159 Finance dissertation on financial statement analysis of Vietnamese steel firms Hoa Phat group, Nam Kim, Hoa Sen group and Pomina steel,Master''''s Thesis

Dissertation submitted in partial fulfillment of the

UWE . SSrfty
Bristol England

Requirement for the MSc in Finance

FINANCE DISSERTATION ON
FINANCIAL STATEMENT ANALYSIS OF
VIETNAMESE STEEL FIRMS: HOA PHAT
GROUP, NAM KIM, HOA SEN GROUP
AND POMINA STEEL
DUONG NGUYET ANH
ID No: 18045437
Intake 2

Supervisor: Dr. Tran Tat Thanh

September 2019


Contents
1.1
1.2
1.3
1.4
1.5
2.1
2.2
2.3

2.4
2.5
2.6

3.1
3.2
3.3

4.1
4.2
4.3
4.4
4.5
4.6

Chapter 1. Introduction................................................................................................................................................. 1
Research
background.......................................................................................................... 1
Research
subjects................................................................................................................. 2
Research
objectives............................................................................................................. 2
Research
method................................................................................................................. 2
Structure of research........................................................................................................................... 2
Chapter 2. Theoretical basis of financial statement analysis......................................................................... 3
Definition of financial statements of the enterprise..........................................................................3
Objectives of financial statement analysis......................................................................................... 4
The meaning of financial statement analysis.....................................................................................5
Source of information used for financial statement

analysis.................................................. 6
Methods in analyzing financial statements........................................................................................ 7
The analysis criteria of the financial statements of the
business..........................................8
2.6.1 Overall assessment of the capital mobilizationsituationof theenterprise.........................8
2.6.2 Overall assessment of the level of financialindependenceof enterprises..........................8
2.6.3 General assessment of solvency........................................................................................9
2.6.4 Overall assessment of profitability..................................................................................10
Chapter 3. Financial situation of listed firms in the steel industry in Vietnam....................................12
Overview of formation and development of Vietnam’s steel industry..........................................12
Business operation characteristics of listed steel enterprises ......................................................... 13
Overview of the financial situation of listed steel enterprises........................................................ 16
3.3.1 Scale of business capital.....................................................................................................16
3.3.2 Property structure...............................................................................................................17
3.3.3 Solvency ........................................................................................................................... 17
3.3.4 Profitability ratio................................................................................................................20
3.3.5 Equity structure of steelenterprises....................................................................................21
Chapter 4. Financial solutions for industry businesses steel listed in Vietnam...................................22
Socio-economic context, prospects and orientation of the steel industry..............................................22
Development orientation and prospect of Vietnam's steel industry.......................................................23
Solutions to capital structure to improve profitability............................................................................24
Enterprises improve the efficiency of using financial leverage.............................................................25
Enterprises improve the quality of corporate governance......................................................................28
Effective cash flow management suitable for each group of businesses...............................................29
REFERENCES................................................................................................................................................................. 31


Chapter 1. Introduction
1.1 Research background
In a strong integration economy, businesses need to have financial decisions that are effective

and consistent with the economic context in each stage. For example, businesses need to
allocate capital appropriately. Reasonable capital structure to support enterprises to effectively
use cash flows, while ensuring the speed of capital transfer or goods circulation and
improving production capacity as well as competitiveness of enterprises.
Especially the steel industry, this is a heavy industry and also an input for many other
industries such as construction, mechanical engineering, manufacturing industry, etc. In
general, Vietnamese steel industry since its establishment has affirmed its great role as an
extremely important industry in Vietnam. It also serves as an intermediary for other industries
and paves the way for other industries to develop. In recent years, the steel industry in
Vietnam is still on the rise and development at a relatively fast pace compared to the world
and the region. However, steel companies still have limitations in financial management,
typically inventory management and capital structure.
However, the market economy must ensure competitiveness, especially when the free trade
agreements signed by Vietnam begin to take effect such as FTAs with steel powers like
ACFTA with China, FTA Vietnam - Asia - Europe economic union including Russia. Among
these FTAs, steel is still classified as sensitive and protected with a high import tax rate. But
as committed to the WTO, the protection period will not exceed 10 years will soon bring steel
enterprises to the market transparent competition. Vietnamese steel enterprises still have small
scale and production technology is only at an average level compared to the world. Most
businesses only participate at the end of the value chain while the steel production process
consists of many stages. Therefore, low added value leads to low revenue and profit.
Moreover, the level of capital management and capital use of most enterprises is still limited,
resulting in an unreasonable, unscrupulous capital structure, containing many risks and low
capital efficiency. Therefore, ensuring the capital mobilized capital in a timely manner to
meet the investment needs of the business and developing the target financial indicators
suitable to each stage is the final important financial decision. It is necessary for steel
enterprises in the course of business operations. Between capital structure and profitability of
steel enterprises always have a close relationship with each other directly affecting the goal of
maximizing the value that steel enterprises are aiming at. Therefore, Vietnamese steel
enterprises who want to sustain and develop in the future need to build a stable production

pg. 1


capacity based on modern production technology, sufficient production scale and effective
cost control.
Therefore, the author selected the topic “Financial statement analysis of Vietnamese steel
firms: Hoa Phat Group, Nam Kim, Hoa Sen Group and Pomina Steel” for this research.
1.2 Research subjects
Within the scope of this study, the author focuses on analyzing financial statements of 4 steel
companies having leading market shares in Vietnam:
- Hoa Phat Group Joint Stock Company
- Hoa Sen Group Joint Stock Company
- Pomina Steel Corporation
- Nam Kim Steel Joint Stock Company
The analysis of the four leading steel companies in Vietnamese market shares is expected to
provide a comprehensive picture of this industry in Vietnam.
1.3 Research objectives
The objective of the overview study is to analyze the financial situation of enterprises in the
steel industry in Vietnam. At the same time, it also provides a picture of an overall assessment
of the steel industry.
1.4 Research method
The research methods used in the research work are qualitative research methods and
quantitative research methods. The work uses a combination of methods such as
interpretation, inductive, analysis, synthesis and comparison to describe statistics on the
financial situation of steel enterprises.
1.5 Structure of research
The research methods used in the research work are qualitative research methods and
quantitative research methods. The work uses a combination of methods such as
interpretation, inductive, analysis, synthesis and comparison to describe statistics on the

financial situation of steel enterprises.

pg. 2


Chapter 2. Theoretical basis of financial statement analysis
2.1 Definition of financial statements of the enterprise
Financial statements are the most important product in the accounting process, they are the
most comprehensive reports on the situation of assets, equity, liabilities, financial situation,
business results of the enterprise. Financial statements are formed from the need to provide
general and useful information about the current situation of the enterprise, which is a means
to connect the business with the interested objects. The system of financial statements of an
enterprise provides users with information about the economic and financial situation through
the assessment, analysis and prediction of the financial situation and business performance of
enterprise. This is also a public report and used as the main data source when analyzing the
financial statements of the business. Financial statements are of great significance not only for
agencies, units and individuals outside the enterprise but also for the direction and
administration of business activities of the enterprise. It not only shows the financial position
of the enterprise at the time of reporting but also shows the performance achieved by the
enterprise in that situation. The information in the financial statements is an important basis
for analyzing and detecting potential economic possibilities. On that basis, it is possible to
predict the situation of production and business activities, as well as the development trend of
the business. That is an important basis for making decisions for the management and
administration of production and business activities of business administrators or decisions of
investors, creditors, and future shareholders of the business.
Although there are differences in the financial reporting system applicable to different types
of businesses, the content and form of financial statements generally include:
- The balance sheet is a financial statement that generally reflects the situation of the
assets of the enterprise according to the book value of assets and the sources of asset
creation at the time of making financial statements. Based on the balance sheet,

readers can comment, assess the overall financial situation, business capacity as well
as the ability of financial autonomy, the ability to pay debts of the business.
- Report on business results is a general financial report, reflecting the overall situation
and business results in an accounting period of an enterprise, detailed according to
business activities and guest activities. This report provides users with information
about revenues, expenses, profits arising from normal business activities or income,
expenses, profits arising from other business activities of the enterprise in a certain
business period. From the analysis of the figures in the business results report, it helps
the managers and the users to assess the potential changes in economic resources that

pg. 3


enterprises can control in future. It helps the business assess its profitability, or
evaluate the effectiveness of the additional resources it can use.
- The cash flow report provides information on financial fluctuations in enterprises,
helping to analyze investment, financial and business activities of enterprises. The
purpose is to assess the ability to generate cash and cash equivalents in the future, as
well as the use of these funds for business activities, financial investments of the
business.
- The notes to the financial statements provide more detailed information about the
business situation and financial situation of the enterprise. It helps to analyze some
more specific indicators, reflecting the financial situation that other financial
statements cannot present.
Thus, the financial reporting system is "the most vivid, the most complete picture". It provides
all the useful accounting information, helping to analyze the financial situation of the
business. At the same time, it reflects the ability to operate all sources of capital in the
business process of the enterprise in the future. Based on the assessment and judgment,
corporate governance can base on the results of the analysis of the financial statements of the
enterprise to make decisions in business management. The objective is to achieve the highest

results in production and business activities of the business. At the same time, this is the
process of checking and controlling financial activities, ensuring that all production and
business activities of enterprises achieve high results, in the right direction and in accordance
with the law.
2.2 Objectives of financial statement analysis
All economic activities of the business are in the interplay. Therefore, it is only possible to
analyze the financial statements of an enterprise to fully and deeply assess all economic
activities in their actual state. On that basis, summarize the level of accomplishment of the
objectives, expressed by the system of economic and financial indicators of enterprises. In
business conditions under the market mechanism with the macro regulation of the state,
enterprises are equal before the law in business. Every business has a lot of people interested
in their financial situation such as investors, lenders, suppliers, etc. Each of these subjects is
interested in the financial situation of the business on different angles. But in general,
businesses are interested in the ability to generate cash flow, profitability, solvency and
maximum profit. Therefore, analyzing the financial statements of an enterprise must achieve
the following objectives:

pg. 4


-

The analysis of the financial statements must provide sufficient useful information for
investors, creditors and other users so that they can make investment and credit
decisions and similar decisions. The information must be easily understood by those
who have a relatively good level of business and economic activities who wish to
research the information.
- Analyze financial statements to provide the most important information for business
owners, investors, creditors and other users. Because the cash flows of investors are
related to the cash flows of the business, the analysis process must provide

information to help them assess the amount, time and risk of expected net cash flows
of enterprise.
- The analysis of the financial statements must also provide information about economic
resources, equity, liabilities, results of processes, and situations that change the
sources of capital and liabilities of the enterprise. At the same time, it adds the
obligation of enterprises to these resources and the impacts of economic operations,
helping business owners accurately predict the future development process of
enterprises.
Thereby, analyzing corporate financial statements is the process of checking and comparing
data and comparing actual financial data of enterprises with the past for future direction. From
there, it is possible to fully assess the strengths and weaknesses in enterprise management and
take authentic measures to enhance economic activities. It is also an important basis for the
prediction and forecast of business production development trends of enterprises.
2.3 The meaning of financial statement analysis
Financial activities have a direct relationship with production and business activities.
Therefore, all production and business activities affect the finances of the business. On the
contrary, good or bad financial situation has a motivating or constraining effect on the
production and business process. Hence, analyzing financial statements is important for the
business owner and external entities related to the financial situation of the business.
For business executives: The financial research activities in an enterprise are called internal
financial analysis, different from external financial analysis conducted by non-business
analysts. Therefore, with full information and understanding of the business, financial
analysts in the business have many advantages to be able to best financial analysis. Therefore,
business managers must also pay attention to many different goals such as creating jobs for
workers, improving the quality of products and services, lowering the lowest cost and
protecting the environment. The business can only achieve this goal when it earns profits and

pg. 5

pays its debts. Therefore, more than anyone else, business managers need to have enough
information to implement financial balance, to assess the financial situation of the company to
conduct financial balance, profitability, ability payment, repayment, financial risks of the
business. Besides orienting the decisions of the board of finance, investment decisions,
funding, dividend income analysis.
For investors: Their concerns are primarily on their ability to payback, interest rates, solvency
and risk. That is why they need information about financial conditions, operations, business
results and potentials of the business. Investors are also interested in operating management
activities. These things create safety and efficiency for investors.
For lenders and suppliers for businesses: Their concern towards the ability to repay the
business. By analyzing the financial statements of businesses, they pay special attention to the
amount of money and assets that can be converted into cash quickly, thereby comparing and
knowing the instant solvency of the business.
For state agencies such as Tax, Finance and employees for enterprises: Through analysis of
financial statements will show the financial status of the business. On that basis, the exact
amount of tax that the company must pay is calculated, the finance agency and the governing
body will have more effective management measures. Besides business owners, investors and
workers, they have the same basic information needs as they are related to their rights and
responsibilities, to their current and future customers.
From the above implications, we see that financial statement analysis is important for all
administrators in a market economy that is closely related. It is a useful tool used to determine
economic value, evaluate strengths and financial weaknesses of enterprises. On that basis,
discovering objective and subjective causes helps each force administrator choose and make
decisions that are appropriate to the goals they care about. Therefore, analyzing financial
statements is an effective tool for business executives to achieve the best results and
efficiency.
2.4 Source of information used for financial statement analysis
Financial statements: Financial statements are the most comprehensive reports on the
situation of assets, equity and liabilities as well as the financial situation, business results,
cash flow situation and profitability of the period. enterprise. Financial statements provide

economic - financial information mainly for users of accounting information in evaluating,
analyzing and estimating financial situation and business performance of enterprises.
Financial statements are used as the main data source when analyzing corporate finance. In

pg. 6


the financial reporting system, the Balance Sheet and the report on business results are an
essential document in the enterprise information system.
Other sources of information: The existence, development and the recession process of
enterprises depend on many factors. There are internal and external factors; subjective and
objective factors. It depends on the criteria for classifying the influencing factors.
- Internal factors: Internal factors are factors of business organization such as
management level, industries, products, goods, services of business enterprises,
technological processes, labour capacity.
- External factors: External factors are objective factors such as socio-political regimes,
economic and technological growth, financial and monetary policies, tax policies, etc.
. In addition, it is not just limited to researching financial statements, but analysts need
to gather all the information related to the financial situation of the business. Examples
are general information about economy, currency, tax and State payables, information
about the economic sector of the enterprise, legal and economic information for the
enterprise.
However, not all the information gathered is quantified, but there are documents that cannot
be expressed in specific quantities. It is only expressed through a description of the economic
life of the business. Therefore, in order to obtain the necessary information for the financial
analysis process, the analyst must collect all relevant information relevant to the operation of
the business. The completeness represents a measure of the amount of information. Suitability
reflects the quality of information.
2.5 Methods in analyzing financial statements
In order to conduct an analysis of the financial statements of an enterprise, analysts often

combine the use of various professional and technical methods such as comparison method,
exclusion method, forecasting method, Dupont method, etc. Each method has different effects
and is used in each different content of analysis. However, the comparative method is a
widely used method, popular in economic analysis in general and financial statement in
particular. The purpose of the comparison is to clarify the differences or unique characteristics
of the study object. From there, it helps the interested subjects have a basis to make a decision
of choice. When using the comparative method, analysts need to pay attention to the
following:
+ Comparable conditions of criteria: Research targets to be compared must ensure consistency
in economic content, consistency in calculation methods, time and units of measurement.

pg. 7


+ Comparative origin: The selected comparative origin can be spatial or temporal, depending
on the purpose of analysis. In terms of space, one unit can be compared with another unit, one
department with another, one area with another. Spatial comparisons are often used when it is
necessary to determine the current position of an enterprise relative to competitors, compared
to industry averages, regional averages. It should be noted that, when comparing spatially, the
origin and analytical points can be exchanged without affecting the analysis conclusions. In
terms of time, the selected comparison bases are the previous periods (previous period,
previous year) or the plan and estimate. Specifically:
- When determining the trend and development speed of analytical criteria, the comparison
root is determined as the value of the analysis criteria in the previous period or a series of
previous periods (previous year). This time will compare the target value between the analysis
period with the target values in different base periods.
- When assessing the situation of implementing the objectives, tasks set out, the comparative
root is the planned value of the analytical criteria. At that time, conduct comparison between
the actual value and the planned value of the research target.
2.6 The analysis criteria of the financial statements of the business

2.6.1 Overall assessment of the capital mobilization situation of the enterprise
The fluctuation (increase or decrease) of the total capital at the end of the year compared to
the beginning of the year and compared with previous years is one of the criteria used to
evaluate the ability of organization and mobilization of capital in the year of the enterprise.
However, due to the increase or decrease of capital of an enterprise due to various reasons, the
fluctuation of the total capital source does not fully reflect the financial situation of the
enterprise. Therefore, when analyzing, it should be combined with the consideration of capital
structure and capital fluctuations to make appropriate comments. To analyze the trend of
capital growth, analysts use relative fixed number numerical comparison method to compare
the growth rate over time of total capital with a fixed base period.
2.6.2 Overall assessment of the level of financial independence of enterprises
The level of financial independence and autonomy of an enterprise reflects the enterprise's
right to make decisions about its financial and operating policies and its control. To generally
assess the financial independence of a business, analysts often use the following criteria:
- Sponsorship coefficient: is an indicator reflecting the financial self-sufficiency and the

level of financial independence of the enterprise. This indicator shows, in the total

pg. 8


-

-

capital of the enterprise, equity accounts for a small part. The larger the value of the
indicator, demonstrating the higher the ability of financial self-assurance, the greater
the level of financial independence of the enterprise and vice versa, the smaller the
value of the norm, the more likely the lower financial self-assurance of an enterprise,
the lower its financial independence.

The coefficient of self-financing of long-term assets (or the coefficient of equity on
long-term assets): is an indicator reflecting the ability to cover long-term assets with
equity. The value of this index is greater than 1, showing that the equity of the
enterprise is more capable of meeting or financing long-term assets. This will help
businesses secure themselves financially, contributing to financial security to
overcome difficulties.
Self-financing coefficient of fixed assets (equity ratio on fixed assets): is an indicator
reflecting the ability to meet the fixed assets (invested and invested) by equity. .
Because fixed assets are a part of long-term assets that mainly reflect the entire
material and technical facilities of the enterprise, it cannot be easily sold or liquidated,
so in the case of the value "Coefficient self-financing of fixed assets ”<1, any decision
on investment or sale related to that business must be canceled immediately if you do
not want to get bogged down or go bankrupt. Conversely, when this value is ≥ 1, the
equity of the enterprise is sufficient and sufficient to cover fixed assets. In that case,
the investors, creditors can make management decisions related to the business,
although the risks may be high, the business is still capable of escaping from
immediate difficulties.

2.6.3 General assessment of solvency
The situation or financial status of the business is clearly expressed through solvency. If an
enterprise has good and healthy financial status, proves that its operation is effective, it will
not only have enough but also be able to pay for it. On the contrary, if the enterprise is in a
bad financial situation, which proves that the business is inefficient, the enterprise does not
guarantee its solvency and its reputation is low. In fact, if the solvency of the business is not
guaranteed, it will surely face many difficulties in all activities, even the business will fall into
bankruptcy.
General solvency coefficient: is an indicator reflecting the general solvency of the enterprise
in the reporting period. This index indicates: with the total number of existing assets, whether
the enterprise is able to cover its payable debts or not. If the target value of "General solvency

pg. 9


coefficient" of an enterprise is always ≥ 1, the enterprise ensures its general solvency and vice
versa; This value is <1, the business does not guarantee the ability to cover debts. The smaller
the "General solvency coefficient" is, the less it is 1, the more the company becomes
insolvent.
Solvency ratio of short-term debt is an indicator showing whether the enterprise's ability to
meet short-term debts is high or low. Short-term liabilities are debts that enterprises must pay
within a year or a business cycle. If the value of this index is approximately 1, the enterprise
is capable of paying short-term debts and the financial situation is normal or positive.
Conversely, if the "Solvency ratio of short-term debt" is <1, the enterprise does not guarantee
to meet short-term debts. The smaller the value of this indicator, the lower the solvency of the
enterprise's short-term debt.
Quick solvency ratio: is the index used to assess the immediate solvency (immediate
payment) of short-term debts of enterprises in cash (cash, bank deposits, cash in transit) and
cash equivalents. Theoretically, when the value of the indicator "Quick solvency coefficient"
is greater than or equal to 1, the enterprise guarantees and redundantly solvency and vice
versa, when the value of the norm <1, The business does not guarantee fast solvency.
However, in fact, when the value of this index is greater than or equal to 2 new businesses
completely guarantee the ability to quickly pay short-term debt.
Instantaneous solvency coefficient (current solvency coefficient): This coefficient indicates
that, with the amount of cash and cash equivalents currently available, an enterprise is capable
of covering short-term debts, especially Short-term debt is due or not. Because of the nature
of money and cash equivalents, when determining instant solvency, analysts often compare
with debt with maturity of 3 months. Therefore, when the value of the norm "Instantaneous
solvency coefficient" ≥1, the enterprise guarantees and has an instantaneous surplus and vice
versa, when the value of the norm <1, the enterprise does not guarantee ensure timely
solvency. If the business does not guarantee immediate solvency, business executives will
have to immediately apply emergency financial measures to prevent the business from falling

into bankruptcy.
2.6.4 Overall assessment of profitability
The profitability of an enterprise is an indicator reflecting the level of profit that an enterprise
earns per unit of cost or input or per output unit reflecting production results. The higher the
profit that an enterprise earns per unit, the higher its profitability will lead to higher business

pg. 10


efficiency and vice versa, the smaller the profit earned per unit, the more profitable the lower,
the lower the business efficiency. Therefore, it can be said that the profitability of the business
is the highest and most concentrated expression of the business performance of the business.
Analysts can generally use the following criteria to assess the overall profitability of an
enterprise.
-

-

-

Return on equity (ROE): This indicator reflects most generally the efficiency of
capital use of the business. When considering ROE, managers know a unit of Equity
Investing in the business that brings some profit after tax units. The higher the ROE's
value, the higher the capital efficiency and vice versa.
Return on Sale (ROS): This indicator shows a unit of net revenue earned from
business brings some profit after tax units. The larger the value of this indicator, the
higher the profitability of net business revenue, the higher the business efficiency and
vice versa, the smaller the value of this criterion, the profitability of net business
revenue. The lower, the lower business efficiency.
Return on assets (ROA): The basic profitability of assets reflects the efficiency of

asset use in the enterprise, demonstrating the level of management and use of assets.
This indicator shows the average of a unit of assets used in the business process,
generating how much profit before tax. The higher the value of the target, the greater
the asset efficiency and vice versa.

pg. 11


Chapter 3. Financial situation of listed firms in the steel industry in Vietnam
3.1 Overview of formation and development of Vietnam’s steel industry
The steel industry is a key industry in the national economy, an input to many other
industries. Steel is considered an indispensable strategic material of many industries and
construction with a very important role in the cause of industrialization and modernization in
Vietnam. Vietnam's steel industry started in the 1960s when the Chinese-assisted Thai
Nguyen Iron and Steel Complex produced its first batch of iron in 1963. However, due to
difficulties and multifaceted war, Thai Nguyen Iron and Steel Complex had the first batch of
steel in 15 years later. In 1975, Gia Sang steel rolling factory, aided by Germany, went into
production. The designed capacity of the whole Thai Nguyen Iron and Steel Complex is up to
100,000 tons. In 1976, the country unified the ferrous metallurgy company established on the
basis of the mini steel mill factories of the old regime in Ho Chi Minh and Bien Hoa with a
capacity of about 80,000 tons of rolled steel per year.
From 1976 to 1989, the steel industry faced many difficulties due to the country's economic
difficulties and the source of steel from the Soviet Union and socialist countries was still
plentiful so it did not develop and maintained the output level of 40,000 - 85,000 tons/year.
In the period of 1990 - 2000, implementing the policy of new and open dumping of the Party
and the State, Vietnam's steel industry had many innovations with strong developments. After
the establishment of Vietnam Steel Corporation in 1990 and 4 joint ventures producing steel
in 1990 and 4 joint ventures producing steel in 1996 including Vinakyoei), Vinausteel, VPS
and Nasteel, the total steel production capacity of the whole country was over 1,000,000
tons/year. As of 2000, domestic steel production had met nearly 50% of domestic demand.

The period from 2000 to 2010, was the period that witnessed strong growth of the steel
industry. Demand for finished steel products in Vietnam during this period grew on average
9.1% per year. Supply of some domestic steel products increased rapidly and completely
replaced imported steel. According to the Vietnam Steel Association, domestic production of
finished steel products increased from 2.4 million tons to 7.8 million tons during this period.
Production of semi-finished steel (square billet) increased sharply by 20% during 2000 2010. However, in 2010, Vietnam still had to import 2.4 million tons of square billet, or 47%
of total demand. In addition, during this period, Vietnam is still a net importer of finished
steel products, especially flat steel, which cannot be produced domestically, accounting for an
average of 70% of total net imports.
The period from 2010 to the present, though suffering from the negative impacts of the
financial crisis and economic recession, enterprises in the steel industry still maintained the

pg. 12


average growth rate of 7-8%/year in the period of 2010 - 2018. Many large-capacity steel
projects and steel complexes came into operation, leading to an increase in capacity of the
whole industry from 10 million tons in 2010 to 13 million tons in 2015. Domestic steel plant
had met 100% of steel demand for most types of construction steel but still had to import
large quantities of raw steel and some types of steel such as hot rolled coils, alloy steels,
mechanical fabricated steel.
The number of businesses participating in business activities in the industry also increased in
number and size. In 2000, there were only about 20 factories (with a scale of over 50,000
tons/year). In 2018, the country had 40 steel manufacturers, namely Hoa Phat Group with a
capacity of 15 million tons/year, Thai Nguyen Iron and Steel JSC with a capacity of 600,000
tons/year. About 20 medium sized enterprises have a capacity of 120,000-300,000 tons/year.
The rest are steel factories with a capacity of 50,000-100,000 tons/year. In recent years, the
steel industry in our country has made progress. However, in the region and countries in the
world, our country's steel industry is a fledgling industry, accounting for 0.48% of the total
steel output in the world.

3.2 Business operation characteristics of listed steel enterprises
Economic - technical characteristics of the business industry is one of the important factors
affecting corporate financial management. Business operations of an enterprise are usually
conducted in one or a certain number of business lines. In particular, each business line has its
own economic and technical characteristics which greatly affect the financial organization of
the enterprise. Therefore, this is a factor to be considered in planning the financial structure of
the business. Listed steel enterprises have the following main business activities:
Firstly, the steel industry is a heavy industry, with a long production cycle, so the scale of
capital invested in steel enterprises is often large in scale, and the payback period is slow. The
steel industry requires a large amount of capital to form fixed assets such as factory
construction investment, production lines, and transport means. The construction period of the
combined production plants is often long, in the first stage, it is not possible to ensure
maximum operation of the capacity, so the payback period is quite slow. In addition, the
demand for working capital in steel enterprises is also high due to the high value of
inventories and receivables. Therefore, in order to ensure safety to avoid financial risks
causing losses for enterprises, the demand for long-term capital in steel enterprises is often
high, which must have a relative proportion of equity. Besides, businesses often have to
mobilize a part of long-term capital through debt.

pg. 13


Secondly, the level of business risk in steel enterprises is quite high. Because a large amount
of initial capital is required to invest in forming fixed assets necessary for the production,
business and long-term use in the future. The future often implies an uncertain idea.
Therefore, investing in fixed assets with large capital is always associated with risks, the
longer the investment period, the higher the investment risk. There are also factors such as
exchange rates, market interest rates fluctuating often making the input and output markets of
steel enterprises unstable.
The weakness of Vietnam's steel industry is that most of the manufacturing enterprises are

small-scale, production technology is only average compared to the world. Most businesses
only participate at the end of the value chain while the steel production process consists of
many stages. Therefore, the added value is low, leading to low revenue and profit. On the
other hand, these enterprises depend mainly on the source of semi-finished raw materials
which are steel billets imported to produce, so profit margins are largely influenced by
fluctuations in world prices. Only a number of large-scale enterprises, built into integrated
iron and steel complexes with a closed production line, exploit from upstream raw materials
such as Hoa Phat, Formosa Ha Tinh, Pomina and Dana-Italy steel having a great competitive
advantage due to effective management and cost reduction, thus expanding market share. The
majority of steel enterprises in Vietnam are concentrated in processing because of difficulties
in capital. Because a steel factory from producing ore to rolling steel requires a lot of
investment capital, the payback period is slow but to improve the competitiveness in the steel
industry is decided in the supply of cheap materials. Therefore, the focus on manufacturing
and processing steel in the downstream stage is one of the reasons for the added value created
in the production activities of steel enterprises in Vietnam.
Domestic steel industry has experienced high growth in recent years, but it is still a trade
deficit due to product imbalance. Vietnam's steel industry consists of two main sub-sectors,
long steel and flat steel. Long steels are steels manufactured from square billets used in
construction. Flat steel is a type of steel made from flats, including hot rolled steel, cold rolled
steel, steel pipes, metal-plated corrugated iron and color coating. The current production
capacity of the steel industry is capable of meeting 100%, even double the domestic demand
for steel billet, construction steel and cold rolled steel (about 7-8 million tons / year).
However, for products such as cold rolled steel sheets, cold rolled sheets, hot rolled sheets,
alloy steel, which are lacking, domestic enterprises have not been able to produce them and
are completely dependent on imports. These categories are essential inputs for many

pg. 14


manufacturing industries such as shipbuilding, mechanics and manufacturing, which create

great demand (about 10 million tons/year).
The serious imbalance in the product structure of the steel industry has a significant impact on
the performance and competitiveness of businesses. The characteristics of the steel industry
are that the cost of raw materials contributes a large proportion of the total cost of goods sold,
while the supply of scrap steel and iron ore sources in the country is very limited. This leads
to significant risks of fluctuating input prices such as exchange rates due to the need to import
iron ore, billet, scrap steel, and coking coal to put into the manufacturing process of steel,
finished products are indispensable. When the exchange rate fluctuations will also make
businesses less proactive, causing certain effects on the performance of enterprises. The
Vietnamese steel industry in general and the northern steel producers in particular are facing
great competition. It is not only competitive within the industry but also pressure from cheap
steel imports from China. Moreover, a series of steel complex projects are under construction
and will be built, creating more supply for the domestic market, which is already redundant
for some items. This competition requires steel enterprises to lower production costs, save
costs, reduce product costs. However, steel enterprises in Vietnam today production
technology is still backward leading to the consumption of raw materials, electricity and labor
in the process of steel production. According to VSA statistics, more than two-thirds of
domestic steel producers use medium and outdated technology. This results in low product
quality, high level of material and power consumption in production. Another cause of the
low cost and cost savings of steel enterprises is the lack of capital. Cheap steel production
requires a huge amount of capital investment in the production line, resulting in high fixed
costs, which requires businesses in the industry to lower costs and have to gain a large market
share. The fact is that the greater the consumption, the smaller the fixed cost per ton of steel.
Therefore, large-scale steel enterprises such as Pomina Steel, Hoa Phat Steel and Thai
Nguyen Steel always have lower prices than competitors. Small businesses often incur high
costs per ton of finished steel, so lowering prices is difficult.
Excessive steel production costs directly affect profits in steel enterprises. Low and unstable
profits make the ability to finance capital from retained profits limited. This is the reason why
steel enterprises depend on loans. Currently, the steel industry is facing major challenges
when the price of input factors continues to increase such as raw material prices and exchange

rates. Enterprises in the steel industry are also subject to fierce competition with giant steel
producers in the world when Vietnam joins the Free Trade Agreements. Moreover, in the
context of the economy has not fully recovered after the crisis and economic recession, steel

pg. 15


enterprises have not escaped from the difficult period. Many businesses have to downsize
their operations even on the brink of insolvency. These challenges require steel enterprises to
re-evaluate their business operations and financial situation in order to have appropriate
restructuring solutions to help businesses overcome the crisis and operate effectively.
3.3 Overview of the financial situation of listed steel enterprises
According to VSA statistics, as of 2015, our country has about 400 enterprises involved in
steel production and steel industry. However, in addition to 103 large-scale steel enterprises
of VSA, the remaining enterprises are quite small - mostly private companies, steel rolling
establishments of craft villages operating in the domestic sector. industrial and steel business.
According to the criteria of business capital scale, enterprises in the sample can be divided
into three groups: group of large-scale enterprises with an average total assets of over VND
5,000 billion (accounting for 27%); group of medium-sized enterprises with total assets from
1,000-5,000 billion VND (accounting for 40%); group of small businesses with average total
assets below 1,000 billion VND (accounting for 33%).
3.3.1 Scale of business capital
The size of business capital is an indicator reflecting the production capacity as well as
financial capacity of enterprises. This is one of the important factors that have a direct impact
on the financial structure and business performance of businesses. The business capital size of
enterprises in the research sample tends to increase with an average annual growth rate of 8%
during the period from 2010 to 2015. In the period of 2010-2011, enterprises achieved The
growth of total assets next year compared to the previous year was very high. The growth rate
of total assets tended to decrease and decreased sharply in 2015 with the growth rate of the
following year compared to the previous year of 2%.

The statistics show that enterprises have a growth rate of total assets next year compared to
the previous year of 19% in 2011 and the following years decreased to 7% in 2012 and 9% in
2013 and sharply decreased to 2 % in 2015. With the growth of 2011 mainly due to
businesses taking advantage of favorable market conditions, preferential credit policies of the
government to make expansion investment. Most of the businesses with strong growth in total
assets are: Dana-Italy Steel Joint Stock Company with total asset growth of 102%, other
companies such as Hoa Phat Group JSC, Group Joint Stock Company Tien Len Steel, Thai
Nguyen Iron and Steel JSC, Bien Hoa Steel Joint Stock Company grew total assets by 20 50%. In the period of 2012-2015 with the general trend of the global steel industry, Vietnam's
steel industry did not stand outside the stormy and hard times. Intense competition from cheap

pg. 16


imported goods together with oversupply is the industry's most difficult problem. Steel
manufacturers continue to witness a faster increase in demand and a utilization rate of less
than 80%. Especially, by 2013, most businesses have narrowed down or maintained their
production scale in moderation but due to a number of steel plant investment projects being
put into operation, the total assets in 2013 are still low. increase compared to 2012. However,
in 2015 Vietnam's economy has prospered, GDP growth reached the highest level in the last 5
years. While the world steel market continues to be quiet, volatile and shows no signs of
recovery, Vietnam's steel market is still facing increasing competition pressure, especially
when Chinese steel spills in. Vietnam, sold cheaply. That Vietnam steel enterprises are mainly
small-scale, technological capacity, financial backward ... leading to limited competitiveness
of products. Therefore, all domestic steel enterprises have implemented solutions to save
production costs, reduce costs and improve competitiveness, so the growth rate of total assets
next year compared to the previous year fell sharply to 2. %. Although the average size of
business capital in enterprises has increased, the sustainability is not high. This is because
businesses primarily exploit loans to meet growth targets, not internal capital. The other
reason is that during the period of strong growth of the steel industry, seizing the opportunity
to earn high profits in the short term, businesses all massively invested in steel refining and

rolling factories with outdated technology. That unbalanced development may be the main
reason making businesses face many difficulties and complicated issues when the economy
falls into recession. Many impatient investment projects in the past have been faced with a
series of backward technology issues, poor efficiency, high financial costs, potential risks and
dangers. pass.
3.3.2 Property structure
The structure of assets reflects the level of investment in the assets of the enterprise, and
shows the proportional relationship between each asset division and total assets. Asset
structure of the business depends mainly on the characteristics of the business line as well as
the business strategy of each enterprise. The investment structure of steel enterprises' assets is
relatively stable and not too large. The proportion of long-term assets investment in total
assets tends to increase in the period from 2010-2013 from 34.3% to 54.1% of the increase in
investment in long-term assets, most of which is the property.
3.3.3 Solvency
Solvency indicates the ability to pay the due debts of the business. The higher the solvency of
an enterprise, the more likely it is that the financial capacity of the company is better and the

pg. 17


more it is able to access to loans, the top concern of the business is its viability. A business
can exist only if it meets its critical payment obligations. The solvency of steel enterprises is
expressed through current solvency criteria, quick solvency and instant solvency. Given the
current solvency ratio, which reflects the ability to convert assets into cash to cover short-term
debts, this coefficient also shows the level of assurance to pay short-term debts of the
enterprise. The quick ratio is a stricter assessment than current solvency ratio, which indicates
the ability to pay short-term debts of businesses without urgent liquidation of inventory.
Particularly, the ratio of instant solvency is a particularly useful factor to assess the solvency
of an enterprise in a period when the economy faces many difficulties when inventories
cannot be consumed and many accounts are required. Collection has difficulty recovering.

Solvency of listed steel enterprises is relatively stable. With the average instant solvency of
the listed steel enterprises in the sample, it is greater than 1, proving that the enterprises have
used the capital in accordance with the principle of financial balance, there is a relative
stability. in the business activities of the business. The quick solvency and instant solvency of
businesses are very low due to the fact that the steel industry has a high proportion of
inventory and receivable debt on total current assets. The proportion of inventories and
accounts receivable on average short-term total assets of enterprises in the research sample
was approximately 80% in the period of 2010-2015 and the increasing trend was the main
reason for the coefficient of quick solvency and instant solvency tend to decrease.
In the period 2010-2011, net sales increased rapidly due to the following reasons: thanks to
the economic recovery and the government's stimulus measures in 2009, the value of
construction industry output increased. followed by an increase in consumption of steel and
other steel products; the steel industry was very successful when the export reached a record
level with 1.3 million tons of steel of all kinds, earning about US $ 1.3 billion, up 162.92% in
volume and 174.18% in value; The total steel capacity increased due to a number of new
projects being put into operation.
In the period of 2011-2012, net revenue decreased due to the Government's use of monetary
tightening policy to curb inflation, cut public investment as real estate, the main source of
consumption of steel industry fell into sedation. Leading to a sharp decrease in steel
consumption, making steel inventories at the highest level as of 2012 to be more than 800,000
thousand tons; Too much investment in construction projects of steel-making enterprises
makes supply exceed demand; exchange rate changes ... In 2013, net sales of steel industry
showed signs of slight increase despite difficulties, but in 2014 and 2015, the growth rate of
net sales increased strongly due to the impact of steel prices. gender and steel prices have

pg. 18


decreased, so steel prices in the industry decreased, steel enterprises increased discounts to
agents contributing to stimulate steel consumption; The State has issued many policies such

as ATIGA special preferential tax rates, tightened steel imports from China, reviewed antidumping taxes on stainless steels originating from China, Indonesia, Malaysia and Taiwan;
increase public investment in infrastructure; Loan interest is under control. Revenue increased
rapidly but profit growth rate was very low and the difference between revenue and profit
indicators showed that steel enterprises have tried to sell products but production costs. It is
still very large, affecting the profitability of businesses.
Big costs come from causes such as:
- The production cost of steel enterprises is very large, but mainly the cost of raw materials
and electricity due to the fact that enterprises use old technology and low labor productivity.
- Domestic enterprises often focus on steel rolling, so they must use imported billet and scrap
steel from abroad. But the high prices of raw materials and frequent fluctuations make
businesses costly and inactive in production.
- Steel enterprises mainly use loans for production and business activities, so the profit is
affected by interest. When interest rates are low, businesses are quite active and when interest
rates are high, profits are reduced.
- In addition, it is impossible not to mention the level of weak cost management, poor
competitiveness, and not being proactive in output. In the period of 2010-2013, profits
dropped sharply due to difficulties in the steel industry. Some companies have big losses such
as: 2014-2015 period due to the government's many supportive policies, improved
macroeconomic situation.
Hoa Phat Group Joint Stock Company (in 2012 accounted for 68.92%, in 2013 accounted for
99.36%, in 2014 accounted for 77.39%, in 2015 accounted for 79.92%), Hoa Sen Group Joint
Stock Company (in 2012 accounted for 33.05%, in 2013 accounting for 15.66%, in 2014
accounted for 17.08%, in 2015 accounted for 15.57%) accounted for a large proportion even
in the period of 2012-2013 small businesses suffered continuous losses, these companies still
gained large profits. Because these companies have strong financial resources, their
competitiveness is high. As for small companies, there are many financial difficulties, poor
competitiveness, and great pressure to compete with domestic and foreign enterprises.
Typically, Tang Len Steel Group Joint Stock Company lost 154370 million dong in 2015;
Vietnam Italy Steel Joint Stock Company in 2012 lost VND 24197 million, in 2013 lost VND
26458 million, in 2015 lost VND 45108 million, ...

pg. 19


3.3.4 Profitability ratio
We see that the profitability of steel enterprises tends to decrease sharply in the research
period. Through the chart data above, the indicators ROS, ROA, BEP, ROE decreased sharply
in the period of 2010-2013: only ROE decreased from 18.68% to -0.94%, ROA decreased
from 7.39% to 0.13%, ROS decreased from 5.25% to 0.71%, BEP decreased from 1.05% to
3.15%. In which, ROE decreased the fastest, while BEP index decreased the slowest. Starting
to increase again in the period of 2013 - 2015: ROE increased from -0.94% to 8.41%, ROA
increased from 0.13 to 3.76%, ROS increased from 0.71% to 1.68%, BEP increased from
3.15% to 7.64%. In which, ROE increased the fastest, ROS increased the slowest. Thus, it can
be seen that the performance of steel enterprises is unstable, highly dependent on external
factors, unable to take initiative in output markets, outdated production technology, and poor
management. . This makes it difficult for businesses to finance themselves. Besides, low and
declining profitability makes it difficult for businesses to access loans, making businesses
more and more difficult.
Debt structure by time of debt usage
The steel industry is a heavy industry, so the capital demand is high, but due to the limited
financial potential, the use of debt to finance capital is essential and popular for businesses.
industry in the steel industry. Such liabilities may be due to bank loans, commercial credit
debts, or corporate debt instruments issued on domestic and foreign financial markets. In the
period 2010-2015, the size of liabilities tended to increase and is shown by the general data.
The above table shows that from the period 2010-2014, the scale of liabilities of enterprises in
the sample increased rapidly from VND 1,750 billion to VND 2,900 billion, corresponding to
an increase of 65.7% and year to year. 2015 and showing signs of mitigation. In terms of
liabilities structure, it is possible to recognize that the ratio of short-term debt to total average
debt of regular businesses is high, respectively from 75% to 80% in the period of 2010-2015,
and at the same time The ratio of long-term debt maintained at 20-25%. Regarding the

fluctuation trend, although the proportion of short-term debt tended to decrease leading to
long-term debt, the scale of long-term capital was too small, so the level of solvency and debt
repayment pressure in short term is still high for businesses. The ratio of short-term debt to
total debt of listed steel enterprises in the sample shows that 60% of enterprises have a high
proportion of short-term debt at over 90%. 20% of enterprises have short-term debt ratio of
80-90%. The remaining 20% of enterprises have short-term debt ratio below 80%. Large
enterprises such as Hoa Phat, Hoa Sen, Pomina maintain this ratio in the range of 80-85% of

pg. 20


total debt, but this proportion is still quite high. Small businesses like Thu Duc Steel JSC and
Bien Hoa JSC also have short-term debt to total debt ratio of 100% in some years.
The use of long-term debt to finance high-level projects and assets provides financial security
for businesses, especially large-scale enterprises, to invest in fixed assets. At a high level. In
contrast, the use of short-term debt to a large extent reflects the unstable financial potential,
there is no strategy in the financing policy to attract stable capital sources for the purpose of
sustainable growth. On the other hand, it also increases risks for businesses, especially those
using short-term debt to invest in forming long-term assets, violating the principle of financial
balance, leading to the risk of insolvency. math. In addition, businesses may be exposed to
disadvantages due to fluctuations in loan interest rates and inflation, causing the increase in
capital use costs, which directly affects the efficiency of production and business activities.
3.3.5 Equity structure of steel enterprises
According to statistics, only 4/15 enterprises have large equity size (over 1,000 billion VND);
Most enterprises have the equity size from VND 100 billion to VND 1,000 billion
(accounting for about 66.7%); the rest are enterprises whose equity is less than VND 100
billion. In addition, the size of equity is quite similar to the business size of the business.
Specifically, businesses with large-scale business capital often have higher equity size,
typically the four leading businesses in the steel industry are Hoa Phat Group JSC, Pomina
Steel JSC, Hoa Sen Group JSC and Thai Nguyen Iron and Steel Joint Stock Company.

pg. 21


Chapter 4. Financial solutions for industry businesses steel listed in Vietnam
4.1 Socio-economic context, prospects and orientation of the steel industry
The world economy is showing signs of recovery in 2015 and 2016, but the world economic
prospect still has many potential risks and is difficult to predict. The US economy is showing
signs of recovery with a number of positive signs such as employment, growth exceeding the
2% threshold but not sustainable. India's economy has grown well, but is gradually entering
the path of China's "factory". China's economy is slowing down its growth rate, Europe is in
debt crisis. Persistent worries are associated with slower growth in China. According to the
UN experts, although the US economic outlook is better, there is a good chance that the
appreciation of the US dollar will cause losses to exporters in 2016 and the price of Chinese
oil will reduce global investment in the field. energy. In 2016, emerging economies will have
a slight improvement, may grow 3.5% and the situation will tend to get better, reaching an
average growth of 4% in the period 2016 - 2020, before turning down to 3.6% in the period
2021 - 2025. Most recently, on 23/12/2016, the Organization for Economic Co-operation and
Development (OECD) announced lowering its growth forecast. World GDP in 2016 from the
previous forecast of 3.6% to 3.3% and excluding some areas that may fall into deflation. The
industrial sector will be negatively affected by the strong dollar, trade will probably be greatly
damaged by US goods becoming expensive on the world market. Six years after the US
economy began to recover, the first signs of a slowdown appeared, such as declining
industrial production or profits businesses fall.
Besides, other global issues have also caused many negative impacts on the world economic
situation. It is climate change, conflicts broke out, increasing the defense costs of many
countries. The world's population aging problem is complicated in developed countries and
the trend of uncontrolled population growth of many developing countries. The problem of
natural resources is exhausting ... The domestic economic context with the gross domestic
product (GDP) in 2016 is estimated to increase by 6.21% compared to 2015. This year's

growth rate, though lower than the increase of 6 , 68% of 2015 and did not meet the 6.7%
growth target set, but in the context of unfavorable world economy, falling global prices and
trade, domestic difficulties due to weather, complicated marine environment, achieving such
growth is a success, confirming the correctness, timeliness and effectiveness of the measures
and solutions promulgated and drastically directed by the Government at all levels. branches
and localities jointly implement. In the industry and construction sector, the industry
increased by 7.06% over the previous year, of which the processing and manufacturing

pg. 22