(Tiểu luận) gross profit margin ratio = gross profit total revenue

INDIVIDUAL ASSIGNMENT Principles of Accounting ACC101 Lecturer: Nguyễn Thị Quế Anh Name: Đinh Hoàng Phi Long Student ID: SE171112 Class: ACC101_3W_2 0 Tieu luan Table of contents A Introduction A FINANCIAL RATIOS ANALYSIS I PROFITABILITY RATIOS Gross profit margin Net profit margin Return on asset Return on equity 3 II GROWTH RATE Asset growth rate Revenue growth rate Net profit growth rate 7 III LIQUIDITY RATIOS Current ratio Acid-test ratio 10 10 11 IV LEVERAGE RATIOS 12 Debt to asset ratio Debt to equity ratio Times interest earned ratio 12 13 14 V TURNOVER RATIOS Inventory turnover ratio Days’ sales in inventory Accounts receivables turnover ratio Days sales receivable 15 15 16 17 18 B Conclusion & Recommendation 19 Conclusion 19 Recommendation 19 C Reference 20 0 Tieu luan A Introduction Vietnam Dairy Products Joint Stock Company, commonly known as Vinamilk, is a company that manufactures and trades milk and dairy products as well as related machinery and equipment in Vietnam Vinamilk is currently the market leader in the dairy processing industry, accounting for more than 54.5% of the liquid milk market, 40.6% of the powdered milk market, 33.9% of the drinking yogurt market, 84.5% of the edible yogurt market, and 79.7% of the condensed milk market The overall aim of the assignment is to analyze the financial position of Vietnam Dairy Products Joint Stock Company using financial ratio analysis for the years 2019-2021 Discover Vinamilk's business potentials as well as financial risks through the analysis Make appropriate recommendations for the Company's effective operation and estimate its future financial position In this assignment, I compare the financial statements of Vietnam Dairy Products Joint Stock Company for the last three years, 2019, 2020, and 2021, including the Balance Sheet and Income Statement Analyze and evaluate changes in the company's operations, asset structure, and capital sources from there A FINANCIAL RATIOS ANALYSIS I PROFITABILITY RATIOS Gross profit margin Gross Margin, often known as the gross profit margin, is a crucial sign of a company's profitability After deducting the cost of products sold, this indicator displays the gross profit the company makes for each dollar of revenue Gross profit margin ratio = Gross profit / Total revenue In which, gross profit is calculated by the formula: Gross profit = Total revenue - Cost of goods sold 0 Tieu luan Figure Gross profit margin ratio According to Figure 1, Vinamilk's gross profit margin tends to decline between 2019 and 2021, indicating that the company's production efficiency may be slowing down Cost of goods sold has not been optimized, despite the fact that total revenue and gross profit have a tendency to rise over time This indicates that Vinamilk's competitive advantage is gradually eroding Net profit margin The company's net profit margin is the amount of profit it makes from each dollar of sales after taxes, expressed as a percentage (%) In other words, how much profit the business makes after taxes for every dollar of revenue Net profit margin is an important indicator in assessing the profitability of a business Net profit margin = Net profit ⁄ Total revenue 0 Tieu luan Figure Net profit margin ratio Figure demonstrates that Vinamilk's net profit grew from 2019 to 2020 However, the net profit margin for 2021 indicates a modest decline That indicates higher risk and lower profit Vinamilk must analyze its expenses in order to maximize profit margins and raise net profit margins Return on asset Return on assets (ROA) refers to a financial ratio that indicates how profitable a company is in relation to its total assets Corporate management, analysts, and investors can use ROA to determine how efficiently a company uses its assets to generate a profit (Marshall Hargrave, 2022) The formula is calculated as follows: Return on assets = Net income / Average assets The average asset value is determined by: Average assets = ( Beginning assets + Ending assets) / 0 Tieu luan Figure Return on assets Figure demonstrates the steadily declining ROA for Vinamilk from 2019 to 2021 The falling return on assets is shown by this indicator Vinamilk's Profit on Assets index has gradually decreased over the years, indicating that Vinamilk has not yet fully exploited its assets to make more profits, even though profit earned and asset value have increased steadily over the years Return on equity Return on equity (ROE) is a financial performance metric that is determined by dividing net income by shareholders' equity ROE is defined as the return on net assets since shareholders' equity equals a company's assets less its debt The ROE ratio reflects average equity on the balance sheet as well as profitability, which is displayed on the income statement The formula is Return on equity = Net income / Average Shareholders’ equity 0 Tieu luan Figure Return on equity Figure demonstrates the downward trend in Vinamilk's Return on Equity from 2019 to 2021 This represents a decline in net profit and equity, as well as a reduction in the company's capacity to utilise capital It is clear that the company's poor decisions have an impact on how much capital is reinvested in assets II GROWTH RATE Asset growth rate The asset growth rate displays the percentage growth in relative wealth over time Negative ratios indicate slow growth The asset growth rate is unknown when the assets from one of the periods prior to the current period are zero An assets growth rate = ( Ending assets - Beginning assets ) / Beginning assets 0 Tieu luan Figure Assets growth rate Figure depicts the Vietnam Dairy Products Joint Stock Company's asset growth rate from 2019 to 2021 The company's asset growth rate peaked during this time period in 2019 at 19.63% By 2018, there has been a significant drop to 8% Less assets are created, as can be seen, and their value depreciates dramatically as well By 2021, the growth rate was beginning to increase once more, indicating that there were more assets than there were at the same time period the previous year Revenue growth rate The revenue growth rate displays the proportionate revenue growth over time (as a percentage) Negative growth is not implied by a lower ratio The growth rate of sales is unknown if the revenue for one of the periods prior to the current period was zero With the use of this ratio, we may determine how much a company's revenue climbed from one period to the next Revenue’s growth rate = ( Ending revenue - Beginning revenue ) / Beginning revenue 0 Tieu luan Figure Revenue’s growth rate Figure displays Vinamilk's revenue growth rate over the time period 2019–2021 typically shows a dramatic decline from 7% to only approximately 2% Even while income has grown consistently throughout the years, it now appears to be slowing down Vinamilk needs more approaches and tactics to boost sales so that company may achieve a competitive edge Net profit growth rate Net profit growth – A company's net profit is the amount of money it makes after deducting all of its costs A firm's ability to pay dividends increases with a growth in net profit, and the company can utilize the gains to diversify its business and expand Net profit’s growth rate = ( Ending net profit - Beginning net profit ) / Beginning net profit 0 Tieu luan Figure Net profit growth rate Figure depicts a steep decline in the growth rate of Vinamilk's net profit throughout the period of 2019–2021 The rate of growth of net profits will rise to 6.5% in 2020 from 3.4% in 2019 The net profit growth rate did, however, drastically decline in 2021, falling to -5% It is evident that the sales profit has significantly decreased from the first year III LIQUIDITY RATIOS Current ratio Another name for current ratio is short-term ratio This indicator depicts the proportion of current assets to current liabilities, which reflects the company's current capacity to settle its short-term obligations The formula is: Current ratio = Current assets / Current liabilities 10 0 Tieu luan Figure Current ratio The graph demonstrates that Vinamilk's current ratio steadily increased from 2019 to 2021, demonstrating that they are better able to pay back their loans This is a promising sign for the company's ability to settle its debts Acid-test ratio A ratio that shows if a business has enough liquid assets to cover its short-term liabilities without selling inventory Both inventories and pre-paid expenses are excluded from the formula above because they are difficult to easily cash out Since inventory is not included in the calculation, the acid-test ratio is much stricter than the current ratio The formula is: Acid-test ratio = ( Cash and cash equivalents + Short-term investments + Current receivables ) / Current liabilities 11 0 Tieu luan Figure Acid-test ratio The acid test ratio for Vinamilk grew and dropped unevenly, as seen in Figure Acid test ratio reached its peak in 2020, however there was only a very tiny decline in 2021 This nevertheless demonstrates their capacity to settle debt without being forced to liquidate merchandise right away IV LEVERAGE RATIOS Debt to asset ratio A debt-to-assets ratio is a type of leverage ratio that assesses the relationship between a company's total assets and its debt obligations, including both short- and long-term debt A company's debt-to-assets ratio can provide insight into the leverage of the business and its capital structure A company's dependence on its lenders increases as its level of leverage increases Debt to asset ratio = Total liabilities / Total assets 12 0 Tieu luan Figure 10 Debt to assets ratio Figure 10 demonstrates how Vietnam Dairy Products Joint Stock Company's debt-to-asset ratio declined between 2019 and 2021 In particular, this rate will drop from roughly 38% to about 32% between 2019 and 2021 This demonstrates that this company is low risk due to its low debt ratio In the past three years, total debt has not changed significantly, which is a positive sign when the company's assets are rising quickly Debt to equity ratio The debt-to-equity (D/E) ratio, which is calculated by dividing the total liabilities of the company by the equity held by its shareholders, is used to assess a company's financial leverage In corporate finance, the D/E ratio is a crucial indicator It is a gauge of how much debt a business is using to fund operations as opposed to using cash on hand One particular kind of leverage ratio is the debt-to-equity ratio Debt to equity ratio = Total Liabilities / Shareholder’s equity 13 0 Tieu luan Figure 11 Debt to equity ratio Figure 11 demonstrates that over the three years from 2019 to 2021, Vinamilk's debt-to-equity ratio tends to gradually decline This ratio falls by more than 14% between 2019 and 2021 This demonstrates Vinamilk's capacity to settle both short-term and long-term loans without suffering a loss Times interest earned ratio Based on current income, the times interest earned (TIE) ratio assesses a company's capacity to service its debt Earnings before interest and taxes (EBIT) divided by the total interest due on bonds and other debt is the calculation for a company's TIE number The outcome is a figure that illustrates how many times a business could pay its interest expenses out of pretax profits The interest coverage ratio is another name for TIE Times interest earned ratio = Earning before interest & tax (EBIT)/ Interest expense In which, the formula earning before interest expense and tax is: Earning before interest & tax = Net Income Before Taxes + Interest expense 14 0 Tieu luan Figure 12 Times interest earned ratio Figure 12 displays the frequency with which Vinamilk's interest rate fell between 2019 and 2020 But in 2021, it started to rise significantly This demonstrates that this company is better able to pay down its debt Investors will therefore have faith in debt loans because they have a strong ability to pay interest V TURNOVER RATIOS Inventory turnover ratio Inventory turnover is a financial indicator that aids managers in analyzing and assessing the activities of the company throughout the year Businesses are interested in this indication, which is one of those displayed in financial statements Inventory turnover, also referred to as the inventory turnover ratio, is a tool used by managers to assess a company's performance Inventory turnover ratio = Cost of goods sold / Average inventory 15 0 Tieu luan Figure 13 Inventory turnover ratio Figure 13 illustrates that Vinamilk's inventory turnover ratio is increasing and falling unevenly, which shows that items are sold faster and more income is received In contrast, the company has not yet streamlined COGS, hence in 2021 the inventory turnover ratio will go down Days’ sales in inventory The days sales of inventory (DSI) financial ratio shows how long it typically takes a business to convert its inventory, which includes things that are still being manufactured, into sales in days DSI can be understood in a variety of ways and is sometimes referred to as the average age of inventory, days inventory outstanding (DIO), days in inventory (DII), days sales in inventory, or days inventory The number indicates the inventory's liquidity and how long the current stock of an organization's inventory will survive Days’ sales in inventory = Average inventory / Cost of goods sold * 365 16 0 Tieu luan Figure 14 Day’s sales of inventory Figure 14 displays the daily inventory turnover for Vinamilk The past three years have seen an uneven increase and drop Inventory turnover will last 64 days in 2019 and 54 days in 2020 It rises slightly once more in 2021, to roughly 61 days A shorter period for inventory release is indicated by this number of days That might mean Vinamilk has effectively controlled inventory but it has not yet optimized it Accounts receivables turnover ratio By analyzing how long it takes to collect the outstanding debt over the course of the accounting period, the accounts receivable turnover ratio, also known as receivables turnover, is used in business accounting to quantify how well businesses are managing the credit that they extend to their customers Receivables turnover ratio = Net sales / Average accounts receivable 17 0 Tieu luan Figure 15 Receivables turnover ratio Figure 15 demonstrates how Vinamilk's receivable turnover has been declining during the years from 2019 to 2021 Although this company's financial position is favorable and has been optimized, it still has unpaid debts and uncollectible accounts, and it is therefore beginning to deteriorate For this indicator to change from negative to positive, businesses must continue to improve Days sales receivable Days Sales receivable is a metric used to describe how long it typically takes a business to collect payment for a transaction Days Sales receivable is frequently calculated monthly, quarterly, or annually Days Sales receivable, also known as days receivables or average collection period, is a component of the cash conversion cycle The formula is: Days sales receivable = Average accounts receivable / Net Sales × 365 18 0 Tieu luan Figure 16 Days sales receivable Figure 16 demonstrates how Vinamilk gradually extends the number of days it takes to collect income from 2019 to 2021 25 days in 2021 compared to 22 days in 2019 This demonstrates that the business is minimizing the number of days it takes to obtain receivables B Conclusion & Recommendation Conclusion Vietnam Dairy Products Joint Stock Company is a business with strong financial capabilities, to put it briefly with a large quantity of assets, solid earnings, and yearly growth Despite the fact that the ratios will slow down in 2021 for a variety of causes, including the covid pandemic, However, it is clear that the corporation continues to maintain good ratios, demonstrating its capacity to cover costs Debt is still kept at a manageable level Recommendation Vietnam Dairy Products Joint Stock Company must keep putting product marketing plans into practice while capitalizing on market opportunities and competitive advantages for increased sales and ratios Viet Nam Dairy Products Joint Stock Company must also encourage sales and cost-effectively manage expenses if it is to increase and sustain revenue and ratios Additionally, they must conduct research and develop their products to meet customer demands 19 0 Tieu luan C Reference Vinamilk 2022 Finance report [online] Available at: [Accessed December 2022] Investing.com 2022 Vietnam Dairy Products JSC (VNM) Balance Sheet [online] Available at: [Accessed December 2022] Investing.com 2022 Vietnam Dairy Products JSC (VNM) Income Statement [online] Available at: [Accessed December 2022] Investopedia 2022 Financial Ratios [online] Available at: [Accessed December 2022] 20 0 Tieu luan ... revenue In which, gross profit is calculated by the formula: Gross profit = Total revenue - Cost of goods sold 0 Tieu luan Figure Gross profit margin ratio According to Figure 1, Vinamilk''s gross. .. company''s profitability After deducting the cost of products sold, this indicator displays the gross profit the company makes for each dollar of revenue Gross profit margin ratio = Gross profit / Total. .. company''s operations, asset structure, and capital sources from there A FINANCIAL RATIOS ANALYSIS I PROFITABILITY RATIOS Gross profit margin Gross Margin, often known as the gross profit margin, is