CORPORATE FINANCE ASSIGNMENT FINAL REPORT

FOREIGN TRADE UNIVERSITY
FACULTY OF EXTERNAL ECONOMICS

CORPORATE FINANCE ASSIGNMENT

FINAL REPORT

Group Members:
Nguyễn Anh Dũng
Nguyễn Duy Hải
Hồ Thị Hằng
Nguyễn Thị Thùy Linh
Nguyễn Phương Ly Ly
Nguyễn Hương Ly
Hoàng Mai Ngân
Trịnh Minh Thu

Hanoi – November 16, 2011


TABLE OF CONTENTS
Page
I. AGENCY PROBLEMS..................................................................................................1
1. DEFINITION AND CLASSIFICATIONS...................................................................1
2. SPECIFIC CASES........................................................................................................1
3. CAUSES AND SOLUTIONS.......................................................................................4
II. THE RELATIONSHIP BETWEEN FINANCIAL MARKET
AND CORPORATE FINANCIAL MANAGEMENT...................................................5
1. IN 2007.........................................................................................................................5
2. IN 2008.........................................................................................................................6
3. IN 2009.........................................................................................................................7

4. IN 2010.........................................................................................................................8
III. RISK AND PROFITABILITY...................................................................................9
1. RISK.............................................................................................................................9
2. PROFITABILITY.......................................................................................................13


CORPORATE FINANCE

I. AGENCY PROBLEM
1. DEFINITION AND CLASSIFICATION
1.1. Definition
Agency problem indicates the conflicts of interest arising between shareholders and
managers because of differing goals.
In theory, shareholders, who are the real owners of a company, should have the
obligation to run the whole business. However, uniting thousands of shareholders to
make any decision is absolutely difficult. In reality, real control of the companies belongs
to directors who are authorized to manage the companies and generate benefits for both
sides. However, this power authorization proves to induce the separation in ownership
and management rights of an enterprise. In many cases, managers may pursue their own
benefits without taking shareholders’ interest into account. (Sometimes, the conflicts are
not restricted to stockholders and managers only, but creditors may also get involved.
However, we would like to concentrate on the shareholder-manager conflicts in the scope
of our report).
1.2. Classification
Agency problem is divided into three main types, namely asymmetric information,
risk incentives and foregone growth opportunities. In this report, we would go into the
depth of informational asymmetry. Asymmetric information is a situation in which
outsider investors have less information about the company's risk and profitability
compared to insider managers. Some phenomena arising on stock market are listed as
failure to fully disclose information to investors, information leakage without permission

to publish, defraud, unfair information disclosure to investors, late submission of
financial reports, etc. Among the listed phenomena, information disclosure and late
submission of financial reports will be deeply discussed.
2. SPECIFIC CASES
2.1. Analysis of specific cases of agency problem
In this part, we will focus on asymmetric information, which is one of the most
popular types of agency problem. With regard to this, we would like to mention two
kinds of activities that lead to asymmetric information: late submission of financial
reports and violation of information disclosure in stock transactions.
-1-


CORPORATE FINANCE
Firstly, let us take a look at some typical cases.
a) Case 1: Mr Le Van Loi, Chairman cum General Director of Thong Nhat Rubber
JSC (HOSE: TNC) submitted financial reports later than the specified date of
December 10, 2010.
Normally, if everything goes right, every manager would submit financial reports
punctually to avoid being fined (unless the company is allowed to extend the report
deadline according to Accounting Code No 03/2003/QH11 on June 17, 2003). As usual, it
is only when the company has been meeting with tense problems that their financial
reports cannot be publicized on time. In such cases, the Chairman may have figures
properly fixed before publicizing them to shareholders, otherwise the company’s
reputation may be badly injured leading to investors mass-withdrawing their capital.
b) Case 2: Ms. Nguyen Thu Phuong – member of Control Board of Vinpearl
Company (HOSE: VPL), bought 2000 VPL shares from 23/12/2008 to 31/12/2008 but
did not disclose information. Therefore on 6 January, 2009, Ho Chi Minh Stock
Exchange requested her to make explanation for that breach.
This case is very popular on Vietnamese financial market. As an internal shareholder,
Ms Phuong might have had some confidential information about VPL shares and decided

to benefit herself. For example, when she learnt that the share price was expected to
increase in the next month, she would buy 2000 shares with a view to reselling them in
the future. However, she did not disclose information about this transaction, because
when other shareholders heard about it and massively bought in (“the crowd effect”), the
share price would be pushed up to much higher a level than it had been expected to be 1
month ago. As a result, she could not resell them to anyone.
In short, late submission of financial reports and information violation in stock
transactions would make benefit for managers on one hand, but affect shareholders’
interest on the other hand and hurt their trust in management of the company.
2.2. Comments
In fact, Ms Phuong’s violation is only “one in a million” on Vietnam stock market.
Out of 8 companies assigned to our group, up to 6 companies reported similar cases (in
fact, managers not only benefited themselves but sometimes revealed internal

-2-


CORPORATE FINANCE
information to their relatives also). These following tables would summarize such
violation during the last 4 years:
Company

Date

TTP

29/11/2007

Case Summary
Mr Huynh Thanh Khang - member of Control Board

sold 2000 TTP shares but did not disclose information.
On 18/12/2007, HCM Stock Exchange sent official
dispatch to request him to explain.
Mr Nguyen Nhat Thanh Lam – member of Control

TNC

From 25/09/2008
to 21/10/2008

Board bought 7,000 TNC but did not disclose
information. On 22/10/2008, HCM Stock Exchange
sent the official documents No 2152/SGDHCM-GS,
requesting him to make explanation for the breach.
Ms. Nguyen Thu Phuong – member of Control Board

VPL

From 25/12/2008
to 31/12/2008

bought 2000 VPL shares but did not disclose
information. On 06/01/2009, Ho Chi Minh Stock
Exchange requested her to make explanation for that
breach.

Company

Date

Case Summary
Ms Nguyen Huu Thanh Tam (younger sister of Ms
Nguyen Thi Huu Thuy - member of BOD) sold 3000

TTP

27/04/2009

TTP shares but did not disclose information. HCM
Stock Exchange sent official dispatch to request her to
explain.
Mr Le Minh Chau (younger brother of Mr Le Quoc

From 26/04/2010
CII

ALP

to 20/05/2010

Binh, CFO cum General Accountant) bought 2,140 CII
shares but did not disclose information.

From 07/05/2010

Mr Le Minh Chau sold 1,040 CII shares but did not

to 19/05/2010

disclose information. Ho Chi Minh Stock Exchange

28/07/2010

requested her to make explanation for that breach.
Ms. Nguyen Thi Thanh Van (sister of Mr. Nguyen
Quang Huy - member of BOD) sold 53,180 ALP

-3-


CORPORATE FINANCE
shares but did not disclose information. The Chairman
of the State Securities Committee charged an
administrative penalty (VND 20 million) on for Ms.
Van for that violation.
Ms. Tran Uyen Nhan (daughter of Mr. Tran Xao Co HLA

20/12/2010

Chairman of BOD) bought 100.000 HLA shares
without disclosing information. HCM Stock Exchange

sent official dispatch to request her to explain.
All things considered, it can be concluded that violation of information disclosure has
become a phenomenon on Vietnam financial market nowadays. Thus what are the
causes and solutions to that kind of agency problem?
3. CAUSES AND SOLUTIONS
3.1. Causes
There are two main reasons why information violation has been so popular on
Vietnam stock market in recent years.

Firstly, too many transactions to supervise is really a hard-cracking problem.
Thousands of transactions each day are really a huge workload, thus it is easy to
understand why the Stock Exchange Department ( SED ) cannot carefully supervise the
action of every individual on the stock market. Hence, businesses tend to backslide their
violation activities again and again.
Secondly, the lack of strict punishment also ranks an equal place in the essence. Up to
2011, the maximum fine for not disclosing information just stands at 70 - 80 million
VND only - too small compared to the profits violators have already earned. Moreover,
the SED has not imposed fines immediately after an enterprise was charged with
information violation, thus, fails to deter businesses. We can take the case of Ninh Hoa
Sugar JSC (HOSE: NHS) for an example. In July 2010, NHS did not submit the semiannual reports on the specified date, but it was not until August 2011 that the Securities
Committee decided to charge a fine on them.
3.2. Solutions
Corresponding to the above-mentioned two causes, we would like to recommend two
solutions.
-4-


CORPORATE FINANCE
Firstly, the government should implement stricter punishment to prevent those
violations. Recently, the State Securities Committee has intended to introduce a new
circular to replace the one in 9/2010, which shows their determination to minimize such
violation.
Secondly, setting up credibility charts for listed companies is another method that has
been popularly applied in many countries (Fitch, Moody’s, Standard & Poor’s, etc. are
some typical examples). These charts would rank enterprises’ operation every year, thus
serving as a base for banks and investors throughout their decision-making processes.
Therefore, if companies expect to gain more bank loans or mobilize capital from
shareholders, they should maintain their credibility marks by working effectively and
publishing all the information on time.

II. THE RELATIONSHIP BETWEEN
FINANCIAL MARKET AND
CORPORATE FINANCIAL MANAGEMENT
1. IN 2007
1.1. Financial market situation
In 2007, the dramatic growth in Vietnam’s economy brought about a boom in stock
market. The increase in the number of equitized enterprises led to a sharp rise in the
market capitalization of shares. Vietnam financial market, therefore, developed actively
on the base of the economic growth rate at 8.5% in the past year.
1.2. Corporate financial management
Having benefited from the boost in Vietnam’s financial market, many companies had
their shares quoted on the stock market in 2007. Some typical examples are Alphanam
JSC (ALP), Khanh Hoa Electricity JSC (KHP), Thong Nhat Rubber JSC (TNC) and Tan
Tien Plastic Packaging JSC (TTP). During this year, many corporations also made
dividend payment in form of stock dividend and continued to issue additional shares to
increase their chartered capital. Let us take a look at ALP for an illustration.
Company
ALP

Date
7/10/2007

Financial Management
Reasons
- Decided the form of dividend payment: When the economy

-5-

CORPORATE FINANCE
stock dividend at the rate of 30%.

was

developing

- Decided to issue 6 million additional sharply,

the

shares to strategic partners, so that the company aimed to
company's

chartered

capital

would increase

increase from 300 billion VND to 450 chartered

its
capital

billion VND early in 2008.
for
operating
Listed on HASTC with 30,000,000 activities,
12/12/2007 shares on the first day of transaction at generating as much

Ho Chi Minh Stock Exchange .

profit as possible.

2. IN 2008
2.1. Financial market situation
In 2008, the global economic crisis had negative influences on Vietnam economy as a
whole. The stock market growth rate decreased sharply by 65.9%, and the economy was
dominated with gallop inflation, namely 22%.
At the first quarter of 2008, share prices were susceptible to a downward trend, which
caused investors to lose faith in the stock market. Despite some good signs from the
macro-economy in the middle of the year, VN Index was still terribly stricken by the
financial crisis. Share prices had a tendency to decline in the long run. To make it worse,
foreign investors massively withdrew capital from Vietnam, darkening the gloomy
picture of the whole economy.
2.2. Corporate financial management
As an essential result of the financial crisis, nearly all Vietnamese firms underwent
extremely low investment efficiency. Instead of investing in economic projects, managers
tended to use cash to pay dividends so as to stabilize shareholders’ psychology. In
addition, companies also preferred safer financial activities such as investing in fixed
assets and buying redeemable shares.
Company
PAC

Date

Financial

Reasons
Management

17/01/2008 Issued 3 million shares - Making more investments in fixed
14/07/2008 Paid stock dividend
assets (plants, machines, etc.) proved
(1.5 million shares) at

-6-


CORPORATE FINANCE
the rate 10/1

19/09/2008

Bought back 300,000
redeemable shares

to be wiser than in stocks or real
estates at that time.
- Buying back redeemable shares

The sales of stocks increased PAC’s chartered capital by 38% in 2008, and the
company decided to buy a new technological production line to improve their current
efficiency. Moreover, by using stock dividend, PAC also succeeded in maintaining cash
reserve to expand production and invest in new projects such as PINACO factory in
Nhon Trach.
3. IN 2009
3.1. Financial market situation
In 2009, Vietnam government issued a stimulate package valued at 143.000 billion
VND. Real interest rate decreased from 10% to 7% in February 2009, and the stock
market began to show signs of gradual improvement. The financial market started to

recover and share prices began to increasing steadily.
However, for fear of inflationary risk and changeable monetary policies, the stock
market still showed some bad signs. Rising gold prices, fluctuating exchange rates and
trade deficit posed noticeable threats to the whole financial market. Stock prices faced
with non-stop fluctuations during the year.
3.2. Corporate financial management
When the crisis seemed to show signs of recovery, firm managers wanted to mobilize
capital to reinvest in their business activities. Therefore, some companies issued
additional shares and sold redeemable stocks to maintain cash reserve, which would be
used to invest in plants and machinery to improve production efficiency, expand
production scale and invest in new projects.
Company
Financial Management
Reasons
HLA
- Tried to increase chartered - At this period, the government tried to
capital by issuing 3.8 million back up the economy after the crisis,
primary stocks.

therefore, many stimulating policies were

- Carried out the plan of applied.
-7-


CORPORATE FINANCE

building a new steel factory,
valued at 1000 billion VND.

- The company tried to expand its scale by
issuing more stocks and building plants to
make gradual recovery.

4. IN 2010
4.1. Financial market situation:
In 2010, the world economy showed signs of cautious and steady improvement. The
world financial market began to stabilize after the public debt crisis in Greece. In
Vietnam, however, the exchange rate USD/VND considerably fluctuated. Although the
domestic stock market received a huge sum of newly-supplemented listed stocks, there
still remained high risk of gallop inflation, which led gold prices to sky-rocket.
4.2. Corporate financial management
On receiving good signs from the financial market, corporations kept increasing their
business scale by listing supplemented stocks, issuing shares and bonds and continuing to
build plants as well as investing in unfinished projects.
Company

Financial Management
- Signed a term sheet with Emerging Markets -

Reasons
Increase net working

Fund (GEM), in which GEM committed to capital.
invest 30 million USD in Alphanam (in form ALP

of shares).

Restructure

balance

the

capital

to

debt/equity

- Intended to issue 200-billion worth in bonds ratio.
for Military Bank.

The bonds had 3-year - Enhance the efficiency of

maturity, an interest rate of 15% / year, and business operation of the
face value of 100,000 VND/bond.

company.

III. RISK AND PROFITABILITY
1. Risk
Through analyzing liquidity and leverage ratios of 8 assigned companies, we would
like to divide them into 3 main groups.
a) Group 1: Companies with high liquidity ratios but low leverage ratios (TNC,
TTP)

-8-

CORPORATE FINANCE
TTP
Liquidity Ratios
Current Ratio
Quick Ratio
Leverage Ratios
Total liabilities/
owner equity
Total liabilities/
total assets

2008
5.59

2009
5.24

2010
2.03

1.75
4.51

1.51
4.33

1.43
3.36

2.36

2008
0.16
1.44
0.14
0.47

1.99
2009
0.17
1.57
0.15
0.50

1.91
2010
0.31
1.78
0.24
0.51

2009
5.44
2.22
4.79
1.93
2009
0.09
0.25
0.10
0.38

2010
4.71
2.25
4.14
1.81
2010
0.12
0.25
0.13
0.37

TNC
Liquidity Ratios
Current ratio
Quick ratio
Leverage Ratios
Total debt ratio
Total debt to equity

2008
2.80
1.59
1.96
1.22
2008
0.17
0.31
0.2.
0.48

As can be seen from the tables, the liquidity ratios of the 2 companies were relatively
high compared to those of the industries. For example, in 2010, the current ratio of TNC
was 4.71, nearly twice as much as the industry ratio (namely 2.25) in the same year. By
contrast, the leverage ratios of both companies proved to be fairly low. The total debt
ratios always stood below 25% during the 3-year period. In particular, in 2010, the D/A
ratio of TNC was just 0.12 compared to 0.25 of the industry.
In short, it can be concluded that TNC and TTP maintained an extremely high amount
of current assets, thus there would be no big problem for them to meet short-term and
long-term debts. However, too high liquidity ratios indicated that those 2 companies did
not efficiently allocate their capital into proper investment activities. In this case, they
had failed to take advantage of financial leverage in generating profit.

-9-


CORPORATE FINANCE
b) Group 2: Companies with low liquidity ratios but high leverage ratios (CII,
HLA)
CII
Liquidity ratios
Current ratio
Quick ratio
Leverage ratios
Total liabilities to
total assets
Total liabilities to
total equity
Long term debt to
assets

2008
0.62
3.09
0.62
1.66
2008
0.57
0.51
1.44
1.1
0.45
0.21

2009
1.9
2.88
1.89
1.36
2009
0.51
0.57
1.06
0.47
0.43
0.27

2010
1.63
2.46

1.39
1.31
2010
0.59
0.54
1.48
1.30
0.43
0.25

2008
0.58
0.62
1.05
1.24

2009
0.54
0.59
1.04
1.26

2010
0.57
0.51
1.09
1.19

2008
0.74

2009
0.81

2010
0.79

3.06

4.40

3.81

HLA
Liquidity Ratios
Quick ratio
Current ratio
Leverage Ratios
Total debt ratio
Total debt to equity
ratio

Overall, these two companies had reported very low liquidity ratios. For example, the
figures of HLA just stood around 1.0 during 3 years, always lower than the benchmark
ratios. More noticeably, CII’s current ratio in 2008 was just 0.62, merely one-fifth of the
industry rate (namely 3.06). Leverage ratios, conversely, were comparatively high (total
debt ratios of both companies always exceeded 50%).
In summary, CII and HLA stood very high risk of financial liquidity, which means
that they might have problems in paying short-term and long-term debts. However, while
looking at the leverage ratios, those of CII were always smaller than 1.0 from 2008 to

2010, which indicated that they might efficiently take advantage of financial leverage. On

- 10 -


CORPORATE FINANCE
the contrary, as the D/E ratios of HLA ranged from 3 to 4 during the period, they suffered
from extremely high risk of liquidity.
c) Group 3: Companies that maintained relatively efficient liquidity ratios (ALP,
KHP, PAC and VPL)
ALP
Liquidity Ratios
Current ratio
Quick ratio
Leverage Ratios
Total debt ratio
Long term debt
ratio
Debt to equity
ratio

2008
1.91
0.71
1.25
0.47

2009
1.36
1.97

1.00
1.55

2010
1.69
1.88
1.29
1.48

2008
0.26
0.24
0.01
0.06
0.01
0.41

2009
0.40
0.50
0.01
0.13
0.02
0.46

2010
0.45
0.51
0.07
0.13

0.17
0.32

KHP
Liquidity
Ratios
Current ratio
Quick ratio
Leverage
Ratios
Debt ratio
Debt to equity
ratio

2007

2008

2009

2010

1.01
1.00
1.84
1.78

1.42
1.36
1.44

1.42

1.21
1.20
1.06
1.03

1.93
1.89
1.63
1.59

2007

2008

2009

2010

54.2%
55%
1.18%
1.21%

70.51%
71%
2.39%
2.42%

69.40%
70%
2.27%
2.32%

53.35%
53%
1.14%
1.14%

PAC
Liquidity
Ratios
Current ratio

2007

2008

2009

2010

2.00

2.10

1.38

1.26

- 11 -


CORPORATE FINANCE

Quick ratio
Leverage
Ratios
Debt ratio
Debt to equity
ratio

2.92
1.01
1.82

3.21
1.38
1.91

2.45
0.51
1.54

2.26
0.33
1.33

2007

2008

2009

2010

0.39
0.65
0.61
1.17

0.4
0.98
0.63
1.27

0.56
1.13
1.3
1.63

0.55
1.21
1.21
1.42

VPL
Liquidity Ratios
Current ratio

Quick ratio

2008
1.33
1.47

2009
1.99
1.26

2010
2.21
1.60

Leverage Ratios
Total liabilities/

2008

2009

2010

0.62

0.79

0.66

1.01

1.56

1.32

total assets
Total liabilities/
equity

As all the liquidity ratios of those 4 companies were at a range between 1 and 2.5,
they seemed to manage their current assets quite efficiently and stood little risk of
financial liquidity.
However, in terms of leverage ratios, it can be seen the figures for PAC were
relatively lower than the industry rates. For example, in 2009, the total debt ratio of the
company was 0.56, nearly a half of benchmark ratio (namely 1.13). Thus it can be
concluded that PAC may not have taken full advantage of financial leverage.
Meanwhile, the 3 other companies maintained fairly high leverage ratios during the
period. In 2009, the total debt ratio of KHP was 0.69, nearly equal to the industry ratio
(0.7). ALP also reported the total debt ratio at 0.26 in the same year, well over the
benchmark figure (0.24). This may indicate that they have relied much on financial
leverage to generate profit.
2. Profitability
2.1. Overview

- 12 -


CORPORATE FINANCE
Looking at the market value ratio (P/E) of 8 companies, it can be concluded that their
profitability went worst during 2008, then showing recovery for the next 2 years. The

table below illustrates the P/E ratios of 6 out of 8 companies in our group from 2008 to
2010.
Company
TTP
ALP
KHP
PAC
TNC
CII

2008
6.15
14.7
2.8
4.6
18.81
6.33

2009
4.92
9.19
2.99
3.02
9.11
3.33

2010
4.83
7.3
1.61

4.44
5.20
4.18

Overall, the P/E ratio tended to decline from 2008 to 2010. Considering the formula
of the ratio (P/E= Price/EPS), it can be inferred that the gradual increase in EPS was the
very first reason why P/E ratio decreased during the period (as share prices did not show
any remarkable change, respectively). In short, companies had a tendency to make
gradual recovery between 2008 and 2010.
2.2. Asset management ratios
a) Group 1: Companies with efficient asset management ratios (TTP, TNC)
TTP
Efficiency Ratios
Inventory turnover
Account receivable
turnover
Total asset
turnover

2008
7.62

2009
12.96

2010
8.67

5.24

5.35

4.96

2.57

2.38

2.78

2008
4.51

2009
8.53

2010
5.89

8.14

6.68

8.48

0.68
0.83

0.64
0.74

0.59
0.7

TNC
Efficiency Ratios
Inventory turnover
Account receivable
turnover
Total asset
turnover

- 13 -


CORPORATE FINANCE
As can be seen from the tables, all those 3 ratios showed a significant change after
2008. In both companies, the ITO ratios increased dramatically in 2009 but just slightly
dropped in 2010. In theory, inventory turnover illustrates how well a company manages
its inventory levels. If the ratio is too low, it suggests that a company may be
overstocking or overbuilding its inventory, or that it may be having issues selling
products to customers. Normally higher inventory turnover is better, and in this situation,
we consider this a positive change.
Also, the total asset turnover ratios revealed the positive signs in both 2 companies.
The figure of TTP increased slightly from 2008 to 2010. On the other hand, although the
ratio of TNC modestly declined from 0.68% to 0.59%, its total assets increased nearly by
200% from 143,554 to 284,630 million VND correspondingly. Thus, the slight decrease
in ATO still indicated the efficiency of TNC in doing business.
b) Group 2: Companies which need improvement (ALP, PAC, VPL, HLA, KHP)
We cannot affirm absolutely that these 5 companies did not utilize their assets and

manage its liabilities effectively, but there are numerous doubts about their real asset
management ability.
For instance, looking at PAC situation, the Receivable Turnover ratio increased
gradually from 14.73% (2008) to 18.24 % (2010), but the other 2 efficiency ratios
decreased steadily. With regard to ALP, VPL, HLA and KHP, all the ratios declined
dramatically, in which VPL and KHP recorded the smallest ATO ratio (VPL: 0.09%,
KHP: 0.3% in 2010).
c) Group 3: The last company, CII, showed noticeable weakness in asset
management.
The table below shows the efficiency ratios of CII from 2008-2010:
Efficiency Ratios
Inventory turnover
Account receivable
turnover
Total asset
turnover

2008
6.75

2009
11.3

2010
0.36

2.55

1.39

0.71

0.12

0.09

0.07

2.3. Profitability ratios

- 14 -


CORPORATE FINANCE
a) Group 1: Among 8 companies, CII proved to maintain the highest profitability
ratios.
Profitability Ratios
Net profit margin
(%)
ROA (%)
ROE (%)

2008

2009

2010

57.97

160.16

206.23

6.60
16.95

12.66
24.15

10.47
24.56

As can be seen from the table above, the company’s net profit margin remarkably
increased by nearly 4 times from just 57.97% in 2008 to 206.23% in 2010. The figures
exceeded 100% in both 2009 and 2010, indicating a noticeable growth compared to that
in 2008.
ROE also experienced a large rise during the period, which meant the company had
gradually recovered from the financial crisis 2007 – 2009.
However, these figures somehow conflicted with the above-mentioned efficiency
ratios. This raises doubt whether the company had their reports window-dressed or not.
b) Group 2: PAC and TTP were recorded with relatively stable profitability ratios.
ROE and ROA of both companies rose sharply from 2008 to 2009 and underwent a slight
fall in 2010. However, the figures always exceeded those of the industries throughout the
period, indicating that the companies generated profits more efficiently than their rivals in
the same field.
PAC
Profitability Ratios
ROA (%)
ROE (%)

2008
16.4

2009
25.13

2010
14.69

13.72
26.76

19.27
40.5

11.23
33.75

19.28

31.2

27.5

2009
16.42
9.43

2010

14.32
7.39

TTP
Profitability Ratios
ROA (%)

2008
13.78
7.75
- 15 -


CORPORATE FINANCE

ROE (%)

16.55
16.62

19.14
18.21

17.82
13.38

c) Group 3: The other 5 companies all tended to make progress during the period,
with profitability ratios increasing steadily from 2008 to 2010. However, their
operating activities did not prove to be efficient enough, as the companies’ ROE and
ROA were still far lower than those of the industries. Let us take ALP for an example.

Profitability Ratios

2008
2009
2010
11.66
14.51
18.97
Gross Profit Margin (%)
7.38
17.06
17.91
2.49
4.66
6.76
Net Profit Margin (%)
1.94
8.43
6.44
3.44
4.68
5.91
ROA (%)
2.66
9.32
7.38
4.96
7.62
11.71
ROE (%)

5.50
18.07
19.91
Although the company’s ROE slightly increased during the period, it still stood far
below the benchmark ratio. In 2010, ALP’s ROE was only 11.71% compared to 19.91%
of the industry. This indicates that the company still needs much improvement to compete
against their rivals on the same field in the future.

- 16 -