Assignment #3-November 23th, 2009

2. Relation between Capital Structure and Firm Value
From the graph, it can be seen that the relationship between capital structure (which is represented by debt to equity ratio) and firm value (represented by closing price of company stock) has the same pattern. When the debt to equity ratio increased then the closing price of the stock also increased and when the debt to equity ratio decreased then the closing price of the stock decreased too. And also D/E Ratio is differed much for each year. The D/E Ratio is differed much means that the changes or differences of D/E Ratio from year to year are big (for example from 80% to 100%). It is one of the Trade-off Theory’s characteristic. While for the Pecking Order Theory, the D/E Ratio should stay stable and only differs a little for each year.

From the graph above also we can know that, debt or leverage increases in the profitability of the firm and make this company has a better capital structure and this company gets its optimal capital structure at the D/E ratio is 180, 17% and the stock price Rp.800, it means that at this level company still get the benefit of debt because after this level if company still do debt, there will be two effects, first, it just caused the firm value of company would decrease because the increasing of the profit benefit from using debt will not proportional with the increases in financial distress and agency problem cost. Second, after the optimal capital structure point, the rising costs of the likelihood of firm financial distress and agency cost cause the market value of the levered firm to decline, that’s why the pricing cost of this company get decrease after optimal capital structure.

3. Working Capital Management of The Company
After make the calculation of working capital in this figure below, showed that there is no negative result. This is meaning that the firm never experienced a deficit in working capital during period 2004-2008. Why did the firm should maintain their working capital in a positive value? The firm should maintain their working capital in a positive value to ensure that the firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.


In this company, the cash conversion cycle calculation demonstrates that in 2008 is their best performer in managing its cash flow in this supply chain (32 days) while 2004 is the worst CCC performs (191 days). All of these cash to cash cycles demonstrate ineffective cash management because from 2004 until 2008 this came from its lower payable turnover than its receivable and inventory which caused a positive CCC. Like the earlier theory, the lower number of CCC is the more efficient company. Therefore, improvement must also focus on how to manage their inventory more effectively.

4. Conclusion

From the graph, it can be seen that D/E Ratio and closing price has the same pattern. That pattern is when D/E Ratio increased then closing prices also increased and when D/E Ratio decreased then closing price decreased too. It happened because if company used debt then it can be seen as positive signal that the company has ability to pay the interest in the future. While company is issuing stock, it can be seen as negative signal that the firm’s managers feel the company’s stock is overvalued (i.e. earnings are likely to decline in the future) and they wish to take advantage of a market opportunity. Furthermore, the graph used Trade-off Theory for analysis because the debt to equity ratio changed significantly in each period and company used debt for financing its activity.
From the analysis above can be concluded that this company has a good performance of working capital because this company never experienced a negative value of working capital. This company always has enough assets to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.
While from the cash conversion cycle this company is experienced ineffective condition because the number of the cash conversion cycle is quite high. This high number show that this company will be able to repay the cash but with long time. A good company should be experienced in low cash conversion cycle.

Assignment #2 -- Stock analysis

2. b. Explanation and Analysis of the Graph

The graphic above present the stock data from January 2^nd, 2008 until September 30^th, 2009. From the data, it can be seen that in January 16th, 2008, the volume of transaction is 1531. It is well a bigger number of volumes than the other data. It happened because on January 18^th, 2008, Tradesound Investment Ltd bought 75,288 billion sheets or 25.31% stock of PT Cahaya Kalbar (CEKA) with the value of transaction is about Rp 61.89 billion or Rp 820 per sheet. If a foreign company bought PT Cahaya Kalbar’s stocks, people might think that the company is safe enough and thereby they decided to buy the stock, so that the price of the stock increased.

But, in the middle of September 2008, the stock price level of CEKA was going down. It probably happened because of the global crisis. Like what it is known, global crisis and recession happened between middle of 2007 until 2008 to around the world. But, the effect of global crisis could be felt by Indonesian company in the middle of 2008 until in the middle of 2009. That’s why the stock price of almost all companies in Indonesia stock market including CEKA, was going down in that period. Global crisis can also affect Indonesian stock market because many of investors are foreign investors. If they are bankrupt, then they couldn’t invest their money in Indonesia. Besides that, some Indonesian companies are doing export-import. If the foreigners are bankrupt, how they can buy Indonesian companies product. So, global crisis also has effects to Indonesian stock market including CEKA.

Shares in commodity sectors such as mining and commodity stocks are leading the reinforcement. Each close higher 118.259 points and 93.36 points causing PT Cahaya Kalbar down Rp190 to Rp1.250. Meanwhile, for the end of September 2009 the first session of trading JCI monitored at home was in the red line. Index closed lower or equal to 33.551 points to 1.36 percent 2435.351 positions. Trading volume recorded 1.032 billion valued at Rp1, 139 trillion, with total transactions reaching 26,548 times. A total of 90 stocks tracked strengthened, weakened the stock 55, and 84 shares to stay where it is due to a decrease in what happened in oil, nickel and banking indicators and causes of PT Cahaya Kalbar shares close higher or top gainer up Rp50 to Rp1.490

2. c. The Average, Standard deviation, Highest and Lowest

2. d. Explanation and Analysis of the Average, Standard deviation, Highest and Lowest result

Average

The average calculation results will be used in the calculation of standard deviation and to determine the data’s dispersion.

Standard Deviation

The standard deviation is used in statistics to measure the variability or dispersion of a data set. If the data are very close to the average value, we have a small standard deviation. If the data are dispersed over a wide range of values then we have a large standard deviation.

From the table above, we can see that in the volume element, we find that there is significant difference between the average (47.0405) and the standard deviation (152.4456). From that number, the standard deviation is very high. It is mean that there is a great dispersion in volume or we can say that the volume has high volatility.

In this case, it can be seen that the data collected is highly dispersed. This situation indicates a risky condition to having stock in PT Cahaya Kalbar. The background is come from the result of standard deviation calculation. Because of the standard deviation is high, so this company’s stock exchange price has high possibility to change, which mean that the price is not stable.

Highest and Lowest Analysis

From the table, it can be seen that the highest volume is 1883 and the lowest is 0. The highest volume reached in March 13^th, 2008, it can be analyzed that it happened because in March 2008 the sales of PT Cahaya Kalbar increased dramatically five times of 463.5% and became Rp 595,551 billion and the net profit (after deducted by tax) also increased from Rp 617 millions or Rp 2.1 per stock in the first three-semester of 2007 to Rp 35,972 billion or Rp 121 per stock. People invest money to get return, so they want to invest their money in a company with big profit. That’s why the volume in March is the highest volume. While, for example in January 29^th until February 5^th, 2008, the volume is 0 because there is nothing special happened in those dated and besides that, PT Cahaya Kalbar is still in unstable company category if it is seen from the pattern of the graph.

Next, for the closing stock price level, the highest level is Rp 2000 per stock in June, while the lowest level is Rp 650 per stock in October. The range between the highest and the lowest is very high. It shows that the company has high risk. High risk means that the stock price has unpredictable changes.

3. Conclusion

To analyze the company performance, it is not only based on trend line record but also using standard deviation calculation. From the calculation, the data are dispersed or the data has a high volatility. With high volatility, it means that the stock price has a high possibility to change. From stockholder point of view, the higher changing possibility indicates the higher risk for stockholder to have the stock.

Based on graphical data and calculation, this company has good prospect in future but risky in stock price’s stability