Analyzing financial statements of Vietnam Dairy Products JSC THE UNIVERSITY OF DANANG UNIVERSITY OF ECONOMICS TOPIC ANALYZING FINANCIAL STATEMENTS OF VIETNAM DAIRY PRODUCTS JSC (2016 – 2020) Cours.
THE UNIVERSITY OF DANANG UNIVERSITY OF ECONOMICS TOPIC: ANALYZING FINANCIAL STATEMENTS OF VIETNAM DAIRY PRODUCTS JSC (2016 – 2020) Course: Corporate Finance Group 1: Instructor: Nguyen Quang Minh Nhi Pham Thi Hoai Thuong Class: Le Nguyen Van Anh 45K06.1 Nguyen Thi Thuy Linh Tran Thi Quynh Nhu Phan Mai Phuong Hoang Thi Thanh Thanh Da Nang, November 2021 EVALUATION FORM Evaluation Member Task (Working attitude, Participation, Contributions, etc.) Evaluation by group (%) Analyzing financial statements of Vietnam Dairy Products JSC TABLE OF CONTENTS I Company overview .4 1.1 General information .4 1.2 Principal activities 1.3 Business areas 1.4 Position 1.5 Main source of income 1.6 Competitors II Analysis of financial ratios .7 2.1 Company’s financial ratios 2.1.1 Liquidity Ratios .7 2.1.2 Capital Structure Ratios 2.1.3 Turnover Ratios .12 2.1.4 Profitability Ratios 17 2.1.5 Market value ratios 20 2.2 Company’s financial ratios in comparison with a benchmark of industry average 2020 22 III A brief summary on financial performance of the company 24 REFERENCE LIST .25 Corporate Finance Analyzing financial statements of Vietnam Dairy Products JSC I Company overview 1.1 General information Trade name Vietnam Dairy Products Joint Stock Company Traded as HOSE: VNM Type Joint-stock company Industry Dairy products, juice Founded August 20 1976 Headquarters 10 Tan Trao, District 7, Ho Chi Minh City, Vietnam Area served Vietnam, Asia-Pacific, Europe, Middle East, Africa, North America Key people Mai Nguyen Phong Chau - Chairman of the board Mai Kieu Lien - CEO Revenue 59.723 billion VND (2020) Net income (after tax) 11.236 billion VND (2020) Number of employees 9.361 (2020) Website https://www.vinamilk.com.vn/ 1.2 Principal activities The principal activities of the Group are to: - Process, manufacture and distribute milk cake, soya milk, fresh milk, refreshment drinks, bottled milk, powdered milk, nutritious powder and other products from milk - Trade in food technology, spare parts, equipment, materials and chemical - Trade in real estate, own or lease land use rights (according to Article no 11.3 of 2014 Real Estate Law) - Trade in warehouse, yards - Provide internal transportation by cars for manufacturing and consuming Company's products - Manufacture, sell and distribute beverages, grocery and processing foods, roastedground-filtered and instant coffee (not manufacturing and processing at the head office) - Manufacture and sell plastic, packaging (not at the head office) Corporate Finance Analyzing financial statements of Vietnam Dairy Products JSC - Provide healthcare clinic services (not at the head office) - Raise cattle, cultivation - Retail sugar, milk and products from milk, bread, jam, candy and products processed from cereal, flour, starch and other food - Retail alcoholic drinks, non-alcoholic drinks (carbonated and non-carbonated soft drinks), natural mineral water, low-alcoholic or non-alcoholic wine and beer - Manufacture and trade products from tea and wine - Manufacture, breed, process and trade cattle and poultry products and premix products for livestock 1.3 Business areas As of October 22, 2021, Vinamilk is the 7th largest capitalization company in Vietnam on HOSE (186,215 billion VND) Vinamilk is currently the leading enterprise of the dairy processing industry, accounting for more than 54.5% market share of liquid milk, 40.6% market share of powdered milk, 33.9% market share of drinking yogurt, 84.5% market share of edible yogurt and 79.7% market share of condensed milk (countrywide) In addition to strong domestic distribution with a network of more than 220,000 sales points covering 63 provinces and cities, Vinamilk products are also exported to 43 countries around the world such as the US, France, Canada, Poland, Germany, Japan, Middle East, Southeast Asia, etc After more than 40 years of launching to consumers, so far Vinamilk has built 14 factories, logistics factories, branches of sales offices, factory in Cambodia (Angkormilk) and representative office in Thailand In 2018, Vinamilk was one of the Top 200 companies with the best revenue over billion USD in Asia Pacific (Best over a billion) 1.4 Position According to the results of the poll of 100 strongest brands in Vietnam, Vinamilk is the number food brand in Vietnam, accounting for the leading market share, achieving a growth rate of 20-25% per year, trusted by consumers and associated with the company was voted as the top product of TOP TEN high quality Vietnamese goods for consecutive years from 1997 to 2004 Domestic sales increase by an average of 20% - 25% annually Corporate Finance Analyzing financial statements of Vietnam Dairy Products JSC Vinamilk has maintained its leading role in the domestic market and competed effectively with foreign milk brands One of Vinamilk's successes is diversifying products to meet the needs of all customers from infants, children, teenagers, adults, and people with special needs 1.5 Main source of income Based on the consolidated income statement of recent years, Vinamilk's main source of income comes from sale revenue Specifically, in the 2020’s Income Statement, Vinamilk's revenue sources are presented as follows: VND Proportion Net Revenue 59.636.286.225.547 97.07% Financial Income 1.581.092.655.317 2.51% 3.882.188.676 0.01% 212.386.195.135 0.35% Shared profits from affiliates Other Income 1.6 Competitors With the attractive characteristics of the industry, the dairy market is becoming more and more crowded and fierce Currently, there are more than 50 dairy companies in Vietnam, most of which are small and medium sized companies - Direct competitors: These are companies that have been operating in the industry, and have a strong influence on the business situation of enterprises There are many dairy brands in Vietnam's dairy market, including both manufactured and imported dairy products In which Vinamilk accounted for 35%, Dutch Lady accounted for 24%, 22% were imported powdered milk products such as Mead Johnson, Abbott, Nestle the remaining 19% were domestic brands such as Hanoimilk, TH True Milk, Moc Chau, etc Nutifood… - Indirect competitors: Corporate Finance Analyzing financial statements of Vietnam Dairy Products JSC Companies specializing in the production of substitute products such as cereal flour, functional foods (IMC, DOMESCO, BIBICA ) but the potential is not strong enough to compete with dairy products II Analysis of financial ratios 2.1 Company’s financial ratios 2.1.1 Liquidity Ratios 2.1.1.1 Current ratio Current ratio = Current assets / Current liabilities Unit: 1,000,000 VND Target 2016 2017 2018 2019 2020 Current assets 18,673,827 20,307,434 20,559,756 24,721,565 29,665,725 Current liabilities 6,457,497 14,442,851 14,212,646 1.71 2.09 Current ratio 2.89 10,195,562 10,639,592 1.99 1.93 Comments • The above results show that each VND of current liabilities of the company at the end of 2020 has VND 2.09 of current assets that can be used for payment, in which, this figure at the end of 2019 is 1.71 and at the end of 2018, 2017, 2016 is 17.93, 1.99, 2.89 respectively • The company's current ratio at all times is greater than 1, showing that the company has a high ability to be ready to pay current liabilities • Period 2016-2019: The current ratio decreased from 2.89 in 2016 to 1.71 in 2019, which is a decrease of 1.18 In other words, the coverage of current assets for current liabilities at the end of 2019 decreased compared to the end of 2016 However, the ratio increases again in 2020 The reason is that as current liabilities decrease, the company's debt payment ability is good • But at the end of 2016 a too high ratio (2.89) is also not a good sign because it shows that the enterprise has not used its assets efficiently Because current assets are high compared to current liabilities, there will be situations that are not good for the Corporate Finance Analyzing financial statements of Vietnam Dairy Products JSC business such as having too much idle cash, bad debts in high receivables, high inventory will easily lead to bad debts to stagnation of capital, poor quality, 2.1.1.2 Quick ratio Quick ratio = (Current assets - Inventory) / Current liabilities Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Current assets 18,673,827 20,307,434 20,559,756 24,721,565 29,665,725 Inventory 4,521,766 4,021,058 5,525,845 4,983,044 4,905,068 Current liabilities 6,457,497 10,195,562 10,639,592 14,442,851 14,212,646 2.91 1.6 1.41 1.37 1.74 Quick ratio Comments • Period 2016-2019, the ability to make quick payments tends to decrease, from 2.91 to 1.37 The number 1.37 shows that at the end of 2019, for every VND of current liabilities, there are VND 1.37 of liquid assets However, the ratio increases again in 2020 • The quick ratio of the company over the past times is high, all greater than 1, reflecting the business has good payment and high liquidity But at the end of 2016 a too high ratio (2.91) is also not a good sign because it shows that the company is not using assets efficiently • The quick ratio of the company is much smaller than the current ratio, which means that the current assets of the company depend too much on inventory 2.1.1.3 Cash ratio Cash ratio = Cash & Cash equivalents/Current liabilities Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Cash & Cash equivalents 655,423 963,335 1,522,610 2,665,194 2,111,242 Corporate Finance Analyzing financial statements of Vietnam Dairy Products JSC Current liabilities 6,457,497 10,195,562 10,639,592 14,442,851 14,212,646 Cash ratio 0.10 0.09 0.14 0.18 0.15 Comments • Through the years 2016-2020, the ability to pay quick cash is quite volatile • This ratio over the years is less than 1, the company has problems when current liabilities are due to be paid, so financial managers need to carefully consider current liabilities that are close to due to ensure the solvency for the business 2.1.2 Capital Structure Ratios 2.1.2.1 Total debt ratio Total debt ratio = (total assets - total equity)/ Total assets Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Total assets 29,378,656 34,667,318 37,366,108 44,699,873 48,432,480 Total equity 22,405,949 23,873,057 26,271,369 29,731,255 33,647,122 0.237 0.311 0.297 0.335 0.305 Total debt ratio Comments • Over the span of years, the company’s total debt ratio fluctuates steadily around 0.3 (30%) In general, however, this ratio is tending to go up • This ratio illustrates what percentage of a company's total resources is its debt (i.e what percentage of its total assets was made up of debt) The figures above show that the company uses about 30% of its total resources as debt, which means that it is prioritizing using equity Since this ratio is tending to rise, it seems that this preference is slightly decreasing • However, because of the lower use of debt, the company will also limit the benefit from the tax shield of loans 2.1.2.2 Debt/equity ratio Corporate Finance 10 Analyzing financial statements of Vietnam Dairy Products JSC Debt/equity ratio = Total debt/Total equity Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Total debt 6,972,707 10,794,261 11,094,739 14,968,618 14,785,358 Total equity 22,405,949 23,873,057 26,271,369 29,731,255 33,647,122 Debt/equity ratio 0.311 0.452 0.422 0.503 0.439 Comments • The company’s debt/equity ratio fluctuates steadily between 0.3 and 0.5 in the 5year period • This means that the company always uses less debt than equity in its total resources Or, the company is prioritizing using equity to finance its production and business activities • In addition, the fact that this ratio is always less than shows that the company's resources from equity are abundant, has little external debt, is not under much financial pressure and is doing business effectively 2.1.2.3 Equity multiplier Equity multiplier = Total assets/Total equity Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Total assets 29,378,656 34,667,318 37,366,108 44,699,873 48,432,480 Total equity 22,405,949 23,873,057 26,271,369 29,731,255 33,647,122 1.311 1.452 1.422 1.503 1.439 Equity multiplier Comments Corporate Finance 10 11 Analyzing financial statements of Vietnam Dairy Products JSC • Between 2016 and 2020, the company’s equity multiplier fluctuates in the same direction as its debt/equity ratio • This ratio indicates how many times a company's total assets are greater than its equity From the above numbers, it can be concluded that the company's growth is driven by equity, not by external debt It can be seen from this ratio that the company's debt (or financial leverage) is relatively low compared to shareholder equity Notice: Summing up the reasons for ratios above, the company always keeps a capital structure in which the debt ratio is always much smaller than the equity ratio in order to create a healthy financial position to easily raise capital from investors and get more favorable terms in contracts with its creditors 2.1.2.4 Net interest cover Net interest cover = EBIT/ (Interest + finance charges) Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 11.284.125 12.258.383 12.103.063 12.904.534 13.662.354 Interest + finance charges 102,450 87,037 118,007 186,969 308,569 Net interest cover 110.142 140.840 102.562 69.019 44.276 EBIT Comments • Although the figures of Company’s Net Interest Cover drop significantly over the period of years, it's still very large and ideal numbers • That means the profits that the company generates from production and trading activities can easily meet the payment of interests and other financial expenses • These ratios are tending to decline sharply over the years, showing that the interest on debt the company has to pay is growing at a rate greater than its EBIT growth 2.1.2.5 Debt to gross cash flow Corporate Finance 11 12 Analyzing financial statements of Vietnam Dairy Products JSC Debt to gross cash flow = (Interest - bearing debt)/ (Net profit after tax + depreciation + amortisation) Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Interest - bearing debt 1,691,665 525,514 1,275,846 5,474,454 7,483,918 Net profit after tax 9,363,829 10,278,174 10,205,629 10,554,331 11,235,732 Depreciation + amortisation 1,190,837 1,299,870 1,626,632 1,948,072 2,208,866 0.160 0.045 0.108 0.438 0.557 Debt to gross cash flow Comments • There was a noticeable increase in the company’s Debt to gross cash flow ratio between 2016 and 2020 • These ratios are always less than one, which means that the company's OCF still meets the company's ability to pay its debts But this ratio is tending to go up sharply, suggesting the company has indeed taken on more debt to finance its operations 2.1.3 Turnover Ratios 2.1.3.1 Inventory turnover Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Cost of goods sold 24,458,633 26,806,931 27,950,543 29,745,906 31,967,662 Average Inventory 4,165,930 4,271,412 4,773,452 5,254,445 4,944,056 Inventory turnover 5.87 6.28 5.86 5.66 6.47 Comments • Inventory turnover in 2016 was 5.87 turns, in 2017 it was 6.28 turns, in 2018 it was 5.86 turns, in 2019 it was 5.66 and in 2020 it was 6.47 Corporate Finance 12 13 Analyzing financial statements of Vietnam Dairy Products JSC • Overall, inventory turnover increased from 5.87 to 6.47 within years This shows that the business operates more efficiently, the sales speed is faster, the inventory is not stagnant much and the inventory management capacity of the enterprise is quite good - Therefore, the inventory turnover ratio needs to be large enough to ensure the level of production to meet customer demand Reasons • From the table above, it can be seen that inventory turnover tends to increase over years Cost of goods sold in 2020 increased by 30.7% compared to 2016, and the average inventory in the period of 2020 was 18.68% higher in 2016 With this change of two factors, the number of rounds is determined Inventory turnover has resulted in a higher inventory turnover in 2020 compared to 2016 2.1.3.2 Days’ sales in inventory Targets 2016 2017 2018 2019 2020 Days 365 365 365 365 365 Inventory turnover 5.87 6.28 5.86 5.66 6.47 Days’ sales in inventory 62.18 58.12 62.29 64.49 56.41 Comments • Overall, the number of days of inventory turnover decreased from 62.18 days to 56.41 days within years, although in 2018 and 2019 there was an increase but not significantly • Although in 2020, the number of days has decreased, but overall the index is still high With the main business of the business is the production of dairy products, a high level of inventory is not good, it will increase storage costs or can reduce the value of inventory due to spoilage Reasons Corporate Finance 13 14 Analyzing financial statements of Vietnam Dairy Products JSC • This coefficient tends to decrease because the increase in the number of inventory turns, the lower the number of days an inventory turnover will decrease, so the faster the enterprise's inventory turnover will be, the more inventory will be involved in more rotations The faster the inventory turnover, the faster the business will be able to reduce the reserve capital but still ensure the capital for production and business needs, improving the efficiency of capital use better 2.1.3.3 Receivables turnover Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Sales 46,794,339 51,041,075 52,561,949 56,318,122 59,636,286 Average Accounts receivable 2,776,076 3,729,193 4,615,575 4,571,301 4,845,203 16.86 13.69 11.39 12.32 12.31 Receivables turnover Comments • The receivables turnover ratio indicates the speed at which a company can collect its receivables from customers • The turnover of receivables in 2016 was 16.86 rounds, in 2017 it was 13.69 rounds, in 2018 it was 11.39 rounds, in 2019 it was 12.32 rounds, in 2020 it was 12.31 rounds • Overall, the number of turnovers in 2018 decreased by 32.44% compared to 2016 This shows that the company's credit policy is looser year by year so it is not possible to guarantee the recovery of debts from clients By 2020, this number of revolutions will increase to 12.31 but still lower than 2016 • In general, it shows that the company's debt recovery level has decreased over years → the company's credit policy is ineffective and has many risks Reasons Corporate Finance 14 15 Analyzing financial statements of Vietnam Dairy Products JSC • From 2016 to 2018 the number of receivables turnover of the enterprise decreased from 16.86 to 11.39, this proves that the recovery speed of the enterprise's receivables takes place slower, the capital of the enterprise is also occupied and must be the high investment in the collection of receivables is due to the inefficient, less strict and not strict credit policies of the company's receivable management mechanism This is not good for the company because the longer the accounts receivable turnover, the longer it takes to collect the cash The reason is that the company has a poor collection process, a bad credit policy, or a customer with insufficient financial or credit capabilities This increases the risk of bad debt for the company, making revenue slower or the business will lose a lot of expenses The enterprise's failure to collect debt means that the amount of money of the enterprise is occupied more and more, the amount of cash will decrease, reducing the initiative of the enterprise in financing working capital in production and Enterprises may have to borrow from banks to further finance this working capital • By 2020, this target will increase to 12.31 again, because the company has become more efficient in managing its receivables However, the business will trade off losing customers because customers will switch to competitors' products that offer longer credit periods And so, our business will have a decrease in profit 2.1.3.4 Days’ sales in receivables Days’ sales in receivables = 365 days/Receivable turnover Targets 2016 2017 2018 2019 2020 365 365 365 365 365 Receivables turnover 16.86 13.69 11.39 12.32 12.31 Days’ sales in receivables 21.65 26.67 32.05 29.63 29.65 Days Comments • This index indicates the time the firm needs to convert credit sales to cash This index was lowest in 2016 (21.65 days) and it started to increase sharply from 2017 to 2018 (26.67 days and 32.05 days) Although it declined in two years, 2019 and Corporate Finance 15 16 Analyzing financial statements of Vietnam Dairy Products JSC 2020, this index was high in general (29.63 and 29.95 days) It means the firm needed more time to collect money from customers during the period from 2017 to 2020 Reasons • The figure for Days’ sale in receivable of the company has increased over the years, which is explained by the fact that the company offers more chances for customers to buy on credit in its policy 2.1.3.5 Fixed asset turnover Fixed asset turnover = Sales/Non-current assets Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Sales 46,794,339 51,041,075 52,561,949 56,318,122 59,636,286 Non-current assets 10,725,564 12,532,356 15,583,117 18,392,329 19,372,531 4.36 Fixed asset turnover 4.07 3.37 3.06 3.08 Comments • During the period from 2016 to 2019, this index fell sharply from 4.36 to 3.06 It represents for every one dollar invested in fixed assets, a return of fewer dollars is earned Also, a lower fixed asset turnover implies less effective utilization of investments in fixed assets to generate revenue The year 2020 saw a slight increase to 3.08 in this ratio It indicates that there is greater efficiency in regards to managing fixed assets; therefore, it gives higher returns on asset investments Reasons • This fixed assets turnover index was created to indicate the efficiency if a company is using these assets to generate revenue In general, this index has decreased over the years as a result of using less effectively the company’s fixed assets; however, the company is still managing these assets well 2.1.3.6 Total asset turnover Total asset turnover = Sales/Total assets Corporate Finance 16 17 Analyzing financial statements of Vietnam Dairy Products JSC Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Sales 46,794,339 51,041,075 52,561,949 56,318,122 59,636,286 Total assets 28,428,416 32,022,987 36,016,713 41,032,991 46,566,177 1.65 Total asset turnover 1.59 1.46 1.37 1.28 Comments • The asset turnover ratio helps investors understand how effectively companies are using their assets to generate sales The table below shows this index decreased during this period (from 1.65 to 1.28 times) This indicates the company is not efficiently using its assets to generate sales 2.1.4 Profitability Ratios 2.1.4.1 Profit margin Profit margin = (Net income/Sales) *100% Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Net income 9,363,829 Sales 46,794,339 51,041,075 52,561,949 56,318,122 59,636,286 Profit margin 10,278,174 10,205,629 10,554,331 11,235,732 20.01% 20.14% 19.42% 18.74% 18.84% Comments • From 2016 (20,01%) to 2017 (20,14%): the profit margin increases However, during the period 2017-2020, the profit margin tends to decrease, from 20,14% to 18,84% The number 18,84% shows that at the end of 2020, for 100 VND of revenue, there is VND 18,84 of net income • The profit margin is decreased during 2017 to 2020 A falling profit-to-sales ratio signals possible financial troubles Reasons Corporate Finance 17 18 Analyzing financial statements of Vietnam Dairy Products JSC • One of the simplest factors that can lead to lower margins is a higher cost of goods sold Over time, the business's suppliers want to increase their own sales and profits Their own production or supply costs may increase These factors can lead to them negotiating or simply charging you a higher price for the goods If higher COGS negatively affects gross profit margin 2.1.4.2 Return on assets (ROA) Return on assets = (Net income/Total assets) x100% Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Net income 9,363,829 Total assets 29,378,656 34,667,318 37,366,108 44,699,873 48,432,480 Return on assets 31.87% 10,278,174 10,205,629 10,554,331 11,235,732 29.65% 27.31% 23.61% 23.20% Comments • The ratio of profit after tax to total assets of Vinamilk in the period of 2006-2020 was above 20% and sometimes over 30%, in 2016 it was 31,87% This is a very impressive indicator even for businesses in Vietnam and around the world, not to mention the company's long-term sustainability • Compared to many companies in the dairy and food business in Vietnam, this is an impressive return on assets This shows that the company has used its assets very well in bringing profits to the company Reasons • A falling ROA suggests that the company may have been over-invested in assets that are unable to generate revenue growth, a sign that the company may be struggling 2.1.4.3 Return on investment (ROI) Return on investment = (EBIT/Total assets) *100% Unit: 1,000,000 VND Corporate Finance 18 19 Analyzing financial statements of Vietnam Dairy Products JSC Targets 2016 2017 2018 2019 2020 EBIT 11,284,125 12,258,383 12,103,063 12,904,534 13,662,354 Total assets 29,378,656 34,667,318 37,366,108 44,699,873 48,432,480 Return on investment 38.41% 35.36% 32.39% 28.87% 28.21% Comments • In the period 2016-2019, there is a decreasing trend, from 38,41% to 28,21% This shows that the profit before deducting other expenses of the business is decreasing over the years but not too much • ROI is a popular metric for heads of marketing because of marketing budget allocation Return on Investment helps identify marketing mix activities that should continue to be funded and which should be cut Reasons • Economic factors, investment-related costs, and investor behavior, can affect ROI Investment fees are a major cause of reduced ROI due to its consistency and ability to compound across portfolio growth While they appear in small percentages, they will eventually add up and cause drag on ROI • Investment behavior is a major contributor to ROI volatility, and numerous financial crashes and countless studies have proven it 2.1.4.4 Return on equity (ROE) Return on equity = (Net income/Total equity) *100% Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Net income 9,363,829 Total equity 22,405,949 23,873,057 26,271,369 29,731,255 33,647,122 Return on equity 41.79% 10,278,174 10,205,629 10,554,331 11,235,732 43.05% 38.85% 35.50% 33.39% Comments Corporate Finance 19 20 Analyzing financial statements of Vietnam Dairy Products JSC • ROE increased from 2016 (41,79%) to 2017 (43,05%), up 1.26% This shows that the profit after tax of the business increases • From 2017 to 2020, ROE gradually decreased from 43,05% to 33,39% However, this ROE ratio is still relatively high compared to other businesses • ROE is always interested in shareholders and they are the ones who give equity to the business Reasons • Inconsistent profits, excess debt as well as negative net income are all factors that can affect the return on common stockholders’ equity • The main accounts that influence owner’s equity include revenues, gains, expenses, and losses Owner’s equity will increase if you have revenues and gains Owner’s equity decreases if you have expenses and losses If your liabilities become greater than your assets, you will have a negative owner’s equity 2.1.5 Market value ratios 2.1.5.1 Earning per share EPS = Profit attributable to ordinary shareholders/ Number of ordinary shares in issue Unit: 1,000,000 VND Targets 2016 2017 2018 2019 2020 Profit attributable to ordinary shareholders 8,425,584 9,224,009 9,220,587 9,538,488 9,967,771 1,445 1,451 1,741 1,741 2,089 5,830.95 6,335.47 5,294.70 5,447.51 4,770.06 Number of ordinary shares in issue EPS Comments • The EPS ratio shows how much money a company makes per share and is also used to calculate key financial ratios • In general, the company's EPS has increased and decreased year over year, from 2016 to 2017 EPS increased from 5.830,95 to 6.335,47, showing that the company Corporate Finance 20 21 Analyzing financial statements of Vietnam Dairy Products JSC earns more money per share compared to 2016 However, by 2018 it will drop to 5.294.70 From 2019 to 2020, this number continues to decrease from 5.447,51 to 4.770,06 2.1.5.2 Price/ Earnings ratio Price/ Earnings ratio = Price per share/Earnings per share Unit: VND Targets 2016 2017 2018 2019 2020 Price per share 125,600 208,600 120,000 116,500 108,800 Earnings per share 5,830.95 6,335.47 5,294.70 5,477.51 4,770.06 21.54 32.8 22.64 21.26 22.81 Price/ earnings ratio Comments • The P/E ratio shows that to have dong of profit, shareholders have to spend 21,54 dong of capital when investing in stocks in 2016 Meanwhile, in 2017 they only need to spend 32,8 dong By 2018, they are willing to spend 22,64 dong of capital to receive dong of profit, so in this period it can be seen that the company has high income, great growth potential, so the P/E ratio is high than From 2019 to 2020, there is a change that shows that the company continues to develop Reasons • Any change in the economy will affect the P/E High spending requirements will cause revenue to increase, all operating costs will decrease, so income will increase at this time Therefore, the demand for stocks of investors will also increase, making the P/E ratio also increase 2.1.5.3 Market - to - book ratio Market - to - book ratio = Market value per share/ Book value per share Book value per share= (Equity - Intangible fixed asset)/ Number of ordinary shares in issue Corporate Finance 21 22 Analyzing financial statements of Vietnam Dairy Products JSC Unit: VND Targets 2016 2017 2018 2019 2020 Market value per share 125,600 208,600 120,000 116,500 108,800 Book value per share 15,226 16,299.1 14,903.33 16,413.1 15,557.91 Market - to book ratio 8.25 12.80 8.05 7.1 6.99 Comments • The Market - to - book ratio tells us how many times the stock price is above or below the book value of the business • Looking at this index, we can see that Vinamilk’s stock is having a great growth rate, investors expect a lot from it Investors are willing to spend 12,8 dong (in 2017) to be able to own dong of capital of VNM stock Reasons • The company is efficient and has high profit potential, leading to an increase in the value of the stock, which means that the market price of the company will also increase 2.2 Company’s financial ratios in comparison with a benchmark of industry average 2020 Ratios Liquidity Ratios Capital Structure Ratios Profitability Ratios Vietnam Dairy Products Joint Stock Company Food and beverage industry average Current ratio 2.09 2.22 Quick ratio 1.74 1.47 Debt/ equity ratio 0.439 0.87 ROA 23.199% 6.41% Corporate Finance 22 23 Analyzing financial statements of Vietnam Dairy Products JSC ROE 33.393% 11.26% P/E 22.81 24.53 P/B 6.99 4.29 Market Value Ratios Comments: By comparing with the industry average, we can see: - The current ratio compared to the industry average ratio is not too different Meanwhile, the company's quick payment ability is much higher, this shows that the company is completely able to pay off its loans quickly However, holding too many assets will make the company less profitable compared to different competitors in the industry - The company's debt/equity ratio is also much lower than the industry average, which brings less risk to the business (the company is not prioritizing using debts) However, the business will also limit the benefit from the tax shield of loans As can be seen from this comparison, the company is under less financial pressure than many other players in the industry This is an advantage that helps the company attract more investors than other competitors - The profitability ratios (ROE, ROA) of Vinamilk are much higher than the industry average The company's ROA is times higher than the industry average, indicating that the company is enjoying a very high return on asset value Similar to ROA, the company's ROE is times higher than the industry average, proving that the company is effectively managing and using its capital Thus, the business operates with high efficiency - In terms of valuation, Vinamilk's current valuation is lower than the industry in terms of P/E Thus, compared to the general level of the industry, Vinamilk is currently an effective business enterprise, undervalued In contrast to the P/E ratio, Vinamilk's P/B ratio is higher than the industry average, which shows that the company can good business in the future Therefore, investors have great expectations on Vinamilk's stock, they are willing to spend an amount higher than the book value of the business to be able to own it Corporate Finance 23 24 Analyzing financial statements of Vietnam Dairy Products JSC III A brief summary on financial performance of the company Based on the results of financial statement analysis, it can be seen that in the past years, Vinamilk's financial situation, although Vinamilk's financial condition faced many difficulties, the company was still able to overcome and operate well in a fiercely competitive environment The company still has problems related to inventory management The current solvency of the business is very good, which shows that the company is holding a lot of shortterm assets which have low profitability VNM's financial health is also considered to be relatively good although the debt/total assets ratio tends to increase, however, this ratio is still at a low rate compared to the industry average The enterprise has a high level of financial autonomy, does not depend much on external debt, is not under much financial pressure and is doing business effectively VNM's profitability is evaluated very well, far exceeding the industry average With the business situation having positive changes and stable financial health, VNM's stock is being valued relatively high, however, compared to the general level of the industry, this stock is still being priced low The reason is that VNM's EPS growth has been very low recently, even negative, so it is difficult for investors to spend more money on this stock However, in general, compared to the company's ratio on the industry average, Vinamilk's position is quite high compared to other companies in the market With the recent positive signals along with the stricter management of the company, affirming a future development in the industry in particular and the Vietnamese economy in general Corporate Finance 24 25 Analyzing financial statements of Vietnam Dairy Products JSC REFERENCE LIST Vinamilk’s Financial Statements (2016, 2017, 2018, 2019, 2020) (Download link: https://bit.ly/2YMptW3) https://en.wikipedia.org/wiki/Vinamilk https://www.vinamilk.com.vn/ https://s.cafef.vn/du-lieu.chn https://www.stockbiz.vn/IndustryOverview.aspx?Code=3500 Corporate Finance 25 ... instant coffee (not manufacturing and processing at the head office) - Manufacture and sell plastic, packaging (not at the head office) Corporate Finance Analyzing financial statements of Vietnam... However, because of the lower use of debt, the company will also limit the benefit from the tax shield of loans 2.1.2.2 Debt/equity ratio Corporate Finance 10 Analyzing financial statements of Vietnam... to 2020 A falling profit-to-sales ratio signals possible financial troubles Reasons Corporate Finance 17 18 Analyzing financial statements of Vietnam Dairy Products JSC • One of the simplest factors