UNIMAS

Faculty of Economics and Business

Corporate Master in Business Administration

(CMBA)
22/23 Sem 1 Intake

EBB6013 Principle of Accounting &

Finance (Group 2)
Table of Contents
1.0 Companies’ Background...............................................................................................................2
1.1 YTL REIT...................................................................................................................................2
1.2 Pavilion REIT..............................................................................................................................3
2.0 Financial Ratio Analysis................................................................................................................4
2.1 Liquidity Analysis......................................................................................................................4
2.2 Activity Analysis........................................................................................................................7
2.2.1 Calculation Result and Explanations....................................................................................8
2.3 Gearing Analysis......................................................................................................................10
2.3.1 Comparison of Gearing Analysis in between Pavilion REIT and YTL REIT based on
Annual Report 2021.......................................................................................................................11
2.4 Profitability Analysis...............................................................................................................12
3.0 Conclusion....................................................................................................................................17
3.1 Suggestion to Potential Investor.............................................................................................18
4.0 Appendices...................................................................................................................................19

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1.0 Companies’ Background
1.1 YTL REIT
YTL Hospitality REIT has a market capitalization of approximately RM 1,658 million
(as of 31 January 2023 Hospitality) and comprises prime hotel and hospitality-related
properties. In Malaysia, these include the JW Marriott Hotel Kuala Lumpur, The Ritz-
Carlton, Kuala Lumpur, The Residences at the Ritz-Carlton, Kuala Lumpur, the Pangkor
Laut, Tanjong Jara and Cameron Highlands resorts and the Vistana Chain of hotels in Kuala
Lumpur, Penang and Kuantan. YTL Hospitality REIT’s International portfolio comprises
Hilton Niseko Village in Japan and the Sydney Harbour, Brisbane and Melbourne and
Marriott hotels in Australia.
YTL Hospitality REIT was listed on 16 December 2005 on the Main Market of Bursa
Malaysia Securities Berhad under the name Starhill Real Estate Investment Trust, with a
principal investment strategy of investing in a diversified portfolio on income – producing
real estate, used primarily for retail, office and hospitality purposes, with particular focus on
retail and hotel properties. Its portfolio consisted of 2 retail properties, Starhill Gallery and
parcels in Lot 10 Shopping Centre, as well as a hotel property, the JW Marriott Hotel Kuala
Lumpur. In 2007, the REIT acquired an additional hotel property comprising 60 units of
serviced apartments, 4 levels of commercial podium and 2 levels of car parks located withing
The Residences at The Ritz-Carlton, Kuala Lumpur.
In 2009, the Trust embarked on a rationalization exercise to reposition itself as a pure
play hospitality REIT, focusing on a single class of hotel and hospitality – related assets. The
first stage of the repositioning involved the disposal of the REIT’s retail portfolio the one
under Starhill Gallery and parcels in Lot 10 shopping Centre, which completed in June 2010.
On 11 December 2013, the REIT changed its name from Starhill Real Estate
Investment Trust to ‘YTL Hospitality REIT’
YTL Hospitality REIT was established by a trust deed entered on 18 November 2005
as restated by the deed dated 3 December 2013 between Pintar Projek Sdn Bhd and Maybank
Trustees Berhad, as manager and trustee, respectively, of YTL Hospitality REIT.
Lastly, the mission for YTL Hospitality REIT is Turn the right opportunities into the
right things, and the right thing into lasting Value. We rely on the core values of ‘honesty,
hard work, more responsibility, togetherness and vitality’ to build value that is simply lasting,
but worthy of lasting.

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 Figure 1: Structure of YTL Hospitality REIT
1.2 Pavilion REIT
Pavilion Real Estate Investment Trust is a REIT established with the principal
investment policy of investing, directing and indirectly, in a diversified portfolio of income –
producing real estate used predominantly for retail purposes in Malaysia and other countries
within the Asia-Pacific region as well as real estate-related assets. The primary objectives to
provide unitholders with regular and stable distributions and achieve long-term growth in net
asset value per unit, while maintaining an appropriate capital structure. The company has two
reportable segments, Retail and Office.
Pavilion is established as a Trust Deed dated 13 October 2011 and registered with the
Securities Commission on 18 October 2011.Pavilion REIT include Pavilion Mall, which
surrounded by international hotels, offices and residences with good transportation facilities
for example, monorail and buses. Pavilion Tower is a 20-storey modern office building with
net lettable are of 165,000 sq ft situated in the central business district of Kuala Lumpur,
housing several International and local corporations, which include Concierge service and
Comprehensive security system. For Intermark Mall is located at the intersection of Jalan Tun
Razak and Jalan Ampang with LRT and upcoming MRT in vicinity. Da Men Mall is located
is vicinity of Subang USJ and Elite Pavilion Mall is a 10-storey retail mall with underground
pedestrian tunnel connection to Fahrenheit88.
The Vision for the Company is to be the leading and most sought-after REIT in
Malaysia. The Mission for the company is to provide unitholders with regular and stable
distributions as well as to achieve long term growth in net asset value per unit, while
maintaining an appropriate capital structure. The company intends to achieve the vision and
mission of Pavilion REIT through some strategies. First, actively pursuing acquisition
opportunities in accordance with the authorized investment of Pavilion REIT to acquire yield
accretive income-producing properties and explore repositioning opportunities. Second
Pursuing an efficient capital management strategy. To diversity sources of debt funding,
maintaining a reasonable level of debt service capability and managing financial obligations.
Lastly, proactively managing the properties and implementing asset enhancement strategies
to maximise quality shopper traffic, especially at Pavilion Kuala Lumpur and Elite Pavilion
Malls, somehow need to achieve these strategies also need to active management of tenant
base in order to optimize tenant mix and maintain high occupancy rates and improving
operational efficiency and cost effectiveness.

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Figure 2: Structure of Pavilion REIT

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2.0 Financial Ratio Analysis
In this chapter, Pavilion REIT Annual Report 2021 and YTL Hospitality REIT
Annual Report 2021 would be the main information source to measure their Financial Ratio
Analysis. The Ratio Analysis will be covered are Liquidity Analysis, Activity Analysis,
Gearing Analysis and Profitability Analysis. Through the analysis, the result will tell which
company have a healthier finance and worth for investor to invest.

Figure 3: The Financial Ratio Analysis will apply in this report.

2.1 Liquidity Analysis
It helps to measure a company’s ability to meet its current obligations. For financial
users such as investors, it is an important metric to know the company’s short-term
solvency. Through Liquidity Analysis, investors could forecast how quickly the company
convert its assets into cash in case of an emergency incident happen. A higher number in
the ratio means the company is in high liquidity or vice-versa. A company should always
watch their liquidity management to ensure there are enough funds for the company to
minimize the risk of having a shortage of liquid assets to pay its liabilities.

I. Current Ratio
The ratio will show how efficiently the company uses the Current Asset to cover Current
Liabilities. The higher, the better.

Formula: Current Assets / Current Liabilities

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 Current Ratio Pavilion REIT YTL REIT

Year 2021 357,955 / 520,267 149,375 / 155,094

= 0.69 = 0.96
Table 2.1.1: The Current Ratio calculation result for Pavilion REIT and YTL REIT.
According to rule of thumb, the current ratio should be more than two which means
that the firm can meet its current short-term debt liability two times over. Even if half of
the current asset cannot convert into cash quickly, the company still can guarantee all the
current liabilities can be paid off within one year. The company’s current ratio must have
at least one to stay financially stable because its current asset’s value is able to pay
exactly its current liabilities.
As Table 2.1.1 show, both REIT companies did not meet the requirement. Pavilion’s
current ratio is only 0.69 times whereas, YTL still got 0.96 times to its current liabilities.
Pavilion’s current assets only can pay sixty-nine per cent of its current liabilities. YTL is
better because they are able to pay off ninety-six per cent of their current liabilities with
their current asset. This may be because YTL REIT has more income sources than
Pavilion REIT. YTL Group has two businesses, hospitality and property rental whereas
Pavilion REIT only rely on property rental. This is due to Malaysia Movement Control
Order has caused a huge impact on the retail industry, the sales were in negative growth
since the year 2020. Somehow, some obligations could not be voided leading to an
unbalance between the current liabilities and current assets. Along with the government
was widen the restriction in the first quarter of 2021, the sales of the retail industry just
started to grow sharply.
II. Quick Ratio
A measurement excludes Inventory and Prepayment in Current Assets in order to
know
the company’s capacity to pay its Current Liabilities without selling inventory or
gains
from other financial activities.

Formula: Current Assets – Inventory – Prepayments (Quick Asset) /

Current Liabilities

Quick Ratio Pavilion REIT YTL REIT

Year 2021 354,887 / 520,267 132,690/155,094

= 0.68 = 0.86
Table 2.1.2: The Quick Ratio calculation result for Pavilion REIT and YTL REIT.
A company should have a quick ratio of more than one to show that they have
the ability to pay a debt quickly. The ratio is to measure how instantly a company
converts its quick asset into cash to pay the short-term debt without selling inventory.
From the calculation result of Pavilion, the company did not satisfy the
requirement to meet its current short-term liabilities because the quick ratio is 0.68,
which is less than one. For YTL, they got a 0.86 of quick ratio which also did not

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 satisfy the requirement. Both companies have a less significant margin of safety to
prove their ability to pay debt obligations and in low liquidity. However, both REIT
companies’ main income source is not come from selling inventory so, the Quick ratio
may not be that accurate in this situation. Other analyses are needed to support this
point of view.
III. Working Capital
Not a ratio but a measurement to find out the difference between the Current Assets
and Current Liabilities of a company. The result should be a positive number to show
the company is financially healthy in the short term.

Formula: Current Assets – Current Liabilities

Working Capital Pavilion REIT YTL REIT

(in RM) (in RM)

Year 2021 357,955-520,267 149,375-155,094

= - 162,312 = - 5,719
Table 2.1.3 : The Working Capital calculation result for Pavilion REIT and YTL
REIT.
In theory, a positive working capital would tell that a company can fund its
current operations and invest in the near future for company growth. But a negative
Working Capital could happen when a business is growing. For example, the
company managed to invest in new facilities or equipment could cause the Current
Liabilities to increase and create extra cash flow to help the company turnover of
capital.

The result of Table 2.1.3 shows both REIT companies have a negative
Working Capital. Pavilion REIT has the greatest difference between their Current
Assets and Current Liabilities which is – RM162,312. The obligations of Pavilion
REIT are much more than its ability to pay off. In comparison, YTL REIT has a
smaller negative Working Capital which is – RM5,719. Therefore, YTL REIT’s
potential ability to pay off its obligation is much stronger than Pavilion REIT’s.

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2.2 Activity Analysis
Activity analysis is the examination of the process steps within a selected area of an
organization. This analysis determines which process steps are being executed, which
personnel are involved with each step, the amount of time required to complete each step, the
number of resources consumed by each step, which process steps should be measured and
which measurements to use and the value produced by each step.

I. Inventory Turnover
A higher inventory turnover ratio indicates that a company is efficiently managing its
inventory and selling its products quickly, while a lower ration suggests that a company
may be having trouble selling its product or may be holding too much inventory. This
ratio can help business make better decisions on pricing, manufacturing, marketing and
purchasing. It is one of the efficiencies. Ratios measuring how effectively a company uses
its assets.

Formula : Inventory Turnover = Cost of goods sold/average inventory.

II. Number of days sales in inventory

To determine how many days it would take to turn a company’s inventory into sales, the
following formula is used. A lower DSI show that a company is selling its inventory more
quickly, if the company show higher DSI meaning that a company may be having trouble
selling its products or holding too much inventory.

Formula: Number of days sales in inventory (DSI) = (average

inventory/average daily cost of goods sold) x (No. of Days in the Period)

III. Receivable turnover

A high turnover ratio indicates a combination of a conservative credit policy and an
aggressive collections department, as well as several high-quality customers. A low
turnover ratio represents an opportunity to collect excessively old accounts
receivable that are unnecessarily tying up working capital. Low receivable turnover
may be caused by a loose or non-existent credit policy, an inadequate collections
function, and/or a large proportion of customers having financial difficulties. It is
also quite likely that a low turnover level indicates an excessive amount of bad debt.
It is useful to track accounts receivable turnover on a trend line in order to see if

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 turnover is slowing down; if so, an increase in funding for the collections staff may
be required, or at least a review of why turnover is worsening.
Formula: Receivables turnover = Net Sales/Average Account Receivable

IV. Days of Sales Outstanding

This ratio is to measures the time that elapses between a sale and cash collection. It
reflects how fast a company collects payment from customers to whom it extends credit.
A low DSO show that a company is efficient in its credit and collection processes.

Days of Sales Outstanding (DSO) = Number of days in period / receivables

turnover

V. Total Asset Turnover

This ratio is to measures a company’s overall ability to generate revenues with a given
level of assets, but a low asset turnover ratio can be an indication of inefficiency or the
relative capital intensity of the company.

Total Asset Turnover = Net Sales/ Average Total Assets

2.2.1 Calculation Result and Explanations

PAVILION REIT YTL REIT

Ratio
Year 2021 Year 2021
Inventory Turnover 367,396/329,496 = 120.28 329,496/168.5 = 1955.47
Number of days sales in 3,054/183,698 = 0.0166 168.5/164,748 = 0.0010
inventory
Account Receivable 488,591/38,054 = 12.84 326,276/28,833 = 11.32
turnover
Numbers of days sales in 38,054/1338.61 = 28.43 28,833.5/893.91 = 32.26
receivables
Non- Current Assets 488,591/5,880,214 = 0.08 326,276/4,663,713 =
Turnover 0.07
Total asset turnover 488,591/3,119,347.5 = 326,276/2,435,937 =
0.16 0.13

● Inventory turnover and number of days sales in turnover

Based on the 2021 inventory turnover and number of days sales in inventory
(DSI) of YTL Hospitality REIT and Pavilion REIT, we can conclude that YTL
Hospitality REIT has a higher inventory turnover ratio compared to Pavilion REIT, at
1955.47 compared to 120.28. This suggests that Pavilion REIT is selling its products

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 more quickly than YTL Hospitality REIT. The DSI for YTL Hospitality REIT lower
than that of Pavilion REIT, at 10 days compared to 166 days. This indicates that is
selling its Pavilion REIT inventory more quickly and efficiently than YTL
Hospitality.

● Account receivable turnover and numbers of days sales in receivables

When comparing the accounts receivable turnover and number of days sales in
receivables (DSR) of YTL Hospitality REIT and Pavilion REIT in 2021, we can
conclude that Pavilion REIT a higher accounts receivable turnover of 12.84 compared
to YTL Hospitality REIT 11.32, indicating that Pavilion REIT is collecting its
accounts receivable more quickly and efficiently. Pavilion REIT has a lower DSR of
28.43 days compared to YTL Hospitality REIT 32.26 days, to be concluded that
Pavilion REIT is collecting its accounts receivable more quickly.

● Total asset turnover

Comparing the total asset turnover ratios YTL Hospitality REIT and Pavilion REIT in
2021, we can see that Pavilion REIT total asset turnover ratio is slightly higher at 0.08
compared to YTL Hospitality REIT 0.07. This suggests that Pavilion REIT is using its
assets more efficiently to generate revenue in 2021 compared to YTL Hospitality
REIT.

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2.3 Gearing Analysis

Gearing Ratio defines an organization financial risk through shareholder’s equity to

organization’s debt. Gearing is the calculating amount of debt supporting the operation versus
shareholders’ funds that reflect the financial leverage of an organization. This section will
compare the Gearing Analysis for two (2) REITs, they are the Pavilion REIT and YTL
Hospitality REIT.
The three gearing methods result is shown below:
I. Debt Ratio
The ratio is inversely proportional to the financial liberation of the organization/company.
However, higher profits require a higher debt ratio, which resulting the organization to
operate at higher risk.

Total Liabilities
Formula : Debt Ratio= ,∈ percentage
Total Assets
Debt Ratio Pavilion YTL
Year 2021 2,336,652 / 6,238,695 2,091,555/ 4,871,874
=37% =43%

II. Debt to Equity Ratio

The ratio is a direct reflection of the organization’s long term debt. Maintaining the ratio at a
sustainable level may cushion the impact of any downturns.
Total Liabilities
Formula: Debt ¿ Equity Ratio=
Total Equity

Debt to Equity Ratio Pavilion YTL

Year 2021 2,336,652 / 476,677 2,091,555 / 2,705,319
=0.61 =0.77

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 III. Time Interest Earned Ratio
The ratio indicates the capability of the organization to settle the interest expenses. The
higher the better.
Net Operating Profits+ Interest Expenses
Formula: Time Interest Earned Ratio=
Interest Expenses

Time Interest Earned Ratio Pavilion YTL

Year 2021 125,240 / 86,389 86,418 / 58,868
=1.45 =1.47

2.3.1 Comparison of Gearing Analysis in between Pavilion REIT and YTL REIT based
on Annual Report 2021

Gearing Ratio Method Pavilion REIT 2021 YTL REIT 2021

Debt Ratio 37% 43%
Debt to Equity Ratio 0.61 0.77
Times Interest Earned Ratio 1.45 1.47
Table 2.3.1 : Summary of Gearing Ratio for Pavilion REIT and YTL REIT.

From Table 2.3.1, Pavilion REIT and YTL REIT respectively computing the Debt
Ratio of 37% and 43%. YTL REIT has slightly higher Debt Ratio than Pavilion REIT. Both
organizations indicating the element of external fund financing the operations. However, data
is showing has double higher long-term liabilities for YTL REIT compared to Pavilion REIT.
Which gives the possible outcome of YTL REIT to increase in profit at a risky environment.
As for Debt to Equity Ratio, both Pavilion REIT, and YTL REIT respectively
generating 0.61 and 0.77. Both REITs is operating the organization at a healthy Debt to
Equity Ratio.
Finally, the Times Interest Earned Ratio for Pavilion REIT and YTL REIT
respectively producing 1.45 and 1.47. Both REITS has a bad figure with their Times Interest
Earned Ratio as an organization should have a ratio of 2.5 as minimum. The data also clearly
presenting the situation in year 2021 where MCO Phase 3 ended on 31st March 2021. During
that time, both REITS is undergo a recovery stage to reoperate the hospitality services to the
maximum.
To wrap it up, investors will experience higher risk with YTL REIT than Pavilion
REIT. Higher profit returning require decent amount of risk as catalyst. Through the gearing
analysis, YTL REIT is operating at an optimum financial ratio to compete with Pavilion
REIT. By considering other factors that implemented to improve the size of the organization,
YTL REIT still a great option to be invested.

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2.4 Profitability Analysis
Profitability analysis is an analytical process that seeks to reveal information about the
various revenue streams of the organization. It helps leaders identify ways to optimize
profitability and assists in Enterprise Resource Planning (ERP). Advancements in ERP
solutions have enabled analysts to gather more transparent and insightful information. This
information is used in various ways to analyze profitability as it relates to customers, vendors,
locations, and product lines.
There are various methods used to analyze profit. Each method utilizes a different
approach to provide some insight into profitability. While each business might differ slightly
in how it personally conducts its profit analysis, these methods are commonly used in the
regular course of business.

Profitability Ratios

Margin Ratios Return Ratios

Gross Profit Operating Profit Return on Assets Return on Equity

(ROA) (ROE)

Cash Return on
Net Profit Cash Flow
Assets

I. Gross Profit Margin is a margin ratio that demonstrates the cost of goods (COGS)
sold as a percentage of sales. Both COGS and total sales can be located on the income
statement. The ratio examines how effectively a business is managing its cost of
inventory and the manufacturing of its products. It is also used as a way to measure
the ability of the business to pass its COGS on to its customers.

Formula: Gross Profit Margin (%) = Gross Profit ($) / Sales ($)

Gross Profit Margin Ratio Pavilion YTL

Year 2021 488,591,000/447,857,000 326,276,000/15,106,000

= 1.09% = 21.60%

Gross profit margin ratio is under a profitability ratio which indicates how efficient a
company in managing its operations. It can be a popular tool to evaluate the operational
performance of the company. Based on the table above, it clearly shows that YTL’s gross
profit ratio is higher than Pavilion which record 21.60% compare with 1.09% during the year

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2021. This indicates that the YTL has more cash to pay for indirect and other costs such as
interest. A high gross profit margin means that the company is successfully producing profit
over and above its costs. Due to that, Pavilion is inefficient in generating strong sales prices
relative to their cost of goods sold compared to YTL. In short, a company's gross profit
margin ratio compares the company's gross margin to its total revenue. It is expressed as a
percentage. So, if for example the ratio for YTL is 21.60%, that means that the company's
gross profit margin is 21.6 cents for every dollar in sales. Higher gross profit margin ratios
generally mean that businesses do well at managing their sales costs.

II. Operating Profit Margin is another margin ratio that is used as a way to understand
how efficient a business is at managing its operations. Operating margin is a
company’s earnings before interest and taxes (EBIT). It builds on gross profit margin
as it layers in the impact of ordinary operating expenses, or overhead.
Formulae: Operating Profit Margin (%) = EBIT ($) / Sales ($)

Operating Profit Ratio Pavilion YTL

Year 2021 125,240,000/447,857,000 86,418,000/15,106,000

= 0.28% = 5.72%

Operating Profit Margin Ratio is a profit ratio which measures the amount of profits a
company produces from the continuous operations of a company. A relatively higher
operating margin means that a company is able to generate enough money from business
operations. In year 2021, Pavilion’s operating profit ratio is lower than YTL which is 0.28%
meanwhile YTL has an amount of 5.72%. This ratio is important because it tells you how
well your company's operations contribute to its profitability. A company with a large profit
margin ratio makes more money on each dollar of sales than a company with a small profit
margin ratio. The larger the ratio, the more profitable your company is. The smaller the ratio,
the less profitable.

III. Net Profit Margin is the most commonly used margin ratio and is the percentage of
net income to sales. This ratio considers net income after accounting for all expenses
of the business.
Formula: Net Profit Margin (%) = Net Income (%) / Sales (%)

Net Profit Margin Ratio Pavilion REIT YTL REIT

Year 2021 125,240,000/447,857,000 70,964,000/1,510,600

= 0.28% = 46.98%
Net Profit Margin is a profitability ratio which intended to be a measure of the overall
success of a business and also can expresses the profit from business operations as a
14
percentage of revenue. However, YTL has a higher net profit ratio which is 46.98%, the other
side Pavilion only shows 0.28% compared to it in year 2021. This shows that YTL pricing its
products correctly and exercising a good cost control. Because of this, it also shows that
Pavilion uses an ineffective cost structure and have a poor pricing strategy but managed to
make more net income with total sales. So, YTL has a big wide advantage which is the
company net income is huge like a mountain meanwhile Pavilion is small like a house. This
ratio also can help analysts figure out whether a business should focus on whittling back
spending.

IV. Cash Flow Margin is the final margin ratio. It illustrates the relationship between
cash generated during the normal course of operations and sales. The ratio is used to
understand how effective the business is at converting sales to cash. It relies on
information from both the income statement and statement of cash flows.
Formula: Cash Flow Margin (%) = Cash Flow from Operating Cash Flows ($) / Sales ($)

Cash Flow Margin Ratio Pavilion YTL

Year 2021 194,731,000/447,857,000 98,349,000/15,106,000

= 0.43% = 6.51%

Cash Flow Margin Ratio

YTL with a high gross margin ratios which is 6.51% means that the company will have
more money to pay operating expenses like salaries, utilities, and rent. In another side,
Pavilion just has a 0.43% cash flow ratio compared to YTL. So, it is obviously shown that a
high cash flow margin signifies an efficient business that doesn’t have excess expenses,
while a low operating cash flow margin could be a sign of inefficiency. To conclude, a
higher cash flow ratio is always better, as it indicates that a greater proportion of revenues
are being turned into cash flows. In this case, YTL has a greater proportion of revenues are
being turned into cash flows.

V. Return on Assets (ROA) is a return ratio that demonstrates the business’s ability to
generate profits using its assets. It measures profitability as it relates to the
investments that have been made into the organization’s total assets. It compares net
income from the income statement to total assets on the balance sheet.

Formula: ROA (%) = Net Income ($) / Total Assets ($)

Return on Assets (ROA) Pavilion YTL

Year 2021 125,240,000/6,238,695,000 220,384,000/4,871,874,000

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 = 0.02% = 0.045%

Return on Assets (ROA) is a profitability ratio that shows the percentage of a profit a
company earns those measures how well a company in generating profits from its total assets.
YTL still be the highest amount of Return on Assets Ratio if compare with the Pavilion. This
is due to the differences percentage between these two companies is a big gap which
indicates Pavilion unable to make maximum use of its assets for getting more profits. This is
because that company is facing a poor management which produces a low return on assets
percentage. A higher return on investment (ROI) implies that a company is more effective
and productive in managing its balance sheet to generate profits. While a lower ROA
suggests that there is space for development. Owing to the same asset base, it is always
advisable to compare the ROA of companies in the same industry.
VI. Return on Equity (ROE) is a return ratio that reveals the return that the business has
generated for its investors. It compares shareholder’s equity on the balance sheet to
net income.

Formula: ROE (%) = Net Income ($) / Total Shareholders’ Equity ($)

Return on Equity (ROE) Pavilion YTL

Year 2021 125240000/3858453000 220384000/2705319000

= 0.032% = 0.081%

Return on Equity (ROE) is a measure of profitability of a business that compares the

annual net income to its shareholder’s equity to determine how much profit a company
generates. Based on the table above, it shows ROE of YTL is higher than Pavilion for its
Return on Equity figure. This may be due to the company is increasing its profit generation
without needing as much capital. This indicates that they successful in using its investor’s
funds effectively. A high ROE could mean a company is more successful in generating profit
internally. However, it doesn’t fully show the risk associated with that return. A company
may rely heavily on debt to generate a higher net profit, thereby boosting the ROE higher.
VII. Cash Return on Assets is a return ratio that is used to eliminate the potential noise
created by accounting policies by comparing cash generated from operations to total
assets. It is used to measure how effective the business is at generating cash with its
assets.
Formula: Cash Return on Assets (%) = Cash Flow from Operations ($) /
Total Assets ($)

Cash Return on Assets Pavilion YTL

Year 2021 212383000/6238695000 99194000/48471874000

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 = 0.034% = 2.05%

Cash return on assets ratio indicates how well a company is performing by

comparing the profit (net income) it’s generating to the capital it’s invested in assets.  The
higher the return, the more productive and efficient management is in utilizing economic
resources. Based on the table above, it has obviously shown that YTL REIT has a higher cash
return – 2.05% compared with Pavilion REIT just has a 0.034%. It indicates that YTL REIT
owned a more productive and efficient management in utilizing the economic resources.
Typically, different industries have different ROA’s. Industries that are capital-intensive and
require a high value of fixed assets for operations, will generally have a lower ROA, as their
large asset base will increase the denominator of the formula. Naturally, a company with a
large asset base can have a large ROA, if their income is high enough for example, YTL
REIT.
To sum up, it clearly shows that YTL is dominating in Profitability Ratio because this
company have the highest value in seven ratio instruments for the years straight. Based on the
calculation above, it indicates that YTL has an ability in generating income and creating its
earnings very well. Meanwhile, Pavilion is unperformed in their profitability ratio, but it has
shown that this company has less strategy in performing the company’s performance. Based
on its profitability ratio, it may conclude YTL REIT can make a high sale with a superior
profit margin that enables it to register a higher profit than its counterpart Pavilion REIT.
Through this profitability ratio, YTL REIT is operating at an optimum financial ratio to
compete with Pavilion REIT. So, YTL REIT is a good option to be invested compare with
Pavilion REIT.

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3.0 Conclusion
Through the Financial Analysis, the result shows that YTL Hospitality REIT has a
better performance in overall. As the summary table shown below, YTL Hospitality is in
medium level of liquidity to meet its short term obligation. Even the Debt Ratio is slightly
higher than Pavilion REIT, the 43% still considered acceptable. YTL Hospitality should
improve its debt management so that they can have greater creditworthiness to borrow money
from bank in the near future. In Activity Analysis, Pavilion REIT has better performance
than YTL Hospitality in its Inventory management and Account Receivable. This shows the
risk of bad debt for Pavilion REIT is in lower level. Although MCO affect both REITs
company, YTL Hospitability REIT still able to make profit. This may because of the
company strategy or attributed to the efforts from previous years. Well management in asset
investment and cash flow assist the company safely go through the temporarily financial
crisis.

Table 3.0: The Summary table for all Financial Analysis result between Pavilion REIT and
YTL Hospitality REIT.

Calculation Result
Ratio
Pavilion YTL
Liquidity ratio    
Current Ratio 0.69 0.96
Quick Ratio 0.68 0.86
Working Capital (In RM) -162,312 -5,719
Activity Analysis    
Inventory Turnover Ratio  120.8 1955.47
Number of Days’ Sales in Inventory  0.0166 0.0010
Receivables Turnover Ratio 12.84  11.32
Number of Days’ Sales in Receivables  28.43 32.26
Non-Current Assets Turnover  0.08 0.07
Total Assets Turnover Ratio  0.16  0.13
Gearing Ratio    
Debt Ratio 37% 43%
Debt to Equity Ratio 0.61 0.77
Times Interest Earned Ratio 1.45 1.47
Profitability Ratio    
Gross Profit Margin 1.09% 21.60%
Net Profit Margin 0.28% 46.98%
Operating Profit Margin 0.28% 5.72%
Return on Assets (ROA) 0.02% 0.05%
Return on Equity (ROE) 0.03% 0.08%
Cash Flow Margin 0.43% 6.51%
Cash Return on Assets 0.03% 2.05%

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3.1 Suggestion to Potential Investor
As a shareholder, dividend is the most attractive thing to draw their attention. In spite
of Pavilion REIT had paid their dividend 100 % to its shareholder, investors should look
deeper through the financial report. Dividend pay-out ratio average attain 90% is a norm
practice in REIT industry. This would help in reduction of income tax that a company have to
pay. If a company insist to pay out 100% of dividend, the company may have not enough
fund to invest in future project or increase business development planning. Sometimes, it also
represents that the company may draw on the fund saved from previous years to pay
dividend. This is to avoid the shareholder loss their confidence to the company and sell off
their share which will result in the company’s share price to go down. Covid-19 pandemic hit
most of the business in the world raised the worries of investors. Some company have no
alternative but make a risky decision as Pavilion REIT did.
For potential investor, we recommended YTL Hospitality REIT as their priority
choice. Through the Financial Analysis in previous chapter, it shows that YTL Hospitality
has stronger financial ability. Investment is a long term plan. A stronger financial ability will
be safe for investors’ money. No matter how profitable a business is, unless it is adequately
liquid, it may fail. Further, if too many resources are being held as current asset, but those
resources actually could have been used to generate more profit means the resources are
being wasted. Financial Statement for the year 2022 will be needed to see whether the
company did improve its debt obligation if the investor plan to invest in Pavilion REIT. The
company’s optimize profitability also important for investor to study before put their money
in.

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4.0 Appendices
1. Pavilion REIT Financial Statement 2021 (page 79 – pages 123)
2. YTL Hospitality Financial Statement 2021 (page 100 – pages 175)

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