Essay on “The Cash Flow Statement Analysis of MAS Group”

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Analysis of the Cash Flow Statement

MAS Group Cash Flow Statement

The cash flow statement above displays the cash flow of MAS Group between 2003 and 2008. Between 2005 and 2008, with an exception of 2007, there is a negative net cash flow from operating activities. However, after the implementation of BTP 1, there is an improvement in the net cash flow generated from the operating activities.

  1. When comparing the net cash flow from operating activities for 2005 and 2006, both are negative, but there is a significant improvement. The figures are -554,698,000 and -141,085,000 for 2005 and 2006 respectively. This shows an improvement of 413,613,000.
  2. In 2007, there was a gain from the sale of long-term assets such as aircraft and property. This resulted to an increase in the net cash flow from -141,035,000, in 2006, to 2,370,586, in 2007.
  3. In 2008, which was the year for the execution of BTP2, the recorded figure for the net cash flow from operating activities dropped to a figure worse than the one recorded, in 2005. It dropped by a margin of 2,994,237,000 from the 2007 figures.

The cash flow statement also shows that MAS Group spent a lot when they sold long-term assets between 2005 and 2006. The impact can be seen in the net cash flows from investing activities figures. The impact of the implementation of the BTP2 initiative can be seen in the net cash flow from investing activities for 2008.

The net cash flow from financing activities shows a negative figure in 2005. Some of the reasons that could have contributed to this include payment and issue of external financing such as debt, stock and dividend payment. Between 2006 and 2008, there was a positive net cash flow from financing activities. The borrowing in 2007 could have resulted to the positive figures.

Table 1.0: MAS Group Financial Statement – Balance Sheet (Part 1)
2005 2008 Vertical Analysis 2005 (Before BTP 1) Vertical Analysis 2008 (After 2 years of BTP 1) Difference (Horizontal Analysis)
Non Current Assets
Aircraft,propertyand equipment 2,223,558 2,464,823 77.59% 74.58% -3.01%
Prepaid lease on land 0 17,431 0.00% 0.53% 0.53%
Investments 172,701 138,214 6.03% 4.18% -1.84%
Receivables 351,815 326,942 12.28% 9.89% -2.38%
Negotiable instruments of deposits 0 250,000 0.00% 7.56% 7.56%
Intangible assets 25,314 106,253 0.88% 3.21% 2.33%
Deferred Tax assets 92,503 1,348 3.23% 0.04% -3.19%
TOTAL 2,865,891 3,305,011 100.00% 100.00% 0.00%
Current Assets
Inventories 454,720 379,730 13.13% 5.61% -7.52%
Receivables 1,829,508 2,020,112 52.82% 29.85% -22.97%
Negotiable instruments of deposit 0 795,000 0.00% 0.00% 0.00%
Cash and bank balances 1,179,409 3,571,743 34.05% 52.79% 18.73%
Non-current assets held for sale 0 0 0.00% 0.00% 0.00%
TOTAL 3,463,637 6,766,585 100.00% 88.25% 100.00%
Current Liabilities
Sales in advance of carriage 1,455,794 1,222,410 33.91% 25.01% -8.90%
Trade and other payables 2,815,108 2,408,825 65.58% 49.29% -16.29%
Taxation 22,033 5,001 0.51% 0.10% -0.41%
Provisions 0 817,703 0.00% 16.73% 16.73%
Borrowings 0 433,411 0.00% 8.87% 8.87%
TOTAL 4,292,935 4,887,350 100.00% 100.00% 0.00%

The value of equipment, aircraft and property holds the largest percentage of non-current assets, at 77.59%. The receivables contributed to 52.82% of the current assets. The cash and bank balances were second in their contribution to the current assets at 34.05%. The trade and other payables contributed to 65.58% of the current liabilities, which the highest in the list of liabilities.

Aircraft, property and equipment were still the highest contributors to the long-term assets amounting to 74.58%, in 2008. The bank balance dropped to the second highest contributor of the current assets, in 2008 while cash and bank balance made the highest contribution to the current liabilities at 52.79%. The value of trade and other payables still had the highest percentage of liabilities at 49.29%, in 2008.

Aircraft, property and equipment decreases by 3.01% between 2005 and 2008. This could be as a result of the BTP initiative of selling the headquarters of MAS Group. In the current assets, inventory decreases by 7.52%. There is a quick conversion of inventory for income generation. Consequently, these changes could also have been affected by other actions including BTP 1’s subcontracting of non-added value services to external parties. There was a reduction in the receivables by 22.97% as a result of the implementation of BTP 1, indicating the high effort that MAS Group has applied in the collection of payments from debtors. This is a clear indication of the efforts made by MAS Group in order to convert debts into cash within a short period.

The most visible accomplishment of BTP 1 initiative in the increase of 18.74% in cash and bank balances between 2005 and 2008. The reduction in the amount of inventory and receivables had a great contribution to the increase in cash and bank balances. There is also a total reduction of 16.29% in the amount of trade and other payables. This can be attributed to BTP 1 initiative’s aim of reducing operational costs including the replacement of fuel consumption, full meal trays, in-flight services, manpower, and maintenance.

Table 1.1: MAS Group Financial Statement – Balance Sheet (Part 2)
Balance Sheet 2005 2008
Financed by:
Share capital 1,253,244 1,671,002
Reserves 769,37 2,514,696
Shareholders’ equity 2,022,614 4,185,698
Minority Interest 13,152 11,278
2,035,766 4,196,976
Borrowings 0
Deferred Tax liabilities 827

Between 2005 and 2008, the share capital has increased to 33%. The reserves increased by 226% and shareholder equity increased by 106%. In fact, this increases the amount of cash available to the company for investing and paying off debts.

The current working capital ratio of MAS Group was 0.81, in 2005. For every RM1.00 of its current assets, the company could only pay RM0.81 of the current liabilities. Even without the inventory the ratio is 0.7 hence the company cannot pay its debts. However, in 2008, the current ratio increased to 1.38 and the acid test ratio increased to 1.30, hence the group can pay its debts. Therefore, this is an indication of the contribution made by BTP 1 plan.