CASE SUMMARY: Living By Numbers – Value Creation or Profit?
PROF. DR. SHAMSUL NAHAR ABDULLAH SECTION 1
PREPARED BY: MUHAMMAD FAIZ BIN AZMI
0928055
NOOR HIDAYAH BINTI NOORULDIN
1010516
SITI NORTHAHIRAH BINTI MOHD PAUZI
1018094
SYNOPSIS
MarineCorp Sdn Bhd was a shipping company which was wholly-owned subsidiary of SURIA and maritime solutions provider for SURIA group of companies. It also has two subsidiaries which are Green Port Sdn Bhd and Sungai Emas Port Sdn Bhd. Besides, vessel inspection and vetting was a major business of MarineCorp. While its subsidiaries, Green Port and Sungai Emas Port had similar business activities, which included pilotage and marine support, emergency response, port management and operations, navigational safety, and marine services. However, Sungai Emas Port had minimal investments. This case highlighted some problems faced by Hafiz Hashim, the Chief Financial Officer (CFO). He was in dilemma to choose the best KPI for the three companies as the President of SURIA wanted Value Based Management (VBM) to be used which measured by economic earnings or using profits as practiced by MarineCorp to report the financial performance of MarineCorp and its subsidiaries.
THE PROTAGONIST/DECISION-MAKER
The protagonist or decision-maker in this case is Hafiz Hashim, the Chief Financial Officer (CFO) of MarineCorp Sdn Bhd. He was responsible for the financial management of MarineCorp and its wholly-owned subsidiaries, which are Green Port a nd Sungai Emas Port.
THE PROBLEM FACED BY THE PROTAGONIST
We found that Hafiz Hashim, the CFO was in dilemma whether to approach VBM model as required by SURIA or using profits as practiced by MarineCorp to report the financial performance. Other than that, the Chairman requested him to rank the three companies according to their financial performance and prepared suggestions on how to improve the performance of the company. In addition to that, Hafiz also faced pressures from General Managers (GMs) of Green Port and MarineCorp about the issues of accounting, in terms of maintenance costs and
dividend payments, where they wanted to have better performance so that they can get high bonuses. Anita Osman, GM of Green Port asked to amortize dredging costs because Hafiz had miscalculated them. While Lee Chong Way, GM of MarineCorp disagreed with the idea of Hafiz to pay dividends to their shareholders because they already using the cash to generate interest income on investments.
THE MAJOR ISSUE IN THE CASE
Based on the case, the main issue arises in terms of measuring companies’ performance as the President of SURIA wanted VBM model to be used for SURIA Group and all the three companies. Under VBM model, the companies’ performances will be evaluated through performance evaluation and appraisal of the employees, and the value of a company would be measured by economic earnings. However, the idea of President SURIA was contradicted to his thought that a company’s financial performance should be measured based on investments made by equity and debt holders, where they need to compare its profits with investments’ expected returns and cost of capital incurred by the company.
APPENDICES
There are 8 appendices attached in this case which comprises of organizational structure of MarineCorp and its subsidiaries in Appendix A.1-A.3. While in Appendix B to D, it shows The Performance Scorecard of MarineCorp, Green Port and Sungai Emas Port respectively. st
Also, the Companies’ Income Statements for the year ended 31 December 2009 in Appendix E. st
Appendix F shows the Companies’ Statement of Changes in Financial Position as at 31
December 2009 and also the Companies’ NOPAT, Average Invested Capital and Weighted Average Cost of Capital (WACC) showed in Appendix G. Lastly, the Appendix H shows a chart on how a business creates value.
