EconomicsBanking and Finance
Thefinancial system of a given country is exceedingly critical insupporting the business activities of an organization. Anorganization that operates in a given country should be capable ofunderstanding the working of the financial system of the givencountry. This is of immense importance because the financial systemsupports business activities of an organization. Therefore, anorganization should be keen to access the financial system of acountry since it is through accessing the financial system that thebusiness activities will be facilitated. An organization should focuson choosing how it would access the financial system since there aredifferent components of financial system. The purpose of this reportwill be to discuss the components of financial system of Singapore,how they facilitate the business activities of Wilmar International,and how this organization can access the financial system. Also, thepaper will analyze the cash flow statement of the organization forthe past three years, and discuss the problems as well as thesolutions available to the organization.
Organizationand Business Activities
WilmarInternational Limited is an organization founded in 1991 and has itsheadquarters in Singapore. Today, this organization stands as theleading agribusiness group in Asia. On the Singapore exchange, theorganization is ranked amid the largest listed organizations bymarket capitalization (Wilmar, 2015). At the center of theorganization’s strategy is a supple integrated agribusiness model,which comprises the whole value chain of the agricultural commodityprocessing business, ranging from initiation and processing tobranding. The organization has different business activities thatinclude cultivation of oil palm, edible oil refining, oilseedcrushing, grain processing, sugar milling and refining, biodiesel,oleochemical, specialty fat and fertilizer manufacturing (Shori etal., 2009). Wilmar International has more than 500 manufacturingplants as well as an extensive distribution network that coversIndia, China, Indonesia as well as some others 50 countries. Inrealizing its business activities, the organization is backed by aworkforce of 92,000 individuals who are multinational (Wilmar, 2015).
Componentsof the Singapore Financial System and their Facilitation to WilmarBusiness Activities
Accordingto International Monetary Fund (2013), Singapore emerges as one ofthe globe’s biggest financial centers, developed around a center ofdomestic as well as international banks, and also provides a broadrange of services that are non-bank. The financial system ofSingapore is highly developed, well regulated, and supervised (IMF,2013). The Monetary Authority of Singapore (MAS) has the mandate ofoverseeing the overall financial system, and has the operational aswell as analytical capabilities to do the overseeing effectively.There are different components of the Singapore financial systems,which are critical in facilitating the business activities ofcompanies such as Wilmar International. These components and how theyhelp in facilitating the business activities will be discussed in theparagraphs that follow.
Oneof the financial system components in Singapore is the financialinstitutions. Banks comprise one of the components of financialinstitutions in the Singapore financial system. IMF (2013) providesthat Singapore has both domestic and international banks, which areattracted by the efficient market infrastructure of Singapore. Thefinancial sector of Singapore is usually dominated by banks. Indeed,by 2013, the commercial banks operating in Singapore were 122 innumber out of which, five constituted local banks, one foreignsubsidiary and the rest comprised of foreign branches (IMF, 2013).Both domestic and foreign banks form a significant part of theSingapore financial system since they engage in both retail andcorporate lending (IMF, 2013).
Apartfrom banks, other financial institutions in Singapore includemerchant banks, insurance companies, market intermediaries, fundmanagers, and financial advisors. From the banks, the insurancesector forms the second biggest component of the financial system ofSingapore. There are approximately 600 fund management firms inSingapore (Tan, 2005).
Thefinancial institutions are exceedingly important to WilmarInternational since they help in the facilitation of businessactivities of the business. When it comes to domestic and foreignbanks, the organization may consider borrowing some resources whichit can utilize in supporting the expansion of its businessactivities. The organization can also seek financial advisory fromthe financial institutions concerning its investment in its businessactivities. Also, the insurance companies are also important in thefacilitating the business activities of the organization since theyhelp in providing health covers to employees, which ensures healthyworking lifestyle. Furthermore, the insurance companies are alsocrucial to the organization’s business activities since theyprovide covers that protect the business activities from risks.
AccordingIMF (2013), Singapore was the third biggest foreign exchange marketin the globe, and one of the biggest trading centers for OTCderivatives in Asia as of 2012. Equity and fixed income markets areat their early stage of development. Monetary Authority of Singaporepoints out that the bond market of Singapore has grown over the pastdecade. As one of the robust capital markets in Asia-Pacific region,Singapore Exchange (SGX) is a preferred listing market forapproximately 800 companies. The financial markets are exceedinglyimportant to the business activities of the Wilmar Internationalsince the organization participates in the financial markets andinvests resources, which it ploughs back to the business in thesupport of the business activities. For instance, WilmarInternational operates in SGX and the resources it receives may beused in expanding one or more of its business activities.
MonetaryAuthority of Singapore (MAS) is the country’s central bank.Monetary Authority of Singapore has the responsibility of overseeingthe role of commercial banks and other financial institutions inSingapore. Through its policies, MAS is in a position to ensurefinancial stability. Therefore, through ensuring financial stability,the Monetary Authority of Singapore supports the business activitiesof Wilmar International since in a financially stable environmentbusiness activities are likely to thrive.
Productsand Services offered by Financial Intermediaries and their Roles inSingapore Financial System which a Corporation can Access.
Financialintermediaries play a crucial role in a country since they help inconnecting borrowers and lenders, which may be an exceedinglydifficult task to handle in case the intermediaries are not present.There are different financial intermediaries in Singapore and theyhave different products and services, and play varied roles in theSingapore’s financial system. Some of the products and servicesprovided by financial intermediaries in Singapore includes taking ofdeposits, asset management, lending services, and investment (Tan,2005). Depending with the roles that they play in the financialsystem of Singapore, financial intermediaries can be put into threecategories discussed in the paragraphs that follow.
Oneof the categories entails deposit takers and lenders. Financialintermediaries in Singapore play the role of taking deposits fromretailers, corporations or even individuals and later provide loan toother individuals, retailers, or corporations that are in need offinancial assistance. However, those taking loans from the financialintermediaries must first qualify for the loan prior to being offeredthe loan (Tan, 2002). Apart from the financial intermediariesproviding lending resources to companies and individuals, thefinancial intermediaries also lend resources to the government. Inthis category, domestic and foreign banks in Singapore assume therole of taking deposits as well as lending it out to individuals,government and companies.
Inthe second category of financial intermediaries entails thoseintermediaries that assume non-depository role. The chief role ofthese intermediaries is collecting premiums from different entitieseither business or otherwise, with a focus of providing coverage andtaking liability in case the risk considered matures (Greenbaum &Thakor, 2007). Insurance companies are well placed in this categoryof financial intermediaries.
Furthermore,the other category of intermediary is that of those financialintermediaries, which play the role of investment. In this category,individuals and companies pay resources to the financial intermediaryand the intermediary invests the resources through purchasing andselling of investment products. Investment banks fall in thiscategory of financial intermediaries (Staveley-O`Carroll et al.,2012).
Thereare different products and services provided by financialintermediaries in Singapore that Wilmar International can be in aposition to access. Since the company involves in agribusiness, itneeds to take risks that may be associated with unfavorable outcomessuch as destruction, or even bad weather. In such a scenario, theorganization can consider the services of financial intermediariessuch as insurance companies in order to avoid undergoing loses incase of a risk occurring. Also, the organization needs the servicesof deposit taking and lenders intermediaries so as to keep itsresources safe and borrow resources in case need arise. Furthermore,the company should access investment financial intermediaries so asto get more resources that it can utilize in its growth.
Howthe Corporation can Access the Financial System through the use ofFinancial Markets, Financial Intermediaries and Financial Instrumentsto facilitate its Business Activities
WilmarInternational can be in a position to access the financial system ofSingapore through financial markets, financial intermediaries andfinancial instruments so as to facilitate its business activitieshowever, it has to devise ways of doing so. The following paragraphsdescribe how it can access the financial system of Singapore.
Theuse financial market is one way through which the organization canaccess the financial system of Singapore. The organization can enterthe financial markets of Singapore through being listed on theSingapore Exchange (SGX) or can engage in the purchasing of bondssold by the Singapore government. Since the company is already listedin the Singapore Exchange, it can have access to the Singaporefinancial system through the financial markets.
Theuse of financial intermediaries is another way through which WilmarInternational can access the financial system of Singapore. Theorganization can consider using all the different financialintermediaries in Singapore in order to access the financial systemof Singapore or can use some of financial intermediaries withinSingapore. However, there are some financial intermediaries that theorganization cannot do without for example, the banks. It isdifficult for the organization to do without bank because at one timeit will need to make deposits or borrow some resources. Therefore,the organization should make a consideration of using differentintermediaries, bank inclusive in order to access the financialsystem of Singapore. One of the financial intermediaries that theorganization should consider using is the investment banks. Theorganization may use investment banks in an attempt to get moreresources that can be utilized in the growth of its businessactivities. Another financial intermediary that the organization canconsider using is insurance companies, which can help theorganization in mitigating risks in its undertakings (Greenbaum &Thakor, 2007). The combination of the different financialintermediaries will aid the organization in accessing the financialsystem of Singapore.
Theuse of financial instruments is another way through which WilmarInternational can access the financial system of Singapore. Theorganization can consider holding tradable assets, which are criticalin the growth of the business activities of the organization. Theinstruments held by the organization can either be cash instrumentsor derivative instruments (Weiss, 2009).
Analysisof Wilmar International Cash Flow Statement
Thefollowing is a representation of Wilmar International cash flowstatement for the last three years
Fromthe cash flow statement of Wilmar International for the three years,it is apparent that the cash and cash equivalents increased from1.53B in 2012 to 2.24B in 2013, after which there was a decrease in1.7B in 2014. This is an indication that the cash and cashequivalents for the past three years is not pleasant. From the cashflow statement for three years, the company is not in a position tomeet its expenditures and expand cash, which is likely to reflect inlater years in case the company does not take adequate measures tohandle the situation. The effects of the company’s inability tomeet its expenditure are likely to be mirrored in the changes of theorganization’s stock prices.
Theorganization increased its cash from operating activities in 2014 to359.74M. The operating activities entail production of commodities ordeveloping a product, offering a service, and collecting paymentsfrom the activities. The increase in cash from operating activitiesis a good sign that the organization can be in a position to enhancethis field in growing its cash and cash equivalents. Companies thatdesire to expand usually spend heavily in investing activitieshowever, this is not the case for Wilmar International. The cash flowstatement indicates negative values for cash from investingactivities, which indicates that the organization may not be doingwell in its investments. Nevertheless, cash generated from theinvesting activities may tend to indicate negative values, which maynot be exceedingly bad since it may be as a result of high investmentcosts. Also, the cash generated from the financing activities ofwilmar is negative.
Problemsin the Company
Fromthe cash flow statement analysis, it is clear that the company ishaving the problem of not being in a position to meet itsexpenditures with the available cash and cash equivalents. Anotherproblem that is facing the organization is that of negativeinvestments. Also, the organization is also experiencing negativeoutcomes from its financing activities.
Theorganization can solve its problems through using focusing ondifferent techniques that can mitigate its expenses and increase itscash and cash equivalents. The company can reduce its expensesthrough purchasing exact number of materials that would be used inthe production process and avoid purchasing of extra materials, whichmay lead to wastage. The company should also eliminate anyunnecessary expenses that may result in higher expenses. In order toincrease its cash and cash equivalents, the organization shouldconcentrate on investing highly. The company should choose itsinvestments very well so as to reap highly from them. The investmentsthat the organization chooses should be in a position to yield returnrather than losses. Thus, the analysis of the investments should beput into considerations prior to engaging in an investment. Forinstance, the organization may consider using investment evaluationtechniques such as NPV to evaluate whether an investment is worth ornot. This will help the company in engaging in those projects thatbring maximum benefits, while leaving behind investment projects thatdo not yield benefits.
Also,the organization should also consider mitigating the risks of lossesemanating from its business undertakings. In doing so, theorganization should use insurance companies in covering thoseundertakings that seem to be highly risky. Furthermore, in case theorganization considers taking a loan, it is important for theorganization to evaluate the rate of interests that is being chargedfor the loan and whether the returns from the loan will be worth ornot. This will help the organization in taking only those loans thatwill attract returns that will benefit it.
WilmarInternational has to be in a position to access the financial systemof Singapore so as to help in facilitating its business activities.The organization may access the financial system through financialintermediaries, financial markets, or financial instruments. Throughthe financial instruments, the activities of the organization will befacilitated since the organization will engage in holding tradablethat may be in the form of either cash instruments or derivatives.Alternatively, the financial intermediaries will help theorganization in different aspects such as investments, taking loans,and depositing of its resources these activities are likely tosupport the business activities of the organization. Also, thefinancial markets are exceedingly critical in supporting theactivities of the organization since the financial markets would helpthe organization in investments, which would attract more resourcesthat can be used in facilitating business activities. As a leader inagribusiness, Wilmar International is facing different problems,which can be resolved through the financial system of Singapore. Theorganization is not in a position to cover its expenses with the cashand cash equivalents that it currently has, and is facing anotherproblem in that it is experiencing negative results in the cash flowsgenerated from investing and financing activities. It is importantfor the company to consider evaluating its investments in order toyield value from them otherwise, it may continue yielding negativevalues that would have a negative impact towards the stakeholders ofthe organization such as the investors, because the stock price willdecrease. Also, it is critical for the company to choose thefinancial intermediaries it will deal with in order to increase itscash reserves and cash equivalents.
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