Spritzer Bhd is the company that sells the best-selling natural mineral water company in Malaysia that operates through three main sectors which is Manufacturing, Trading, and Others. According to Spritzer was registered as a private limited company in Malaysia on 26 May 1993 as Spritzer Sdn. Bhd. under the Companies Act, 1965. The company after that was changed into a public limited company and renamed as Spritzer Bhd. Listed in the year 2000, Spritzer Bhd is the first and only bottled water company listed on Bursa Malaysia Securities Berhad. With annual turnover exceeding RM300 million, Spritzer Company is the largest and most integrated bottled water producer in Malaysia with an estimated market share of about 40%.
Since 1980’s, Spritzer Group of Companies, which consists of 8 subsidiaries which is Chuan Sin Sdn Bhd, Golden PET Industries Sdn Bhd, Chuan Sin Cactus Sdn Bhd , PET Master Sdn Bhd, Angenet Sdn Bhd, Spritzer EcoPark Sdn Bhd, Spritzer (Hong Kong) limited and Spritzer (Guang Zhou) Trading Limited. Meanwhile, Spritzer Company has a wholly owned trading company in Guangzhou, China, which began to sell and wholesale bottled water products in GuangZhou and surrounding areas in April 2016. In January 2017, the group began exporting mineral water products to the UK under the brand ACILIS by Spritzer. Theirbusiness is mainly in Malaysia, and currently their export sales currently make up of less than 10% of their group’s revenue.
Furthermore, Spritzer Company has focused in manufacturing and selling a ranged of bottled water products which includes natural mineral water, carbonated fruit flavoured drink, non-carbonated fruit flavoured water, distilled drinking water, functional drink, sparkling natural mineral water, sparkling natural mineral water, toothbrushes, preforms and packaged bottles.(Spritzer Bhd, 2016) Besides, the trading sectors offers bottled water and other consumer products and the Others is engaged in recreational parks (Spritzer EcoPark), investment and properties holding activities.
Next , the products of Spritzer Bhd. includes of Spritzer Natural Mineral Water, Spritzer Distilled/Ro Drinking Water, Spritzer Spriky Fun Pet, Spritzer Dispenser Series, Spritzer Tinge, Spritzer Sparkling, Spritzer Pop and Spritzer Bon Rica. Moreover, the water sources is extracted from an aquifer located deep underground which is 420-feet in the tropical rainforest. . Their main mineral water plant is located on a 330-acre site in Taiping, Perak which situated together with the Spritzer EcoPark. The second mineral water plant is in Yong Peng, Johor and the third drinking water plant in Shah Alam, Selangor. Besides, plastic packaging factory is located in Ipoh, Perak. The group currently has an annual capacity of about 700m litres of bottled water.
Spritzer company have a total amount of current liabilities that more than the non-current liabilities. That means the Spritzer Company are more rely on short-term liabilities. According to the annual report 2018, we are going to discuss about the disadvantage of those current liability Spritzer Company using.
The short-term funding is a situation where the company finds and gets a source of monetary funds for a certain period of time, usually less than one year. First, borrowing in Spritzer Company which include short-term loans, revolving credits and bankers’ acceptance. One of the advantages of short term borrowing is that it allows the Spritzer’s company to purchase something that requires a large amount of money such as property, machinery, and vehicles. For example, when your company currently does not have the ability to purchase the assets that are important to your company, actually, you can borrow the money through short-term loans. Next, the advantages of short-term loans is that approval of the short-term loan is faster than the long-term at the same time. Basically, short-term loans are more prevalent than long-term loans. Therefore, Spritzer’s company prefer to use short-term loans as a way to borrow money when they want to purchase assets or when they do not have enough money.
Next, the disadvantage of short term borrowings. First the short term borrowings / loan are insufficient for long-term goals. The short-term loan is best if the company business immediate need for cash to turn over the business. The disadvantage of short term borrowings is not good for financing the entire new business ventures. In which it may take years before the business starts to turn a profit or to build a new facility with a substantial mortgage, because the money on these loans is due within a year. A high cost loans. Short term loans always come with a high monthly payment and this may affect business profits. A high interest rate of short term loan also affects the cost of a project. The company also need to ensure that the money or revenue is budgeted to pay off these short-term loans, it is important so that no negative effect on the business.
In addition, Spritzer’s company also borrow money by using revolving credit. Revolving credit is a type of borrowing that almost same like the credit card which means the banker or lending institutions permit the company a maximum credit limit when the company needs money to purchase assets to expand their business. One of the advantages of revolving credit is that it is available at any time when the company needs it. In other words, it means that the company does not need to go through an approval procedure to get the funds and also it unlike a credit card, the interest rate of revolving credits are normally lower than the credit card. Therefore, Spritzer’s company is more preferable to use the revolving credit that is secured as a way to borrow money.
The disadvantage revolving credits which included in short-term borrowings. The disadvantage of revolving credits is that most of the people are tempted to spend more than they afford it. For an example, a $25,000 limit on a small business credit card can help to go a long way. It can help the small business to purchase new equipment, supplies and other necessary items for a business. But, the temptation to purchase is more than you need. The minimum payments on a revolving credit line can look greater at first, but in the end, company will end up spending a lot more interest over in long run.
Apart from that, according to the Spritzer’s annual report of 2018, the trade and other payables are also one of the elements of current liabilities. One of the advantages of trade payables is help the Spritzer’s company to increase sales. For example, a buyer will prefer to buy more of a Spritzer’s products which means the buyer does not need to pay cash immediately for their purchase because the Spritzer’s company normally provides credit term in which payment within 30 days. Moreover, the advantages of trade payables is that it helps Spritzer’s company to gain a competitive advantage. For example, customers would intend to purchase on credit terms rather than pay cash for all of their purchases, in other words, it means that the Spritzer’s company has advantages over its competitors as the ability to offer credit terms to its customers.
First, for the trade and other payables in current liabilities. The trade payable which links to credit purchase (Trade Payable) of Spritzer Company. The disadvantage of credit purchases is the credit period. The credit period cannot be allowed for an infinite time period, the maximum period of time before which a buyer is expected to make the payment to the supplier. Beyond this period, the creditor may request interest on the amount rate mentioned in terms of payment. The disadvantage of consequences credit purchase will also let the buyer miss out the early bird offer, because some of the suppliers will give an offer to the customer who pay early after selling its product and also to encourage customer to pay within the requested due date.
Furthermore, according to the annual report Spritzer Company 2018 stated that Spritzer Company have the second highest amount of current liability (other liability). Compare to another company, their current liability is also included many kind current liabilities for an example the provision. Spritzer company doesn’t have provision because of depreciation is a non-cash expense, it is a charge against profits which will ultimately reduce the tax burden of the company. This reason is why Spritzer Company are using less short-term provision compare to other company which is the Fraser & Neave Holdings BHD (F&N).
One of the advantages of shares capital is the company does not require repayment of the initial investment or interest payments. That could make it more attractive than other forms of corporate debt, such as bank loans and bonds. Debt requires the company to pay interest regularly and eventually repay the initial amount borrowed. Any shares sold may be subject to dividends, which can be suspended if necessary. The purpose of Spritzer BHD issued share capital is company no need to pay any interest fees to any party and Spritzer BHD can give dividend if the project having profit. Next, share capital can reduces the risk of a company bankruptcy. In general, if an enterprise uses more equity rather than debt, will lower the risk of bankruptcy. If a business fails to pay interest, creditors can force it into bankruptcy. Stock investors don’t have that right. They have to wait for any potential after the recession ends, benefit for the enterprise prosperity. Based on the annual report of Spritzer BHD notes 25(a), Spritzer BHD issued more share in 2018 than 2017. This represents a spritzer company need more money to operate in 2018.
The disadvantage of share capital is ownership dilution. There are pros and cons to all kinds of stock capital, but one of the worst negatives of being an owner is losing control of the company. You every puffs of ticket sold to investors, diluted or reduce your stake in the small business. Due to the stock investors generally have the right to vote on important company decisions, if you sell too many stocks, you may lose control of the company. Moreover, share capital need to pay higher cost. Although equity does not pay interest, its overall cost is usually higher than debt capital. From the perspective of the shareholders, they take more risks than creditors, because if the company bankrupt, they are the last person to get that money. As a result, stock investors demand higher returns on their investments. When you raise shares to compensate investors for this risk, you usually have to give up more shares at a lower price.
One of the benefits of holding treasury shares is that companies can increase shareholder value. The value of each share is based on the value of the company and the number of shares in the market circulation. When a company to buy back shares, it will not necessarily change the value of the company, but will change the number of shares outstanding. Next, treasury shares also has the ability to improve a company’s image in the market when it conducts share buybacks to increase its Treasury stock. When a company in the market to buy shares, this is a signal to investors, shows that the company has the extra cash. A company with excess cash obviously did well financially. This can be a signal to other investors, shows that they should invest in the company, which will further push up prices.
One of the disadvantages of treasury shares funding is that it hogs the company’s cash. For Treasury stock, you basically hold stocks related to your company. If you simply hold stocks, you won’t get the money you hold. You have to sell the stock to get the money. This will limit your cash flow and make it more difficult for you financially. Besides that, some companies use debt to manipulate the value of its shares. One of the most common measures of stock value is the price-to-earnings ratio. In this way, you use the price of the stock divided by the earnings per share. If you are in the market of the stock is less, this will increase the value of the shares. Fundamentals of the company without any change, but the value of it is still rising.
Furthermore, the benefits of reserves is stabilizing the share’s market value. Reserves are very significant to stabilize the share’s market value. Before the net profit is distributed to shareholders as dividends, the reserve must be withdrawn from the current profit according to the law. By establishing reserves from shareholders’ profits, the company has the ability to allow all types of business losses and to survive under adverse conditions by using these reserves so that the company can do better it supports to stabilize the share’s market value. In addition, payment of company expenses on time is one of the advantages of reserves. The reserve is quite functional for paying the company’s expenses on time. For instance, if a company must repay the loan after two years on a given date and it already has the same sinking fund reserves, then the company will have no issue to pay back on time. Another example is remuneration reserves and this will be used to pay bonuses to employees or management in the future.
Next, the disadvantages of reserves is lapsing financial opportunity. When company holding reserves cash, it may lose some purchasing power due to inflation. Cash held in a business checking account seldom produces enough interest to offset the loss of purchasing power caused by inflation. This is a low-risk choice but it also gives some return, different from other investment option that bring higher return. The other problem of reserves is stress from partners or investors. The extra cash may cause argument if the company have a partner in the business and both of you disagree on the issue of holding cash or investing. The investors may hope you put the money into the business to support business grows. Feeling stress from different sources will put pressure on your plate and create a difficult working environment
Besides, the advantages of borrowing is equity maximization. The main advantage of long-term loans is leveraging the current equity to buy extra assets. Spritzer can buy the new assets now instead of keeping money for new equipment. This is due to the lenders want to see a down payment so must have some extra cash on hand. For example equipment and vehicles, sometimes using trade-in instead of using cash. The new assets and related liabilities will emerge on the balance sheets. This will strengthen the business position as long as the correct ratio of debt to equity is maintained. Next, the advantages of borrowings is linked to company productivity. Short-term loans used as a quick source of cash to solve short-term liquidity problems but long term debt financing used as capital investment such as vehicles and machinery, offering benefits to a company which improving its productivity or enlarge the operating capacity. For instance, Spritzer can use mortgage to develop new places and increasing the potential of profit.
Moreover, the disadvantages of long term borrowing is higher interest rate. The interest rate of long term loans normally will be higher than the short term loans. This is because the risk of long-term loans will be relatively large and the long terms loans are normally more than one year, due to the long loan cycle. There are more unknown factors to bear and the bank will demand more returns. There is a big correlation between interest rate and time. Therefore, the longer the loan time, the higher the interest rate. On the contrary, the loan time is short and the interest rate is less because less risky than the long term loans. Besides that, slow growth of equity also a disadvantages of borrowings. Long-term financing generates equity when the company pay back the loans. Before the company decides how much they have and how much they owe, the equity is very significant. Normally long-term financing has less installment payments, and the rate of increase in equity is slower than delayed repayment. The sooner the company pay off the loan and increase the equity for the business or home, the greater net worth will increase. The amount of equity the company has at the home will decide whether your loan is approved or rejected.