INTERNATIONAL BUSINESS MANAGEMENT ANALYSIS AND EVALUATION ON EFFECTS OF “BAC KAN SOFT IRON PRODUCTION FACTORY” PROJECT

Paris Graduate School of Management

Thai nguyen University

INTERNATIONAL EXECUTIVE
MASTER OF BUSINESS ADMINISTRATION PROGRAM

THESIS TITLE:

INTERNATIONAL BUSINESS MANAGEMENT ANALYSIS
AND EVALUATION ON EFFECTS OF “BAC KAN SOFT
IRON PRODUCTION FACTORY” PROJECT

Student’s name:

DANG HUU KY

Intake I

November, 2012


GRADUATION THESIS

ACKNOWLEDGEMENT
To complete this thesis, I would like to send my honest thanks to:
- Associate Professor. Dr. Tran Van Binh, Institute of Economic management –
Hanoi University of Science and Technology spent a lot of time and guided me by
whole hearted during the process of thesis research.
- Respectfully thanks to Teachers of Paris Management University, Thai Nguyen
University as well as Vietstar training Joint stock company for organizing courses

and directly training, communicate your precious and practical knowledge in twelve
subjects of the course
- Sincerely thanks to the management board of Material and complete equipment
Export and import corporation (MATEXIM) for their best supports and providing
related information in the process of thesis research and complement
- Heartfelt thanks to members in the class IeMBA.b01 who are always willing to
exchange and offer suggestions as well as help me in the studying course and
completing this thesis
Respectfully thanks

Student

Dang Huu Ky

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TABLE OF CONTENT
INTRODUCTION...................................................................................................1
1. Name of thesis: Analysis and evaluation on effects of “Bac Kan soft iron
production factory” project ..................................................................................2
2. Reason of choosing this thesis:.........................................................................2
3. Targets of the research .....................................................................................3
4. The method of research ....................................................................................3
5. Database for research .......................................................................................3
6. Structure of the thesis: the thesis includes 03 chapters and the introduction as
follows:................................................................................................................4
Conclusion and suggestions: ................................................................................4

1.2. Contents of the project feasibility study ........................................................5
1.2.1. Feasibility Study: ...........................................................................................5
1.2.2. Nature and purpose of feasibility study ..........................................................5
1.2.3. Major contents of feasibility study .................................................................6
1.3. Financial-economic analysis for investment projects .....................................8
1.3.1. Determination of investment capital...............................................................8
1.3.2. Expectation of revenues and project costs ................................................11
1.3.3. Determination of profit, loss, and cash flow of project .................................12
1.4. Sensitivity analysis......................................................................................26
CHAPTER II.........................................................................................................28
INTRODUCTION OF CONSTRUCTION INVESTMENT PROJECT “BAC KAN
SPONGE IRON FACTORY”................................................................................28
2.1. About the Investor.......................................................................................28
2.1.1. Overview of Material and Complete Equipment Export-Import Corporation
“Matexim” .........................................................................................................28
2.1.2. Functional Task, activity areas. ....................................................................29
2.1.3. The organizational management structure ....................................................29
2.1.4. Production and business characteristics of the company...............................31
2.2. Introduction of Construction Investment Project “Bac Kan Sponge Iron
Factory” .............................................................................................................34
2.2.1. The necessity of investment .........................................................................34
2.2.2. Investment purposes: ...................................................................................41
2.2.3. Research of project market...........................................................................41
2.2.4. Capacity and product ...................................................................................45
2.2.5. Technology..................................................................................................46

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2.2.6. Plan and place of factory..............................................................................48
2.2.7. Labor organization.......................................................................................50
2.2.8. Total investment capital ...............................................................................53
CHAPTER III........................................................................................................57
ECONOMIC AND FINANCIAL BENEFIT ANALYSIS OF INVESTMENT
PROJECT OF BAC KAN SPONGE IRON FACTORY ........................................57
3.1. Total capital: ...............................................................................................57
3.2. Source of capital: ........................................................................................57
3.3. Production plan: ..........................................................................................57
3.3.1. Capacity and output .....................................................................................57
3.3.2. Demand for material ....................................................................................57
3.4. Production cost ...........................................................................................60
3.5. Estimated project revenue ...........................................................................62
3.6. Interest and loan payment plan ....................................................................63
3.7 Cash flow of project: ....................................................................................63
3.8 Economic- Financial analysis.......................................................................64
3.9 Project scenario analysis: ............................................................................65
CONCLUSION AND RECOMMENDATIONS ...................................................67
Reference documents.............................................................................................68

International Executive Master of Business Administration Program


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International Executive Master of Business Administration Program


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INTRODUCTION
Vietnam - one underdeveloped agricultural country went through two big wars
which had pushed its economy to be lagged behind economically in comparison
with the world’s. After two years of independence (30/4/1975), Vietnam jointed
into the United Nations and officially became one member in the United Nations.
Due to centrally – planed economic management model, Vietnam’s economy did
not developed during a long time then always stayed at the backward top of the
world.
Recognizing this matter, until the sixth national party congress (1986) under the
objective view, our country chose economic development model in the direction of
socialist republic oriented market instead of centrally – planned economic
management model. In 1995, Vietnam participated into ASEAN and about eleven
years later continued to joint in WTO (2006), then became the 150 th member of
WTO.
During more last two decades, our economy has gained significant
developments. Breaking through since 2000 until now, the economy has grew at the
annual average of 7,73% (source from Legatum Institute (),
belonged to the leading top of the continent. Currently, Vietnam’s economy has
overcome out of the poorest country top of the world with the income per capita of
1300$. However, it is still a great distance compared with countries in the same
region such as Income per capita in Vietnam lagged behind about 51 years in
comparison with Indonesia’s, about 95 years in comparison with Thailand’s and
158 years in comparison with Singapore’s (According to Sai gon times on 5.4.2012)
Based on student’s opinions, in order to shorten this distance, then beside
determining proper national strategy, strict legal system not by the way of saving,
but the only way for us is investment. Only by investment, we can increase labor
output, then innovate technologies, continually take fully advantages of national
sources of the country (oil, mineral, mining, forestry, sea…) as well as create
products meeting with higher and higher demands of people in general and

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customer’s in particular. The investment activities must come along with projects
meanwhile for projects to be effective, then it must be objective in the process of
setting up projects, we must analyze and evaluate carefully factors influencing on
projects and especially good project management. In the scope of thesis, student
focuses on researching and evaluating an important perspective of the project which
is “effects of the project”
1. Name of thesis: Analysis and evaluation on effects of “Bac Kan soft iron
production factory” project
2. Reason of choosing this thesis:
According to the statistics of Investment and planning Ministry, annually Vietnam
has about 20.000 companies born out but about 30% of companies going to
bankrupt during about 5 years. Especially in some first months of 2012, there have
been 50.000 companies going to bankrupt. Some companies are step by step
developing so much, but beside that there are many companies which are still
staying stalled, produce moderately or go to be ruined… why?
In addition of strategy, market, capital source, objective reasons from macro
management of the Government, one of main reasons leading to failures of those
companies is that effects of the project investment are low or loss. The development
of companies and widely country’s economy, we must be straight to say that non investment means that companies are going to be ruined and absolutely the
economy will not develop.
We can see that the core of the investment is to gain profit and offer jobs for
employees. In order to gain profit, the research and studying works must be careful
and accurate. There are some projects which are considered as high economical

effective ones, but actually after being completed and going into operation, they
face to great losses. What is reason? In my opinion, the main reason is that the
analysis of project’s effects is not right, provided data is not accurate. In the fact
that this issue happened to many real state projects, brick production factory,
concrete production factory, mining projects

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Material and complete equipment Export and import corporation (MATEXIM)
is one company operating in some traditional scopes such as trading, transportation,
real estate. However, now it was supplemented with completely new one which is
mining and product manufacture from ore. This scope was carried out by iron ore
exploitation and investment projects and soft iron production factory in Bac Kan.
This is one big and daring project of the company that decides survival and business
strategies in long term for the company
In the scope of the thesis, I really expect to analyze and evaluate effects of Bac
Kan soft iron production factory project under my knowledge trained in MBA
course and researching results.
3. Targets of the research
In this thesis, I took fully advantages of theories studied in MBA course,
researching documents in order to analyze and evaluate as well as research factors
related to effects of the project, then propose solutions for the project to be more
effective, limit risks for the company
4. The method of research
4.1. Methods used as follows:
- Research case study of Matexim Company and some other projects which have

been operating in the northern area
- Make statistics and analysis on market, collect actual information, treat data
and use database of consulting services in the technical field
4.2. Offer conclusion based on the procedure: collect information – process
information – estimate price of future market – offer solutions – find the most
optimal solution - conclusion
5. Database for research
5.1. Use database studied in MBA course, especially project management
course, enterprise finance, strategic management
5.2. Use database from projects provided by Matexim Company, actual data
from some projects of domestic and foreign factories
5.3. Data sources from professional organizations

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5.4. Data researched on Internet under verified documents
6. Structure of the thesis: the thesis includes 03 chapters and the introduction
as follows:
INTRODUCTION
CHAPTER 1: Theory base on the project investment and analysis
CHAPTER 2: introduce about Bac Kan soft iron production factory project
CHAPTER 3: Analyze and evaluate economic – financial effects of Bac Kan soft
iron production factory project
Conclusion and suggestions:
Student’s thesis is one actual project which is being invested by Matexim Company.
The research shows which key phase is leading to one effective project, which is

key phase leading to bad effective or non effective one for the investor to have more
views on project’s future. Our students expect to receive suggestions from
professors of the course and especially from Associate Professor. Dr. Tran Van
Binh – the thesis instructor for the thesis to be better and be applied successfully in
the actual case.
Respectfully thanks!

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1.2. Contents of the project feasibility study
1.2.1. Feasibility Study: Is the last screening step to select the optimal project, this
stage is to confirm the investment opportunity feasible, solid, and effective or not?
In this step of study, the study content is similar to the pre-feasibility study stage,
but they differ in more detailed and accurate level. All aspects of the study are
considered in the active state, i.e. taking into account the uncertainties that can
occur on the contents of the study. Considering the solidity of the project in terms
of the impact of the uncertainties, or it may have any impact measures is to ensure
effective project.
1.2.2. Nature and purpose of feasibility study
Nature of feasibility study: In terms of form, the feasibility study document is a
collection of records presenting in a detailed and systematic manner the solidity and
the reality of a business production activity and the socio-economic development in
the aspects of market, technique, finance, organization, and socio-economic
management.
In our country, the feasibility study is often called as the economic-technical
arguments. The feasibility study is conducted based on the results of studies on

investment opportunities and pre-feasibility study accepted by the competent
authorities. At this stage of feasibility study, the project is drafted more carefully to
ensure that all expectation and calculation must be achieved at a high level of
accuracy before submitting to planning, financial, and banking agencies and the
international financial institutions for evaluation.
Purpose of feasibility study: The feasibility study process is conducted in three
stages. The stage of investment opportunity study is aimed at removing
immediately the clearly unfeasible projections despite of being without going into
details. The unfeasibility is demonstrated by statistics and easily findable material
economic information. It helps to save time, and costs for the next studies.
The purpose of feasibility study is to consider the last time to reach accurate
conclusions about all the basics of the project through carefully calculated and

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detailed statistics and techno-economic-technical schemes, schedules, and project
implementation progress before formal investment decision.
All in all, the feasibility study is one of the tools to implement economic plans of
industries, localities, and the country as a whole to turn plans into concrete actions
and bring socio-economic benefits to the country and the financial benefits to
investors.
1.2.3. Major contents of feasibility study:
The feasibility study is also known as establishment of investment projects. Major
contents of an investment project include micro-and macro-economic, technical,
and management aspects. These aspects in the projects of different industries have
their own unique characteristics. Therefore, the choice of fields for drafting

technical description and project analysis will be a relatively complete model. This
model can be used as a reference when drafting projects in other industries.
* Major concrete contents of an investment project include the following
issues:
- Considering the general economic situation related to the investment project:
It can be considered that the general economic situation is the basis of the
investment project. It represents the investment scenario directly affecting the
process of development and financial economic efficiency of the investment
project. The general economic situation is mentioned in the project includes the
issues as follows:
+ Natural geographical conditions (topography, climate, geology, etc.) related to
selection and implementation of the project and upholding the efficiency of the
project in the future.
+ Population and labor conditions related to the demand and consumption trends
and to the labor source provided to the project.
+ Political situation, policies, and laws that affect the interest of investors.
+ Socio-economic development situation of the country and localities and the
business production development of industries and units (GDP growth rate,

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investment ratio on GDP, relationship between savings and consumption,
GDP/capita, rate of business return, etc.) that affect the implementation process and
the promotion of the efficiency of the project.
+ Situation of foreign exchange (foreign exchange payment balance, foreign
reserves, debt, and debt payment situation...) especially for projects importing raw

materials and equipment.
+ Economic systems and policies, including: Structure of business system by
industry, property relation, and region to assess the level and comparative
advantages of the investment project; the policies for development, economic
reforms, and restructuring in order to assess how favorable the level of awareness,
thinking innovation, and environment for investment are.
+ Status of national economic planning by period, level of detail, objectives,
priorities, and impact tools from which to see the difficulties, advantages, and
priority that the project will be responded to as well as the limitations which the
project must comply.
+ Situation of foreign trade and other relevant institutions, such as import and
export, import and export taxes, exchange rate policy, investment rules for
foreigners, balance of trade, international balance of payments, etc. These issues are
particularly important for projects producing goods for export and import of raw
materials and machinery. For example, the inappropriate exchange rate policy (the
domestic exchange rate against foreign currencies is low) will cause that the more
production is, the more export losses, and too high export taxes will cause
difficulties in competing with goods from other countries in the overseas market.
The investment rules have the effect of encouraging and attracting foreign
investment...
The facts and data to study the general economic situation of projects above can be
collected easily in almanacs, statistical reports, magazines, books, and international
economic materials.

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However, small projects do not need so many macro-economic data. For large
projects, it depends on the objectives, characteristics, and scope of the effects of
projects to select in the general economic issues above the issues related to the
projects for review.
For all levels of project evaluation, macro-economic issues are considered not only
in the perspective of its impact on the projects, but also the projects’ impact on the
economy at the macro perspective, such as socio-economic benefits brought by the
projects and the projects’ impact on the development of the economy and industries
for economic structural reform and foreign-affair economic development, etc.
- Market study:
Market is the decisive factor in selection of targets and scale of projects. Even in the
case of projects having signed sole contracts, it must also study the markets where
sole agents sell their products and the reputation of the sole agents on these markets.
The market study purposes are to determine:
+ The product supply-demand markets of or services of the current projects, the
development potential of this market in the future, and the economic and noneconomic factors affecting the demand for products or service.
+ The promotional and marketing measures necessary to be able to boost the sale of
products of the projects (including pricing policies, organization, distribution,
packaging, decoration, and advertising, etc.)
+ The competitiveness of the products compared to similar products available and
products to be released in the future.
1.3. Financial-economic analysis for investment projects
1.3.1. Determination of investment capital
* Determination of investment capital needs to be done each year and on the entire
project on the basis of the progress of the plan for proposed investment. In the total
investment capital, it needs to separate groups:
- According to sources of capital: contribution or loans (short-term, medium-term
and long-term with interest rate for each source).

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- According to forms of capital: (Vietnam dong, foreign currencies), in kind, or
other assets.
The total estimated investment capital of an project should be considered at each
stage of the investment process and determined in Vietnam dong, foreign
currencies, in kind, or by other assets. The total investment capital of the project
includes the entire amount of capital needed to set up and put the project into
operation. This total capital is split into two categories: Fixed capital and working
capital.
- Fixed capital consists of preparation costs and initial expenses of investments in
fixed assets. These expenses are allocated to cost of products every year in the form
of depreciation.
+ Preparation cost means the costs incurred before the investment project
implementation. Preparation cost includes: costs for establishment, project study,
filing, submission, initial management (meetings, procedures, etc.), supply
arrangement relation, marketing, etc. more Preparation cost is an amount difficult to
calculate accurately. We must not miss the detailed items and the budget for those
items. These costs need to be unanimously agreed by the parties to invest.
+ Initial cost of investment in fixed assets includes the original costs of land, cost of
equipment, means of transport, and cost of technology transfer need to be certified
by the competent authorities and in accordance with the regulations of Ministry of
Finance.
- Working capital is the amount needed to be spent on certain investments in a
number of items to make it convenient for the business of the project. Working
capital needs to be determined for each year and for each specific component.
Working capital of the project is usually determined by the formula:

Working Capital = CB + AR - AP + AI
In which:
CB: Cash balance

AR: Amount of receivables

AP: Amount of payables

AI: Amount of inventory

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Table of capital estimation
Year
item
I

I
I

I
II

1. Cash balance (CB)
2. Amount receivables (AR)
3. Amount payables (AP)

4. Amount of inventory (AI)
Total working capital (1 + 2 – 3 + 4)
* Determination of capital sources for the project and the ability to secure capital
from each source in terms of quantity and progress.
Table of capital structure
Total
capital
Capital

Construction stage

Production stage

(At

cost

Item

current

(Return of

price)

capital)
Year 1
1.

Year 2

--

Year 1

Year 2

--

Total

investment
2.

Capital

source
+ Budget
+ Equity
+ Loan,

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1.3.2. Expectation of revenues and project costs
1.3.2.1. Estimation of annual turnover of project
Expectation of annual turnover of the project helps estimate the partial results of the

project activities, and it is an important premise to predict the benefit and determine
the cash flow scale of the project in the future. Project revenue is mainly sales from
the volume of products or services created by the project and expected to supply the
market corresponding to each period during the project life cycle.
To estimate the annual revenue of the project, it needs to estimate the basic
parameters of design capacity, annual mobilization capacity, annual inventory
production, and unit price of product as well as the change of prices in the future.
Turnover = Sales volume * unit price of products
In particular, consumption in each year is determined by the formula:
Consumption
period

in

production
=

in period

period-end
-

inventories of

period-beginning
+

finished goods

inventories of

finished goods

Or calculated by the formula:
Consum
ption in
period

produc
=

tion in

Difference in
-

period

inventories of
finished
products

1.3.2.2. Estimation of annual costs of project
To meet the business needs of the project and create the corresponding revenue, the
project must consume certain costs. The costs related to the production-business
activities of the project include the direct costs, administrative costs, and costs of
sales.
- Direct costs: Mean the basis for pricing production and cost of goods sold and
the basis for determining profit-and-loss results in the operation years of the project.
Direct production costs include: direct cost of materials, direct costs of labor, and
general production costs.

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- Management costs: Include costs of business management and administration and
other general costs associated with all activities of the project, such as salaries and
allowances for the board of directors and project management personnel,
depreciation of project stationeries, guest reception, and a part of business
management costs allocated to the project at an appropriate rate...
- Costs of sales: Consist of costs expected to be incurred during the sale of goods or
services of the project including salaries and allowances paid to sales staff and costs
of marketing, advertising, and packaging, etc. These costs are often estimated at an
appropriate rate by revenue or costs of the project.
1.3.3. Determination of profit, loss, and cash flow of project
1.3.3.1. Tabulation of project basic parameters
The systematic presentation of the basic financial parameters of the project helps
investors and other stakeholders visualize the context of the project, identify what
information is important to collect and review during the process of project
preparation and evaluation as a basis for making investment decisions accordingly.
The table of parameters is usually classified into five main groups: investment
capital group, financing group, revenue group, cost group, and other parameter
group for the project analyzer to easily find information.
Based on basic financial parameters, investment plans, and operational plans of the
project, the construction of financial planning tables is carried out to serve for the
determination of the value of future cash flows for the project.
The financial analysis should be carried out using Microsoft Excel software because
this software allows us to perform calculations from simple to complex. In

particular, the tools like Goalseek, Table, Scenarios, Crystal ball ... will help us to
make a lot of advances in analysis of sensitivity and simulation. In addition, Excel
is retrofitted with financial functions like IRR(), PV(), NPV(), PMT(), etc. allows us
to save calculating time with high degree of accuracy.
1.3.3.2. Construction of expected financial statements for each year of
operation or each stage of project life.

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It needs to tabulate costs of production or services, revenues, profit and loss,
estimation of accounting balance, revenue and expenditure balance. The financial
statements help investors see the financial situation of the project, and it is the
source of data that helps calculation and analysis of targets reflect the financial side
of the project.
1.3.3.2.1. Financial instruments used to analyze project cash flow
Study of the basic parameters of the project is used in the stage of project
identification study, i.e. during the formation or drafting of the project when it is
looking forward to repairing the main economic and technical features of the
project. This is only the general financial analysis. The next step is to perform
detailed financial analysis. This work is usually done at the end of the feasibility
study stage or during the study to evaluate the efficiency of the project. Thus, in all
cases, performance of general financial analysis allows saving considerable time for
preparation of detailed financial analysis.
To move from general financial analysis to detailed financial information analysis,
the use of financial instruments is needed. They are the tables of financial plan for
the project.

- Table of investment plan
A table of investment plan shows the total investment and capital structure. Total
investment capital includes fixed capital, working capital, and interest of loan
during construction (if any). Based on this table, it will show how the progress of
capital allocation and portfolio of assets are from which to set the basis for
calculating the annual depreciation for the project. To calculate, we can tabulate by
the following form:
Table of investment plan
Total
Item

Construction stage

Production stage

capital
(At
current

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price)
Year 1

Year 2

--

Year 1 Year 2

--

1. Fixed capital
2. Working cap
3.

Interest

during

construction
4. Total investment

- Depreciation plan
Table of depreciation plan is based on historical cost and fixed asset's useful life.
The historical cost of fixed assets is determined based on the value that we have
determined in the table of investment plan. Fixed asset's useful life is usually
determined by the tax conditions. For investment projects in Vietnam,
determination of useful life for depreciation of fixed assets is based on the legal
time frame of determination in accordance with current regulations of Ministry of
Finance.
There are many methods for determination of depreciation value, but when
analyzing annual depreciation for fixed assets invested in the projects, it is common
to apply the straight-line depreciation method. The annual residual depreciation
value in the table of investment plan will be calculated by taking historical cost
minus accumulated depreciation and plus new investment value (if any).

Table of depreciation plan
Year
Item
0

1

2

…

n

Historical price
Depreciation in period

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Accumulated depreciation
New investment
Residual value at the end of period

For investment projects having a variety of assets with different useful lives, each
type of fixed assets should be made a separate table of depreciation plan then
aggregated into one general table of depreciation plan for all types of assets. Based
on this table of depreciation plan, we will know how much the annual depreciation

is and how much the remaining undepreciated value of the assets is at the end of the
project.
- Repayment plan
For an investment project, financial cash flow only refers to loans and debt
repayment while ignoring the mobilized stock capital and repayment of dividends to
shareholders. Therefore, the project financial cash flow analysis is a reasonable way
to help investors determine the date to mobilize loans and calculate financial costs
by interest and repayment of principal debt. All these are reflected via the
repayment plan of the project.
Table repayment plan for principal debt and interest
Year
Item
0

1

2

…

n

Period-beginning balance
Interest incurred in period
Repayment amount
- Principal debt due
- Interest due
Period-end balance
Debt increased

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The items in the table of repayment plan for principal debt and interest shall be
calculated as follows:
(1) The debt increased reflects the time of the loans provided
(2) Period-

Period-

Interest

end

= beginning +

incurred

balance

balance

in period

Repayment + Debt
- amount in

increased

period

(3) Interest incurred in period is defined based on the period-beginning balance
corresponding to each period time
(4) This period-beginning balance is equal to the previous period-end balance.
(5) The amount of repayment in period depends on the expected repayment plan
that the investor agree with credit institutions.
- Table of revenue estimation: Table of revenue estimation reflects the expected
income from product salability in the future operation of the project.
Table of production and revenue estimation
Production stage
Item
Year 1

Year 2

----

Year n

1. Production
+ Primary products
+ Secondary products
2. Unit price of products
+ Primary products
+ Secondary products
3. Domestic revenue
+ Primary products

+ Secondary products
4. Export revenue
5. Total revenue

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- Table of cost expectation
Table of cost expectation reflects all costs incurred during the operation of the
project. The costs are determined on the basis of consumption of inputs to produce
the output level corresponding to an annual mobilization capacity of the project and
expected prices of these inputs on the market.
Table of project cost expectation
Year
Item
0

1

2

…

n

Direct costs
- Cost of materials

- Cost of direct labor
- Costof fuel
- Costs of repair and maintenance
-…
Cost of management
Cost of sales
Total costs
There are two methods commonly used to estimate the costs of the project: the
method of percentage of sales and the method of spending by planned norm. In
addition, we also have another method which is the combination of the above two
methods.
- Table project profit and loss plan
Table project profit and loss plan is built to reflect in general the expected
performance in each period (year, quarter, and month) throughout of the project's
future life. In the simplest form, table project profit and loss plan is associated with
two types of general terms: revenue and costs. Revenue reflects the completion

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level achieved from the project activities (sales and service revenue). Meanwhile,
costs show the level of consumed effort (consumption of assets, costs for inputs,
and financial costs) to generate corresponding revenue. Finally, the two important
results to be determined in table project profit and loss plan are profit (EBIT and net
profit) and the obligation to pay the annual corporate income tax. In which,
expected corporate income tax rate is one of the items needed to determine upon
construction of project cash flow plan.

Table project profit and loss plan
Year
Item
0

1

2

…

n

Net revenue
Cost of goods sold (subtracted)
Gross profit
Operating costs (subtracted)
Earnings before interest tax and loans payable
(EBIT)
Interest payable
Earnings before tax (EBT)
Corporate income tax (subtracted)
Profit after

* All reasonable costs are subtracted to calculate the taxable income:
- Depreciation of fixed assets.
- Cost of raw materials, materials, fuel, energy, and goods.
- Salaries, wages, and allowances.
- Costs of scientific research, technology, innovation, improvement, health care,
and

labor training.

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GRADUATION THESIS

- Costs of outsourced services.
- Payment of interest on loans for production and business.
- Extraction of reserves.
- Costs of consumption of goods and services.
- Costs of advertising, marketing, and promotion.
- Taxes, fees, charges, and land rent.
Fees deducted when calculating income subject to corporate income tax:
- Export tax.
- Input value-added tax on export goods and services.
- Special consumption tax on domestic goods and services subject to special
consumption tax.
- Excise tax.
- Royalties.
- Agricultural land use tax, property tax, land tax.
- Land rent.
- The fees and charges actually remitted businesses to the state budget in
accordance with

the law on charges and fees.

- Table of cash flow plan

Table of cash flow plan is a detailed presentation of all the actual revenues and
expenditures in cash from operations of business, investment, and funding of the
project with each time it arises. There are two methods of planning cash flow:
* Direct method: Net cash flow from operations of business, investment, and
financing activities of the project is determined by taking the cash inflow minus the
cash outflow.
* Indirect Method: Net cash flow from business operations to be adjusted from
profit to net cash flow, and net cash flow from investment and financing activities is
determined similarly to the direct method.
Reasons to build table of cash flow plan for the project
- Expecting the future achievements of the project

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GRADUATION THESIS

- Considering the risks and how to make the project better.
1.3.3.2.2. Calculation of targets reflecting financial side of project
* Target to assess the financial strength of business
- Coefficient of equity against debt: This coefficient must be greater than or equal to
1. For promising projects with clear obtained efficiency, and if this coefficient may
be smaller than 1, about 2/3, the project is very favorable.
- Share of equity in investment capital must be greater than or equal to 50%. For
promising projects with clear efficiency, the proportion may be 40%, and then the
project is favorable.
- The ratio between current assets against current assets in debt.
- The ratio between working capital and short-term debt.
- The ratio between the total net profit and depreciation against payables due.

Among the above targets, the 3rd one is applied only to projects of operating
enterprises, while the remaining four targets are applied to all projects. The first two
targets reflect the financial resources to ensure that all projects are implemented
smoothly, and the following three targets refer to the ability to ensure payment of
financial liabilities.
1.3.4. Assessment of project efficiency
- Target of net present value (Net Present Value - NPV): The net present value is
the total net profit of the whole life of the project discounted to current year at a
certain discount rate.
* Formula:

Or

In which:
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