Of significance in the financial situation of the PN is that LKIM has provided Launching Grants for various economic activities. These Launching Grants have served as a major source of capital for them as the members are still not capable of contributing sufficient share capital of their own to the PN. However this scheme of providing launching grants has been terminated recently.
Another source of capital funds is the reserves allocated from net profits in two accounts. One of these funds is the reserve fund for launching grants to which LKIM requires PNs to allocate one third of net profits of the year. The remaining two thirds of net profits is to be allocated to the PN reserve fund after payment of dividend to members.
The third source of capital funds is the share contribution paid by members. This source, however, always forms a very small proportion of the total capital funds. The last source of capital funds is the accumulated net profit brought forward from the profit and loss accounts. If, however, the entire amount of net profit is allocated to the reserve funds mentioned above, there would be no additional source of capital funds under this item of account.
Comparative financial statement (balance sheet) of the consolidated account of the PN for the years from 1983 to 1986 is indicated in Appendix IX - 1.
Income from sales is the lifeblood of every business enterprise. The distribution of every ringgit (dollar) utilized in the operation of a business concern is regulated by the actual sales or the expected sales volume. Consequently, every item in the balance sheet has a definite relationship to the sales volume.
As mentioned in Chapter 3.3. together with Appendices III - 1 and 2, volume of sales in the major projects of the PN had shown a steady decline until the end of 1985 which reflected also in the decline in the total assets for the same period, but the trends of both in volumes of sales and the total assets have suddenly shifted to upward in 1986. However, the fluctuation of each item in the PN balance sheet is not directly related to the fluctuation of sales volume.
Income from sales flows from inventory (stock) into receivables, where credit terms are used, from receivables into cash, and from cash back into inventory. Therefore, in normal and well-managed business concerns, these items together with the current liabilities in the balance sheets usually take a similar course as the actual volume of sales or its expected value, but the accounts receivable and payable increased in 1984 from the previous year's values whereas sales volume declined. Moreover, the inventory in 1986 had decreased from the year before whereas the volume of sales increased.
It must be strongly emphasized here that every managerial policy, or absence of managerial policy, is reflected somewhere in the figures of the balance sheet, or in the income statement. In this regard, it seems that no policy in management and operation have ever existed in the PN.
Furthermore, the flow of income from sales to various items of current assets i.e. inventory, receivables and cash is usually generated from net profit figures of which are posted under capital and reserves in the balance sheet. When the economic activities of the PN are making headway, the increase in net profits as well as in accounts payable will reflect in increases of current assets. In the year 1984, however, the PN was unable to generate any source of funds from net profit and in consequence the increase in current liability and decrease in the assets flowed back to the capital to cover its shortage mainly as a result of decrease in net profit, as indicated in Appendix X - 1.
The same tendency, but more serious, is observed in the year 1985; decrease in assets back-flowed not only to cover decrease in capital but also in current liability. These back-flows of monies (incomes) are the obvious symptoms of decline in the progress of the economic activities of the PN.
The financial situation recovered in 1986 as the increases in both capital and current liabilities flowed to cover the increases in both fixed assets and current assets though the net profit still showed continued decrease. This recovery was largely derived from favourable results in fuel and ice supply, and fish marketing operations which were strongly associated with the implementation of fish auctioning in the Geting Complex.
However, the implementation of the fish auction did not arise from the PN management strategy but from LKIM policy. The recovery of the financial situation in 1986 may, therefore, be presumed a consequence of coincidence.
The comparative financial statement (balance sheet) of the fuel supply project from 1983 to 1986 is shown in Appendix IX - 2.
The current assets have successively increased during the period regardless of fluctuations in sales volume that are largely attributed to an increase of miscellaneous assets which mainly consisted of advances and loans to other projects within the PN.
An unusual situation is found in the item of receivables whose figures have never fluctuated during the period. As the project now collects sales of diesel and lubricants supplied to fishermen in cash, outstanding balances in the accounts receivables should be recognized as frozen accounts, doubtful or bad debts. Accounts receivable are classified as current assets only when they represent amounts due for sale of goods or services rendered in the normal course of everyday operations.
Another unusual and questionable situation in the statement is found in figures of cash account which are far in excess of reasonable levels if the fixed deposit in banks of M$21,500 and the loans extended to other projects amounting to M$30,000 in 1986 are added to the cash account.
The excess in the cash account is closely related to figures in the accounts payable which has successively increased during the period regardless of fluctuations in the volume of sales. A large part of the accounts payable consists of credit given by the Central Purchasing Unit of LKIM which has not been settled as yet. If the accounts payable to LKIM should be paid, the operation of the fuel supply project of the PN will be severely constrained from shortage of cash.
The fuel supply project failed to raise sufficient funds in the current liability to cover increases in the current assets in 1984 and 1985. Sufficient increases met in net profits have, however, supported such increases not only in 1984 and 1985 but also in 1986, as indicated in Appendix X - 2. The decrease in the current liability is largely attributed to failure in obtaining sufficient deposits from suppliers.
The comparative financial statement (balance sheet) of the ice supply project for 1983, 1984, 1985 and 1986 is indicated in Appendix IX - 3.
The value of current assets have increased continuously relative to the growth of sales; however, the current liability in 1986 decreased slightly. The ice supply project also failed to obtain deposits from local suppliers to support the progress of its operation.
Cash flow between assets and liabilities have been favourable in the period from 1983 to 1986 as illustrated in Appendix X - 3.
The comparative financial statement (balance sheet) of the fish marketing project for the period from 1983 to 1986 is shown in Appendix IX - 4.
An unusual situation is found in the items of receivables and payables which showed rapid rises in 1986. Since the fish auction was implemented in January 1986, the volume of fish sales has increased as described in Chapter 3.3.1. above, which caused receivables to grow enormously. It must be mentioned here, however, that post-dated cheques received from fish dealers for fish sales have not been posted in the account of receivables as LKIM directed the PNs not to accept such cheques. The total outstanding value of such cheques could not be ascertained by the Project.
Due particularly to failure in collecting dues from fish dealers in time, the PN fish marketing project delayed payments to fishermen which is reflected in a rapid rise in payables. The fish marketing project has also borrowed M$20,000 from the fuel supply project to cover shortage in working capital. This is posted as an item of miscellaneous liability.
Sometimes one project could have made sales or extended loans to another project within the same PN. Because of the strained financial situation of the project the particular receivables or payables may be running several months or even years past due. Being a sister project, it may be difficult or impossible to press for payment and the receivables or payables may represent at best a temporarily frozen asset or liability.
Such circumstances can be found not only in the fish marketing project but also in other projects. This makes the finances of the PN very complex as LKIM requires PNs to carry separate cash accounts for each project, including the general account.
Money flow between assets and liabilities of the fish marketing project during the period is illustrated in Appendix X - 4. The project failed to raise sufficient working capital from current liabilities as well as from capital in 1985, which resulted in a reverse cash flow. The situation recovered in 1986 due particularly to the rapid growth of fish sales volume.
The comparative financial statement (balance sheet) of the retail shop project for the period from 1983 to 1986 is shown in Appendix IX - 5.
An unusual financial situation is found in the relationship between items of receivables, inventories and payables, which is not related to fluctuations in sales volume. Moreover, the item of inventories is excessively high in value compared to receivables and payables until 1985. Goods in stock do not have definite claims to cash, they must first pass through the sales process before they can stake absolute monetary claim; the inflated volume of the inventory must have been caused largely by an inclusion of worthless merchandise from the marketing point of view because of age and general deterioration. The PN reduced the inventories in 1986 by putting them on pumping sales which brought the PN a large deficit in gross profits from 1985 to 1986.
The cash flow of the retail shop project between assets and liabilities for the period is illustrated in Appendix X - 5.
A most unusual situation in cash flow can be found in 1986 where all monies raised from increases in current liability, from decreases in fixed assets and current assets, flowed into the capital to fill its deficit.
