Luận văn phân tích tài chính doanh nghiệp bằng tiếng anh theo format của trường học viện tài chính

TABLE OF CONTENTS


2

Academy of Finance

GLOSSARY OF TERMS

BEP
CATA
EBIT
EPS
NWC
Per.

Break-Even Point
Current Assets to Assets
Earnings Before Interest and Tax
Earnings Per Share
Net Working Capital
Percentage

OCF

Operating Cash Flow

ROA

Return on Assets

ROE

Return on Equity

ROS

Return on Sales

USD

United States Dollar

VND

Vietnamese Dong


3

Academy of Finance

LIST OF TABLES
Table
Table 2.1: Capital structure ratios
Table 2.2: Structure of Liabilities and Equity in
2016

Page
40
41

Table 2.3: Analysis of Dai Dong Tien’s NWC

46

Table 2.4: Dai Dong Tien’s solvency ratios

47

Table 2.5: Structure of Dai Dong Tien's assets in
2016
Table 2.6: Dai Dong Tien’s asset utilization
efficiency ratios
Table 2.7: Dai Dong Tien’s liquidity ratios
Table 2.8: Source of cash and use of cash of Dai
Dong Tien in 2016

49
53
56
59

Table 2.9: Analysis of Dai Dong Tien’s cash flow

60

Table 2.10: Dai Dong Tien’s cash flow ratios

63

Table 2.11: Dai Dong Tien’s Income Statement in
2016
Table 2.12: Dai Dong Tien's profitability ratios

65
67


4

LIST OF CHARTS

Academy of Finance


5

Academy of Finance

PREFACE
Research problem
Mining is one of the most important industries to every country. It supplies
the consistent material source for a nation’s needs. Available natural
resources help a country decrease its dependence on the material import,
thus lead to the industrial growth, especially in developing countries like
Vietnam. Practically, mining industry requires a long-term investment
along with many potential risks. Before investing in machinery and
equipment for manufacture, every single project related to mining has to
get through the geological investigation and survey to evaluate the quantity
and content of the mine. It is followed by the variety of procedures related

to the exploded areas, which is very risky due to either the possible changes
in policies or environmental issues. Also, the higher level of exact forecast
that geological evaluation creates, the higher costs are made, leading to the
high proportion of cost in the product price and low profitability.
Additionally, the lack of local authority’s mining management, as well as
illegal actions of mining entities have been arising without the strict rules
and punishment have been making a negative impact on the national
environment, especially the natural resources, while the quality of
investment projects are not guaranteed.
For any industrial organization, it is imperative to enhance its effective
operation and prevent the environmental pollution. As many other
Vietnamese company supplying mining and transport services, Dai Dong
Tien’s turnover has experienced a fluctuated period. However, in this erotic
economic climate, Dai Dong Tien still remains the leading position in the


6

Academy of Finance

local area, and its financial performance plays an important role in that
success. During the time being a student I was able to build up my
knowledge and understanding of the preparation and interpretation of
financial statements, management reporting and performance management.
The topic “Evaluation of Dai Dong Tien’s financial performance” relates to
my chosen career, as a future financial manager, I am required to analyze
information from a variety of sources and use this to make effective
financial decisions. The research report has enabled me to further develop
my graduate level skills including research, analysis and interpretation of
data, using the information gathered to effectively contextualize it

alongside the economic climate and overall business strategy and draw
effective conclusions from this.
Purpose
Analyzing and evaluating the financial statements in order to find out the
strength and the shortcomings of Dai Dong Tien’s financial performance
and position, thus provide some useful suggestions for their future.
Scope of research
Case study
In this work, I focus on evaluating the financial performance and position
of Dai Dong Tien Limited Liability Company.
Time constraint
I am evaluating the Dai Dong Tien’s financial performance through
financial statements and related documents in the three-year period from
2014 to 2016.
Methodology


7

Academy of Finance

a. Statistical methods
•

Data collection

For completing the financial analysis, financial statements from the years
2014 to 2016 were used. This includes balance sheets, profit and loss
statements and cash-flow statements from each year obtained from the
company's annual reports and additional data from its official website. All

other information used in this thesis was gained from the literature
chronicled at the end and from knowledge acquired during my years of
study.
•

Data summarization

Calculating appropriate data and displaying that information in the form of
tables, graphs, or charts
b. Comparison methods
Structural changes can generally be described by two types of statistical
indicators:
•

Absolute indicators, which indicate the difference in the magnitude

•

of two relative structures;
Relative indicators, which indicate the same value of two different
relative magnitude ratios in different periods of time.

c. Analysis of proportions
Structure analysis of the compound indicators (both absolute and relative).
d. Econometrics models
The tasks of defining a company’s financial position compound indicator
structure deviation are as follows:


8

Academy of Finance

•

Analysis of structural deviation trends comparing the base of actual and

•

comparative data;
Analysis of the actual constituent parts’ ratio deviation scale as

•

compared with the base situation;
Defining the compound indicator rate if the change rate of an indicator
is known.

The information gathered was then used to calculate the financial ratios of
Dai Dong Tien. The results realized are mentioned in the part “2.3.
Assessment of the company’s financial performance” with elaborations on
how they could be used to improve deficient areas which in the long run
would enhance the financial stability of the company as well as augmenting
the output of the firm.
Thesis structure
The work includes four parts.
 Preface
 Chapter 1: Theories of firms’ financial performance evaluation

This part will focus on theoretical knowledge of financial analysis. This

is comprised of explanations of the analytical methods used in the
evaluation of company’s financial structure.
 Chapter 2: Evaluation of Dai Dong Tien’s financial performance in

recent time
This part includes an introduction to the company and its current
position in the industry. It will also specialize on the practical part in
which the outcome of the financial analysis will be followed by
explanations and elaborations where necessary.


9

Academy of Finance

 Chapter 3: Solutions for improving Dai Dong Tien’s financial

performance
The final part of the analysis will be concerned with suggestions of
applicable recommendations for the betterment of the firm. It will focus
on practical solutions that can be implemented internally in the shortest
possible time to improve the financial condition of the company.


10

Academy of Finance

CHAPTER 1: THEORIES OF FIRMS’ FINANCIAL PERFORMANCE
EVALUATION

1.1. Corporate finance and financial management
1.1.1. Corporate finance and financial decisions
a. What is corporate finance?
Corporate finance consists of the financial activities related to running a
corporation. In another way, corporate finance, is the study of ways to solve
these three problems:
-

Choosing long-term investments to proceed.
Should a proposed investment be made? That is, which major of
business will you concern and which kind of buildings, facility, etc. will

-

you need?
The way the company pays for it.
Where will you get the long-term financing to pay for your investment?
Will you bring in other owners or will you borrow the money? or

-

combination of both ways?
How to manage the firm’s daily financial activities.
What’s your decisions when collecting from customers and paying

suppliers?
- When the business is successful, how will you share in the rewards.
These are just some of the questions a corporate financial officer attempts
to answer on a consistent basis. But all things considered, the primary goal

of corporate finance is to figure out how to maximize a company's value by
making good decisions about investment, financing and dividends. In other
words, how should businesses allocate scarce resources to minimize
expenses and maximize revenues?
b. Financial management decisions


11

Academy of Finance

Corresponding to basic problems of corporate finance, financial
management decisions relates to four processes below:
• Investment decision
• Financing decision
• Working capital management
• Dividend decision
Investment decision

The investment decision is the process of identifying and evaluating capital
projects, that is, projects where the cash flow to the firm will be received
over a period longer than a year. Any corporate decisions with an impact on
future earnings can be examined using this framework. Decisions about
whether to buy a new machine, expand business in another geographic
area, move the corporate headquarters to Cleveland, or replace a delivery
truck, to name a few, can be examined using a capital budgeting analysis.
For a number of good reasons, capital budgeting may be the most important
responsibility that a financial manager has. Firstly, because a investment
decision often involves the purchase of costly long-term assets with lives of
many years, the decisions made may determine the future success of the

firm. Second, the principles underlying the capital budgeting process also
apply to other corporate decisions, such as working capital management
and making strategic mergers and acquisitions. Finally, making good
capital budgeting decisions is consistent with management's primary goal
of maximizing corporate value.
The investment decision process goes through four administrative steps:
Step 1: Idea generation: generating good project ideas from a number of
sources including senior management, functional divisions, employees, or
sources outside the company.


12

Academy of Finance

Step 2: Analyzing project proposals to determine its expected profitability.
Step 3: Create the firm-wide capital budget. Firms must prioritize
profitable projects according to the timing of the project's cash flows,
available company resources, and the company's overall strategic plan.
Step 4: Monitoring decisions and conducting a post-audit. An analyst
should compare the actual results to the projected results, and project
managers should explain why projections did or did not match actual
performance. Because the capital budgeting process is only as good as the
estimates of the inputs into the model used to forecast cash flows, a postaudit should be used to identify systematic errors in the forecasting process
and improve company operations.
Financing decision

A firm’s financing decision is the specific mixture of long-term debt and
equity that the firm uses to finance its operations. The financial manager
has two concerns in this area. Firstly, how much should the firm borrow?

That is, what mixture of debt and equity is best? The chosen mixture will
affect both the risk and the value of the firm. Secondly, what are the least
expensive sources of funds for the firm?
Because of these and other financing considerations, each investment
decision must be made assuming a WACC, which includes each of the
different sources of capital and is based on the long run target weights. A
company creates value by producing a return on assets that is higher than
the required rate of return on the capital needed to fund those assets.
Working capital management


13

Academy of Finance

Working capital management is a managerial accounting strategy focusing
on maintaining efficient levels of both components of working
capital, current assets and current liabilities, in respect to each other.
Working capital management ensures a company has sufficient cash flow in
order to meet its short-term debt obligations and operating expenses.
Implementing an effective working capital management system is an
excellent way for many companies to improve their earnings. The two main
aspects of working capital management are ratio analysis and management
of

individual

components

of

working

capital.

A few key performance ratios of a working capital management system are
the working capital ratio, inventory turnover and the collection ratio. Ratio
analysis will lead management to identify areas of focus such as inventory
management, cash

management,

accounts

receivable

and

payable

management.
Dividend decision

Dividend decision refers to the policy which the management formulates in
regard to earnings for distribution as dividends among shareholders.
Dividend decision determines the division of earnings between payments to
shareholders and retained earnings. The dividend decision, in corporate
finance, is a decision made by the directors of a company about the amount
and timing of any cash payments made to the company’s stockholders. The
dividend decision is an important part of the present corporate world.

The dividend decision is an important one for the firm as it may influence
its capital structure and stock price. In addition, the dividend decision may
determine the amount of taxation that stockholders pay.


14

Academy of Finance

1.1.2. Financial management
1.1.2.1. Definition
The financial management should be regarded as a component of the
company’s general management. From this perspective, the financial
management can be defined as an under-system of the company’s general
management.
It can be stated that the financial management has at least the following
tasks:
- To evaluate the effort, from the financial point of view, of all the actions
that are about to be made in a given administration period;
- To provide, at the right moment, in the structure and the quality
conditions claimed by necessities, the capital, at the lowest possible cost;
- To follow how the capital is used;
- To influence the decision factors in each performance center in order to
insure an efficient usage of all funds attracted in the circuit;
- To insure and maintain the financial balance according to the company’s
needs;
- To try to obtain the anticipated financial result and to distribute it on
destinations.
In large corporations, the owners (the stockholders) are usually not directly
involved in making business decisions, particularly on a day-to-day basis.

Instead, the corporation employs managers to represent the owners’
interests and make decisions on their behalf. In a large corporation, the
financial manager would be in charge of answering the three questions we
raised in the preceding section. The financial management function is


15

Academy of Finance

usually associated with a top officer of the firm, such as a vice president of
finance or some other chief financial officer (CFO). The vice president of
finance coordinates the activities of the treasurer and the controller. The
controller’s office handles cost and financial accounting, tax payments, and
management information systems. The treasurer’s office is responsible for
managing the firm’s cash and credit, its financial planning, and its capital
expenditures. These treasury activities are all related to the three general
questions raised earlier.
Broadly speaking, the basic purpose of the financial management’s actions
has to be company’s survival and implicitly its situation’s consolidation,
demonstrated by getting some worthy market performances. For this
reason, its role is to build a frame where the necessary connections between
three fundamental variables are about to be established, namely: the
company’s objectives, the company’s market value, the means and
instruments used for measuring the company’s financial and general
performances.
1.1.2.2. Factors impact financial management
The routine in financial management activities may be cumbersome for
some corporate leaders, but these work streams help companies run
efficient businesses. Functions such as record keeping, financial reporting

and fundraising help a firm ease its route to financial success. Factors
affecting financial management include government regulations, the state
of the economy, securities exchanges and borrowing costs.
Financial Regulations


16

Academy of Finance

Company principals establish a working rapport with regulators to create a
compliant, effective business environment. Senior executives understand
that adverse legislation can cripple productivity, a prelude to financial
losses later on down the road. Consequently, top leadership sets up
corporate compliance departments to monitor regulatory developments and
indicate how they may affect financial activities. For example, new
Occupational Safety and Health Administration rules concerning workplace
safety could increase personnel charges in corporate income statements.
Aside from compliance managers, internal auditors help companies find
ways to handle the binomial question of generating profits while complying
with the law.
Corporate Solvency
Solvency is a broad term referring to a borrower's ability to repay a loan
and steps the creditor takes to maintain a strong balance sheet. Investors
pay attention to solvency metrics to determine whether a firm is a good bet
or an unfortunate wager. Corporate-solvency discussions are hardly a
sideshow for financial management professionals. They contribute their
intellectual knowledge to these talks, helping corporate leadership find
ways to operate without piling on too much debt. Financial managers also
work in tandem with fixed-asset accountants to increase corporate assets,

such as equipment, land and machinery.
Securities Markets
Securities markets and businesses enjoy a mutually beneficial relationship.
Healthy conditions in financial exchanges positively affect corporate


17

Academy of Finance

financial strategies. Well-run, profitable firms move market trends, as
investors view corporate profits as a sign the economy is on an upward
trajectory. Financial exchanges, such as the Tokyo Stock Exchange,
Chicago Mercantile Exchange and New York Stock Exchange, enable
publicly traded companies to implement their financial strategies, most
notably by raising cash and purchasing long-term investments.
Business Lending
Business lending, or corporate credit, is a vibrant factor in the financial
management equation. It gives organizations the opportunity to operate in
the short term and think confidently about long-term expansion tactics. All
organizations, including charities, borrow to rein in the occasional cash
shortfall resulting from delays in customer payments or donor remittances.
Finding the right mix of debt and equity is part of a company's formula for
success. Failure to adequately think about what debt level is appropriate for
the firm may cause corporate income to drop. Corporate credit refers to
financial instruments such as loans, overdrafts arrangements, credit lines
and bonds.
1.1.2.3. The role of financial management
The role of financial management:
The financial management offers solutions for three major decisions of the

company: the investment decision, the financing decision, and the dividend
decision. The financial management’s task is to analyze the effects of each
decision and to find an optimal element to contribute to reaching the
company’s objective.


18

Academy of Finance

The roles of financial management in operating of company:
- Mobilizing capital for the operation of the company: Ensuring the
operation of company is carried out normally and continuously depends
greatly on the organization of mobilizing capital of the firm. Therefore,
properly funded policies not only help enterprises reduce financial risk, but
also a great impact to the performance objectives to maximize business
value.
- Using funds effectively and improve the business efficiency: Managers
want to use the capital saving and high efficiency, they have to choose the
optimal investment projects on the basis of considerations, comparison
between the profitability ratio, the cost of raising capital and the risk level
of the investment project.
- Monitoring the firm’s operation: Through the consideration of the
situation of daily cash collection and expenditure and especially through
the analysis and evaluation of the financial situation of enterprises and the
implementation of financial ratios, financial manager can timely and
comprehensive control of the operation of the company. Thereby, indicating
the existence and the untapped potential to make appropriate decisions and
adjust activities to achieve the objectives of enterprise.
In conclusion, the final goal of financial management is to maximize the

shareholder’ wealth or in other words, to maximize the market value of
shares.


19

Academy of Finance

1.2. Firms’ financial performance evaluation
1.2.1. Definition and purpose of financial performance evaluation
Performance evaluation is regarded as a useful step in attaining a selfevaluation method and consequently the improvement of accountability
power. Some scholars have considered performance evaluation as a part of
the great and emerging movement of accountability. They believe that
performance evaluation is one of the best methods employing an
accountability approach. Performance evaluation is itself in the need of
some indexes through which to evaluate corporate performance.
Performance evaluation indices are in fact an action guide from what it is
towards what it should be. Evaluating the performance of firms and
factories can act as a guideline that paves the way for future decisions,
concerning investment, development, and, most importantly, control and
supervision.
Purpose of this process is to understand and value a company, thus make
suitable recommendations and suggest sustainable and lasting solutions to
address any shortcomings found. The main task is to assess and analyze the
economic and financial standing of the company and find the factors that
have contributed to or retarded the growth of the chosen firm. Such
solutions and recommendations will go a long way to improve the present
situation and make the company more viable and profitable in future.
1.2.2. Financial performance evaluation
Financial Statements used in Financial Analysis

Data for the process of financial analysis is obtained from a range of
sources internally generated by the company. These statements can be


20

Academy of Finance

prepared periodically, generally annually, but could also be done quarterly
or for biannual accounting periods. The most basic and compact financial
document available to the general public is the annual report.
The annual report includes the balance sheet, profit and loss statement,
cash-flow statement and statement of changes in equity. In Europe and
most of the world, these financial statements are prepared internally by the
International Financial Reporting Standards (IFRS). Also included are
notes on the financial statements for explanations of the figures. The
information displayed in annual reports is usually limited to what is
prescribed by law. Any extra information is most often used by only the
internal users of financial analysis.
The Balance Sheet

The balance sheet is a simple summarization of a firm’s assets, liabilities
and equity, accordingly, at the end of every accounting period. It is the most
basic of financial statements, therefore, the most important. The accounting
equation is the basis of this financial report:


Assets = Liabilities + Equity

The left-hand side of this equation (assets) denotes the economic resources
controlled by the company. This includes buildings, machinery, cash, bank
accounts, etc. that are owned by the company. Assets could be divided into
two parts; fixed and current assets, to give more detail.
The right-hand side denotes sources of funding for the assets. It is also
divided into two parts. The liabilities relate to claims of creditors on assets
of the company. Equity is the total of contributed funds to the company


21

Academy of Finance

from the owners and accumulated profits which are also known as retained
earnings.
The disadvantage with the balance sheet as representation of a company’s
finances is that it does not reflect in detail the true nature of a company’s
structure. It also only considers accounting or book values of assets which
might be different from current market value. Apart from that, assets like
employees cannot be represented by figures in the balance sheet with
regards to their work experience and qualifications.
The Income Statement

The Income Statement is also referred to as the “Profit and Loss
Statement”. It simply reflects financial performance of a company between
consecutive accounting periods or balance sheets. It shows a list of
revenues, expenses, losses or profits over that time period, from operating
and non-operating activities. The difference between revenues and costs is
the economic result, which is a loss when negative and a profit or gain
when positive.

The income statement provides more detail on the company’s activities by
showing how much was spent doing what (expenditure) and revenue
accrued from those activities. This is important in helping decide company
tax and dividend policy and also helps users to know how much an activity
contributes to the economic result.
The Cash-Flow Statement

The statement of cash flows shows the sums of money coming in and going
out at any point in time of a company’s life. This statement is necessary
because under accrual accounting, net income does not always equal net


22

Academy of Finance

cash flow except over the life of a company, therefore, reporting of cash
inflows and outflows is a must to determine how much money is actually
passing through the company.
An analysis of this statement will tell the user about the about the viability
of the firm in the short-term. This has to do with its ability to meet shortterm liabilities like paying bills, short-term debts, etc. i.e. its liquidity. Also,
there is a breakdown of company activities into operating, financing and
investing activities
Statement of Equity

The statement of Equity shows how a firm acquires its funds in a specific
period and how it employs them. It reports changes in the different
accounts that make up equity. It is a total of registered capital, capital
contributions, reserve funds and retained earnings.
The Annual Report

This (annual) report is required by law and is prepared every year to inform
the general public about the current financial situation of the company. It
consists of the balance sheet, income statement, cash-flow statement and
statement of Equity, as well as additional information from the managers
and other top-ranking officials like the chairman of the board of directors in
the company.
Tools of Financial Statement Analysis
Financial statement analysis involves the identification of the following
items for a company's financial statements over a series of reporting
periods:


23



Academy of Finance

Trends. Create trend lines for key items in the financial statements over
multiple time periods, to see how the company is performing. Typical
trend lines are for revenues, the gross margin, net profits, cash, accounts
receivable, and debt.



Proportion analysis. An array of ratios are available for discerning the
relationship between the size of various accounts in the financial
statements. For example, you can calculate a company's quick ratio to
estimate its ability to pay its immediate liabilities, or its debt to equity

ratio to see if it has taken on too much debt. These analyses are
frequently between the revenues and expenses listed on the income
statement and the assets, liabilities, and equity accounts listed on the
balance sheet.

Financial statement analysis is an exceptionally powerful tool for a variety
of users of financial statements, each having different objectives in learning
about the financial circumstances of the entity.
1.2.2.1. Capital structure and financing policy
Assessment of financing ability of the company
Firstly, consider the volatility of the total capital, of each type of capital
both in absolute terms and relative horizontal technical analysis through.
Secondly, determine the proportion of each type of capital in total capital
through longitudinal analysis technique, with comparisons between the
beginning and the end of the proportion of each type of accounts to show
the reasonableness of the structure of capital and its impact to the business
activities of the company.


24

Academy of Finance

Capital Structure
Capital structure is represented by the capital structure ratio, the financial
index system is very important for business managers, creditors and
investors.

• Debt to capital ratio

Debts to capital ratio =

Liabilities
Total assets

Debt to capital ratio reflects the percentage of debt liabilities in an
enterprise's capital structure. To get an accurate assessment of the
reasonableness of the financing policy of the business, we need to consider
the debt to other factors such as production and business characteristics as
well as different periods of the business.
• Equity to capital ratio
Equity ratio =

This factor indicates the contribution of equity in total capital. This
coefficient is also known as the coefficient of self-financing.
In business, there should be flexible coordination between loans and equity
to take advantage of external capital while ensuring financial security for
businesses.
• Debt to equity ratio (D/E ratio)


25

Academy of Finance

Debt/Equity Ratio is a debt ratio used to measure a company's financial
leverage, calculated by dividing a company’s total liabilities by its equity.
The D/E ratio indicates how much debt a company is using to finance its
assets relative to the amount of value represented in shareholders’ equity.
• Interest coverage ratio

According to Richard Loth from Investopedia, the interest coverage ratio is
used to determine how easily a company can pay interest expenses on
outstanding debt. The ratio is calculated by dividing a company's earnings
before interest and taxes (EBIT) by the company's interest expenses for the
same period. The lower the ratio, the more the company is burdened by
debt expense.

Model of sources of financing
The relationship between the balance of assets and capital represents the
value of assets and capital structure of enterprises in production and
business activities, shown at the fair between mobilized capital and the
usage of them in investment reserves.
In particular, net working capital (NWC) is a stable long-term fund to
finance all or part of the short-term assets in business operations of the
business and is determined as follows:
NWC = short-term assets– short-term liabilities