Perdana Petroleum Berhad Case Analysis

Interpretation:

In usual, a debt ratio of 50% is preferred but each of the industry may have different benchmark for the ratio which varies by the nature of the industry. From the computation anove, PBD held the debt ratio of 49.77% which indicates that for every RM1 of assets in PDB, RM0.4977 is finance through the debt. The company is still consider having a low financial leverage and bears a lower risk of paying off its debt since the company has more than twice as many assets as debts. This also indicates that the company bears a lower risk of paying off its debt. However, Perdana Petroleum Berhad bears the highest debt ratio of 52.76% among three companies and this shows that the company is a high leverage company thus the company will

This means that the company has the ability to cover its interest payments by 345.86 times by using their profit before interest and tax amount. However, Petronas Dagangan Berhad shows a moderate interest coverage ratio of 34.76 times in comparison with the others. Although PDB has the highest finance cost among the three companies, the cost is diluted by the high earnings before interest and tax. Perdana Petroleum Berhad records the lowest interest coverage ratio of 3.8 times among the other two companies. The lower the interest coverage ratio indicates that PPB might face problem to pay the interest payment due to its low earnings before interest and tax..

3.3 Liquidity

Liquidity is defined as the degree to which an asset or security can be traded in the market without affecting the security’s price. Liquidity is often related to high level of trading activity. Liquid assets are assets or securities which can be easily bought and sold in the market such as blue chip stock and money market securities. Liquidity is often measured by using current ratio and quick ratio.

Various liquidity ratios are used to measure the financial position of Petronas Dagangan Berhad, Perdana Petroleum Berhad and Gas Malaysia Berhad in the short term. It is to assess whether or not these three companies will be able to settle its short-term obligations when they become

Generally, the quick ratio of 1 or higher than 1 would means a better liquidity for the company. By comparing the quick ratio between the three companies, we clearly see that PDB is not able to pay back its current liabilities currently as it has a quick ratio of 0.89. It also indicates that PDB is slightly relies on inventory to pay back its current debts and this would be a bad indicator for PDB’s investors and shareholders. Both Perdana Petroleum Berhad and Gas Malaysia Berhad have a healthy liquidity position as their ratios are higher than 1. Since, Gas Malaysia Berhad does not have any inventory therefore the quick ratios will be the same as the current