Assessing company financial health with Altman Z-Score

In early 60's, Dr. Edward Altman (Professor and Vice-Director of New York University's Salomon Center, Leonard N. Stern School of Business) has used Multiple Discriminant Analysis to combine a set of 5 financial ratios and developed the famous Altman's Z-Score.

Nowadays, Altman's Z-Score is being used by many to assess a company's financial health. For instance, investors use it to determine if the company is worth for investment, bankers use it to determine loan risk, etc.

The 5 financial ratios used are:

• A = Return on Total Assets = EBIT / Total Assets
• B = Sales to Total Assets = Net Sales / Total Assets
• C = Equity to Debt = Market Value / Total Liabilities
• D = Working Capital to Total Assets = Working Capital / Total Assets
• E = Retained Earnings to Total Assets = Retained Earnings / Total Assets

Different weight factor is applied to the above 5 financial ratios, and the formula to calculate Altman's Z-Score is:

Z = 3.3A + 0.999B + 0.6C + 1.2D + 1.4E

The final result will yield a number between -4 and +8. The higher the score is better.

According to the Altman's Z-Score analysis:

• When Z is less than 1.8, the company is very likely to have financial trouble
• When Z is between 1.8 and 2.7, the company's financial situation is fair, and there is risk of getting into financial trouble
• When Z is between 2.7 and 2.99, the company is not likely to have financial trouble in the near future
• When Z > 3, the company is financially strong

Note that C which includes the market value of the company, is determined by its share price, and very much influenced by the investment market sentiment. However, C also carries the least weightage, and Return on Total Assets is the most important factor, which I think most fundamentalists are agreeing with.

Over the past 30+ years, Altman's Z-Score was found to be pretty usable to assess company financial health, with accuracy of above 70%.

Altman's Z-Score is a good tool to predict for investment safety, but bear in mind that it is not a tool designed to predict for investment profitability.

The Ching Ming Festival

The Ching Ming Festival (清明节) in year 2009 falls on 4th April.

Ching Ming Festival is the 106th day after the Winter Solstice Day (冬至), and falls around 5th of April of the Gregorian calendar (solar calendar), which is also the 15th days from the Spring Equinox (春分).

Ching Ming is an important traditional Chinese festival celebrated by the Han Clan (汉族) for over 2,500 years. Today, this festival is also celebrated by other Chinese clans as well.

Ching (清) in Chinese translated to "Clear" or "Pure", and Ming (明) translated to "Bright". Therefore, Ching Ming Festival is also known as Clear Brightness Festival or Pure Brightness Festival.

The ancient Chinese is an agricultural society. Ching Ming Festival indicates the time to start farming for the year. When Ching Ming arrives, the cold weather from previous winter begins to turn warm, there will be more rains, plants and animals show their active sign of life again. Therefore, Ching Ming is the day of transition from Ying (阴) back to Yang (阳), which brings more "clear" and "brightness" to earth.

During the ancient time, the Chinese will take bath in the river to wash away unfortune and evil from the body (祓除畔浴). It was also a tradition for married women who wish to get pregnant to pray at the riverside for fertility.

Today, the Chinese has 2 major traditional activities for this festival. One is spring hiking (踏青) which can be family outings, young couples start courting, swinging, flying kites, kicking ball, planting trees, etc. Another major activity is tomb sweeping (扫墓), which is to visit the grave of departed family members or ancestors, sweep and clean the tombs, pray and offer the ancestors.

The activities might not be carried out on the actual day of Ching Ming, and can be any days within a month (normally within 2 weeks) from the actual day.

2009 new income tax PCB deduction rate

If you are an employee with taxable income, have you notice from your monthly payslip that the Potongan Cukai Bulanan (PCB, a.k.a. Scheduled Monthly Tax Deduction) rate starting from year 2009 is different than before?

Yes, with the reason "to estimate the tax deduction more accurately", the schedule of PCB deduction has been revised.

Here are some of the changes that I observed by comparing the old schedule (PCB 2004) with the new one (PCB 2009):

• Now, a single person with monthly remuneration of RM2,401 and above is estimated to be taxable and eligible for the PCB deduction scheme, whereas previously was RM2,551 and above.
• Now a married person with 2 kids and spouse not working, will enter the PCB scheme when the monthly remuneration reaches RM3,251 and above, whereas previously was RM3,401 and above.
• Now a married person with 2 kids and spouse also working, will enter the PCB scheme when the monthly remuneration reaches RM2,551 and above, whereas previously was RM2,701 and above.
• Generally, those with monthly remuneration below RM10,000 will have their PCB deducted above 20% more than the old scheme, while those with monthly remuneration above RM10,000 will have their PCB deducted slightly less than the old scheme.

For example, if you are an unmarried person who earns RM4,010 per month, your salary should be deducted RM145 for the PCB, but under the new 2009 scheme, you will be deducted RM180 instead.
However, this new PCB deduction rate should not affect your overall income tax for the year. If you are over deducted from the PCB, you can claim back the extra income tax paid; and if you are under deducted, you will have to pay for the difference before the deadline of 30 April next year.

Click here to download the new PCB 2009 schedule table.

Click here to download the previous PCB 2004 schedule table.

The 4.50% EPF dividend for 2008 credited today

Just for your information, if you visit to the EPF (a.k.a. KWSP) online service by today, you will be able to see the 4.50% dividend for 2008 (which was announced earlier on 16 March 2009) has already been credited into your account and reflected in the Year 2008 Statement.

At the same time, the long awaited Current Statement for 2009 is also available now. If you plan for a withdrawal, you can click on the Withdrawal Eligibility link to check your allowed amount to be withdrawn for the 9 types of withdrawal available.

As I mentioned in my article on 7 November 2008, we should not expect the EPF dividend for year 2008 to be exciting. Therefore, 4.50% is indeed within expectation. In fact, by looking at current worldwide economic situation, we shall not expect the EPF dividend for 2009 to be higher than 4.50% either.

What to do? Frankly speaking, my share investment portfolio in year 2008 also didn't perform very well. It is a really tough road ahead.

International Multilateral Partnership Against Cyber-Threats launched HQ in Cyberjaya

The International Multilateral Partnership Against Cyber Threats (IMPACT), backed by the United Nations (UN) International Telecommunication Union (ITU) and International Criminal Police Organization (Interpol), which is known as the world’s first global public-private partnership against cyber-threats has launched its global headquarters in Cyberjaya on 20 March 2009.

Key partners of IMPACT from the private sector includes Cisco, F-Secure, Kaspersky Lab, Microsoft, Symantec Corp, Trend Micro, etc.

The IMPACT nerve-center in Cyberjaya has a built-up of 58,000 square feet on a 7.8-acre land. Malaysia government has provided a grant of $13 million (about RM43 million) as initial funding to build the facilities. This IMPACT HQ will host the ITU's Global Cybersecurity Agenda (GCA), which promotes international cooperation to make cyberspace more secure in an increasingly networked information society.

IMPACT has 4 key divisions:

• Global response centre
• Training and skills development centre
• Centre for security assurance and research
• Centre for policy and international cooperation

It will act as a centralized anti-cyber-terrorism intelligence centre which allows its 191 member countries to be alerted on cyber-terrorism threats such as attacks against the global financial system, power grids, nuclear plants, air traffic control systems, etc.

The establishment of IMPACT HQ in the heart of MSC Malaysia is expected to attract the attentions of worldwide cyber-security people, both from the bright side as well as the dark side. How well will this IMPACT facility in Malaysia operationalize, perform and contribute to the global cyber-security? Time will tell.

Meanwhile, if you are an expert in the related field, you might probably be interested to work for this interesting global non-profit organization.

1st Putrajaya International Hot Air Balloon Fiesta 2009

Ever think of taking a balloon flight? Now you can by buying a RM10 ticket during the 1st Putrajaya International Hot Air Balloon Fiesta 2009 event.






This interesting event is co-organized by the Malaysian Sport Aviation Federation (MSAF) and AKA Balloon Sdn Bhd. 25 hot air balloons with pilots from 19 countries are participating in this fiesta.

Date: 19-22 March 2009
Venue: Precinct 2, Putrajaya, Malaysia


Balloon fun fly times:
19 Mar: 7.45am-9.00am (Media), 5.30pm-7.00pm
20 Mar: 7.45am-9.00am, 5.30pm-7.00pm
21 Mar: 8.00am-9.00am (VIP), 5.30pm-7.00pm
22 Mar: 7.45am-9.00am, 5.30pm-7.00pm

Photographers' sessions:
19-22 Mar: 7.45am-8.15am, 5.45pm-6.15pm

Other activities:

• Para motor showcase
• Remote control flying aircraft display
• Paper airplane contest
• Kite flying exhibition
• Children colouring contest
• Night glow
• Bazaar
• and more...

Click here to visit the official website of the 1st Putrajaya International Hot Air Balloon Fiesta 2009.

The Edge Investment Forum on Real Estate 2009

As I mentioned in my earlier article, the mortgage interest rate is pretty low now, and if you have some cash on hand, it is actually a good time for you to buy properties.

For your information, The Edge and UOB Bank are organizing a real estate investment forum in Kuala Lumpur, with the theme "Residential property values: How low can we go?". You can register now for free.

Date: 4 April 2009 (Saturday)
Time: 9am - 1pm
Venue: Sime Darby Convention Centre, Bukit Kiara, KL

Interesting topics of discussion:

• Malaysian residential property market outlook - any safe haven?
• Property hot spots in a recession
• Nightmares of a landlord - The legal recourse
• Panel discussion on "Property investment strategy in a recession with hyper inflation - Where should you put your money?"

Click here for more information on The Edge Investment Forum on Real Estate 2009.

Workers in Taiwan, Singapore etc., prepare for no pay rise in 2009

A recent press release by Grant Thornton International Ltd reviewed that about 21% of privately held businesses around the world plan to freeze their employees' pay rise over the next 12 months, while 3% even expected to reduce pay.

According to their survey, the regions with most respondents indicated no pay rise or even pay cut in 2009, which higher than the global average of 24% are:

• Taiwan - 77%
• Singapore - 49%
• Hong Kong - 44%
• Italy - 42%
• Malaysia - 42%
• Ireland - 39%
• Thailand - 39%
• Russia - 38%
• Mainland China - 35%
• Chile - 30%
• Poland - 28%
• Japan - 28%
• Germany - 24%
• New Zealand - 24%

From the list above, we can observe that developing countries which export economy is very much dependent to the US market are most affected. Even though the global economic crisis is mainly originated from the US this time, 20% of the US respondents has indicated no pay rise or pay cut in 2009, which is still below the global average.

By contrast, countries in the Nordic region appear prepared to be the least affected, with 82% of respondents indicating that they intend to increase salaries by inflation or above compared with the global average of 64%. Denmark topped the league with 91% while businesses in Finland (89%) and Sweden (74%) had similar high expectations.

Therefore, we should prepare for the worst and adjust our personal finance to a more defensive position.

Click here to read the article titled [No pay rises at a quarter of privately held businesses in 2009 - globally] published by Grant Thornton, which also include a longer listing of respondents league.

A money-making and recession-proof good profession

The results of SPM and STPM have just been released recently. The famous question of "what would be a good profession with good prospect to pursue for?" again become a hot topic of discussion now.

A recent chit-chat session with my friends indeed made us found one good profession. Before I tell you the answer, here are some of the characteristics of a "good profession" that you can reference to filter from the others:

• All people need you - your service is required by almost everybody, at least a few times in their lifetime.
• Recession-proof - no matter how good or bad is the economy situation, when the time come, people still need your service.
• Money-making - you should be able to easily earn 5-figure income every month, unless you are voluntarily providing your service for charity.
• No overtime, no on call - you have fixed working hour. No overtime and no need to work during weekend. Even when urgently needed, your client still need to wait for your next working day no matter how emergency the situation will be.
  
• Open your own business - you can work with an organization, or open your own business with your profession and become self-employed.
• Good social status - your profession gives you a very good social status.
• Low risk working environment - your working environment is very low risk, in an air-conditioned room.
• Less stress - normally, you are not required to work under stress.

Well, are you able find a profession that matches with all the conditions above? There are probably not many, but they actually exist, and very common too.

OK. Here is the answer: dentist.

And I'm sure there are some other good professions other than this. If you find any more, please do not hesitate to share out here.

HP and Intel Biggest Warehouse Sale (3 days only)

If you are planning to buy some IT products, here is a good news for you: there will be a 3 days HP and Intel Biggest Warehouse Sale in Klang Valley.

Venue: 3 Two Square (生意坊), Section 14, Petaling Jaya. (Near Sin Chew Daily office)
Date: 20-22 March 2009
Time: 10am - 8pm
Products: HP branded workstations, desktop PCs, laptops, PC accessories, printer supplies, merchandise, etc.

Note that the 1st day (20 March 2009) is exclusively for HP employees, Citibank or Maybank cardholders, media and students only.

Click here for more information about this event in HP website (including location map).

Guiding principles for Web 2.0 application development

In their article published in the recent Baseline Magazine, Frank Faeth and Joe Busateri who are both working for MasterCard have shared the 4 guiding principles established in MasterCard for application development that involves web services.

These guiding principles make different from the traditional way of application development, in order to take advantage of Web 2.0 technologies for speed, simplicity and reduced cost of software development.

Here are the 4 guiding principles:

1. Application developers have to be more than just good coders

Beside technical skills, developers have to be more business oriented now. They need to move forward from the back office to be more customer-facing than before. "Programmers" should transform into "business technologists" to cope with this trend.

They are expected to drive the organization forward by anticipating future business needs, and leverage technology to create practical solutions that will serve those needs.

They have to be awared that the half-life of today's business software is relatively short, so they must build applications that are stable and usable for a short period, and well prepared to be repurposed, rebuilt and enhanced. As such, rapid development is crucial, and components of the applications should be very modular, flexible, reusable and scalable.


2. Managers must realign their organizations to foster web services

Traditional attitudes and methodologies of software development no longer apply in Web 2.0. Web services require vigilance, constant management attention and repeated reinforcement.

Successful web services implementation requires all members of an organization to share technology and best practices across silos. This may require changes in corporate governance, less reliance on top-down directives and greater emphasis on mid-level management cooperations.


3. Companies should adopt Google's mentality: Fast is better than perfect

In their article, Frank Faeth and Joe Busateri argued that since the half-life of business software isn't very long, it's better to push a product into the marketplace quickly, rather than wait until it is thoroughly tested.

Both developers and business owners must agree on which compromises they are willing to accept in the application's functionality, features and stability, as weighed against achieving greater simplicity and speed to market.

The organization must be open to "failing fast and failing cheap" concept of perpetual development.

For example, Google's Gmail is released for public use while still in beta stage, and the beta has been ongoing for years, with continuous development, improvement and enhancement to the product.


4. Be sure to acknowledge that adopting web services requires time and effort

Adopting web services represents a radical change from the way corporations have traditionally developed software systems. As such, the change management and challenges involved should not be underestimated.

Latest BLR rate of banks in Malaysia as of Mar-2009

Within a short period of time since the last revision in early February 2009, BNM has cut the OPR again by another 50 basis points to 2.00% and SRR to 1.0%, effective 1 March 2009.

Here are their latest BLR rate as of today (6 March 2009):

• Majority of the banks: 5.55%
• Bank of Tokyo-Mitsubishi UFJ (M) Berhad: 5.25%
• J.P. Morgan Chase Bank Berhad: 5.25%
• The Royal Bank of Scotland Berhad: 5.25%
• Affin Bank: 5.50%
• Citibank Berhad: 5.60%

It seems that Citibank is having the highest BLR rate, which is at 0.05% above the majority.

The interest rate is really cheap now. Let's say you have a house loan with rate of BLR-2% and the BLR of your bank is 5.55%, this mean your house loan interest serving will be 3.55% only.

With the interest of 3.55%, assuming you are borrowing RM100k, here are some simple calculations (until the next BLR revision which will affect the interest rate):

• 10 years term, monthly repayment = RM991.20, total interest = RM18,994.31
• 20 years term, monthly repayment = RM582.53, total interest = RM39,807.75
• 30 years term, monthly repayment = RM451.84, total interest = RM62,662.54
  

Notice that with this low interest rate, the monthly repayment amount is likely to be lower than renting a house/apartment, especially in urban areas where the rental is higher.

This mean that if you are currently renting a house/apartment, you should consider buying one for yourself; and if you are a property investor, now is a good time to buy more properties to rent out, as the collected rental can probably cover your monthly repayment, and might even let you earn some surplus pocket money.

You can always click here for the latest BLR info of the banks.

eLawyer Law Conference 2009 about Blogging & Law

Malaysian online legal community eLawyer is organizing a Law Conference 2009 themed "Blogging & Law" to bring legal awareness to fellow bloggers.

Theme: Blogging and Law
Date: 14 March 2009 (Saturday)
Time: 9.30am – 12.30pm
Admission: free of charge
Venue: Auditorium Tun Mohd Suffian, Universiti Malaya Law Faculty
R.S.V.P: send your name, phone, email, occupation and organisation details to forum@elawyer.com.my

During the conference, Mr. Foong Cheng Leong (KL Lawyer & Blogger) will talk about Blogging & Intellectual Property Law in Malaysia, while En. Nizam Bashir (Malacca Lawyer & Blogger) will talk on Blogging & Defamation Law in Malaysia.

Click here for more information about the eLawyer Law Conference 2009.

Click here to visit to Foong Cheng Leong's blog

Click here to visit to Nizam Bashir's blog

e-Filing system for 2008 income tax assessment is ready to be used

Begining 1 March 2009, the e-Filing system for income tax forms BE, B, M, P and E has been made available in the website of Inland Revenue Board (a.k.a. Lembaga Hasil Dalam Negeri, LHDN).

In Malaysia, the various income tax related forms are:

• BE - For residents who are employed with no business ownership, or who run business with no income source
• B - For residents who run business with source of income
• M - Return form for non-resident
• P - Partnership business statement form
• E - Return form for employer
• C - Return form for company
• R - Statement of company's revised 108 balance

Online module for tax agent firms to file the income tax report for their clients is also made available at the same time.

The deadline to file in the BE Form is on 30 April 2009, and the deadline for B Form is on 30 June 2009. You can either use the e-Filing system to submit the form, or fill up the related paper form and send to Inland Revenue Board before the deadline.

The online e-Filing system has been introduced to tax payers in Malaysia since 2006, and had been found buggy and problemistic in the recent years. Nevertheless, improvement has been seen, especially on last year. Hopefully, the system will be better this year.

Here are some related links:

• Homepage of e-Filing system (English)
• Homepage of e-Filing system (Malay)
• User guides for e-Filing (English)
• User guides for e-Filing (Malay)
• Website of Inland Revenue Board (English)
• Website of Inland Revenue Board (Malay)

Related article:
Downloadable documents, references and forms for 2008 income tax assessment