(TIỂU LUẬN) SUBJECT CORPORATE FINANCE the situation of the profitability of i d i international development investment corporation

ACADEMY OF FINANCE FACULTY OF CORPORATE FINANCE DEPARTMENT OF CORPORATE FINANCE Full name: Trần Thị Huyền Student number:20CL73403010113 Credit class: CQ58/22CL1_LT2 Class: CQ58/22.02CL Ordinal number: 07 Exam Room ID:581-058-3214 Examination date: 22/03/2022 Time: 9h 05 SUBJECT: CORPORATE FINANCE Exam form: Case study report Exam time: days Table of contents INTRODUCTION PART 1: Theories of the profitability 1.1.Definition, content of the profitability 1.1.1.Definition 1.1.2 Content of the profitability 1.2 Financial indicators of the profitability 1.3 Factors affecting the profitability Part 2: The situation of the profitability of I.D.I International Development &Investment Corporation .5 2.1 Overview of I.D.I International Development &Investment Corporation 2.1.1 Introdution of I.D.I International Development &Investment Corporation 2.1.2 The history of I.D.I International Development &Investment Corporation 2.1.3 Recent developments and recent performance 2.2.Situation of the profitability of I.D.I International Development & Investment Corporation 2.2.1 Situation of profitability 2.2.2 The profitability ratios 2.2.3 The du-pont analysis 10 2.3.Assessment of the profitability of I.D.I International Development &Investment Corporation 12 2.3.1 Results and advantages 12 2.3.2: Limitation 12 2.3.3.:Cause 12 Part 3: Suggested solutions 13 CONCLUSION 14 INTRODUCTION The importance of the profitability Nowadays, in modernized industry, every business needs to constantly innovate and create so as not to be eliminated from the market to catch up with the economic trend of the new age And the most important goal of investors and business administrators is to maximize business value To maximize business value, the most basic thing is to maintain and increase the profitability of the business every year So, businesses need to take effective measures to improve operational efficiency and profitability Factors such as inflation, gdp, unemployment rate, or factors of each business such as debt usage, asset investment level, business strategy used to increase profitability in Every business is different Therefore, business managers, investors always want to determine which factors affect profitability and the direction of impact of those factors To clarify the influence of the factors affecting to the profitability, we go to analyze and assess the situation of the profitability of I.D.I International Development &Investment Corporation in the course of three years, from the 2018 to 202 Objective of research The objective of research is point out the factors,which affect to the profitability of the corporation and analyze the impact of those factors to know the causes and influence of the factors Corporation, then base on the limitation, offer some effective solutions to increase the profitability of the bussiness Scope of the study In term of space: research on profitability of I.D.I International Development &Investment Corporation The subject is specialized in doing business on processing and preserving of fisheries and fishery products Structure of the study Beside the introduction, conclusion, references and appendicates, the report consists of parts: Part 1: Theories of the profitability Part 2: The situation of the profitability of of I.D.I International Development &Investment Corporation Part 3: Suggest solutions PART 1: Theories of the profitability 1.1.Definition, content of the profitability 1.1.1.Definition Profitability is the ability of a corporation or business to generate revenue over and above its expenses and is usually measured using ratios like gross profit margin, net profit margin EBIT,… 1.1.2 Content of the profitability Profitability is measured with the net profit ratio and the earnings per share ratio A higher ratio or value is commonly sought-after by most companies, as this usually means the business is performing well by generating revenues, net income, Percentage RevenueThe revenue your business generates is a part of the profit margin calculation you use to gauge your company’s profitability Revenue includes all the money your company makes as a result of selling products or services to your customers Net Income Your company’s net income includes all revenue earned, less the costs you incur to create a product or provide a service Some of these costs may include supplies, depreciation on equipment, materials to create the products you sell, rent, marketing expenses and salaries It is also commonly referred to as the after-tax income Percentage The final element of profitability is the way it is expressed The equation for profit margin is net income divided by revenue You should express the result of the equation as a percentage, which indicates which percentage of profit you generate on the revenue your company makes 1.2 Financial indicators of the profitability Profirt Margin (or ROS – return on sale): Profit margin is one of the commonly used profitability ratios to gauge the degree to which a corporation or a business activity makes money It represents what percentage of sales has turned into profits ROS = 𝐧𝐞𝐭 𝐩𝐫𝐨𝐟𝐢𝐭 𝐧𝐞𝐭 𝐬𝐚𝐥𝐞𝐬 =a Meaning: One VND of net sales creates a VND of net profit Basic Earning Power (BEP): margin is one of the commonly used profitability ratios Basic return on assets indicates: An average unit of assets put into business generates several units of profit before interest and taxes 𝐄𝐁𝐈𝐓 BEP = 𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐭𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭 =b Meaning: One VND of assets creates b VND of EBIT Return on Assets (ROA): refers to a financial ratio that indicates how profitable a corporation is in relation to its total assets The ratio is typically used when comparing a corporation’s performance between periods, or when comparing two different companies of similar size in the same industry ROA = 𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭 𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐓𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭𝐬 =C Meaning: One VND of assets creates c VND of net profit Return on Equity (ROE): Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders' equity Because shareholders' equity is equal to a corporation’s assets minus its debt, ROE is considered the return on net assets ROE = 𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭 = 𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐓𝐨𝐭𝐚𝐥 𝐞𝐪𝐮𝐢𝐭𝐲 d Meaning: One VND of equity creates d VND of net profit The Du-Pont analysis The DuPont equation shows how the profit margin, the total assets turnover ratio, and the use of debt interact to determine the return on equity This method is applied to analyze two indicators: ROA and ROE The profit margin times the total assets turnover is called the Basic Dupont Equation, anh it gives the rate of return on assets (ROA) : ROA = Profit margin (ROS) x Total assets turnover = 𝐧𝐞𝐭 𝐩𝐫𝐨𝐟𝐢𝐭 𝐧𝐞𝐭 𝐬𝐚𝐥𝐞𝐬 x 𝐧𝐞𝐭 𝐬𝐚𝐥𝐞𝐬 𝐚𝐯𝐞𝐫𝐚𝐠𝐞 𝐭𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭 ROA, in the DuPont equitation, is affected by two factors They are profit margin, total asset turnover ROE = Profit margin(ROS) x Total assets turnover x Equity multiplier = 𝐧𝐞𝐭 𝐩𝐫𝐨𝐟𝐢𝐭 𝐧𝐞𝐭 𝐬𝐚𝐥𝐞𝐬 x 𝐧𝐞𝐭 𝐬𝐚𝐥𝐞𝐬 𝐚𝐯𝐞𝐫𝐚𝐠𝐞 𝐭𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭 x 𝒂𝒗𝒆𝒓𝒂𝒈𝒆 𝒕𝒐𝒕𝒂𝒍 𝒂𝒔𝒆𝒕 𝒂𝒗𝒆𝒓𝒂𝒈𝒆 𝒕𝒐𝒕𝒂𝒍 𝒆𝒒𝒖𝒊𝒕𝒚 ROE, in the DuPont equitation, is affected by three factors They are profit margin, total asset turnover and equity multiplier Dupont measures: Operating efficiency: How efficiency inputs are being used to generate profits (earnings) Assets use efficiency: How well total assets are being used to generate revenue/net sales (turnings) Financial leverage: How well the business is leveraging its debt capital (leverage) 1.3 Factors affecting the profitability The essence of profitability is a firms Revenue – Costs with revenue depending upon price and quantity of the good sold These factors will all determine the profitability of firms: Degree of market competition: Highly contestable markets- lower prices and a tendency towards normal profits because businesses must respond to actual and threat of competition Monopoly with entry barriers- supernormal profits made in the long run Rate of growth of market demand: Profitability gets squeezed in a recession, falling demand and less pricing powe Price elasticities of demand for goods & services: Business with market power can use price discrimination to make more money Changes in cost factors: Changing costs of variable factors e.g wages and raw materials Changing fixed costs e.g insurance, interest rates, capital equipment Impact of government regulations, subsidies and losses Changes in the level of productively of factor inputs used by a business Part 2: The situation of the profitability of I.D.I International Development &Investment Corporation 2.1 Overview of I.D.I International Development &Investment Corporation 2.1.1 Introdution of I.D.I International Development &Investment Corporation Unit name: I.D.I International Development &Investment Corporation Address: at Highway 80, Vam Cong Industry Cluster, An Thanh Hamlet, Binh Thanh Commune, Lap Vo District, Dong Thap Province, Vietnam Phone: +84 673680383 Email: idiseafood@vnn.vn Establish: 15/07/2003 Website: http://www.idiseafood.com Charter capital at the beginning: 29 billion VND Business: processing and preserving of fisheries and fishery products.and Buying and selling building materials, interior decoration Production, transmission and distribution of electricity Exploitation of stone, sand, gravel and clay Fish oil production and trading Real estate business 2.1.2 The history of I.D.I International Development &Investment Corporation I.D.I International Development & Investment Corporation was establish in 2003, under the bussiness registration certificate No 4103001715 issued by the Department of Planning and Investment of Ho Chi Minh City on 15/07/2003 In 2005, IDI started the Vam Cong industrial cluster project with a scale of nearly 23 hectares in Lap Vo district, Dong Thap province In 2007, IDI officially started construction of the No seafood processing factory and ancillary items This is also the first factory in Vam Cong industrial cluster to be built Besides, IDI continues to pay compensation for the rest of Vam Cong industrial cluster and kick off the Company's project of raising raw fish In 2008, the Company completed the construction and installation of equipment, bringing the first phase of the No seafood processing factory with the designed capacity of the first phase of 300 tons of raw materials/day and cold storage with a capacity of 4,600 tons come into operation Officially put IDI's name on the list of Vietnamese pangasius exporters At the same time, the Company also supported the Tourism Investment and Fisheries Development Joint Stock Company (Trisedco) to start the construction of the phase pangasius processing factory In 2011, started the project of Fish Oil Refining Factory with designed capacity of 100 tons of crude fish oil/day and total investment capital of 300 billion VND, usable area 10,600m2 Completing the pangasius farming area according to Global G.A.P, A.S.C, B.A.P standards is nearly hectares in An Thanh Trung commune, Cho Moi district, An Giang province and 10 hectares in Tan Hoa commune, Lai Vung district, Dong Thap province On October 10, 2015, IDI Company started the project of an aqua feed processing factory with a designed capacity of 360,000 tons/year The corporation has boldly invested in the most modern technology to create the best products at low prices 2.1.3 Recent developments and recent performance 8000 100% 7000 6000 75% 5000 4000 50% 3000 2000 25% 1000 0% 2018 2019 Total revenue 2020 net profit net profit margin According to the figures in the financial statements, we can see total revenue of the corporation increase in2019 but in the 2020, due to the impact of the covid pandemic and market factors influence to import and export activities The corporation's products are difficult to export to foreign countries This has great impact on revenue and net profit of the corporation, which lead to net profit margin of the corporation decrease The corporation's revenue is high, net profit of the corporation is low, which means that the corporation's operating costs is large The corporation needs to find solutions to save operating costs 2.2.Situation of the profitability of I.D.I International Development & Investment Corporation 2.2.1 Situation of profitability Items Year 2020 Year 2019 Year 2018 Changes 20202019 Changes 20192018 Amount (billion VND) 6.373,7 Amount (billion VND) 7.744,4 Amount (billion VND) 6.342,7 Amount Propotion Amount (billion % (billion VND) VND) (1370.7) 82,3% 1401,7 Propotion 6.366.8 7.731,9 6.341,2 (1365.1) 82,3% 1390,7 121,9% Accounting 121,1 Profit Before tax 352,9 717,9 (231.8) 34.3% (365) 49,2% Net profit After tax 325,9 643,8 218.8 32.9% (317.9) 50,6% % 122,1% Sale Net sale 107,1 (Source: extracted and calculated from Financial statement of I.D.I International Development & Investment Corporation 2018-2020) Table 2.1: Situation of profitability of I.D.I International Development & Investment Corporation from 2018 to 2020 From table 2.1, we can see that corporation’s sales in 2019 increase sharply increasing, by 22.1%, corresponding to 1401.7 billion VND, but in 2020 due to the impact of the covid pandemic, import and export activities faced many difficulties So in 2020 the sales of the corporation decreased sharply, (decreased by 1370 billion VND), reaching only 82.3% of the revenue compared to 2019 Due to the sharp drop in sales, the profit of the corporation was seriously affected If in 2018 the coporation's net profit after tax was VND 643.8 billion, but in 2019 the profit was reduced by half And by 2020, profit after tax is only 107.1 billion VND We have seen the profits of corporation continuously decrease sharply in the period 2018-2020 We continue to analyze profitability ratio of the business to be more aware of the coporation's profitability and find out the causes and propose solutions to improve the corporation's operations 2.2.2 The profitability ratios Table 2.2: The profitability ratios of the I.D.I International Development & Investment Corporation from 2018 to 2020 Items Unit Year 2020 Year 2019 Year 2018 Difference 2020-2019 Difference 2019-2018 amount % amount % 1.ROS % 1,68 4,21 10,15 (2,53) 39,9 (5,94) 41,48 Net profit Billion VND 107,1 325,9 643,9 (218,8) 32,86 (318) 50,61 Net sales 2.BEP Billion VND % 6.366.8 7.731,9 6.341,2 (1365) 82,3 1597,7 126,1 1,95 7,06 14,44 (5,11) 27,62 Average total asset Billion VND 7.603,6 548 107,76 878,3 114,2 EBIT 3.ROA Billion VND % Net Profit 7.055,6 6.177,3 (7,38) 48,89 148,2 498,3 891,9 (350,1) 29,74 (393,6) 55,87 1,41 4,61 10,42 (3,2) 30,59 (5,81) 44,24 Billion VND 107,1 325,9 643,9 (218,8) 32,86 (318) 50,61 Average total asset 4.ROE Billion VND 7.603,6 548 107,76 878,3 % 3,64 11,73 26,36 (8,09) 31,03 (14,63) 44,5 Net profit Billion VND 107,1 325,9 643,9 (218,8) 32,86 (318) 50,61 Average total equity Billion VND 2945,03 2777,9 2.442,7 167,13 106,01 335,2 113,7 7.055,6 6.177,3 114,2 (Source : calculated from Financial Statement of I.D.I International Development & Investment Corporation from 2018 to 2020) From table 2.2, we can see clearly see thethe fluctuations of each items in the profitability ratios of the corporation: CONCLUSION Each enterprise in the economy plays an important role as a link contributing to accelerating the speed of industrialization and modernization Therefore, sustainable development and growth is what businesses aim for Through the above studies, we can see the importance of the Nam Việt 's profitability The above analysis has outlined the theory of profitability ratio, and applied the theory of profitability to IDI International Development & Investment Corporation to analyze and evaluate the factors affecting the profitability of the company company through the index system We understand profit after tax, profit before tax, asset turnover index, Through the above indicators, we can assess that the performance of IDI International Development & Investment Corporation is not really good and lower profitability From there, we can draw out the advantages and disadvantages, and from there give the necessary measures to improve the profitability ratio of the business 14 REFERENCES Pham Thi Van Anh, Diem Thi Thanh Hai (2018), Basis corporate finance, Finance Publishing House Financial statement of IDI International Development & Investment Corporation in the period 2018-2020 https://cafef.vn/ APPENDICATES ... 2: The situation of the profitability of of I.D.I International Development &Investment Corporation Part 3: Suggest solutions PART 1: Theories of the profitability 1.1.Definition, content of the. .. Content of the profitability 1.2 Financial indicators of the profitability 1.3 Factors affecting the profitability Part 2: The situation of the profitability of I.D.I. .. solutions to increase the profitability of the bussiness Scope of the study In term of space: research on profitability of I.D.I International Development &Investment Corporation The subject is specialized