FINANCIAL STATEMENT ANALYSIS VIETNAM DAIRY PRODUCTS JSC

DA NANG UNIVERSITY DA NANG UNIVERSITY OF ECONOMICS ACCOUNTING FACULTY FINANCIAL STATEMENT ANALYSIS: VIETNAM DAIRY PRODUCTS JSC Lecturer: Associate Professor Đo n Ng c Phi Anh GROUP 2: Lê Thị Thuý Hằng: 42K18.2-CLC Phạm Hà Lan Chi: 42K18.2-CLC Hồ Thị Thuý Hà: 42K18.2-CLC Ho ng Thị Y n Nhi: KT42K18CT2.1-CLC Da Nang, 04/2019 download by : skknchat@gmail.com MCLC I General information: II Assets structure: III Resource structure: Financial autonomy: Fund stability: Financial balance: IV The factors affecting the efficiency of using current assets: V Operational efficiency: Analysis of asset use efficiency: Inventories turnover: Customer accounts receivable turnover Account payable turnover Return on sales (ROS) 10 Return on assets (ROA) 10 Return on equity (ROE) 11 DuPont Analysis and factors affect ROE: 11 VI Analyzing financial risks and business risks in financing options: 13 VII Analyze insolvency risk of enterprises: 13 Short-term liquidity risk: 13 Long-term solvency risk: 15 VIII Change depreciation method: 16 IX Evaluate the performance of enterprises through EVA: 17 X Conclusion: 19 download by : skknchat@gmail.com Vietnam Dairy Products JSC Group I General information: Vinamilk (Vietnam Dairy Products JSC) is the largest dairy company in Vietnam Based on the UNDP 2007 Top 200 largest firms in Vietnam report, it is also the 15th largest company in Vietnam and the most valuable public company listed in Vietnam In 2010, it is the first company in Vietnam to be included in the Forbes Asia's 200 Best Under A Billion list that highlights 200 top-performing smalland mid-sized companies with annual revenue under US$1 billion The company was established in 1976 as the state-owned Southern Coffee-Dairy Company, to nationalize and take over the operations of three previously private dairy factories in South Vietnam: Thống Nhất (belonging to a Chinese company), Trường Thọ (formerly owned by Friesland Foods, best known for its production of condensed milk that was widely distributed across the South) and Dielac (Nestlé) It was renamed United Enterprises of Milk Coffee Cookies and Candies in 1978 It became the Vietnam Dairy Company, formally established in 1993 In 2003, following its IPO to the Ho Chi Minh Stock Exchange, the company legally changed its name to Vietnam Dairy Products Joint Stock Company (Vinamilk) The principal activities of the Vinamilk are to produce and distribute condensed milk, powdered milk, fresh milk, soya milk, yogurts, ice-cream, cheese, fruit juice, coffee and other products derived from milk II Assets structure: Criteria Current assets Cash and Cash equivale nt Short term financial investm download by : skknchat@gmail.com Vietnam Dairy Products JSC ents Short term accounts receivab le Inventor ies Other current assets Noncurrent assets Long term accounts receivab le Fixed assets Long term financial investm ents Other noncurrent assets Total assets 2016: Expanding four more potential markets in Africa download by : skknchat@gmail.com Vietnam Dairy Products JSC Group Contributed 18% share capital of APIS JSC as to expand and broaden goods supply chain of Vinamilk Opened a respresentative office in Thailand 2017: Cu Chi Raw Milk Center was went under operation Invested in sugar industry by acquiring 65% share capital of Vietnam Sugar JSC (formerly known as Khanh Hoa Sugar JSC) and 25% share capital of Asia Coconut Processing JSC Cash: in 2017, cash significantly increases because thanks to good business results, the Company always maintained a high level of cash and managed this cash flow in an effective and safe way The risk management policy was set up to ensure that term deposits were always at optimal levels of safety and flexibility in order to meet the Company's capital needs at all times Accounts receivable: accounted for 12.85% of total assets No significant bad debts were incurred during the year The Company maintained a good policy on receivables management The amount of accounts receivable in 2017 increases nearly double compared to the previous year That because since mid-November 2017, the Company has changed its credit policy for domestic customers, in which the credit period was increased to support sales better This change led to an increase in receivables from customers Inventories: There was a significant decrease in the proportion of inventories in 2017 compared to the previous year Because in 2017, The "Just in time" procurement strategy has been applied together with the optimization of inventory management and warehouse planning at the subordinate units that have brought about remarkable results in the Company’s inventory control, compared to the previous year III Resource structure: Financial autonomy: Total liabilities Total assets Total liabilities/Total assets (Debt ratio) Owner equity Total assets Owner equity/Total download by : skknchat@gmail.com Vietnam Dairy Products JSC Group assets (Self-funded ratio) The debt ratio reflects the level of debt use of the company In 2017, this ratio is 28%, means 28% of the company's asset value is financed from debt The debt ratio of Vinamilk gradually increases over the years (from 22% to 28% over the past three years), but still quite low compared to the industry average (Milk industry’s debt ratio is 68.98%.) Company uses less debt to finance its assets This has the positive side of the ability to financial autonomy and the ability to borrow a high debt in the future However, the downside is that the company does not take advantage of financial leverage and loses the opportunity to save the tax from the use of debt Healthy financial structure brings significant advantages for the Company in implementing M&A deals on a large scale Debt ratios tend to increase over the years because in recent years, there are more big competitors such as TH True Milk, Nutifood and dozens of liquid milk brands imported from abroad This competitive pressure forces Vinamilk to increase its investment even further in order to keep its market dominance Vinamilk has very good cash flow generated from stable business operations, with high profit growth This is a platform for flexible implementation of business strategies, putting pressure on all competitors Market forces show that only foreign competitors are competitors that can threaten Vinamilk's position Accompanying it is expanding exports to potential markets Vinamilk has factories overseas such as the US (owning 100% Driftwood factory in California state), Cambodia (owning 100% Angkormilk factory in Phnom Penh capital), and New Zealand (owning 22.8%) with subsidiary in Poland The company's products have been exported to 43 countries around the world such as the US, Japan, Australia, Thailand, Myanmar, Bangladesh, countries in the Middle East region Fund stability: (1) Current liabilites (2) liabilites Non-current (3) Owner’s equity (4) = (2)+(3) Permanent capital download by : skknchat@gmail.com Vietnam Dairy Products JSC Group however, the downside is that the company does not take advantage of financial leverage and lose the opportunity tax from the use of debt With RE is 41.26% compared to loan interest rate that is less than 10%, the company should use more debt to amplify ROE Conclusion: In order to increase ROE efficiency, the company often focuses on increasing the efficiency of asset use to generate revenue (asset turnover) and ROS Asset turnover decreased slightly but this ratio is still higher than the average industry However, thanks to the cost control, ROS increased sharply compared with to the industry which helped ROE rise dramatically The company maintains the use of leverage at a safe level, hardly use loan capital From focuses on to high safety, the company pushed the tax burdens rise VI Analyzing financial risks and business risks in financing options: ROE=(RE+(RE-i)*D/E)*(1-T) RE Option Option Option In case of RE = i, (RE-i) * D/ E=0 leads to capital structure without affecting ROE In case of RE> i, the financial leverage will affect the ROE amplification so in the case of RE = 10, 12%, option will be the optimal option In case of RE Vinamilk was using liabilities to finance the assets Liabilities to shareholder's equity ratio is less than 1, the company used debt less than equity to finance assets => the financial autonomy ang the ability to borrow capital of Vinamilk are high, however, the company didn’t take advantage of financial leveage and lost opportunities for saving tax from using debt The interest coverage ratio (ICR) is a measure of a company's ability to meet its interest payments In 2017, ICR of the company is 972.02, being more than double 2016 This means that the ability to pay interest amount is very well because every dollar in interest expense, the company has $972.02 from profitable operation to pay The interest payable can make the income tax decrease but the dividends per share don’t Because the company using debt instrument is responsible for pay a stable interest expense It makes financial cost be limited and creates situation which the financial leverage of the company is used effectively VIII Change depreciation method: Regarding discount cash flow method, firm’s value is determined by the present value of the free cashflow in future This cash flow is determined by the formula: FCFF = EBIT x (1 - Tax Rate) + Depreciation of fixed assets – Capital Expenditure – Changes in Net Working Capital Because Depreciation is these expense as a tax deduction on Income Statement but it differs with other expenses in that it is not an expenditure The cashflow from operation activities will higher than net profit from depreciation If the company change the depreciation method, in the earlier years, the amount of depreciation under the double-declining-balance method will be significant greater than the amount under straight-line method The free cashflow in future will increase The firm’s value increase 16 download by : skknchat@gmail.com Vietnam Dairy Products JSC Group As the declining balance method is only suitable to enterprises operate in easily obsolete technology fields which it has the fixed assets changing quickly On the other hand, Vinamilk is manufacturing companies; the machines and equipment, that Vinamilk uses, have the relatively long estimated useful life: Tangible fixed assets: 5-50 years Intangible fixed assets: over years Vinamilk should not change from the straight-line method to the doubledeclining-balance method IX Evaluate the performance of enterprises through EVA: (Unit: 1.000.000d) Figures Amount EBIT Total owner’s equity Interest rate of WACC Weight average cost of capital (WACC) =(2)x(3) 3,738,001 EVA = (1)-(4) 8,771,720 EVA/ Total owner’s equity (%)=(5)/(2) 27% ROI (%)=(1)/(2) 38% 12,509,721 32,509,573 11.50% Net profit of the company in 2017 is about VND 10,545,161 million while EVA is 8,771,720 It confirms that in 2017, Vinamilk not only has profit but also creates and increases the additional value for shareholders The additional value is 8,771,720, equivalent with 70,12% This shows that profit can cover the loan interest and gain the expected rate of return of shareholders However, like the other measurement, EVA has still restriction for using mainly the accounts on the accrual basic to measure business income instead of using the accounts on the cash basic In order to overcome this weakness, when calculating the EVA measurement, the company have to adjust some accounting information to improve this indicator's usefulness Adjusting: Index Invested capital ( Balance Sheet) 17 download by : skknchat@gmail.com Group Vietnam Dairy Products JSC NOPAT Subtract the indexes not Invested capital The funds: the reward and welfare funds The Investment Funds Interest-free loans Accounts payable Deferred revenue Taxes and other payables to the State budge Payables to employees Short-term Unearned Revenue Long-term Unearned Revenue Other Short-term liabilities Total - R&D cost Operating Lease The allowances: Short-term provisions long-term provisions Provision for bad debts Provision for devaluation of stocks allowances for long-term investments The accural expenses: The short-term accural expenses The long-term accural expenses Deferred income tax assets 21,736,603 Invested capital after adjusting 10,540,905 NOPAT after adjusting Figures Amount EBIT after adjusting 10,540,905 Total owner’s equity after adjusting 21,736,603 18 download by : skknchat@gmail.com Group Vietnam Dairy Products JSC Interest rate of WACC Weight average cost of capital (WACC) =(2)x(3) 2,499,709 EVA = (1)-(4) 8,041,195 EVA/ Total owner’s equity after adjusting (%)=(5)/(2) ROI (%)=(1)/(2) 11.50% 37% 48% With the above calculation results, after adjusting the accounting data to reduce the difference due to the accounting method of accounting, the added economic value of the company in 2017 is about 8,041,195,000,000 shows that the company still ensures to create real value for shareholders as well as the true value of the business is at a high level X Conclusion: Continue to manage the key costs (cost of good sold, selling expense), investing in technology => Increases in labour productivity, management capacity Continue to keep the account receivable turnover higher than the account payable => take the initiative to manage cash and liquidity Continue to maintain to manage the inventory turnover => Minimize power cuts in costs, reduce the damaged goods You can use higher debt ratios to increase business efficiency, use more debt instrument to relieve the tax burden 19 download by : skknchat@gmail.com Vietnam Dairy Products JSC Group REFERENCES Separate financial statement of Vietnam Dairy Products JSC in 2015, 2016, 2017 Annual report of Vietnam Dairy Products JSC in 2015,2016,2017 General information of the industry at https://vn.investing.com/equities/vietnam-dairy-products-jsc-ratios Slides of Associate Professor Đo n Ngọc Phi Anh - lecturer in Accounting Faculty in Danang university of Economics download by : skknchat@gmail.com Vietnam Dairy Products JSC Group EVALUATION No Full name Lê Thị Thuý Hằng Phạm Hà Lan Chi Hồ Thị Thuý Hà Ho ng Thị Y n Nhi Total download by : skknchat@gmail.com ... skknchat@gmail.com Vietnam Dairy Products JSC Group REFERENCES Separate financial statement of Vietnam Dairy Products JSC in 2015, 2016, 2017 Annual report of Vietnam Dairy Products JSC in 2015,2016,2017... skknchat@gmail.com Vietnam Dairy Products JSC Group I General information: Vinamilk (Vietnam Dairy Products JSC) is the largest dairy company in Vietnam Based on the UNDP 2007 Top 200 largest firms in Vietnam. .. are increasing The financial performance of the business also increased DuPont Analysis and factors affect ROE: 11 download by : skknchat@gmail.com Vietnam Dairy Products JSC Group ROE is nearly