Improving financial situations of minh dang construction and trading joint stock company

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ACADEMY OF POLICY AND DEVELOPMENT INTERNATIONAL
SCHOOL OF ECONOMICS AND FINANCE

GRADUATION THESIS
Topic: “Improving Financial Situations of Minh Dang
Construction and Trading Joint Stock Company”

Supervisor: Mrs. Dang Thuy Nhung
Student: Vo Thi Bich Ngoc
Student ID: 5083402210
Class: TC CLC 8.3

Hanoi, June 2021
i


ACKNOWLEDGEMENT
I would like to express my gratitude to the faculty members of the
Faculty of International Economics - Finance for facilitating my completion of
the graduate thesis, especially Ms. Dang Thuy. Nhung, who patiently taught me
during the process and provided me with helpful suggestions and ideas.
In addition to that, I would like to express my heartfelt gratitude to the
leaders of Minh Dang Construction and Trading Joint Stock Company,
especially Mr. Hoang Thanh Hanh, as well as the company's Finance Accounting Department and Business Department, who enthusiastically
supported me during my internship.
Developing a company's business is a large subject for me, and it requires
a great deal of professional expertise in the discipline. As a result, despite best
efforts, flaws cannot be avoided. I'm looking forward to hearing from teachers
and friends on how I can enhance my study.

Student
Vo Thi Bich Ngoc

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TABLE OF CONTENTS
ACKNOWLEDGEMENT.................................................................................ii
TABLE OF CONTENTS...............................................................................iii
LIST OF TABLES............................................................................................. 1
LIST OF FIGURES........................................................................................... 2
LIST OF ABBREVIATIONS............................................................................ 3
INTRODUCTION............................................................................................. 4
1. Origin of the study.......................................................................................4
2. Objective of the study.................................................................................. 5
3. Scope of the study.........................................................................................5
4. Research Methodology................................................................................ 5
5. Structure of the study..................................................................................6
CHAPTER 1:

LITERATURE

REVIEW

ON

THE

STATEMENT

ANALYSIS............................................................................................................7
1.1. Overview of financial statement.............................................................. 7
1.1.1. Definition of financial statement........................................................7
1.1.2. Function of financial statement......................................................... 7
1.1.3. Categories of financial statements..................................................... 8
1.1.3.1. Balance sheet................................................................................9
1.1.3.2. Income statement..........................................................................9
1.1.3.3. Cash flow statement....................................................................10
1.1.3.4. Notes........................................................................................... 11
1.2. Overview of financial statements analysis............................................ 11
iii


1.2.1. Definition of financial statements analysis......................................11
1.2.2. Role of financial statements analysis...............................................11
1.2.3. Process of financial statement analysis........................................... 12
1.2.3.1. Economic analysis...................................................................... 12
1.2.3.2. Industry analysis.........................................................................13
1.2.3.3. Company analysis.......................................................................14
1.2.4. Financial statement analysis techniques......................................... 14
1.2.4.1. Common size analysis.................................................................14
1.2.4.2. Horizontal analysis.....................................................................14
1.2.4.3. Ratio analysis............................................................................. 15
1.2.4.4. Dupont identity........................................................................... 21
1.3. Factors affecting financial statement analysis......................................22
1.3.1. Subjective factors.............................................................................. 22
1.3.2. Objective factors................................................................................22
CHAPTER 2: FINANCIAL STATEMENT ANALYSIS OF MINH DANG
TRADING AND CONSTRUCTION JOINT-STOCK COMPANY IN THE
PERIOD OF 2018 – 2020...................................................................................24

2.1. Overview of Minh Dang Construction and Trading Joint Stock
Company.............................................................................................................24
2.1.1. Establishment and development.......................................................24
2.1.2. Functions and business line.............................................................25
2.1.3. Organizational structure...................................................................26
2.1.3.1. Organizational chart.................................................................. 26
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2.1.3.2. Role of department......................................................................26
2.2. Background of economy and industry..................................................28
2.2.1. Economic analysis............................................................................ 28
2.2.2. Industry analysis............................................................................... 30
2.2.2.1. Segmentation of construction industry....................................... 30
2.2.2.2. Profit rate of the Vietnam construction industry........................32
2.2.2.3. Evaluating the Vietnam construction industry life cycle............32
2.3. Financial statement analysis of minh dang construction and trading
joint stock company in the period of 2018 – 2020...........................................34
2.3.1. Balance sheet analysis...................................................................... 34
a. Analysis of volatility and asset structure of the company....................34
b. Analyzing the capital source's volatility situation and structure.........42
2.3.2. Income statement analysis................................................................47
2.3.3. Cashflow statement analysis.............................................................54
2.3.4. Ratio analysis.................................................................................... 62
a. Short term solvency ratios................................................................... 62
b. Asset utilization ratios......................................................................... 65
c. Long term solvency ratios....................................................................68
d. Profitability ratios............................................................................... 74
2.3.5. Compare financial ratios of companies in 2020 with average industry

78
2.3.6. Compare financial ratios of companies in 2020 with company in
the
same industry.............................................................................................. 79
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2.3.7. Dupont identity..................................................................................81
2.4. Evaluation of financial situation............................................................86
2.4.1. Achivements.......................................................................................86
2.4.2. Limitations.........................................................................................86
2.4.2.1. Disadvantage about capital structure........................................ 87
2.4.2.2. Disadvantage about cash flow....................................................87
2.4.2.3. Disadvantage about account payable management...................88
2.4.2.4. Disadvantage about inventory management.............................. 88
2.4.3 Causes of limitations..........................................................................89
CHAPTER 3: SOLUTIONS TO IMPROVE FINANCIAL SITUATION . OF

MINH DANG TRADING AND CONSTRUCTION JOINT STOCK
COMPANY

TOWARDS

2025……………………………………………………......................................90
3.1. Back ground............................................................................................ 90
3.1.1. World situation.................................................................................. 90
3.1.2 Domestic situation..............................................................................92
3.1.2.1. Socio-economic situation............................................................92
3.1.2.2. The development prospects of the sector in the coming period .. 93

3.2. Business orientation of Minh Dang Construction and Trading Joint
Stock Company towards 2030...........................................................................95
3.3. Swot analysis............................................................................................96
3.4. Solutions to improve financial situation of Minh Dang company
towards 2025.....................................................................................................102
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3.3.1. Solutions to improve the efficiency of capital structure management
102
3.3.2. Solutions to improve the efficiency of cash flow........................... 103
3.3.3. Solutions to improve debt management......................................... 103
3.3.4. Solutions to increase the efficiency of inventory management.....103
CONCLUSION..................................................................................................105
REFERENCE.....................................................................................................106

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LIST OF TABLES
FIGURE 1: ORGANIZATIONAL STRUCTURE OF MINH DANG
CONSTRUCTION AND TRADING JOINT STOCK COMPANY'S MANAGEMENT
APPARATUS...............................................................................................

FIGURE 2: SEGMENTATION OF VIETNAM CONSTRUCTION INDUSTRY ...
FIGURE 3: PROFIT RATE OF THE VIETNAM CONSTRUCTION INDUSTRY . 32
FIGURE 4: VIETNAM CONSTRUCTION GROWTH RATE ............................
FIGURE 5: CONSTRUCTION INDUSTRY GROWTH IN THE WORLD ............
FIGURE 6: ASSET STRUCTURE OF THE COMPANY....................................
FIGURE 7: CASH FLOWS FROM OPERATING.............................................

FIGURE 8: CASH FLOWS FROM INVESTING ACTIVITIES...........................
FIGURE 9: CASH FLOWS FROM FINANCIAL ACTIVITIES ..........................
FIGURE 10: NET CASH FLOW OF COMPANY ...........................................
FIGURE 11: THE CHART REFLECTS THE GROWTH OF CAPITAL OF MINH
DANG CONSTRUCTION AND TRADING JOINT STOCK COMPANY IN 2018 –

2020..........................................................................................................
FIGURE 12: GRAPH OF THE RELATIONSHIP BETWEEN LIABILITIES AND
EQUITY OF MINH DANG CONSTRUCTION AND TRADING JOINT STOCK
COMPANY IN 2018 - 2020.........................................................................
FIGURE 13: PROFITABILITY RATIOS ........................................................

1


LIST OF FIGURES

FIGURE 1: ORGANIZATIONAL STRUCTURE OF MINH DANG CONSTRUCTION
AND

TRADING JOINT STOCK COMPANY'S MANAGEMENT

APPARATUS

-----------------------------------------------------------------------

FIGURE 2: SEGMENTATION OF VIETNAM CONSTRUCTION INDUSTRY --FIGURE 3: PROFIT RATE OF THE VIETNAM CONSTRUCTION INDUSTRY - 32
FIGURE 4: VIETNAM CONSTRUCTION GROWTH RATE --------------------FIGURE 5: CONSTRUCTION INDUSTRY GROWTH IN THE WORLD --------FIGURE 6: ASSET STRUCTURE OF THE COMPANY--------------------------FIGURE 7: CASH FLOWS FROM OPERATING --------------------------------FIGURE 8: CASH FLOWS FROM INVESTING ACTIVITIES -------------------FIGURE 9: CASH FLOWS FROM FINANCIAL ACTIVITIES-------------------FIGURE 10: NET CASH FLOW OF COMPANY -------------------------------FIGURE 11: THE CHART REFLECTS THE GROWTH

OF CAPITAL OF

MINH

DANG CONSTRUCTION AND TRADING JOINT STOCK COMPANY IN 2018 –
2020 ------------------------------------------------------------------------------- 68
FIGURE 12: GRAPH

OF THE RELATIONSHIP BETWEEN

LIABILITIES

AND

EQUITY OF MINH DANG CONSTRUCTION AND TRADING JOINT STOCK
COMPANY IN 2018 - 2020 -----------------------------------------------------FIGURE 13: PROFITABILITY RATIOS------------------------------------------

2


Acronym
COGS
ROA
ROE
EM
MĐ
CTX
BMI
GSO
FPTS

3


INTRODUCTION
1. Origin of the study
Investors and businesses play a critical role in fostering economic growth
in a market economy. Joining the World Trade Organization (WTO) expands
business prospects for Vietnamese companies, as the trade relationship is now
expanding not just domestically, but also internationally. Vietnam has become
more involved in the global financial market during the current integration
process. Aside from the benefits, there are still daunting risks and a fiercely
competitive climate to contend with. The existing investment and business
climate in Vietnam are steadily improving, making conditions more favorable for
both domestic and foreign businesses.
Competition is an unavoidable trend in the consumer economy, and it is
also the driving force behind manufacturing firms rising to assert themselves,
thrive, and develop. As a result, companies must function efficiently in order to
maintain a strong foothold in the industry, compete with other domestic and
international businesses, and have the resources to accumulate and grow
production and businesses must ensure the survival of their workers while still
fulfilling their responsibilities to the government.
The majority of companies, including Minh Dang Construction and Trade
Joint Stock Company, are growing their business services. However, the reality
reveals that seeking ways to expand business operations at Minh Dang Company
still has some flaws that need to be addressed fully. As a result, for my internship
thesis, I decided to choose the subject "Improving financial situations of Minh
Dang Construction and Trading Joint Stock Company"

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2. Objective of the study
Goal: The study was conducted to evaluate: “Improving financial
situations at Minh Dang Construction and Trading Joint Stock Company”
Mission: To achieve the above goal, the study must focus on solving the
following three items:
Make clear literature review of financial situation statement and

-

financial statement analysis
Analyzing the financial situations of Minh Dang Construction and

-

Trading Joint Stock Company over the course of 3 years starting from 2018.
3.

Finally, coming up with to enhance performance’s enterprise.

Scope of the study
-

Space of research: Minh Dang Construction and Trading Joint Stock

Company

-

▪

Time implement assess: 2018- 2020

▪

Time implement resolve: 2021- 2025

Content of research:

▪ The subject of research: Analyzing the financial statements at
Minh Dang Construction and Trading Joint Stock Company
▪ The objective of research: Analyzing the financial statements
4.

Research Methodology
-

Data collection method: collecting information on the company's

financial statements and documents.
-

Data processing method: Based on information collected, processing

data followa target uses.
-

Analytical method: common size method, cross comparision method,

financial ratios method, dupont method, synthesized interpretation method.

5


5. Structure of the study
The thesis is divided into three chapters, in addition to the introduction,
findings, appendices, sources, and many other categories:
Chapter 1: Literature review on the financial statement analysis.
Chapter 2: Financial statement analysis of Minh Dang trading and
construction joint-stock company in the period of 2018 – 2020.
Chapter 3: Solutions to improve the financial situation of Minh Dang
trading and construction joint stock company towards 2025.

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CHAPTER 1: LITERATURE REVIEW ON THE STATEMENT
ANALYSIS
1.1. Overview of financial statement
1.1.1. Definition of financial statement
According to the American Institute of Certified Public Accountants
(AICPA): “Financial statement was established to evaluate the result of an
operation’s company throughout investment activities and achievement
generates by the company after each financial active period. At the same
time, financial statement also reflects accounting principles used to record
the account events and assess them”.
According to the Vietnam accounting system in 2015, “Financial
statement is an economy, financial information system of the accounting unit
is represented by document which follow by standard and regime of
accounting. Specifically, a financial statement which includes displaying
about assets, equity, payable as well as the result of business activities of the

company happened in the same period. Therefore, we can assess the
financial situations and coming up with the solutions”.
Within the scope of the thesis, the author will follow the definition of
financial statement which is: “The financial statement is an accounting
statement that has a profound reflection on the company's asset, fund,
liabilities, and organizational effectiveness via period. As a consequence, the
financial statement's outcome will give helpful information to investors and
management”.
1.1.2. Function of financial statement
Financial statements keep an important role to financial analysis of the
company.
Financial statements provide all information about business activities,
thereby, readers can bring out use of capital’s assess and check to get profit.
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The data on the financial statement is also useful information to
calculate the next economic indicators.
Specifically, function of financial statement is important to each object:
▪ To the managers: financial statements provide correct and reliable
information to managers to help them easily operate and control all company’s
activities. Easily to examine and assess the result of financial situation happend
along with effective work of employees who indirectly work with that task.
After that, managers come up with good policies for their firm
To the investors: All of the investors need to read information from
financial statement to serve for their target. Their target completely different
than managers. They consider solvency, use of fund sources, earning
▪

and management capability of corporation throughout this company’s

financial statement. The investors were divided by two groups which are
shareholder group and lender group. Shareholder group primarily considers
liquidity and growth firm’s capability. Lender group mainly notices earning
and solvency enterprise’s ability.
To the Government: Government use financial statement to
assess tax duty to that company. At that time, they can accuracy that that the
firm comply all regulations and rules or not. From that, they have
recommendation to fix policies.
▪ To supplier and customer: Supplier looking for solvency firm’s
▪

capability to make the decision that should they sell goods to this company?.
If the longterm and shortterm solvency of the company which was represent
in the financial statement was so good, the company will have a faithful and
regular in payment. The customer will buy corporation’s goods with
confidence when the firm have good growth.
1.1.3. Categories of financial statements
In the financial statement system have variety types which include:
Taxes, Financial cash flow, Net working capital, Cash flow
8


management, and so on. However, there are 4 types of financial statement
was popular using which are the items below.
1.1.3.1. Balance sheet
➢ Definition
According to Ngo The Chi (2015) excerpt from the text book
“Corporate finance analysis”, the balance sheet is a financial statement that
shows an overview of the company's asset condition and the source of asset
formation throughout the period. Regarding economics, asset analysis

represents capacity and level of capital use. Similarly, we may review a
company's financial reality during a fund review. In terms of juridical, the
asset illustrates the potential company. The capital portion reflects the capital
that forms the assets of the enterprise and the responsibility of the business
on that capital. The function of balance was represent as follow:
Assets = Liabilities + Owner’s equity
➢

Function
The balance sheet is a necessary document for information users to

analyze and evaluate in general the management and use of resources
(assets), mobilization and use of capital and financing of the organization.
1.1.3.2. Income statement
➢ Definition
According to Ngo The Chi (2015) excerpt from the text book
“Corporate finance analysis”, an income statement is a financial statement
that describes the characteristic and outputs of an enterprise's business
activities in detail for each production and business activity over a certain
accounting period (sales and service provision, finance and other activities).
Income is defined as follows:
Revenue – Expenses = Income

9


➢

Function
Provide estimates of the company's sales, costs, benefit (or loss) as a

result of its usual business and operations outside of its ordinary course of
business, including tax expenses and income business, during the business
year.
Analyze and evaluate the implementation of the strategy, including
manufacturing costs, cost ratios, good products and revenue, acquisitions,
benefit from other activities, and results.
Evaluate the company's growth direction and take action to optimize
prospects while growing and mitigating potential mistakes.
1.1.3.3. Cash flow statement
➢ Definition
Acceding to Ngo The Chi (2015) excerpt from the text book
“Corporate finance analysis”, the cash flow statement is a part of a business
financial statement system, plays a role in providing information about the
change of asset, the capacity of exchange asset into liquidity, and the
creation of money during enterprise performance.
In addition to that, the cash flow statement can use to examine the
circulation of cash flow, profitability, and speed of the flow of future cash
flows thereby providing the information for the management owners.
➢ Function

Provides data to measure a company's ability to raise capital and cash
equivalents, as well as its need for cash.
Provide consumer insights of the study, such as timing and certainty of
cash production in the business.
By presenting information about the cash flow provided by the
company's operational operations and financial spending activities, the impact
of those activities on the financial situation of the firm can be measured.

10

Provides information for determining a company's solvency and
setting goals for the next operational period.
1.1.3.4. Notes
According to Ngo The Chi (2015) excerpt from the text book
“Corporate finance analysis”, notes is a detailed explanation statement about
financial professions happened and the recording methods for this to the
reader catch up helpful information for their needs.
1.2. Overview of financial statements analysis
1.2.1. Definition of financial statements analysis
According to Nguyen Nang Phuc (2009) excerpt from the text book
“Financial statement analysis”, the financial statement analysis is an
collection of calculation methods to judge financial situation so far, predict
financial situation in the future to come up with effective management
methods tailored to their targets.
1.2.2. Role of financial statements analysis
According to K.R. Subramanyam (2009) excerpt from the text book
“Financial statement analysis”, the process of determining, investigating,
comparing, and contrasting financial data from current and previous company
periods is referred to as financial statement analysis. Users of information can
judge the enterprise's future potential, corporate performance, and financial
dangers.
Two groups take care of the financial statement analysis which are:
direct benefits and Indirect benefits.
Direct benefits group: shareholders, investors, managers inside
the company, credit providers who use to make their decision before invest to
that company which include: the reality operation, solvency and liability of
the company. The managers throughout that analysis document can recognize
weakness and strengths of their to have effective management policies.

▪

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▪ Indirect benefits group: state management agencies (not
including tax authorities), economic research institutes, students, employees.

Competitors also pay attention to financial situation of the firm to make
strategies struggle to the company
For research and study, information from the examination of financial
statements of firms, in general, is of interest to researchers and economic
students.
1.2.3. Process of financial statement analysis
In the financial statement system which has a variety of methods to
financial statement analysis, especially, the most commonly used method of
which is top down EIC means Economic – Industry – Company. The
following are the specifics of each approach.
1.2.3.1. Economic analysis
Professionals use economic research to determine the most significant
economic factors influencing the performance of a company, industry, region,
or demographic community. Unlike the goal of hopefully improved decisionmaking.
Economic forecasting of industry allows for the incorporation of
economic factors such as inflation, interest rates, currency exchange rates, and
GDP growth into business strategies. Any organization is a living organism
that is influenced and conditioned by its environment. This means that a
systematic analysis of economic conditions can help in the discovery of errors
and risks in the business' activities.
Strategic planning processes are usually conducted once or twice a
year, and the two or three possible economic scenarios in the short to medium

term are often identical. They then evaluate how each scenario will affect the
company's decision-making and target attainment. Economic analysis is often
used for assessing particular plans for economic and financial feasibility.
12


Economic forecasts aids corporate owners in gaining a greater
understanding of the world economy and how it impacts their company's
ability to thrive. Economists, statisticians, and mathematicians also do this
study on behalf of for-profit and non-profit organizations. These economic
evaluations take a close look at the market's strengths and weaknesses. Small
to medium-sized businesses, as well as residential businesses, are included by
the economic review. Small firms, in fact, would need to conduct economic
analysis more often than larger firms with more resources and facilities to
weather a downturn. To get an understanding of how their company could bid
in the future, business managers can use a range of economic assessment
techniques.
1.2.3.2. Industry analysis
A competition evaluation is carried out by an individual or a business
company in order to recognize known factors influencing the sector in which
they are considering investing.
Industry success is influenced by new competitors, competitor
rankings, and both customers and suppliers. Industry analysis is a philosophy
that provides industry participants with the information they need to plan a
profitable enterprise. Keep in mind that if you want to execute a good
intervention plan, you would have a specific perspective on the workforce in
the big picture.
Industry

research

informs

industry

leaders

about

the

many

opportunities and challenges they face, encouraging them to take steps to
respond to them and gain a competitive advantage.
Business managers can better forecast emerging developments by
understanding the operating environment of the market and the conditions
affecting it.

13


1.2.3.3. Company analysis
A method of assessing a company's finances, goods, services, and
strategies (the company's attempts to cope with risks and opportunities) is
known as business analysis.
After gaining a comprehensive analysis of the organization's external
climate, the analyst prepares a company report, which includes answering
questions about how the firm should react to the challenges and opportunities
presented by the external world. The best response is determined by each

company's strategic strategy. Analysts should figure out whether the
company's approach is mostly defensive or aggressive, as well as how it plans
to carry it out.
1.2.4. Financial statement analysis techniques
1.2.4.1. Common size analysis
According to Ngo The Chi (2015) excerpt from the text book
“Corporate finance analysis”, vertical analysis looks at the relative influence
of various factors on a larger scale. This type of study necessitates calculating
the total scale in order to determine the weighting of each item.
Common Size Amount = (Analysis Amount / Base Amount) x 100%
The base number can vary whether a corporation finishes a balance
sheet report or financial statement. When the corporation does a balance sheet
analysis, the total principal may be net assets or total liabilities and equity.
Net revenue were the most significant figure on the income statement.
1.2.4.2. Horizontal analysis
Acorrding to Ngo The Chi (2015) excerpt from the text book
“Corporate finance analysis”, horizontal analysis is a quantitative comparison
based on the same criterion; in particular, it is the method of matching both
absolute and relative numbers to data obtained after processing and
constructing below the board form.
14


Horizontal monitoring necessitates two or three-year reporting
intervals. The base period is typically the most significant, and all objects
from subsequent periods are added to the base period argument's entries.
Currency and percentage words are the most common ways to reflect shifts.
➢

1.2.4.3. Ratio analysis

Short term solvency ratios
Short-term solvency ratios are the financial power capacity of the company

to use for liability. Thereby, we can assess the firm’s payment capacity,
clearly recognize their potential as well as the backward in raise capital and
pay to debts.
- Current ratio
Current Assest

Current ratio =

Current Liabitity

This measure evaluates a business's overall potential to repay its debts.
The relationship between the overall assets managed and used by the company
and the total liabilities (both short-term and long-term debts) is depicted by this
coefficient, which indicates how many dollars of assets are secured with every
dollar of debt. When this coefficient is less than 1, it means that total assets <
total liabilities, the company's whole accrued assets are insufficient to pay its
debts, signaling insolvency. If this ratio is too high, though, it should be
investigated, and the company's use of financial leverage will be inefficient.
Creditors are more likely to lend to companies with a high this ratio.

- Quick ratio
Quick ratio =
This index measures a person's ability to pay short-term liabilities with
cash and cash equivalents and other amounts without taking into account
inventory and prepaid expenses. This is a criterion creditors use to determine
whether a corporation can pay off short-term loans quickly or not. If this
15

indicator > 1 means that the corporation will still pay off short-term
obligations and protect the remainder of short-term debts, creditors would be
more optimistic. However, not all debts need to be paid immediately at the
time of analysis. When there are overdue debts due, the creditor is concerned
with the immediate ability to pay the due debts.
- Cash ratio
Cash ratio =
This is the highest belief of creditors with the company. With the
number of current cash and cash equivalents, how many time immediately
payment when outdated debts and debts due.
➢ Asset utilization ratios
-

Total asset turnover
Revenue
Total Asset Turnover = Average Total Assets

Total asset turnover reflects the productivity of using the current total
asset of the company to get the revenue. As a result, there is a good thing if
the company has a higher figure. Bad inventory turnover, on the other hand,
indicates that the company is not effectively using its properties to generate
revenue.
The index aids investors in determining how businesses use their
investments to increase profits. The asset turnover ratio is used by investors to
compare firms in the same industry or class. The asset turnover ratio of a
business is affected by high asset sales and acquisitions in a given year.
- Inventory turnover
Inventory Turnover =

Number of days in period
Days of inventory on hands (DOH) =
16

Inventory Turnover


The inventory turnover represents the number of average inventory
days in the period. DOH shows the day of inventory in the warehouse before
sold. If inventory turnover decrease and DOH increase make the speed
rotating inventory will slow. This lead to a loss in finance and profitable
power decrease.
On the other hand, the company construct a new policy which includes
reserve more inventory because the reason why the change of price of
materials in the future or other reason, this will a reasonable result.
- Receivables turnover
Revenue
Receivable turnover = Average Receivable

Number of days

Days of sales outstanding (DSO) = Receivable turnover

Payment capital is a part of the company's capital temporarily occupied
by affiliated parties at the payment stage, allowing each party to buy and sell
goods without having to pay cash. This form of financing often makes up a
significant portion of the total operating resources of a business, so the change
in payment capital also significantly affects the efficiency of capital use of the
enterprise. Payment capital is generated in a positive way during market
operations; however, if it is not properly managed, the company risks losing

both principal and additional earnings during each supply and trade cycle.
To reflect the capability of taking back capital occupied, receivables
turnover will give us a useful answer, there is a good thing if it has high
turnover. However, the receivables turnover too high will not good because it
will affect the number of consuming goods by payment methods.
Regarding DSO, this is a figure show how much time can take
receivables. It is grateful if this item results in less than the fixed day to sell
goods on credit and vice versa.

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➢

Long term solvency ratios
Long-term solvency ratios are used to assess a company's ability to meet

its long-term obligations, or more generally, its financial liabilities. These ratios
are called financial leverage ratios or simply financial leverage ratios. Three
commonly used sizes are checked, as well as certain modifications.

- Debt to asset ratio
Total debt
Debt to asset ratio = Total assets

The debt ratio shows the capital structure of the company, which is
calculated as the ratio of total liabilities to total assets, revealing the
company's financial structure. This formula reflects in a single coin is
activated by the enterprise include how many take from liabilities
This statistic will be used by analysts to equate a company's leverage to

that of other firms in the same sector. This data will be used to evaluate a
company's financial health. It is riskier to invest in anything with a higher
leverage ratio..
- Equity multiplier (EM)
Total asset
Equity multiplier = Total equity

Equity multiplier gives information about the number of equity in the
total company capital. The greater the value of this indicator, the less the
enterprise's assets are financed by equity, reducing its financial
independence, and conversely.
From the two formula above, we have the new approach:
Debt to asset = 1 – EM
EM = 1 - Debt to asset

Or
- Debt to equity ratio

Total debt
Debt to equity ratio = Total equity

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