Assignment financial statement analysis kinh do joint stock company (KDC)

Course: Business Finance Assignment: Financial Statement Analysis Lecturer: Dr Trần Tất Thành Wordcount: Name Class Student code Lê Hoàng Thiên Minh LSIC 62 11202541 PREFACE Businesses must have a certain amount of capital to execute their operations, which includes cash, assets, owner's equity, and other capitals Enterprises must manage, and utilise their capitals as efficiently as possible while conforming to financial, credit, and legal regulations As a consequence, in order to conduct business successfully and limit risks, companies must examine their operations while also projecting future business conditions and making appropriate strategies Financial analysis is a process that provides information to managers, investors, and others.  Those are intrigued by corporate finance from a unique standpoint in order to benefit their management career and financial investments As a consequence, reviewing an enterprise's financial status is a common and necessary duty in corporate finance management; it is both practical and long-term strategy Financial statements are the main records used to examine a company's financial condition because they provide the most complete image of its people, capitalization, assets, liabilities, and equity, as well as other indications of financial position and business success In this topic, Kinh Do Joint Stock Company (KDC) is chosen for in-depth assessment over a three-year period Table of Contents .1 PREFACE I Introduction II Sources and uses of cash analysis III Standardized financial statement analysis Common-size balance sheet .7 Income statement analysis .8 IV Financial analysis 10 Liquidity ratio 10 Financial leverage ratio 11 Turnover ratio .12 Profitability ratio 13 Market value ratio 14 V Dupont analysis .14 VI Conclusion 15 I Introduction Company’s background KIDO Corporation was founded in 1993 and has since grown to become one of Vietnam's top Food & Flavor enterprises KIDO Group has been the market leader in confectionery across a broad range of items such as candy, biscuits, and ice cream under the KIDO brand name during its 22-year existence KIDO Group was formally created in 2015 with the goal of expanding and developing into necessary food By promoting existing platforms, KIDO maintains and develops its leading position in the frozen industry with Ice-Cream, Milk & Dairy products, and expands its product portfolio to the food and beverage industry, primarily with cooking oil, instant noodles, seasoning seeds, sauces, coffee, convenient packaged foods, and so on, to take care of Vietnamese family kitchens and meet customers' needs throughout the day KIDO now controls 43.5% of the ice cream industry and more than 30% of the cooking oil market Food product industry The food industry is an intricate network of farmers and enterprises that provide a large portion of the food eaten by the world's population The food business encompasses all areas of food production and distribution It comprises agricultural and animal production, farm equipment and agrochemical manufacturing, food processing, packaging and labelling, storage, distribution, regulatory frameworks, finance, marketing, retailing, catering, research and development, and education Regarding the company's total market share of the whole industry from 29%-30%, it shows that KIDO will continue to hold the No.2 position in the whole industry in Vietnam in 2020-2021 In 2021, despite the impact of the Covid-19 pandemic, KIDO Group Joint Stock Company (KIDO) still achieved KIDO's net revenue of VND 10,497 billion, up 26.1% over the same period last year KIDO's after-tax profit reached VND 653 billion, an increase of 97.3% compared to 2020 The company's total market share of the industry is from 30% to 32%, showing that KIDO's market share is still increasing year by year II Sources and uses of cash analysis 2019-2020 period Figure 1: Sources and Uses of Cash in 2019-2020 In Figure 1, the Kido Group's total assets, total liabilities, and total equity are shown together with the sources and uses of cash throughout the 2019–2020 period Overall, it is abundantly evident that 2019's total assets, liabilities, and equity have all grown relative to 2020's Between 2019 and 2020, the Kido Group's total assets climbed by around 5000 billion dong More specifically, the overall uses of cash increased significantly by around 577 billion, 303 billion, 80 billion, and 30 billion dong, respectively, in cash, inventories, other current assets, and other non-current assets The reduction in account receivables and net fixed assets, however, also contributed to the overall cash uses Kido Group nevertheless spent a lot on account receivables despite a minor decrease of roughly 400 billion dong in both the current and long-term receivables Additionally, the sources of cash include increased A/P (244 billion dong), N/P (12 billion dong), and other CL (863 billion dong) The usage of cash increased as LT debt and C/S declined, yet C/S was still used for around 7,699 billion dong b 2020-2021 period Figure 2: Sources and Uses of Cash in 2020-2021 Figure 2 depicts the sources and uses of cash, as well as changes in Kido’s assets, liabilities, and owner’s equity from 2020 to 2021 In general, there is a large increase in total assets, total liabilities, and equity in 2021 compared to 2020 In instance, total assets increased dramatically from around 12,349 billion to 14,072 billion between 2020 and 2021, an increase of almost 1,800 billion in two years During this time, there was a notable growth in A/P (212 billion dong), N/P (381 billion dong), other CL (997 billion dong), and LT debt (936 billion dong), all of which played a significant role in expanding cash streams Furthermore, there were reductions in other current assets (150 billion dong) and Net FA (135 billion dong), both of which add to cash sources Furthermore, cash, account receivables (long-term and short-term), inventories, and other non-current assets all increased by around 179, 231, 1283, and 316 billion dong, respectively, during this time period These hikes have a considerable influence on cash use Furthermore, one of the uses of funds was to diminish the value of ordinary shares, by 804 billion dong Overall, Kido Group’s total assets, total liabilities, and equity increased consistently from 11,932 billion in 2019, to 14,072 billion in 2021, resulting in a difference of approximately 2,140 billion dong Furthermore, the sources and uses of money in the year 2020-2021 are about 1,000 billion greater than in the period 2019-2020 In which, owing to the Covid-19, the business experienced costs and debts, as well as increased storage of products, in order to keep the firm going and contend with other competitors in the year 2020-2021 As a consequence of the growth in long-term obligations and inventories, more cash was used III Standardized financial statement analysis Common-size balance sheet Figure 3: Common-size balance sheet 2019-2021 Figure shows how the assets, liabilities, and equity mix changed in the three year period, with each item computed as a proportion of total assets Overall, there have been significant changes in the percentages of cash, inventory, net FA, and other assets, which have resulted in changes in total current and noncurrent assets Cash and cash equivalents climbed significantly from 4.40% in 2019 to 8.92% in 2020, then increased marginally to 9.10% in 2021 This is connected to Kido lowering the share of investment in short-term and long-term assets, instead opting to hold cash and cash equivalents In any case, the percentage of other current assets grew marginally by 0.44% in 2020 but declined by 1.90% in 2021 Furthermore, the percentage of other non-current assets declined substantially from 2019 to 2021, from 34.42% to 31.65% Reducing the percentage of short-term assets demonstrates that businesses limit the volume of output The current accounts receivable ratio from 2019 to 2020 was fairly promising since it slowly dropped from 22.83% to 18.14% This demonstrates that the business controlled its debt well at this time and had efficient trade credit procedures An important component of total assets is made up of inventories From 7.61% to 9.81%, the inventory ratio grew somewhat in 2019–2020 Even though the majority of Kido's goods are seasonal and have a limited shelf life, the inventory ratio almost quadrupled from 2020 to 2021, reaching 17.73% This demonstrates that the business isn't really utilizing capital efficiently Additionally, the influence of Covid-19, which lowers consumer demand for items and raises Kido stocks, also contributes to the growth in inventory ratio Over time, the percentage of fixed assets dropped, going from 23.90% in 2019 to 21.67% in 2020 and 18.06% in 2021 Account payables climbed by 1.86% from 2019 to 2020, however they only increased by 0,86% from 2020 to 2021 Throughout the three years, note payables increased by 2.13% In 2021, the ratio's longterm debt component was rather significant Although the debt ratio climbed significantly in 2021 with 12.65%, it declined marginally in 2019–2020 from 9.15% to 6.84% Additionally, Kido's C/S decreased significantly from 68.35% in 2019 to 48.99% in 2021 Although it tends to rise with time, the percentage of liabilities is still under check, demonstrating the company's wise business practices Income statement analysis Figure 4: Income statement and common-size income statement in 2019 Figure 5: Income statement and common-size income statement in 2020 Figure 6: Income statement and common-size income statement in 2021 Each line item is calculated as a percentage of net sales for the income statement Managers and investors generally like profits as a percentage of net sales to rise over time and costs as a percentage of net sales to decline over time Figures 4, 5, and show that Kido Group’s Cost of Good Sold (COGS) rose over time from 73.18% in 2019 to 78.40% in 2021 The cost element that makes up the bulk of the total cost of the business is this one The cost of finished products sold and provided services are both included in the company’s cost of goods sold Owing to the COVID-19 pandemic in the latter part of 2019, the amount of commodities consumed grew, the business expanded its production capacity, and the company enhanced manufacturing standards, which caused a rise in the cost of goods sold This increase in COGS led to an increase in sales Moreover, the expenses associated with doing business such as selling costs, administrative costs, and other costs, declined markedly in 2021 to 13.56%, while in 2020 and 2021 remained at 17.36% and 21.09%, respectively This drop is mostly due to lower client transportation expenses, as well as lower costs associated with hiring sales staff, purchasing equipment, and gaining sales tools In addition, the lower cost of hiring managerial staff, outsourcing services, and the lower cost of depreciating physical assets used in the office all made a substantial contribution to the decrease in costs It is also worth noting that the number in Interest expense in the three year period dropped slightly from 2.01% (2019) to 1.65% (2021) However, Earning Before Interest and Taxes rose remarkably in the last three years, from 5.73%, in 2019 to 8.04%, in 2021 This is because the rise in COGS is not as remarkable as the drop in expenses But again, the increase in Earning Before Interest and Taxes was so significant compared to the drop in interest expense that made Taxable Income rose steadily over the years There was also a massive drop in taxes from 1.00% (2019) to 0.32 (2021), which led to an overall stark increase in Net income of 2021 to be more than double than that of 2019, at 6.06% and 2.72% respectively In a nutshell, Kido Group has been performing extremely well throughout the years, especially in the Covid-19 pandemic of 2021 The corporate’s revenue has been increasing drastically in respect to expenses, COGS, and taxes IV Financial analysis Liquidity ratio Figure 7: Liquidity ratio 2019-2021 and Industry average  Current ratio Current ratio (CA) = Current assets(CA ) – evaluates the company's capacity to repay short-term Curent liabilities (CL) debt As shown in Figure 7, Kido Group's current ratio demonstrates its capacity to pay off short-term debt with short-term assets In 2019, the current ratio was 1.83, suggesting that 1.83 dong was used to cover each dong of short-term debt Similarly, the current ratio fell to 1.44 in 2020 and 1.30 in 2021, implying that for every dong of short-term debt, 1.44 dong of current assets were acquired in 2020 and 1.30 in 2021 The firm's current liquidity ratios were much lower than the industry average of 2.08 times This might suggest that the company is in danger of going out of business  Quick ratio Quick ratio = Current assets−Inventory – compares the dollar amount of a company's liquid assets to Current liabilities the dollar amount of its current obligations Kido Group's quick ratio tends to fall dramatically between 2019 and 2021, from 1.49 times to 0.84 times The reduction in the company's quick ratio is due to higher inventory and current liabilities In comparison to the industry average, the quick ratio in 2019 is at a decent level, 0.06 times greater at 1.43 However, during the following two years, the enterprise's quick ratio fell swiftly to 1.12 times in 2020 and 0.84 times in 2021, both of which were lower than the industry average of 0.31 times in 2020 and 0.56 times in 2021 This demonstrates that Kido Group's short-term assets, excluding inventories, are insufficient to cover short-term obligations The corporation must either raise its current assets or decrease its current liabilities Financial leverage ratio Figure 8: Financial leverage ratio 2019-2021 and Industry average  Total Debt ratio Total Debt ratio = Total debt (TD) TA−TE = – is a ratio that depicts a company's financial stability TA Total asset (TA ) From 2019 to 2021, the Kido's debt tends to rise, rising from 0.316 to 0.510 However, the ratio remained at a safe level, hovering at 0.5 and far below the industry average It illustrates that the firm had a high level of financial independence, with equity funding the bulk of its assets  Equity Multiplier Equity Multiplers (EM) = TA TD =1+ – is a risk indicator that gauges the percentage of a company's TE TE assets that are funded by equity rather than debt Kido's equity multiplier ratio in 2019 and 2020 was lower than the industry average of 1.77 However, by 2021, the ratio had risen to 2.04, which is 0.27 times greater than the industry average The ratio implies that the corporation is relying on debt to fund assets in large amounts As a consequence, Kido had higher financial leverage, which might be riskier financially Turnover ratio Figure 9: Turnover ratio 2019-2021 and Industry average  Receivables Turnover Receivables Turnover = Salⅇs – is the number of times a firm collects its average accounts receivable AR amount It measures a company's efficiency in collecting overdue customer balances and managing its line of credit procedure According to the figure above, there has been a continuous growth from 2.7 times in 2019 to 4.12 times in 2021 Kido Group's ratio was much lower than the industry average of 14.09 As a result, a low receivables turnover ratio suggests that the company's collection of accounts receivable was inefficient, and the proportion of high-quality customers who paid their commitments on time was low Kido should examine its credit standards to guarantee timely collection of its receivables  Total Assets Turnover Total Assets Turnover (TAT) = Sales – compares the value of a company's sales or revenues to the value TA of its assets The asset turnover ratio is a measure of how efficiently a firm uses its assets to produce income The overall asset turnover ratio did not change much from 2019 and 2021 There was just a tiny rise from 0.64 to 0.7 times in 2020 and 0.77 times in 2021 The industry average was 1.32, which was 0.55 times more than the total asset turnover ratio in 2021, indicating that the company's work efficiency was poor  Inventory turnover Inventory Turnover = COGS – is the number of times a company's inventory has been sold Average Inventory and restocked during a certain period of time The inventory turnover ratio of Kido decreased rapidly from 6.14 to 3.39 times in 2021, while the industry average was 48.91 This ratio's rapid shift may suggest that a company's buying is not keeping up with market demand, that there are delays elsewhere in the supply chain, or that a certain item is seeing a rush in demand Furthermore, the low Kido's inventory ratio may indicate bad sales and/or decreased market demand for the items Profitability ratio Figure 10: Profitability ratio 2019-2021 and Industry average  Profit Margin Profit margin = Net income – is the percentage of profit left over after all expenditures have been Sales deducted In the instance of Kido Group, the profit margin increased consistently during the period, rising from 2.72% to 6.06% While both net revenue and profit after taxes increased, profit after tax increased faster than net sales, which was the cause for the increase The profit margin ratios over the previous three years were -4,579.33% higher than the industry average While the industry as a whole was consistently losing money on every product they produced, Kido was benefiting by a small margin As a consequence, Kido's profit margin proved that they handled their resources well Kido's potential as a firm in an inflationary market is shown by the higher coefficient net profit margins  Return on Assets Return on Assets (ROA) = Net income – assesses a company's profitability in relation to its total assets TA It demonstrates how successfully a corporation uses everything it possesses to generate revenue, from equipment to automobiles to intellectual property Despite a three-year progressive increase, Kido's ROA was still lower than the industry average of 7.30% It may suggest that the firm is unable to make the most use of its assets in order to maximize profits  Return on Equity Return on equity (ROE) = Net income – In general, the higher the Return on Equity, the more desirable TE a company's stock is to potential buyers The connection between asset management, debt management, and profitability indices is also laid forth There was a rise in ROE from 2019 to 2021, as seen in Figure 10 That indicates that for every 100 dong of equity utilized in manufacturing and commercial operations, the firm made 2.54 dong of after-tax profit in 2019 In 2020, Kido's return on equity was 4.29 percent, up 1.75 percentage points from 2019, and in 2021, it rose even more to 9.48%, nearly double that of 2020 One possible explanation for the increase is that Kido's net income has increased at a faster rate than equity This bodes well for the company's financial outlook in 2021 However, when compared to the average of its industry (12.90%), Kido Group's ratio is still lower, indicating that the firm earns a smaller percentage of its shareholder's equity Market value ratio Figure 11: Market value ratio 2019-2021 and Industry average  Price earnings ratio The Price Earnings Ratio (P/E Ratio) = Market price per share – informs investors of the value of a EPS firm by expressing the price per share for every $1 in profits Generally, the number dropped drastically throughout that time, from 68.49 in 2010 to 21.09 in 2021 The price-earnings ratio was also 7.76 times the business average This indicates that buyers of the company's profits shares paid a higher price  Price to book value ratio The Price to book Ratio (P/B) = Market price per share – to compare a firm's market capitalization to Book Value per share its book value The price to book value ratio increased consistently throughout the three years, peaking at 1.97 in 2021, 1.48 points higher than in 2019, and 0.87 points higher than in 2020 Further, the ratio was lower than the business sector average, which might alert shareholders to the possibility that the stock is underpriced The stock is selling at a discount to the value of the company's assets There is an inverse relationship between P/B and return on assets (ROA), therefore a low ROA might indicate a low P/B V Dupont analysis Figure 12: Dupont equation The Dupont analysis is a more comprehensive variant of the return on equity calculation, which is arrived at by multiplying the net profit margin by the asset turnover by the equity multiplier Moreover, it illustrates the relationships between asset management, debt management, and profitability indicators ROE = Profit margin × Total asset turnover × Equity multiplier Net income Sales Assets × × Sales Assets Total equity Since ROA = Profit margin × Total asset turnover, we also have ROE = ROA × Equity multiplier ROE = Figure 12 shows that Kido Group's ROA and ROE increased consistently between 2019 and 2021 More specifically, the rise in profit margin (from 2.72 to 6.06%), total assets turnover (from 0.64 to 0.77), and equity multiplier (from 1.46 to 2.04) are the reasons for the ROA and ROE increase in 2020 and 2021 The PM and equity multiplier ratios are both greater than the industry standard The larger Kido's profit margin proved that they were effective resource managers The higher coefficient net profit margins show Kido's potential as a company in an inflationary market The equity multiplier ratio, however, increased to 2.04, which is 0.27 times greater than the industry standard The ratio shows that the corporation is relying more on debt and employing a lot of debt to fund assets Kido had more financial leverage as a consequence, which increased the possibility of financial danger Additionally, the company's work efficiency was poor as shown by the fact that the industry average for total assets turnover was 1.32, which was 0.56 times greater than the total asset turnover ratio in 2021 Even though ROA and ROE increased throughout the time period, ROA increased from 1.47% to 4.64% and ROE increased from 2.54% to 9.48% Although it was below the industry average of 7.30% and 12.90%, respectively, the ratio was still low Although the corporation is currently performing and controlling poorer than other companies in the sector, there are chances for the future since the three components of Dupont are accelerating quickly VI Conclusion In a nutshell, in the last three years, Kido Group has been operating poorly and inefficiently Although the corporation was still making profits in the industry that is losing, they were not profitable enough in relation to their assets and their equity Furthermore, the company performed terribly in terms of liquefying and collecting their sales, which was proven by the liquidity ratio (Figure 7) and turnover ratio (Figure 9) This usually puts the company into financial distress as they sometimes might not have the cash to pay off their short-term debt Although the company is considered to be a valuable and worth investing, as shown in the price earnings ratio (Figure 11), their shareholders weren’t getting as much value as they should, proven in the price to book value ratio (Figure 11) This all make sense, because the company hasn’t been efficient with their assets, it also took too long for the company to receive back their sales, and it has low liquidity There are a lot of signs suggesting that they are putting the company at risk financially The company should resolve its problems as soon as possible, make new policies so that they could remain sustainable in the market  ... uses of cash analysis III Standardized financial statement analysis Common-size balance sheet .7 Income statement analysis .8 IV Financial analysis ... liabilities, and equity, as well as other indications of financial position and business success In this topic, Kinh Do? ?Joint Stock Company (KDC) is chosen for in-depth assessment over a three-year... of the Covid-19 pandemic, KIDO Group Joint Stock Company (KIDO) still achieved KIDO's net revenue of VND 10,497 billion, up 26.1% over the same period last year KIDO's after-tax profit reached