Analysis using Trade-off Theory
From two graphs ( stock price graph and debt-equity-ratio graph) we can see they are in the adversity relation. When the price increases, the DER decreases. Vice versa.
From the Pecking Order Theory
The theory said that if the internal financing does not enough, the company can ise the external financing. As the financial condition from year 2004 till 2008 is getting better and better, the company doesn’t need to issues the common stock any longer. That’s why the company will go private. The way the company going private is by increasing the stock price so the stock buyers will not buy the stock.
The shortest needed time for production from the raw till sold in the market is at 2004 with 6.33 days and 79.2 days collectiong payment. For late payments year 2006 is the best over all year with 6.99 days. The best value CCC is year 2004 which results as 75.43 days. It means that the company needs approximately 76 days to convert its current goods/product into cash.
CCC= inventory conversion period + receivables collection period – payable deferral period
2004 = 6.33 days + 79.2 days - 10.10 days = 75.43 days
2005 = 14.97 days + 131.7 days - 13.43 days = 133.24 days
2006 = 8.06 days + 124.7 days - 6.99 days = 125.77 days
2007 = 19.08 days + 362 days - 24.84 days = 356.24 days
2008 = 23.9 days + 330.5 days - 21.49 days = 332.91 days
Analysis:
At 2004, the needed time for production from the raw till sold in the market is 6.33 days with 79.2 days collectiong payment including maximum 10.10 days late payments over all year. The CCC this year result as 75.43 days. This mean the firm needs 75.43 days to collect the cash from sales, increases inventory returns and slows down the disbursement of cash.
At 2005, the needed time for production from the raw till sold in the market is 14.97 days with 131.7 days collectiong payment including maximum 13.43 days late payments over all year. The CCC this year result as 133.24 days. This mean the firm needs 133.24 days to collect the cash from sales, increases inventory returns and slows down the disbursement of cash. Compared to the previous year, this year the company needs more days in converting the goods to cash.
At 2006, the needed time for production from the raw till sold in the market is 8.06 days with 124.7 days collectiong payment including maximum 6.99 days late payments over all year. The CCC this year result as 125.77 days. This mean the firm needs 133.24 days to collect the cash from sales, increases inventory returns and slows down the disbursement of cash. Compared to the previous year, this year the company successes in reducing the days in converting the goods to cash. With this decreasing number, the company has success minimizing the working capital.
At 2007, the needed time for production from the raw till sold in the market is 19.08 days with 362 days collectiong payment including maximum 24.84 days late payments over all year. The CCC this year result as 356.24 days. This mean the firm needs 356.24 days or almost equal to a year to collect the cash from sales, increases inventory returns and slows down the disbursement of cash. Compared to the previous year, this year the company struggels in reducing the days in converting the goods to cash. With this big value of number, the company has suffered big troubles because can’t convert the goods into cash. the company used many portions of the debt to cover the payments for its production process and selling process in a year.
At 2008, the needed time for production from the raw till sold in the market is 23.9 days with 330.5 days collectiong payment including maximum 21.49 days late payments over all year. The CCC this year result as 332.91 days. This mean the firm needs 328.09 days to collect the cash from sales, increases inventory returns and slows down the disbursement of cash. Compared to the previous year, this year the company has been better in reducing the days in converting the goods to cash. but with this big value of number, the company has suffered big troubles because can’t convert the goods into cash. the company has to used many portions of the debt to cover the payments for its production process and selling process in a year.
Working Capital
2004=
Inventory conversion period = = = 6.33 days.
Receivables collection period = = = 79.2 days.
Payable deferral period = = =10.10 days.
At 2004, the needed time for production from the raw till sold in the market is 6.33 days with 79.2 days collecting payments including maximum 10.10 days late payments.
2005=
Inventory conversion period = = = 14.97 days.
Receivables collection period = = = 131.7 days.
Payable deferral period = = = 13.43 days.
At 2005, the needed time for production from the raw till sold in the market is 14.97 days with 131.7 days collectiong payment including maximum 13.43 days late payments.
2006=
Inventory conversion period = = = 6.99 days.
Receivables collection period = = = 124.7 days.
Payable deferral period = = = 8.06 days.
At 2006, the needed time for production from the raw till sold in the market is 8.06 days with 124.7 days collectiong payment including maximum 6.99 days late payments.
2007=
Inventory conversion period = = = 19.08 days.
Receivables collection period = = = 362 days.
Payable deferral period = = = 24.84 days.
At 2007, the needed time for production from the raw till sold in the market is 19.08 days with 362 days collectiong payment including maximum 24.84 days late payments.
2008=
Inventory conversion period = = = 23.9 days.
Receivables collection period = = = 330.5 days.
Payable deferral period = = = 21.49 days
At 2008, the needed time for production from the raw till sold in the market is 23.9 days with 330.5 days collectiong payment including maximum 21.49 days late payments.
From the Pecking Order Theory
The theory said that if the internal financing does not enough, the company can ise the external financing :
• Issues debt (bond).
• Issues preferred stock.
• Issues common stock.
From the theory above, as the financial condition from year 2004 till 2008 is getting better and better, the company doesn’t need to issues the common stock any longer. That’s why the company will go private. The way the company going private is by increasing the stock price so the stock buyers will not buy the stock.
Analysis using Trade-off Theory
From two data ( stock price graph and debt-equity-ratio data) we can see they are in the adversary relation. When the price low, the DER is high. As the price is increasing from 2004 till 2008, the DER is decreasing to its lowest ratio at 2008. This means that the DER influence the value of the firm significantly
Debt to equity ratio from 2004-2008
DER =
2004 = = 0.6306
2005 = = 0.6053
2006 = = 0.6152
2007 = = 0.6076
2008 = = 0.5837
In the data above, it has different style from the 1st data. This data shows a decreasing trend from the data at 2004 till 2008. This shows the comparation between debt and equity capital in term of productioning the goods of the company. At 2004, the debts shows more than half (0,63) of the equity capital. And the ratio falls in 2005 to 0,6. But it increases again in 2006 to 0,61. Finally from 2007 till 2008 the ratio keeps falling till 0,58 in 2008. This shows a good signal of the company’s capital condition.
Firm Value from 2004 – 2008 (Stock Closing Price)
Dec 31, 2004 = 48000
Dec 31, 2005 = 63000
Dec 31, 2006 = 110000
Dec 31, 2007 = 129500
Dec 31, 2008 = 127000
From December 2004 until December 2008 the graph the stock price increases from Rp 48.000/lot until Rp 127.000/lot. This shows that the company from year 2004 till 2008 the company needs less cash-in-flow from the investors (stock buyers) which means that the company having a good financial condition ( in term of profits earned by firm) from year to year.
And at 2009, the company finally choose to be a private company in where the company will be run by its private owners’ money not from the public money (stock buyers) which leads the stock price into its higher price level. When the price is high and it’s stagnant, people tend to don’t buy the stock. Because the risk of investment is low and the chance of getting profits is low too.