Corporate finance case study for Old Changkee Company

Document Type:Essay

Subject Area:Finance

Document 1

Currently, the company has grown to become the leading brand in Singapore for curry puffs and other hot savories, marketing their product s through various outlets in Singapore from kiosks to supermarkets. It is also listed on the Singapore exchange. In addition, the company has diversified its products to include more food products such as snacks, deserts as well as complementary food products (Old Chang Kee company profile, 2017). The company brands have grown to be a household name in Singapore under the leadership of Han Keen Juan as the chairman and William Lim as the managing director2. This success is attributed to nature of their products which are designed to appeal to the multicultural and multi-religious context if the diverse Singapore society.

Sign up to view the full document!

The other top 20 shareholders have less than 1% of the shares each, as shown in the figure 1 as a table of top 20 shareholders for the Old Chang Kee Company. Therefore, by owning more than 50% of the company’s outstanding shares, Mr. Ham Kee Juan controls more than half of the company’s voting interests, hence exerts a significant influence in the company’s operations and strategic direction. According to Desender (2009)4 large shareholders have the ability to influence proxy voting, corporate policies and monitor the company management due to their significant economic stakes, which reflects a controlled ownership structure for the Old Chang Kee Company. It also indicates that the company management is not independent and largely controlled by Ham Kee Juan. Marginal investors in a firm are well diversified and professionally managed investors who actively trade their shares for higher returns6.

Sign up to view the full document!

The non-marginal investors therefore hold a large percentage of the company’s shares (the executive chairman and C. E. O Ham keen and William Lim hold 65. 9% of the shares) as compared to the marginal investors, and will largely influence the share price in long-term should they decide to trade their shares. The company has already began venturing in overseas markets in China, Indonesia and Philippines, where it has three, four and two outlets in each of these countries respectively. Health risks In the recent years, the increase in the outbreak of diseases related to food increases the risks which Old Changkee may have to face. This is because this risks come with increasing restrictions and ban by the government on the import of key food ingredients used by the company in manufacturing their products such as meet.

Sign up to view the full document!

The impact of this risk affect the company in meeting its demand for curry puffs due to reduced supply of key products used to make the products such as chicken meat and eggs increase its products prices9. For instance, in 2004, the outbreak of the avian influence forced to government to impose restrictions of chicken meat, affecting the company supply for key ingredients, has it prevented imported of chicken from neighboring Malaysia. It has already begun setting up an ecommerce portal for online shopping. Return for financial year ending March 31, 2017 for Old Chang Kee Company The return for financial year is calculated using the formula The initial and final share prices was 0. 85 as at march 31st 2017, and the initial price was 0. 67 for the financial year ending March 31, 2017 for the old Chang Kee Company12.

Sign up to view the full document!

The dividend payments 0. A similar increase is also noted from the subsequent previous financial years, 2015/16 and 2014/15 ending at March 31st from 71,640,000 and 68,887,000 respectively16. According to the company’s annual financial reports, the company has not taken any projects, which can be attributed to the company’s stocks better performance when compared to the market. Therefore, the over performance of the stock returns for the Old Chang Kee company against the market returns can be attributed to a number of other factors such as favorable government policies as well as suitable economic factors that favour the company. Cost of capital Cost of equity - Capital asset pricing model The cost of equity as calculated using the capital asset pricing model as Ri = Rf + β (Rm – Rf) Where the RF is the risk free rate, β is the stock and market returns correlations and Rm is the expected market return.

Sign up to view the full document!

It describes the relationship between the expected return and investor’s risk. 8% The next divide payment D1 will be where’s D0 is the current dividend payments of 0. 015 = Therefore D1= 0. 8 The Cost of equity Re will be (4. 9% Computation of cost of debt The cost of debt is obtained by evaluating the weighted average in specific debt components. The Old Chang Kee Company had outstanding loans of 3,286,000 as at 31 march 2017 as shown below Figure 1: The banks loans for 2017 for Old Chang Kee Company (source: company’s 2017 annual report, pg. 85 * 121,374,700 21 =103,168,495 To calculate the market to book ratio = market value of equity/ book value of equity =103,168,495/1733200022 = 5. 95 Therefore, the market value added will be = market capitalization- book value of equity =103168495-1733200023 =85836495 Economic value added (EVA) = {[(interest (after tax) +net income)/total capital]* total capital Total capital = sum of total equity and long term borrowing =17332000+ 0(there were no loans in 2017) = 1733200 Income Tax expense =685,000(pg.

Sign up to view the full document!

From $10 to earn access

Only on Studyloop

Original template