The company we study is Lai Sun Development Company Limited (0488) founded by. Mr. Lam Por Yen. The company is a member of the Lai Sun Group and was listed on the Hong Kong Stock Exchange in 1987. Our study is based on the business performance in the financial year ended 31 July 1997.

6 projects of property development for residential, commercial and industrial uses were completed. They are Shining Court, Cambridge Place, Parc Versailles, Centre 600 and Polly Commercial Building in Hong Kong while Elm Court is in China. Their sale generated a total turnover of HK$1520 million.

10 projects are on progress : Tycoon Place, La Salle Place, Wiltshire Place, Panorama and three sites in Shau Kei Wan, Yuen Long and Prince Edward Road in Hong Kong whereas Hong Kong Plaza, Banyon Court and Rili Building in China.

Here, we analyse the company's financial position and performance based on its financial ratios in the past four years.

Operation efficiency :

Its return on equity (ROE) has declined steadily from 5.84 % in 1994 to 4.34 % in 1997. The Profit margin has fluctuated, but actually, it is lower than the values in the last few years. Although its net profit has increased, ROE and profit margin have decreased. This means a deteriorating operating efficiency, which may be due to poor control of operating expenses e.g. research, development, marketing and administrative expenses.

Management efficiency :

The Return on Asset (ROA) has declined from 4.49 % in 1994 to 3.23 % in 1997 and its asset turnover decreased from 0.14 in 1994 to 0.1 in 1997, which indicate the efficiency of which the company allocates and manages its resources, is lowered. The declining asset turnover appears to be due to the increase in properties and lands of Lai Sun Development.

Liability and liquidity :

The financial leverage, Debt to asset and Debt to equity are fluctuating. Debt to asset (0.25) means 25 % of Lai Sun Development's asset comes from creditors. Debt to equity (0.34) means 34 % of the Company's shareholders' equity comes from creditors. The debt relative to asset is not too high.

The current ratio has increased over the last three years, from 1.21 in 1995 to 1.35 in 1997. Although it has increased, it is still at a low level, which indicates the Company's liquidity is low. There may be a financial risk that the company's current asset cannot meet any sudden increase in current liability.

In sum, the ratio analysis of the company reveals its deteriorating financial performance. Whatever the operating efficiency, management efficiency, the ability of paying debt or liquidity, it is at a low level.

Since the information about the structure of the Company is confidential, we cannot obtain the relevant data.

Lam Por Yen, aged 82, who is the founder of the Lai Sun Group, is a director of the Company as well as the chairman and managing director of Lai Sun Garment (International) Limited ("LSGI") and the chairman of Crocodile Garments Limited.

The Deputy Chairman and President is Lam Kin Ngor, Peter, aged 40. He is also the deputy chairman of LSGI, the chairman of Lai Sun Hotels International Limited, an executive director of Crocodile Garments Limited.

Their responsibility is to exercise their business judgements in striking a balance between two legitimate but competing demands. They serves most effectively the interests of the present and future members of the Company.

The company is well-diversified with five business areas : property development, property investment, China property, hotels and strategic investments.

During the financial year, the company generated a turnover of HK $1520 million from the sale of properties in Hong Kong, which occupies about half of the company's total sale. Besides, the Company acquired seven development sites.

Its property investment mainly concentrates on office and retail space. In 1997, it invested four new properties : Centre 600 in Cheung Sha Wan, Cheung Sha Wan Plaza, Causeway Bay Plaza 1 and 2.

Its business in China are mainly property sale, leasing of retail space and office space. The Company's land bank in China is mainly located in Shanghai, Guangzhou and Pearl Delta area.

The hotels of Lai Sun Development include Four Seasons Hotel in Milan, Regent Beverly Wilshine Hotel in Los Angeles, Ritz-Carlton Hotel in Hong Kong, Furama Hotel in Hong Kong and Four Seasons Hotel in New York.

The strategic investments include Asia Television Limited, the Duty-Free shop and PCS operations through Mandarin Communications Limited.

Operation Functional Area :

The company's operating system is very prudent. Whatever planning, executing or controlling stage, it is inspected by a senior staff. For example, Mr. Yuen Ching Bor, the senior vice-president, is responsible for the Company's property projects in China.

Moreover, active steps have been taken in improving the company's transparency to investors and broadening its shareholder base by setting up a department directed by an Executive Director to take care of investor relationships and corporate finance. The company has also appointed an additional executive director to take charge of project development to further upgrade the quality of product and services.

Personnel Functional Area :

The company has a total of approximately 930 employees. To improve the overall quality of the its human resources, more qualified and capable people are recruited and selected as new employees. In 1997, the Company employs 80 more staff than the last financial year. Among the new employees, Dr Paul Tong Yuk Lun was appointed as an executive director to strengthen the Company's senior management.

To ensure the Company's employees are able to perform their jobs effectively, the company provides some educational and training programmes (e.g. Putonghua courses) to build the skills of its current employees and help them grow to full potential within the organization.