

5.1 Liquidity Ratios

1. Current Ratio = Current Asset
Current Liabilities
Year	2008	2009	2010
Current Asset	76,700,473	100,519,905	114,609,100
Current Liabilities	33,233,438	36,757,186	39,064,339
Ratio	2.308	2.735	2.934

Year	2008	2009	2010
Current Asset	35,795,328	36,746,539	35,343,809
Current Liabilities	45,486,169	37,634,489	35,774,652
Ratio	0.787	0.976	0.988

Company	2008	2009	2010
Hup Seng	2.308	2.735	2.934
Hwatai	0.787	0.976	0.988

2. Acid-test ratio = cash + short term invetsments + receivables (Net)
current liabilities

Year	2008	2009	2010
Cash	21,224,792	42,219,598	53,696,225
Shot Term Investment	-	-	-
Net Receivables	33,504,972	32,727,914	33,364,071
current liabilities	33,233,438	36,757,186	39,064,339
Ratio	1.647	2.039	2.229

Year	2008	2009	2010
Cash	651,092	4,715,965	4,369,192
Shot Term Investment	-	-	-
Net Receivables	28,760,806	26,864,262	24,160,814
current liabilities	45,486,169	37,634,489	35,774,652
Ratio	0.647	0.839	0.797

Company	2008	2009	2010
Hup Seng	1.647	2.039	2.229
Hwatai	0.647	0.839	0.797

3. Receivables turnover = net credit sales
average net receivables

Year	2008	2009	2010
Net Credit Sales	31,376,270	33,423,934	35,818,355
Average Net Receivables	30,237,578	33,116,443	32,809,545
Ratio	1.038	1.009	1.092

Year	2008	2009	2010
Net Credit Sales	21,786,632	18,944,723	19,438,390
Average Net Receivables	29,129,453	27,812,534	25,424,055
Ratio	0.748	0.681	0.765

Company	2008	2009	2010
Hup Seng	1.038	1.009	1.092
Hwatai	0.748	0.681	0.765

4. Inventory turnover = cost of goods sold
average inventory

Year	2008	2009	2010
Cost Of Good Sold	160,833,820	138,730,913	143,240,343
Average Inventory	20,860,392	21,850,483	24,412,143
Ratio	7.710	6.349	5.868

Year	2008	2009	2010
Cost Of Good Sold	63,838,577	49,769,251	54,393,416
Average Inventory	5,855,318	5,684,149	5,735,449
Ratio	10.903	8.756	9.484

Company	2008	2009	2010
Hup Seng	7.710	6.349	5.868
Hwatai	10.903	8.756	9.484

5.2 Profitability Ratios

5. Profit Margin = Net Income
Net Sales
Year	2008	2009	2010
Net Income	16,070,801	26,880,497	23,338,845
Net Sales	220,329,264	213,405,132	219,070,516
Ratio	7.3%	12.6%	10.7%

Year	2008	2009	2010
Net Income	415,178	2,051,989	385,127
Net Sales	80,245,698	72,125,922	77,016,224
Ratio	0.5%	2.8%	0.5%

Company	2008	2009	2010
Hup Seng	7.3%	12.6%	10.7%
Hwatai	0.5%	2.8%	0.5%

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AN ANALYSIS OF RATIO: Profitability and Liquidity Ratios Analysis on Hup Seng Industries Berhad and Hwa Tai Industries Berhad (Based on 2008 – 2010 Annual Reports)