Rationale of the study
In the context of increasing regional and international economic integration, Vietnamese entrepreneurs must focus on self-improvement and enhancing their competitive edge to thrive Strengthening financial capabilities through various methods is essential for businesses Conducting financial performance analysis serves as a crucial and effective tool for companies to achieve this goal, making it an urgent necessity in today's market.
During my internship in the Finance and Accounting Department at PG Tanker Corporation, I discovered that financial performance analysis in tanker shipping companies, especially PG Tanker, has been largely overlooked in Vietnam While there have been some studies on financial performance analysis in the country recently, none specifically target the tanker shipping sector This gap in research motivated me to select this topic for further investigation.
“Financial performance analysis on Petrolimex Tanker Corporation (PG Tanker) from
Aims of study
This study evaluates the financial performance of PG Tanker from 2014 to 2016 using various analytical methods, including comparison, ratio analysis, continuous replacement method, and the DuPont system The objectives include identifying different financial ratios to assess performance, analyzing key factors influencing PG Tanker's financial outcomes, and highlighting both strengths and weaknesses in its financial performance Additionally, the study aims to provide actionable recommendations for improvement.
Scope of the study
This study analyzes the financial performance of PG Tanker in Vietnam, utilizing audited financial statements from the company over a three-year period, specifically from 2014 to 2016.
Research questions
What are the major strengths and shortcomings of PG Tanker’s financial performance in the period 2014 – 2016?
Research methodology
This study utilizes financial statements from the Financial and Accounting Department of PG Tanker to analyze the company's financial performance from 2014 to 2016 Employing comparison techniques, ratio analysis, the continuous replacement method, and the DuPont model, the research aims to deliver accurate and comprehensive insights into PG Tanker's financial metrics during this period.
Limitation of the study
This thesis has limitations due to constraints in time, information, and knowledge, resulting in an insufficient analysis A key shortcoming is the reliance on selected financial variables for evaluating financial performance Additionally, the study primarily utilized quantitative secondary data, leaving some primary data issues unresolved This represents a significant limitation that the thesis has not fully addressed, highlighting an opportunity for future research to explore these areas further.
Outline of the thesis
The thesis has been divided into four chapters as follows:
Chapter I: Literature review on corporate financial performance analysis
Chapter III: Findings on PG Tanker’s financial performance from 2014 to 2016 Chapter IV: Recommendations and Conclusions
Literature review on corporate financial performance analysis
Overview on corporate financial performance
1.1.1 Definition and importance of finance
The origins of finance date back to the dawn of human life, with its etymology rooted in the French language In the 18th century, English speakers adopted the term to signify 'the management of money,' solidifying its place in the English lexicon Today, finance has evolved into a vital academic discipline and is recognized as a distinct branch of Economics.
It is the soul of our economic activities
Finance, as defined by Khan and Jain (2007), is both an art and a science focused on managing money and studying how investors allocate their assets amid certainty and uncertainty Its primary goal is to assess asset pricing based on risk levels and expected returns To engage in any economic activity, resources must be pooled in monetary form, which is essential for acquiring physical resources necessary for productive operations This includes activities such as sales, compensation payments, and contingency reserves Therefore, analyzing financial performance is crucial for organizations to ensure effective business operations.
Finance plays a crucial role in the success of a business organization, encompassing the planning of financial resources, the creation of an optimal capital structure, and the effective utilization of these resources through thorough analysis of cost of capital and capital budgeting tools Proper financial management, akin to advanced technology, enhances business efficiency Careful and strategic utilization of financial resources is essential; without sound financial planning, a company risks bankruptcy if it fails to generate adequate returns for creditors and shareholders Therefore, understanding finance and its tools is vital for sustaining business operations and ensuring financial stability.
1.1.2 Definition and importance of financial performance
In the words of Frich Kohlar (2008), performance is derived from the word
The term "parfourmen" signifies the act of performing or executing tasks, encompassing concepts such as accomplishment and fulfillment In a broader context, performance is defined as the successful completion of a task, evaluated against established standards of accuracy, completeness, cost, and speed Essentially, it reflects the extent to which an achievement has been realized, as articulated by Frich Kohlar.
Performance refers to the overall conduct and activities of an organization over a specific timeframe, focusing on aspects such as cost efficiency, management responsibility, and accountability It encompasses not only the presentation of results but also the quality of outcomes achieved Ultimately, performance serves as an indicator of a firm's success, operational conditions, and adherence to compliance standards.
Financial performance, as defined by Eshna (2012), encompasses the execution of financial activities and reflects the extent to which financial goals are met It involves assessing a company's policies and operations in monetary terms, allowing for the evaluation of its overall financial health over a specific timeframe Additionally, financial performance facilitates comparisons between similar companies within the same industry, as well as across different industries or sectors.
Ahmad (2016) asserts that financial performance serves as a blueprint for a business's financial affairs, demonstrating the success achieved under its management It reflects the effectiveness of the organization's financial activities and indicates whether the firm's financial objectives have been met.
Valentin (2014) highlights that the perception of financial performance has evolved from solely focusing on profit generation to a broader understanding influenced by various stakeholders' perspectives Today, a company's global performance is measured by its ability to meet the interests of all stakeholders Managers seek to ensure their welfare and profit, as their contributions are recognized, while owners aim to maximize their wealth through enhanced company returns.
Market value is primarily assessed through profit, as current and potential shareholders evaluate a company's performance based on its ability to distribute dividends relative to the risks involved Commercial partners prioritize the company's solvency and stability, while credit institutions require assurance of timely loan repayments Employees seek job security and competitive compensation, and the state expects companies to operate efficiently, fulfill tax obligations, and contribute to job creation.
Huck and McEwen (1991), Schwenk and Shrader (1993), and McMahon and Davies (1994) emphasize that successful financial performance is closely linked to effective management of financial issues Evidence suggests a strong correlation between activities such as financial planning, maintaining records, securing external finance, and seeking professional financial advice, and a firm's overall success However, researchers like Twala and Phaladi (2009) and others have identified access to finance as a significant barrier leading to business failures Despite this, there remains a lack of comprehensive studies focused on how businesses assess and manage their financial performance.
Overview on corporate financial performance analysis
1.2.1 Conception of corporate financial performance analysis
Corporate financial analysis is essential for effective financial resource management and plays a crucial role in financial management Managers must base their decisions on a thorough analysis of current and financing activities Traditionally, financial analysis involves examining key parameters and factors to provide an objective assessment of a company's financial health and stock price, aiding capital investment decisions However, various interpretations of financial analysis exist, highlighting its complexity and importance in the business landscape.
Financial analysis, as outlined by Martin et al (1990), encompasses all aspects of financial management related to the management of financial resources, including capital markets This process aims to evaluate both the current and historical financial situations of a business, along with its overall performance.
Financial analysis is essential for estimating and forecasting a company's future conditions and operations According to Helfert (2003), it serves as a research tool and a support system for addressing management questions In contrast, Sharpe et al (1998) focus more narrowly on financial indicators Likewise, Haber and Reichel (2005) emphasize that measuring financial performance typically involves analyzing various financial ratios, including liquidity, activity, profitability, and debt ratios.
Financial analysis is a crucial component of the financial management system, as highlighted by Keown et al (2007), who emphasize its role in guiding management decisions Similarly, White et al (2002) recognize its significance in shaping economic relationships, financing, and the company’s loan system While some scholars argue for treating financial analysis as a distinct discipline, the consensus among most experts is that it plays an essential role in corporate governance, facilitating informed decision-making for businesses.
In this thesis, I follow the definition that financial performance analysis is the process of selection, relation and evaluation of an organizational performance (Meigs,
In financial decision-making, the initial step involves selecting pertinent information from financial statements Next, it’s crucial to organize this data to emphasize key relationships Finally, interpreting the information allows for drawing meaningful conclusions By conducting thorough analysis, organizations can uncover opportunities to enhance performance at the departmental, unit, and overall organizational levels.
1.2.2 The objective of corporate financial analysis
According to Trivedi (2010), the primary goal of financial analysis is to identify an organization's financial strengths and weaknesses while evaluating its performance This evaluation is based on criteria such as overall financial performance and risk, which are assessed through financial balance, leverage, and the DuPont equation Additionally, financial efficiency is reflected in profitability and asset utilization, with financial risk being measured through liquidity and debt levels.
7 capacity The second goal is a greater awareness of the causes behind the situation Finally, it necessary to suggest solutions to improve the financial position of the business
1.2.3 Areas of financial performance analysis
Financial analysts evaluate a company's health by examining various performance metrics, including production, profitability, liquidity, working capital, fixed assets, fund flow, and social performance (Trivedi, S., 2010) However, this study is constrained by limited information and aims to adapt to the current circumstances.
PG Tanker, its financial health is measured from the perspectives including Financial structure, Cash flow, Liquidity, Activity, Leverage and Profitability analysis
Analyzing a firm's financial structure and balance is crucial for understanding its asset and capital configuration, which reveals how capital is utilized and mobilized Furthermore, evaluating financial performance focuses on key metrics such as revenue, profit, and costs, with revenue and profit serving as vital indicators of operational efficiency It is important to consider the overall efficiency of the business in relation to both its operational and financial activities Additionally, conducting a risk analysis is essential, as the inherent nature of business involves various risks; thus, analysts must identify potential risks associated with operations, capital mobilization, and payments.
1.2.4 Types of corporate financial performance analysis
Financial performance analysis can be classified into different categories on the basis of material used and modes operandi as under
Diagram 1: Types of corporate financial analysis
On the basis of material used, financial performance can be analyzed in following two ways
External analysis is conducted by external parties such as investors, credit agencies, government agencies, and creditors who rely on published financial statements, as they lack access to a company's internal records In contrast, internal analysis is performed by executives and employees within the organization, or by appointed officers who have access to detailed financial information and records.
On the basis of modus operandi, financial performance can be analyze in the two ways as follows
Horizontal Analysis involves reviewing and analyzing financial statements over multiple years, comparing the current year's figures with a base year, and presenting changes typically as percentages This method provides management with valuable insights into strengths and weaknesses within the organization Often referred to as Dynamic Analysis, it relies on historical data to assess performance trends.
Vertical Analysis examines the quantitative relationships among various items in financial statements as of a specific date This approach is beneficial for comparing the performance of multiple companies within the same sector or evaluating different divisions or departments within a single company However, it has limitations in assessing a firm's overall financial position since it relies on data from a single period Often referred to as Static Analysis, this method focuses exclusively on information from one date or accounting period.
This thesis emphasizes Horizontal Analysis to assess PG Tanker's financial position and evaluate the strengths and weaknesses of its financial performance from 2014 to 2016.
1.2.5 The role of corporate financial performance analysis
Financial analysis plays a crucial role in decision-making, particularly in short-term investment and finance Effective financial management significantly enhances a company's value creation A key challenge in financial management lies in balancing the trade-offs between liquidity and profitability (Lazaridis, 2007).
Effective financial management relies on thorough financial analysis, which involves evaluating a business's financial status over a specific period This process aids stakeholders in understanding the company's financial health, profitability, and future potential, facilitating timely and informed decision-making Financial analysis promotes transparency in operations and is crucial for various stakeholders, including owners, managers, investors, creditors, and employees, each of whom has a vested interest in the company's financial condition from different perspectives.
Financial analysis is essential for business managers, as it aids in managing companies, long-term planning, and daily decision-making (Atrill, 2006) Helfert (2003) emphasizes that financial analysis effectively supports operational management Consequently, financial information not only offers business leaders a comprehensive view of the company's financial health but also facilitates timely and informed decisions regarding investments, financing, and profit distribution.
Previous studies
Mihaela Herciu, Claudia Orgean and Lucian Belasco conducted a study entitled
A Du Pont Analysis of the 20 Most Profitable Companies in the World in 2011 reveals that many of the most profitable companies are not necessarily the most appealing to investors By applying the Du Pont method, the study calculated key profitability ratios—Return on Sales (ROS), Return on Assets (ROA), and Return on Equity (ROE)—for each of the top 20 profitable companies identified by Fortune in 2009.
The analysis of three financial ratios revealed significant deviations in company rankings, with none maintaining their initial standings A study of the correlation between net income and profitability ratios—Return on Sales (ROS), Return on Assets (ROA), and Return on Equity (ROE)—showed that higher profit levels did not correspond to increased profitability ratios, indicating weak correlations that supported the initial hypothesis.
In conclusion, a company's total profits offer a broad perspective on its operations but lack insight into how it handles dividends, debts, and liabilities For investors, profits hold significance primarily when analyzed alongside other metrics, such as sales, total assets, or shareholder equity, to establish a relationship between profit (effect) and the resources invested (effort).
In my thesis, I employ a combination of the comparison method, ratio method, continuous replacement method, and the DuPont model to deliver a thorough, precise, and comprehensive analysis of PG Tanker's financial performance.
In 2013, Mrs Lespine Bachelard Sophie, a master's student from Vietnam Commercial University and University de Lyon, completed her dissertation on "Financial Analysis of PetroVietnam Energy Technology Corporation (PVEIC)." The research aimed to evaluate the current financial analysis practices in Vietnam, particularly within PVEIC, by assessing the strengths and weaknesses of their financial statement analysis Utilizing data from PVEIC's 2012 financial statements, the dissertation not only highlighted the corporation's financial characteristics but also proposed solutions for enhancing its future operations Theoretical insights on financial statement analysis were provided, along with a comprehensive overview of commonly used methods and the financial statement system in Vietnam Additionally, the dissertation contributed to the practical evaluation of financial statement analysis implementation in Vietnam, comparing and systematically assessing these practices against those in the United States.
Financial statement analysis plays a crucial role in understanding the current market dynamics, highlighting key issues that need improvement, particularly in Vietnam PVEIC, a major corporation with capital-intensive operations, struggles with the efficient use of its resources Despite its size, PVEIC's financial statement analysis continues to face the common challenges prevalent in Vietnam's financial landscape.
The research implementation significantly benefits PVEIC by assessing its production and business activities, highlighting its crucial role in the economy during the integration period The dissertation evaluates the current state of financial analysis within PVEIC, identifying advantages, limitations, and the underlying causes of these constraints, such as inadequate financial analysis methods and insufficient indicators By addressing these theoretical and practical shortcomings, the dissertation offers solutions to enhance the examination and analysis of financial statements, alongside strengthening financial management practices at PVEIC Notably, the author employs the DuPont method for financial statement analysis, marking a novel approach for the corporation and facilitating comparative analysis with other companies in Vietnam's oil and gas sector This comparative analysis serves as a vital foundation for accurately assessing the corporation's operational status, revealing both strengths and weaknesses in its financial and business activities Ultimately, the dissertation provides practical measures to improve the quality of financial statement analysis, offering valuable insights into the corporation's financial structure that can be effectively applied to enhance its operations.
The information system utilized for analyzing the financial statement indicators of PVEIC is insufficient, stemming from both informational deficiencies and limitations in existing annual research compared to other Vietnamese enterprises This absence of a comprehensive assessment framework hinders a thorough evaluation of PVEIC's actual financial performance.
In my thesis, I utilized the DuPont method; however, due to the lack of specific studies on PG Tanker's financial analysis from 2014 to 2016, as well as limitations in time, information, and knowledge, the research primarily focused on a quantitative design using secondary data, which relied heavily on the accuracy of PG Tanker's financial statements.
Methodology
The object of study
This study evaluates the financial performance of PG Tanker to identify its strengths and weaknesses, focusing specifically on the company as the research subject An overview of PG Tanker is provided below.
On 16 February, 2013, The Board of Management of Petrolimex announced the decision to establish PG Tanker
The first specialized corporation for the restructuring of Petrolimex was established in accordance with Decision 828/QD-TTg issued by the Prime Minister on May 31, 2011, along with the Charter of the Vietnam National Petroleum Group and the Ministry of Industry and Trade's instructions outlined in document 11490/BCT-TCCB dated November 27, 2012.
PG Tanker, a limited liability company wholly owned by Petrolimex, operates as a holding company in accordance with the Enterprise Law and Petrolimex Charter The company boasts a registered capital of 1,500 billion dongs.
PG Tanker, headquartered at No 1 Kham Thien Street in Dong Da District, Hanoi, is a leading player in the oil transportation sector in Vietnam The company boasts an extensive fleet through its affiliated oil transport joint stock companies, including VIPCO, VITACO, Hai Phong Oil Transport and Services Company, PJTACO, and Cua Cam Port in Hai Phong.
PG Tanker operates in the fields of riverine, sea and ocean oil transport, maritime services, repairing and building of waterway transport means
Firstly, Petroleum transportation consists of ocean petroleum transportation, coastal petroleum transportation and river petroleum transportation
The second field is Marine services including crews, fuel supply and supplying, shipping and brokerage agency
Another field is Ocean ports It consists of port development and load/unloading cargo
Finally, others operations are shipbuilding and production of mechanical transport
Diagram 4: PG Tanker’s organizational chart
(Based on PG Tanker’s website)
Mr Nguyen Anh Dung has been appointed as the Chairman of the Board of Members and Director General of PG Tanker, supported by two deputy general directors and five key departments, each tasked with essential responsibilities.
The General Director oversees all operational activities within the Board of Directors, supported by two deputy general directors One deputy manages business and internal affairs, while the other focuses on technical direction Both deputy directors play a crucial role in recommending strategies and measures to improve business management Additionally, the Board of Directors comprises five departments that facilitate its functions.
Cua Cam Port Joint Stock Company VIPCO
Safety and Department Law Supervisory members
The Finance and Accounting Department plays a crucial role in delivering essential business performance data to the Board of Directors, aiding in informed decision-making Additionally, it ensures comprehensive and precise documentation regarding the provision, storage, and utilization of assets, while also overseeing the timely payment of contracts.
Secondly, Administration Department is responsible for labor management, approval of payment, as well as labor policies and regimes
Thirdly, Sales Department’s tasks include receiving customers, seeking partners, serving conferences, buying stationery as well as managing dossiers and documents
Another department is Marine Services Department It assists the General Director to manage the operations of the fleet effectively
The Safety and Law Department advises the General Director on fleet technical management and oversees the implementation of standards and procedures for addressing technical issues.
Besides, as previously mentioned, PG Tanker has 5 affiliated companies including VIPCO, VITACO, Hai Phong transportation and services company, PJTACO and Cua Cam Port Hai Phong stock company
Total number of employees in PG Tanker is 148, including 138 men and 11 women
Established in 2013, PG Tanker has quickly built a strong workforce, largely benefiting from the skilled labor pool provided by Petrolimex Group The nature of the industry has resulted in a predominantly male employee base.
In the domestic petroleum transportation market, PG Tanker and PetroVietnam Transportation Corporation (PV Trans) are the two primary competitors PV Trans is significantly backed by its major shareholder, the Vietnam National Oil and Gas Group (PetroVietnam), which holds a 60% stake in the company.
PV Trans, a subsidiary of PetroVietnam, is the exclusive transporter of crude oil for the Dung Quat Refinery and will also serve the Nghi Son and Long Son Refineries in the future The company is actively enhancing its operations by developing a state-of-the-art fleet of crude oil and product tankers.
25 offshore support vessels PV Trans also has the stable customer base including companies such as Shell, Exxon Mobil, BP and LG
PG Tanker continues to secure substantial orders in the international market; however, it encounters intense competition from larger fleets in Singapore and Malaysia Additionally, the port's limitations in handling large-scale cargo further hinder PG Tanker's ability to compete effectively against global rivals.
Research Design
According to Polit and Hungler (1999), a research design serves as a blueprint for conducting a study, ensuring maximum control over factors that may compromise the validity of the results It represents the researcher’s comprehensive plan for answering the guiding research questions Burns and Grove (2001) emphasize that a well-structured study design enables researchers to effectively plan and execute their research, thereby enhancing the likelihood of acquiring information that accurately reflects real-world situations.
Research can be categorized into two main types: quantitative and qualitative Quantitative research focuses on analyzing objective numerical data, whereas qualitative research explores subjective insights derived from the perspectives of respondents or interviewees (Welman et al., 2001).
This study used a quantitative descriptive design to analyze and describe data from PG Tanker's financial statements to identify the strengths and weaknesses of PG Tanker's financial performance.
Source of Data
The study primarily utilized PG Tanker's financial statements, including income statements, balance sheets, and cash flow statements from 2014 to 2017, supplemented by various internet sources, books, and articles.
Method of Data Collection
The study primarily utilizes secondary data, with key ratios calculated from the balance sheet, income statement, and cash flow statement obtained during my internship in the Finance and Accounting Department at PG Tanker.
Method of Data Analysis
In order to analyze the financial performance of PG Tanker, the combination of comparison, ratio and Du Pont method has been taken
The comparison method is widely used in analyzing corporate financial performance, aiming to evaluate and identify trends in key financial indicators This analysis can be conducted through horizontal comparison, also referred to as horizontal analysis, and vertical comparison, known as vertical analysis.
Horizontal analysis involves comparing financial data across multiple reporting periods, while vertical analysis assesses financial statements by expressing each line item as a percentage of a related total In an income statement, this typically means representing each item as a percentage of gross sales, whereas in a balance sheet, each line item is shown as a percentage of total assets.
Horizontal analysis examines financial results over multiple time periods, while vertical analysis focuses on the relationship between accounts within a single period.
Selecting an appropriate yardstick is essential, as it serves as the indicator for a specified period used for comparison, known as the comparison base This comparison base is typically defined by both time and space Depending on the specific analysis objectives, the suitable comparison base must be carefully chosen to ensure accurate and relevant results.
In order to assess the development trends of the indicators, comparison base chosen is the data of the previous period or the same period with last year
In order to assess the implementation in comparison with the plan, estimates and norms, comparison base chosen is the planning data, estimate data, normative data
To evaluate business performance relative to competitors, we utilize industry average data or equivalent unit metrics for comparison.
In particular, in the section of overall analysis of Balance sheet, comparison method is applied to analyze the composition of total assets and capital structure on the
The balance sheet is transformed by expressing each asset item as a percentage of total assets, while liabilities and equity are represented as a percentage of total funding sources This conversion to percentage form allows for straightforward comparisons of financial performance across different periods.
The method of comparison is employed to evaluate revenue, expenses, and profit on the income statement, using prior year data as the benchmark By calculating the changes in each item over the periods and converting these changes into percentages, meaningful comparisons can be made These percentages serve as valuable tools for analyzing financial performance over time.
The comparison method is used to evaluate changes in cash flow across operating, investing, and financing activities over time, with each item's change expressed as a percentage of the base year.
The second method for analyzing financial statements involves utilizing various financial ratios, which, as noted by Needles, Powers, and Crosson (2002), serve as a technique for evaluating financial performance by revealing meaningful relationships within the financial statement components For effective interpretation, it is essential to examine the underlying data associated with these ratios They play a crucial role in assessing a company's financial position and operations, as well as in comparing financial data across multiple years or companies Ultimately, the primary aim of financial ratios is to highlight areas that warrant further investigation.
Ratios are essential for evaluating the relative size of one number compared to another, playing a crucial role in financial statement analysis By combining the ratios method with comparative analysis, companies can determine if their performance aligns with expectations Typically, most ratios fall within anticipated ranges, while a few may indicate potential issues that warrant further investigation Additionally, the comparison method is employed to assess changes in each indicator over time, with variations in ratios expressed as a percentage of the base year.
Ratios can be categorized into four main types: liquidity ratios, activity ratios, leverage ratios, and profitability ratios, each designed to evaluate distinct aspects of a company's performance Various methods are employed to assess these ratios effectively.
Liquidity ratios assess a firm's short-term solvency, with a high current ratio signaling liquidity but potentially reflecting inefficient cash and asset utilization Typically, a current ratio of at least 1 is anticipated, as a ratio below 1 indicates negative net working capital, which is uncommon in healthy businesses.
2010) The quick ratio and cash ratio should be compared with the prior year to identify the problems and their causes
Activity ratios are crucial indicators that assess how efficiently a firm utilizes its assets to generate sales A high current assets turnover ratio signifies the organization's ability to maximize sales with minimal investment in current assets, indicating a favorable situation Similarly, a higher fixed-asset turnover ratio reflects effective use of fixed asset investments to generate revenue, paralleling the asset turnover ratio concept Overall, a higher asset turnover ratio indicates better company performance, as it suggests greater revenue generation per dollar of assets, although this ratio can vary significantly across different industries.
In addition, Leverage ratios are used to assess the firm’s long-run ability to meet its obligations or, more generally, its financial leverage (Hillier, D J., et al.,
The debt ratio is a crucial metric in assessing a company's capital structure, enabling investors and creditors to evaluate the overall debt burden and the firm's capacity to repay its obligations during uncertain economic conditions.
Profitability ratios, such as Net Profit Margin, Basic Earning Power Ratio, Return on Assets (ROA), and Return on Equity (ROE), are crucial for financial analysis If a company's profit rate falls below the industry average, it suggests potential issues with either insufficient sales revenue, excessive costs, or a combination of both.
Findings on PG Tanker’s financial performance from 2014 to 2016
Financial statements analysis
3.1.1.1 Analysis of composition of assets
Amount Proportion of total assets
Amount Proportion of total assets
Amount Proportion of total assets
(Based on PG Tanker’s financial statements)
Between 2014 and 2016, PG Tanker experienced an increase in both the amount and proportion of short-term assets, driven by a rise in cash and cash equivalents This shift was largely due to the downturn in the shipping industry, which heightened risks for PG Tanker's subsidiaries In response, the company stockpiled significant bank deposits and highly liquid bonds to support its subsidiaries during this challenging economic period As a majority shareholder with over 51% in five subsidiaries, PG Tanker adopted this strategy as a key policy Additionally, short-term receivables showed a slight upward trend, reflecting a relatively high proportion of assets, which was a strategic move in a competitive environment, despite potential future challenges in debt recovery.
From 2014 to 2016, the shipping industry firm maintained a significant and stable proportion of long-term assets, accounting for 81.3%, 74.65%, and 73.61% of total assets, primarily due to its Van Phong fleet 01, the largest petroleum carrier in Vietnam The firm's long-term investments also included shares in five subsidiaries, reflecting a consistent investment strategy during this period However, looking ahead, the firm may need to explore short-term financial investments, which have become increasingly vital in today’s economy.
Amount Proportion of total liabilities and equity
Amount Proportion of total liabilities and equity
Amount Proportion of total liabilities and equity
PG Tanker demonstrated significant financial independence from 2014 to 2016, maintaining no long-term debt This strong financial position is attributed to its status as a limited liability company, fully owned by Petrolimex.
PG Tanker's fixed assets are primarily sourced from Petrolimex, while its short-term loans largely stem from seller's payables, alleviating pressure from interest payments on periodic loans However, the company's debt reduction policy, which avoids long-term loans, limits its ability to leverage financing for enhanced business efficiency Consequently, it is crucial for PG Tanker to establish an appropriate capital structure to improve overall business performance.
3.1.1.3 Analysis of the balance between assets and capital
Chart 1: The balance between assets and capital
(Based on PG Tanker’s financial statements)
Short-term assets have consistently represented a smaller portion of total assets compared to long-term assets In 2014, short-term assets comprised only 18.7%, while long-term assets made up 81.3% This trend shifted slightly in 2015, with short-term assets increasing to 25.35% due to a rise in cash and cash equivalents, while long-term assets decreased to 74.65% By 2016, short-term assets accounted for 26.39%, and long-term assets decreased further to 73.61%.
Besides, obviously, short-term debts accounted for less portion of the company's capital structure, 10.49% in 2014, 10.27% in 2015 and 10.01 in 2016
Long-term liabilities and owner’s equity
Short-term liabilitiesLong-term assetsShort-term assets
Long-term sources of funds only included equity (as PG Tanker did not have long- term liabilities), representing 89.51% in 2014 and in 2015 and 2016 it increased to 89.73% and 89.99% respectively
In the period from 2014 to 2016, PG Tanker consistently maintained a lower proportion of short-term liabilities compared to short-term assets, indicating that some short-term assets were financed by long-term assets and equity This suggests that the company had secure funding sources Additionally, PG Tanker's substantial equity not only backed all long-term assets but also a portion of short-term assets, reflecting its strong and stable financial position.
3 Net revenue from sales and services
5 Gross profit from sales and services
9 General and administra tive expenses
10 Net profit from operating activities
(Based on PG Tanker’s financial statements)
(Based on above table - table 3)
PG Tanker's revenues came from two main sources: the operations of Van Phong fleet 01 and financial investment in five subsidiaries
By the end of 2015, PG Tanker's net revenue from sales and services fell to VND 156.6 billion, marking an 8% decline from 2014 The trend continued into 2016, with a significant 28% drop in income from sales and services, indicating a challenging business environment for the company during this period.
Chart 2: Main items of income statement
Gross profit from sales and services Profit after taxNet profit from operating activities Net revenue from sales and services
Despite a decline in revenue from sales and services, the company experienced a gradual increase in gross profit during the period This indicates that, although overall business performance was lacking, management successfully identified strategies to reduce the cost of goods sold, thereby maintaining a positive profit margin.
In 2015, the company experienced an increase in total expenses, primarily driven by general and administrative costs However, a reduction in these expenses in 2016 resulted in a slight overall decline in total expenses, despite a significant rise in other expense categories.
Net profit from operating activities showed significant fluctuation between 2015 and 2016, with a decrease in 2015 followed by a dramatic rise of nearly 30% in 2016 This positive change was attributed not only to favorable petrol prices but also to improved operational strategies for the Van Phong fleet 1 Despite a drop in revenue, the net profit in 2016 served as an encouraging indicator of the company's business efforts during this period.
Between 2014 and 2015, the market experienced a downturn, leading to record-low freight rates and significant losses for many companies As a result, PG Tanker's five subsidiaries struggled to operate effectively, resulting in a substantial decline in the Corporation's financial revenue in 2015 and 2016 compared to 2014.
In 2015, other profit experienced a dramatic decline of 90% due to a significant drop in other income By 2016, while other income remained relatively stable, a substantial increase in other expenses, primarily from PG Tanker's inventory liquidation, caused other profit to plummet by approximately 124.89%.
Between 2014 and 2016, PG Tanker worked diligently to recover from challenging economic conditions While the company faced a 40% decline in profit after tax in 2015, it rebounded significantly in 2016 with a remarkable 31.11% increase in profits.
3.1.3 Analysis of Cash flow statement
1 Net cash flow from operating activities
2 Net cash flow from investing activities
3 Net cash flow from financing activities
Net increase/decrease in cash
(Based on PG Tanker’s financial statements)
PG Tanker had negative cash flow in 2014 and positive cash flow in 2015 and
In 2014, PG Tanker achieved its highest profit after tax, primarily attributed to a significant portion of its earnings being recorded as receivables.
Cash flow from operating activities changed dramatically in the period of 2014
- 2016, especially in 2015 In 2015, it increased by VND 55.2 billion or 244% It then was still on track and grew up slightly in 2016
In 2015, PG Tanker's cash flow from investing activities significantly increased to VND 104.5 billion, primarily due to dividends received from VITACO for the previous year However, this figure decreased to over VND 38 billion in 2016.
Because PG Tanker is not a joint stock company, it had cash flow from financing activities which did not change significantly The profit shared to Petrolimex
Ratio analysis
PG Tanker’s financial statements indicate a healthy liquidity position, with a current ratio exceeding 1, reflecting positive financial health Notably, the current ratio rose by 0.69 in 2015 and an additional 0.17 in 2016 Furthermore, the quick ratios for 2014, 2015, and 2016 also surpassed 1, demonstrating a consistent upward trend in liquidity.
In 2015, PG Tanker experienced a remarkable tenfold increase in its cash ratio, rising from 0.08 to 0.8 This significant change was attributed to the company's effective money reserve policy and its relatively low short-term liabilities.
The findings indicate that PG Tanker demonstrated strong short-term solvency, effectively managing its financial obligations without undue stress Overall, the company's liquidity from 2014 to 2016 was robust, showcasing its ability to meet immediate financial demands.
Increase/Decrease 2016/2015 Current assets turnover ratio
(Based on PG Tanker’s financial statements) The table shows that the current assets turnover ratio decreased significantly In
2014, for every VND in current assets, the company generated VND 6.67 in net sales while in 2015, it dropped to VND 4.24 and VND 2.89 in 2016 It demonstrated that
PG Tanker’s short-term asset portfolio was not effective
Besides, fixed-asset turnover ratio in 2014 was 3.73, 3.82 in 2015 and 3.40 in
2016 There was not significant change in this ratio Therefore PG Tanker was likely to have reasonable fixed asset utilization
Investing in short-term assets, especially holding substantial amounts of unproductive cash, has diminished the profitability of these assets and caused a decline in the asset turnover ratio.
PG Tanker demonstrates efficient inventory management through a high inventory turnover ratio; however, the rising days sales outstanding ratio indicates potential challenges in debt collection.
In summary, the company's asset utilization remains commendable, although the debt collection period has notably increased The accumulation of substantial cash reserves, which are not generating profit, indicates a potentially ineffective short-term asset strategy Nevertheless, during challenging times in the shipping industry, this approach was seen as a deliberate policy by the company.
Between 2014 and 2016, PG Tanker's financial statements revealed a decline in the figure from 10.49% to 10.01%, indicating the company's strategic focus on minimizing credit risk and preserving its credibility with suppliers This approach is deemed prudent for a service-oriented company like PG Tanker, where keeping low accounts payable is prioritized over utilizing financial leverage for capital allocation.
The company's low debt ratio indicates a significant reliance on internal capital, primarily sourced from Petrolimex This low leverage policy has been a fundamental strategy since the corporation's inception, continuing consistently from 2014 to 2016.
The firm's capital structure is robust and stable, as equity funds sufficiently cover all long-term assets and a portion of short-term assets, indicating that this favorable proportion is expected to remain consistent in the future.
PG Tanker experienced a significant decline in profitability ratios from 2014 to 2015, primarily due to a 40% drop in net profit after tax, indicating less effective operations in 2015 compared to the previous year Despite rising gross profit from sales and services, the company's financial income sharply declined, largely attributed to issues with long-term investments in five subsidiaries However, a moderate recovery was observed in 2016, with Return on Sales (ROS) increasing by 3.63%, Return on Assets (ROA) by 1.4%, and Return on Equity (ROE) by 1.53%, signaling a positive trend in PG Tanker’s profitability.
DuPont analysis
As described in the chapter II, ROE is broken down into three parts to determine which of these components is most responsible for changes in ROE
ROE = Profit margin (ROS) x Total asset turnover x Equity multiplier
= (Net income/sales) x (Sales/total assets) x (Average assets/average equity) Therefore, ROE2016 and ROE2014 can be calculated below
ROE2016 = ROS2016 x Total asset turnover2016 x Average assets/average equity 2016
ROE2014 = ROS2014 x Total asset turnover2014 x Average assets/average equity 2014
The effects of changes in its components are calculated and interpreted to identify the source of return during the period 2014-2016
Firstly, the effect on ROE of change in ROS is calculated as follows
ROEROS = ROS2016 x Total asset turnover2014 x Equity multiplier2014
Secondly, the effect on ROE of change in Total asset turnover is calculated ROETAT = ROS2016 x Total asset turnover2016 x Equity multiplier2014
After that, the effect on ROE of change in Equity multiplier is calculated as follows
ROEEM = ROS2016 x Total asset turnover2016 x Equity multiplier2016
Finally, total effect of factors on ROE is calculated as follows ΔROE (2016-2014) = ΔROE ROS + ΔROE TAT + ΔROE EM
Among the three key factors influencing changes in Return on Equity (ROE), asset use efficiency, indicated by total asset turnover, tends to exert the most significant negative effect on ROE The second crucial factor is Operating Efficiency, measured by Return on Sales (ROS) To enhance ROE, firms should focus on improving both total asset turnover and ROS.
In conclusion, a comprehensive analysis of PG Tanker's income statement, balance sheet, cash flow statement, and ratio analysis using the DuPont model reveals both strengths and weaknesses in the company's financial performance The company's liquidity is largely positive, indicating financial stability with a relatively low risk level Additionally, PG Tanker maintains a secure capital and asset structure, though it faces certain financial challenges that need to be addressed.
In 2016, while Return on Assets (ROA) and Return on Equity (ROE) showed signs of recovery, they remained below the levels seen in 2014 Additionally, PG Tanker's operating expenses were still excessive, and the company's debt collection period was alarmingly prolonged Poor management of the debt collection period could result in long-term capital appropriation and challenges in recovering debts.
Recommendations and Conclusions
Recommendations
4.1.1 Managing credit policy, receivables and debt collection period effectively
A well-structured credit policy and effective management of receivables can enhance customer attraction and boost a firm's competitiveness However, the rising trend in debt collection periods and receivables from 2014 to 2016 poses risks of capital appropriation and potential challenges in future debt recovery To mitigate these risks, PG Tanker should develop a strategic debt collection policy to effectively monitor its credit accounts If the debt collection period continues to escalate, PG Tanker must adopt more assertive collection strategies to manage its credit accounts efficiently.
The accounts receivable aging schedule is an essential tool for companies, allowing them to quickly assess the percentage of overdue credit accounts and identify potentially uncollectible debts This proactive approach enables businesses to address cash flow issues before they escalate Additionally, contracts should include stringent penalty interest clauses for late payments, encouraging customers to settle debts promptly.
4.1.2 Reduction in the general and administrative expenses, costs of goods sold and inventory
According to the DuPont method, the significant factors contributing to the overall decline in financial performance from 2014 to 2016 were the decrease in total asset turnover and return on sales (ROS) To improve PG Tanker's financial performance and increase return on equity (ROE), it is essential to enhance both sales and net income.
To enhance the financial health of PGT Corporation, it is essential to reduce general and administrative expenses While employee salaries are relatively fixed, costs related to utilities and events can be managed more effectively Implementing measures such as turning off electrical equipment after hours, switching off air conditioners fifteen minutes prior to closing, and enforcing penalties for non-compliance can significantly contribute to cost savings.
To promote sustainability, it's essential to save water and regularly check for leaks in water pipelines Additionally, office telephone and internet usage should be limited to work-related activities Currently, many PG Tanker conferences and major events are held at the Melia Hanoi five-star hotel, leading to considerable waste A more cost-effective alternative is the four-star Cosiana Hotel located at 92 Le Duan, Hoan Kiem District, Hanoi, which is well-equipped to host major luxury events while significantly reducing expenses compared to Melia Hanoi.
To maintain a downward trend in the costs of goods sold, it is essential to find suitable partners and negotiate favorable agreements Potential charter partners for PG Tanker include reputable international shipping corporations such as Petrolimex Singapore Corporation, Transport Services and Logistics Vietnam Co Ltd, and Wolters Kluwer Transport Services Company.
To optimize operational efficiency and reduce costs, PG Tanker should extend the charter time for its Van Phong fleet, which involves securing transport vessels for a fixed period rather than per trip This approach not only lowers the cost of goods sold and inventory but also allows PG Tanker to collaborate with international charter brokerage companies Additionally, diversifying the shipping cargo list beyond petroleum to include a wider range of products can help attract more potential customers It is also crucial for the company to assess crew demand accurately, enabling the selection of highly qualified crews capable of signing long-term contracts and working effectively with international shippers.
4.1.3 Keeping other short-term assets to improve profitability
Between 2014 and 2016, the company experienced a tenfold increase in cash and equivalents, which significantly enhanced its liquidity The implementation of a new policy for the Van Phong fleet 01 time charter in 2016 enabled the firm to predict a stable monthly cash flow As a result, a portion of the cash reserves could be reallocated to different asset forms, thereby improving overall profitability.
Conclusion
During my internship and thesis completion at PG Tanker, I received invaluable support from my advisor, Mrs Tran Thi Thu Thuy, and the Finance and Accounting department staff, which significantly contributed to analyzing PG Tanker's financial performance.
Between 2014 and 2016, PG Tanker demonstrated relatively acceptable financial performance, showcasing strengths in asset composition, capital structure, and liquidity, indicating financial stability However, to enhance profitability and minimize risks, it is crucial for the company to focus on reducing operating expenses and the debt collection period The thesis provides recommendations aimed at addressing these challenges to maximize financial efficiency in the future.
The implementation of this thesis has significantly enhanced my theoretical and practical knowledge I hope that my research and recommendations will contribute to the firm's growth and inform future studies However, due to limitations in my knowledge, analytical skills, research time, and available information, this thesis remains incomplete I welcome feedback to further improve this study.