ANALYSIS OF FINANCIAL RATIOS IN BASIC LEVEL OF BANK CREDIT

ANALYSIS OF FINANCIAL RATIOS IN BASIC LEVEL OF BANK CREDIT
I / REASON FOR CHOOSING THE TOPIC
Credit is one of the basic activities, the most important in the operation of
commercial banks. This activity brought profits high proportion of the income of the
Bank. However, credit is also very much latent business risks. The risk of credit
granting activities stem from many factors both objective and subjective, come from
customers as well as from the Bank itself. Thus, the Bank needs to implement
synchronous measures to manage credit risk, contribute to improving operational
efficiency. The solution should be implementing drastic and strict and serious
approach from the stage of the customer, customer analysis, the proposed loan, after
loan control and supervise debt collection.
Analyze customer needs assessment, review of many factors. One important
factor here is the financial situation as well as financial indicators during the operation
of the Customer. However, for each business lines of customers will have different
characteristics lead to financial indicators have certain characteristics. Therefore, in
addition to analyzing and assessing the financial situation, the basic financial
indicators of each customer, it is necessary to consider comparisons with peers or
similar occupations in fields initiative to have an objective view and more
comprehensive.
Within the framework of this course exercises, the author will consider analysis
of basic financial indicators of Hai Ha Limited Company, associated with the
comparison of operating unit same lines as Vietnam petroleum Corporation.
II / ANALYSIS OF FINANCIAL INDICATORS IN CREDIT TO HAI HA
LIMITED COMPANY.
Hai Ha Limited Company was established on 09.08.2015 with equity sources
initially modest level of 3 billion, focused primarily active in the field of land
transport activities, Water Transportation. However, so far the company's scale has
been expanded, sources equity increased rapidly and reached 295 billion VND in
31/12/2014. Activities of the company is constantly expanding in both size, field of

activity. Business operations of the Company primarily in current time: oil trading,
petroleum transportation
Within the scope of this article, the authors review the basic financial indicators
(liquidity indicator, rotation indicator, performance indicators and targets capital
structure) of Hai Ha Limited Company download a body of the Bank associated with
the comparison of the above criteria with Petrolimex. Hai Ha Limited Company and
Petrolimex have field operations business mainly petroleum, petroleum transportation.
However, Petrolimex has a larger scale of operations Co. Haiha lot (about 13 times).
Petrolimex has field operations more diverse, besides petroleum business, the Group
consists of numerous subsidiaries, associated companies and joint ventures and other
equity units with diverse activities including construction activities, real estate,
banking, insurance ... However, operations of the Group mainly focused centers
around the spindle is oil trading activities. Besides, in the financial account of the
Group were approved by the Ministry of Finance under the Official Letter No. 956 /
BTC-CDKT 18/01/2007. But basically, accounting and financial regime still comply
with the current text of cost accounting of Vietnam Accounting Standards. Therefore,
the author will consider analytical evaluation of financial indicators of the Company
Hai Ha tied to the comparison with Petrolimex in this essay.
The basis for analysis include: financial statements audited fiscal 2014, the
spreadsheet of financial ratios, the annual report and the actual operational status of
the unit is assessed. (The financial statements have been audited by the Company in
2014 and Petrolimex Hai Ha are shown in the Annex to this essay)
2.1. ANALYSIS LIQUIDITY RATIOS
Current ratio
HAI HA COM
PETROLIME
X

2013
1.05

2014
1.06

1.00

0.97

Quick ratio (Acid
Test)
2013
2014
0.22
0.47
0.43

0.54

Cash ratio
2013
0.11

2014
0.41

0.21

0.33

The ratio of the Company Hai Ha tended to increase over the years analyzed,
reflecting the liquidity of the company improved in recent years. The reason stems
from the increased speed increased short-term assets (117.79%) in 2014 faster than the
rate of increase of current liabilities (116.59%).
Current ratio
Current ratio of the company Hai Ha are greater than 1, in particular: 1.05 in
(i)

2013, 2014 was 1.06. It can be seen, the solvency of the Company in the short term is
guaranteed.
Similarly, liquidity in short of Petrolimex's guaranteed: 2013 1.00, 2014 ratio
was 0.97.
Thus, the current ratio of the company Hai Ha is guaranteed but not improved
significantly from 2014 compared with 2013. However, the current ratio of the
company in 2014 Shanghai Ha better than the corresponding coefficient of
Petrolimex. Due primarily business quite similar to the structure of current assets of 2
units have certain similarities: The value of inventories relatively large proportion of
short-term asset value, besides , trade receivables item has a relatively large value
The value of inventories accounted for a large proportion of short-term asset
structure, so in addition to assessing the liquidity of the two units via the current ratio
is necessary to evaluate the quick liquidity ratio to reflect more accurately the
solvency of debts due in the short term.
(ii)
Quick ratio (Acid Test)
Although the current ratio of the company Hai Ha better than Petrolimex,
finished the quick ratio of Petrolimex in 2013 and 2014 two better than the Hai Ha.
Thus, we can see the proportion of items such as inventories, short-term assets of
the Company Hai Ha larger than Petrolimex. However, the quick ratio of the company
Hai Ha has improved in 2014 compared with 2013: ratio increased from 0.22 in 2013
to 0.47 in 2014.

Through the quick ratio, can be seen both 2 units consider analysts maintain a
short-term assets with high liquidity (cash, short-term financial investments, customer
receivables) at less than 50% of total short-term assets. This may be regarded as
specific operation of petroleum business in Vietnam, it is necessary to maintain a
sizable amount of inventories.
(iii)

Cash ratio


Cash ratio is the ratio reflects the solvency of the Company immediately. Cash
ratio = (Cash + Short-term financial investments) / Current Liabilities. Cash ratio over
the years of the company Hai Ha respectively: 2013: 0.11, 2014: 0.41. Petrolimex
Score: 2013: 0.21, 2014: 0.33. Through the coefficient on, we can see the two units
are to maintain an amount of cash, payment deposit, term deposits at banks and shortterm investment securities with similar density.
2.2. ANALYSIS OF OPERATING HIGHLIGHTS ROTATION

HAI HA COM
PETROLIME
X

Average collection
period
2013
2014
20.42
9.34
14.66

13.25

Inventory turnover
2013
2.54

2014
5.39

12.28

19.74

Days sales in
inventory
2013
2014
144
68
30

18

Average collection period
In 2013, Company management Haiha relatively good receivables, accounts
(i)

receivable turnover in 2013 reached round 20.42. Thus, the average customer
receivables are recovered on average within 18 days. Turnover ratio of receivables in
fiscal year 2013 the Company's Hai Ha better than Petrolimex (this index was 14.66)
However, in fiscal 2014 accounts receivable turnover of both units are on a

downward trend. While Petrolimex has slightly decreased, the index of Hai Ha
company declined sharply from 20.42 to 9.34. The reason stems from specific
business lines, the specific characteristics of businesses and business relationships.
Petrolimex has a thickness of several years of operation and generate an output market
is relatively stable, the company Hai Ha again are in the process of developing
additional markets for their products. The company must always maintain a level of
trust business includes hundreds of customer related transactions including large
customers such as Vinh Phuc Company (the balance was 4,307 million VND
Receivables) , Hai Duong petroleum Company (20.746 million VND), in Ngoc Mai
(32.155 million VND) ... This is the level of accounts receivable as per the business is
in the early stages of the development of business networks. Most customers are
trading steady relationships, often with company Haiha so although accounts
receivable turnover show signs of decline in 2014, still can assert control enterprises
this accounts receivable.


(ii)

Inventory turnover and Days sales in inventory

Due to the nature of the oil and gas business activities should Company
Petrolimex Hai Ha and maintain a sizable inventory review in relation to the scale of
operations of each unit.
The table above can be seen the rotation of inventories, reflected by 2 index is
the inventory turnover and the average number of days of inventory turnover of
Petrolimex better than the company Hai Ha. Specifically, the only inventory turnover:
Petrolimex (2013: 12.28 Round, 2014: 19.74 round), the Company Hai Ha (2013: 2.54
round, 2014: 5.39 round); on the "number of days per cycle inventory": Petrolimex
(2013: 30 days, 2014: 18 days), the company Hai Ha (2013: 144 days, 2014: 68 days).
However, Petrolimex is the perennial activity for the day, has a rich experience

and traditional petroleum business, extensive distribution network across the country
to work with the inventory index above is understandable. Particularly for companies
Hai Ha, although system inventory turnover or the average number of days of
inventory turnover is limited compared to Petrolimex, but the company itself has also
enhanced inventory management capabilities warehouses over the years. In 2013, the
inventory cycle is 2:54 Within the year 2014, the turnover has been increased is 5:39
laps. As a result, only the "number of days per cycle inventory" has been reduced
from 144 days to 68 days
Thus, we can see though to maintain inventory levels while sizable new market
entry, limited capital resources, the current retail price of petroleum complex, but over
the years, the company Shanghai Ha was actively seeking partners to consumption,
expanding both in width and depth, has contributed actively to improve the
performance indicators for managing the Company's inventory
2.3. ANALYSIS INDICATORS PERFORMANCE FEEDBACK
HAI HA COM
31/12/2013

PETROLIMEX

31/12/2014

31/12/2013

31/12/2014

Return on assets

1.4%

0.1%

2.7%

0.0%

Return on equity

10.5%

1.7%

10.1%

-0.1%

4.0%

1.4%

4.0%

3.3%

Gross margin


Operating margin

1.2%

0.0%

0.6%

-0.3%

Net Profit margin

0.9%

0.1%

0.8%

0.0%

1.44

1.93

3.50

3.83

7.74

17.83

11.94

12.66

Total asset
turnover
Fixed assets
turnover

Hai Ha and Petrolimex company operating in the field of business is petroleum
operations. With different scale of operation, but can see the indicators reflecting
operating efficiency similar
For indicators Return on assets, in 2013 the Company Hai Ha lower than
Petrolimex, but by 2014, this indicator of the company Hai Ha has preeminence.
However, some indicators of Hai Ha company still lower than Petrolimex as: Gross
margin, asset turnover Total ....
However, through panel indicators of performance, can easily see the two units
are impaired on business performance in 2014 compared to 2013. For the Company
Hai Ha and Petrolimex, 2014 are the expansion of business activity, reflected by the
increase in revenue from sales operations and service delivery as well as the total
value of assets. Particularly for companies Hai Ha, 2014, revenues increased from
3.220 billion to 8.519 billion, an increase of approximately 2.65 times; total assets
increased from 2238 billion to 4414 billion, an increase of approximately 1.97 times
Causes of the deterioration of the performance indicators comes from: Revenue
increased, however, with the growth rate that is việ corresponding increase costs,
especially the cost of financial and business management costs caused profit after tax
of the company Hai Ha is not as high as expected. In addition, developments on the
world oil market in the country over time and not really favorable made profits of the
Company did not perform as expected. However, when comparing the indicators on
the unit experienced senior operations and large scale as Petrolimex, visible indicators
of the profitability of the company reached an average level compared with other
enterprises operating in the same trades.

2.4. ANALYSIS OF DEBT INDICATORS


Some indicators of liabilities of the two units is expressed through the following
summary:
HAI HA COM
31/12/2013 31/12/2014
Debt ratio
Times interest earned income (interest coverage)

87.1%

93.3%

72.8%

74.6%

1.45

1.07

2.99

1.15

62

3,821

23.76

27.35

1.406

3.276

1.189

1.085

Times interest earned - cash
flow (interest coverage)
Gearing

PETROLIMEX
31/12/201
3
31/12/2014

Hai Ha and Petrolimex Company is maintaining a capital structure with a debt
ratio at a high level and tends to increase. The use of leverage loan financing of
business activities, but also entails certain risks on the liquidity of the business.
The Company's debt ratio Haiha higher than Petrolimex. This is also a factor to
consider for the decision of credit increase to the Company Hai Ha. Debt ratio was
87.1% in 2013, in 2014 continued to grow at 93.3% - a high level. Therefore, the
continuation of additional equity sources are essential to ensure safe operations and
enhance liquidity for twos
For coefficient Times Earned interest - income (interest coverage) reflects

earnings before interest and taxes / interest expenses of 2 units have similarities,
reflecting operational efficiency as well as the use of tools financial leverage is quite
effective in financial years 2013 and 2014
III / CONCLUSIONS AND RECOMMENDATIONS
To consider an assessment of a customer to provide credit decision should
perform on a variety of factors. General financial analysis and analysis of financial
indicators in particular contributed a major part in the customer analysis
For the financial indicators of the Company Hai Ha as analyzed above, we can
see, the basic financial indicators of the Company relative gain in the average of the


petroleum business. However, with certain specific characteristics of the Company
should take the index to a poor level better than its peers in industries as some
indicators about inventory management, debt indicators, .... However, when
considered from the perspective of financial indicators, we can see the company has
the financial situation is relatively stable, reflecting operational efficiency in recent
years. This is also a plus factor to form a judgment granting credit for this enterprise.