1.0 INTRODUCTION

Malaysia Airlines System Berhad is the national Malaysian full service airline carrier. It is based in Kuala Lumpur. It services over 100 direct destinations worldwide and gives its passengers access to 950 destinations through its airline alliance partners. Malaysia Airlines System Berhad has a rich history spanning as far back as 1937 growing out of the initial incorporation of Malayan Airways Limited. Malaysian Airline System Berhad is listed on the main board of the Malaysian stock market known a Bursa Malaysia and as of 18 October 2012 was trading at a share price of RM1.03 which is extremely low in comparison to its initial public offer. This is due to loss of profitability because of poor management over the years.

2.0 FINANCIAL RATIOS

To evaluate the performance of Malaysia Airlines System Berhad the following profitability ratios were used: * Gross Profit Ratio * Net Profit Ratio * Return on Capital Employed Ratio

2.1 Gross Profit Ratio
This ratio is used to measure a business’ efficiency in producing it products. It expresses the relationship between gross profit and sales and is presented as a percentage. It calculated using the following formula:
Gross Profit Ratio = (Gross Profit / Sales) × 100

2.2 Net Profit Ratio
This ratio is used to measure the overall profitability of a business. It expresses the relationship between the after tax net profit and the sales and is described as a percentage. It is calculated using the following formula:
Net Profit Ratio = (Net Profit after Taxes / Sales) × 100

2.3 Return On Capital Employed Ratio
This is a ratio is used to measure the business’ ability to produce a return on the capital invested and indicates how investment is put to use by managers. It shows the relationship between net profit and the capital and long term liabilities and is described as a percentage. It is calculated using the following formula:
ROCE Ratio = (Net Profit / Capital Employed*) × 100
*Capital Employed is calculated as Equity + Long Term liabilities.

3.0 PRESENTATION OF FINANCIAL RATIOS

Over the 5 year period dating from 2007 to 2011 the above mentioned profitability ratios have been applied to the financial accounts of Malaysian Airline System Berhad with the following results. Year | GPR (%) | NPR (%) | ROCE (%) | 2007 | 1.9 | 5.8 | 17.7 | 2008 | -1.1 | 1.6 | 4.7 | 2009 | -7.1 | 4.4 | 16.3 | 2010 | -2.6 | 1.8 | 3.4 | 2011 | -18.6 | -18.5 | -47.0 |

Table 1 – Malaysia Airlines System Berhad Profitability Ratios from 2007-2011

4.0 ANALYSIS OF FINANCIAL RATIOS 4.1 Gross Profit Ratio Analysis
The gross profit ratios of Malaysia Airlines System Berhad between 2007 and 2011 show a trend of general decrease. Although the production of services was self-sustainable in the year of 2007 with a slight positive ratio, from 2008 to 2011 expenditure on the provision of the services was much greater than the revenue produced by the services resulting in an increasingly more negative ratio. This shows that Malaysian Airlines System Berhad was incurring expenses in producing its services far greater than could be supported by their sales as there was no significant increase in its sales. The sharp drop in gross profit ratio in 2009 can be attributed to a decrease in sales compared to the other years. There was a potential show of improvement in 2010 however an even greater drop in 2011 occurred which can be attributed to a significant increase in expenditure while revenue remained at what may be referred to as a normal level during that year. 4.2 Net Profit Ratio Analysis
The net profit ratios of Malaysia Airlines System Berhad from 2007 to 2011 show a trend of general decrease. The company was however showing a generation of profit from the years of 2007 to 2010. 2011 however showed that a significant loss was incurred. This could be seen as a result of the high operational costs that the company incurred resulting in the drop in funds available for non-operational costs. In the years 2007 to 2010 other sources of income besides sales offset the high operational costs but in 2011 it was not possible due to a greater increase in the already high operational costs. 4.3 Return On Capital Employed Ratio Analysis
The return on capital employed ratio fluctuated between the years 2007 and 2010 but dropped drastically in 2011. The years 2007 and 2009 had higher net profit and as a result the return on capital employed was far greater in comparison with the years 2008 and 2010 when net profit was lower. The capital employed was also far less in 2008 and 2010 in comparison with 2007 and 2009. 2011 recorded a great net loss as opposed to previous years that had a profit and the result of this was not only a decrease in the return on capital employed but a decrease into the negative.

5.0 CASH FLOW ANALYSIS

6.0 REGULATORY FRAMEWORK

6.1 Concepts, Conventions and Regulations

6.2 Directors’ Report, Auditors’ Report and the Chairman’s statement.

6.2.1 The Directors’ Report
The director’s report is a statement included in the financial statement that takes responsibility for the preparation of the financial accounts. It gives a general review of the important sections of the financial statements and the company. It must contain a detail of the directors and any outgoing and incoming changes to the board. While the auditor states that accounting regulations have been followed in preparing the financial statements, as those in charge of preparing the accounts the directors use the directors’ report to further state the transparency as well as honest and fair content. The report is approved by the whole board but is signed on their behalf by two of the directors. 6.2.2 The Auditor’s Report
The auditor’s report serves as an issuance of ”a clean bill of health” to the company’s financial statements. The report gives no opinion of the company’s financial position but states that the information presented was in accordance with accounting regulatory framework and contains no misrepresentation with any and all changes in application methods stated within the statements themselves. The auditor’s report is most important for investing purposes as it gives assurance that any investments will be dealt with in a transparent manner.

6.2.3 The Chairman’s Statement
The chairman’s statement is an annual report that often gives a favorable view of the company’s performance. It also covers the company’s future plans and prospects allowing the shareholders to know the direction of the company in the year to come. The details of the company’s initiatives, successful and unsuccessful are also outlined in the chairman’s statement.

7.0 CONCLUSION