Tuesday, January 06, 2009

RM18 Billion Profit Not Too Much?

Just got this in my mailbox, thought its worth a blog post. Have a read and share your thoughts ;-)

Dear Tony Pua,

I am a Malaysian Chinese businessman. I have read your article about LDP. Why do you think 14.2 times return on capital over 30 years is too much? If you look at the PAT figures, the real profit only comes from Year 2016 onwards.

I think most people look at figures without relative thinking. That means when you see RM18.865 billion, you will think, that’s a lot of money and it is not fair for this money to be given to a single individual, a company or a group of people. The cost is only RM1.327 billion. 30 Years is not that long. And then, do a reverse calculation and finds that the Return on capital is 14.2 times over 30 years. It must be too high!

People who do this type of calculations do not really understand and comprehend the numbers. They don’t know who much billion is. What it can buy and how the money looks like because they never have that kind of money. Only the rich truly understands the number.

Let’s take a look at the numbers where small people can easily understand. Say for example you are 20 years old and you come out with a capital of RM10,000.00 to start a web, consulting, SEO type of businesses. You bought a notebook, a printer, rent a small office, etc. 30 years with 14.2 times return on capital means at the age of 50, you have earned RM142,000.00 with your start up capital 30 years ago. That translate to RM4,733.33 profit per year and RM394.44 profit per month. Now, do you still think the return is really that high?

Not many companies can come out with RM1.327 billion of investment. Even those who have that kind of money many not be too keen to invest since the return is really slow and have lots of uncertainties. For example, DAP in this case, is an uncertainty to them. All countries needs companies to invest money, but you cannot stop them to make money. If DAP continues to stop businesses from making money, and count beans all the time, the economy will continue to fall. Nothing is fair in this world. You and I cannot complain because we do not have RM1.327 billion in our pocket.

Malaysia is really not business friendly anymore. We see government officials constantly saying things like “profiteering, indiscrimatly increase prices, excessive profiteering, unscrupulous traders”, etc. It is as if they are tying to brand businesses as evil. Companies are not supposed to make money, but help the “rakyat”. The economy cycle is still the same. First, companies must be rich. When companies are rich, employees gets more pay and government get more taxes. Companies, employees and government will all spent more in the economy.

But, in order to be politically correct, politicians want government to save money, companies to make less “excessive” profits, but at the same time want the rakyat which are mostly employees to have more disposable income. Do you really think bosses pay employees based on performance? I think they pay employees based on how much profit they made.

Hey, you were the CEO of a listed company in Singapore. I am sure these are no rocket science to you.

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