Financial Statement Analysis On Vietnam Electrical Cable Corporation (Cadivi.pdf

lOMoARcPSD|38590726 HANOI UNIVERSITY FACULTY OF MANAGEMENT AND TOURISM Financial Statement Analysis on Vietnam Electrical Cable Corporation (CADIVI) Subject: Financial Statement Analysis Teacher’s name: Mr Pham Van Hung Tutorial: Tut Student’s name: Nguyen Minh Anh - 1804040010 Contribution: 100% Signature: Contribution: 100% Signature: Le Thi Hoai Lam - 1804040057 Contribution: 100% Signature: Contribution: 100% Signature: Pham Thi Khanh Linh - 1504040066 Contribution: 100% Signature: Nguyen Thi Hang - 1704040030 Hoang Thu Trang - 1804040111 i Downloaded by BINH NGUYEN (tailieuso.15@gmail.com) lOMoARcPSD|38590726 TABLE OF CONTENTS Abstract iii I COMPANY BACKGROUND 1 II INDUSTRY AND ECONOMIC ENVIRONMENTS ANALYSIS 1 1 Five Forces Analysis 1 2 Value Chain Analysis 3 III FINANCIAL ANALYSIS 4 1 Liquidity analysis 6 2 Solvency analysis 10 3 Profitability analysis 13 4 Cashflow analysis 16 V FORECASTING FINANCIAL STATEMENT 18 1 Forecasting income statement 18 2 Forecasting balance sheet 21 VI FIRM’S EQUITY VALUATION 33 1 Required rate of return 33 2 Dividend-based approach 34 3 Earning-based approach 34 VII CONCLUSION AND INVESTMENT DECISION 36 References 37 ii Downloaded by BINH NGUYEN (tailieuso.15@gmail.com) lOMoARcPSD|38590726 Abstract The perception of investment opportunity can be shaped by harnessing all available data including into historical data In this report, the primary date pulled from the 4 consecutive years (2016- 2019) financial statements of the leading corporation in Wire and Electrical Industry – CADIVI will be evaluated in terms of economic environment, company’s SWOT and financial analysis The intrinsic value of the company will be calculated based on the result of our financial statement forecast for the company in the next 4 years As far as the economic and financial factors are concerned, some recommendations are brought out to support all the investors to measure profitability from the company’s investment iii Downloaded by BINH NGUYEN (tailieuso.15@gmail.com) lOMoARcPSD|38590726 I COMPANY BACKGROUND Established in 1975, throughout 40 years of development CADIVI has been focusing on the electrical wires and cables’ manufacturers for different aims With the business philosophy “good quality is the key factor to the development of CADIVI, the company takes pride in becoming the leading producer of cable manufacturers in Vietnam Owning a capacity of more than 60,000 MT of copper, 40,000MT of aluminum, and 20,000 MT of PVC at the turnover growth of 25% annually (Chuiyan, 2020) As a State-owned enterprise before being equitized to be a joint stock company, CADIVI has 5 factories, 2 branches and a large group of over 200 agents to fill up the distribution system nationwide The company has also been listed on “50 best listed companies in Vietnam”, measured by taking the financial indicators and the size turnover by Forbes Vietnam Stepping its own feet outside of the border, CADIVI collaborates with some of the most influential companies in Southeast Asia, such as Bodaiju, Coca Cola Bottling Plant Myanmar and Yangon Airport, etc With the motto “Transmitting Power to Everywhere”, CADIVI specializes in variety of products: · Building wires and cables; · Power cables; · Bare overhead conductor (copper and aluminum); · Magnetic wires;aerial bundled cables · Medium voltage cables, · LAN cables; automotive cables · Service entrance cable, sector cable, duplex cable; · Control cables, water-blocked cables; · Flame retardant cables, fire resistant cables; · PVC conduits and accessories · Exported products… In 2014, Company’s shares were listed on the Ho Chi Minh Stock Exchange (HOSE) with the stock code of CAV and currently has a market cap 4,018.51trillion VND (As at 18th December 2020) II INDUSTRY AND ECONOMIC ENVIRONMENTS ANALYSIS 1 Porter Five Forces a Rivalry among existing firms: 1 Downloaded by BINH NGUYEN (tailieuso.15@gmail.com) lOMoARcPSD|38590726 The Electrical Equipment Industry is highly competitive According to Yellowpagesvn, The intensive rivalry among corporations, such as Hoang Phat Petrocable Co, Daphaco Electric Cable, Themtrol (VSIP), Ngoc Lan Cable, Taihan Cable Vina and CADIVI, etc results in the decrease of customer loyalty and the profitability of the industry overall Even though the product's differentiation among competitors is not significant, each player strategically applies efficient approaches to expand their business based on their quality, affordability and diversification The core value remains to offer the customers reliability and satisfaction of service at affordable ranges From there, companies encore their sustainable competitiveness to stay active in this disputing industry Otherwise, collaborations between companies to increase the market size rather than just competing for a small market tends to be a new way of tackling the intensity b Threats of new entrants: Newcomers easily enter the cable and wire industry bringing innovations, new ways of doing things and put pressures on existing companies due to the low barriers of entry This requires corporations to build up effective safeguards to define their standards consistently New entrants attract customers who are willing to try new products by potential employees with the strategy of reducing prices and innovative technology Though they cannot be as dynamic as the existing players’ technological advancement which results from their previous activities in the industry to meet the market’s needs Generally, the increasing number of newcomers happens as a result of opportunities for innovation, low entry barriers and training availability (eduwitt, 2019) c Power of suppliers: The number of suppliers in this market is moderate which means the suppliers have low bargaining power due to the products similarity offered by companies within the segment Therefore, the buyers have plenty of options in the market so the suppliers should be expecting to switch choices and having few controls over the pricing of the products d Power of Buyers As a fact that buyers always demand the best offerings with affordable pricing, they are able to pressurize the profitability of the company In this industry, buyers have high bargaining power because of the big order size from large construction corporations and the threat of the substitution They can easily switch the buying decision without paying lots of money The buyers are able to purchase cables at substitutes with almost similar prices from competitors Firms can limit this 2 Downloaded by BINH NGUYEN (tailieuso.15@gmail.com) lOMoARcPSD|38590726 high power of bargaining by innovating new products which keep customers catching up with its attractive offerings (eduwitt, 2019) e Threats of Substitutes The power of substitution comes from technological advancements in producing more affordable and environmentally friendly products This green-based products trend creates opportunities for companies to be creative and innovative in making new goods and services to meet the requirements of its clients Understanding their core needs rather than what they are buying Adapting to the new concept of the market trends enhance the sustainable development strategies of the company CADIVI has recently worked in some energy-efficient projects, such as Solar Farm in Ninh Thuan and My Son (CADIVI, 2020) 2 Value Chain Analysis 2.1 Company Analysis a Creation As the leading company in Vietnam in the electric cable manufacturing industry, with the motto "Good electrical conductivity - Safe insulation - Saving electricity" In addition, CADIVI always focuses on product quality, design and price With the aim of "Bringing light to everywhere", CADIVI's products have accompanied the development of the electricity industry, participating in projects such as 500kV, 220kV, 110kV voltage lines; projects to renovate rural electricity networks, rural energy projects To ensure that the production process of CADIVI electrical cables company is completely closed, tested strictly according to Vietnamese standards before reaching the hands of consumers Not only that, but the electric cable products manufactured by the cadivi electrical cable manufacturer are also certified by international organizations such as IEC, ASTM, JIS, AS, BS, DIN, U0L, issue certifications which demonstrate electric cable safety products for consumers b Manufacturing: From a small production scale in the early days of its establishment, CADIVI has gradually invested in equipment and machinery towards large production and diversified products At present, CADIVI's technological equipment level is on par with the region and some stages catch up with developed countries such as the US and Western Europe with: The US's continuous copper casting and casting system according to SCR technology of South Wire, Upcast copper casting system (Finland); continuous aluminum rolling molding system; continuous annealing copper 3 Downloaded by BINH NGUYEN (tailieuso.15@gmail.com) lOMoARcPSD|38590726 tractors of Henrich Company (Germany), 61-thread knitting machine from Pourtier (France), 3- layer coating machine from Nextrom (Finland), Troester medium-voltage underground cable sheathing machine (Germany) c Distribution CADIVI owns a distribution system with about 2,200 stores spread across the country, of which 200 are primary distributors and 2,000 stores are tier 2 distributors across the country At the same time, in 2015, CADIVI completed its plan to open three more distribution systems in Cambodia, Myanmar and Japan, thereby bringing the total number of existing overseas distributors to 13 The company has a large production capacity (annual production capacity is up to 60,000 tons of copper products, 40,000 tons of aluminum products, 20,000 tons of PVC resins); with 5 modern manufacturing factories in TP Ho Chi Minh City, Dong Nai, Da Nang and soon to be in Hanoi 2.2 SWOT Strength and Opportunities Weakness and Threaten - CADIVI’s brand is present in the market and - Extensive integration has created conditions has built a leading brand position in the electric for CADIVI’s brand to be known in the world cable industry for over 43 years With the but also puts the company under great pressure advantage of brand name, high-quality of competition Integration means that products and a network of level 1 agents in Vietnam's economic developments will be more than 200 stores nationwide CADIVI increasingly sensitive to global fluctuations easily becomes one of the top choices of power One of the biggest impacts is that the general projects Besides products are always situation of the domestic and foreign markets appreciated, one of the pride of CADIVI is a has made the prices of materials and raw team of staff with professional skills, high materials mainly for production fluctuate, altitude and practical experience, acutely fluctuating absorbing advanced science and technology - It can be seen that CADIVI is one of the few achievements Currently, CADIVI has more enterprises that can export to markets requiring than 50% of the company's employees are high quality and technical standards such as technical workers, the rest, besides middle and China, Japan, Korea, America For products senior managers, are staff members of of each market, they have to go through a experienced functional departments It is this separate quality management system for 4 Downloaded by BINH NGUYEN (tailieuso.15@gmail.com) lOMoARcPSD|38590726 workforce that has contributed to the growth of inspection, and when they meet the standards the company over the years and meet the requirements of the import - The company's products are not only market, the company can sell them on the consumed domestically but also exported to market However, if there are changes in the US and Japanese markets Currently, this technical standards of consumer markets, it export activity is being maintained relatively will lead to disturbance in production and stable, helping the company's production and increase the company's costs In addition to business activities rapidly developing product quality criteria, the company's export - Over 40 years of development, CADIVI now activities are also influenced by import and has 3 modern manufacturing factories, 2 export tax policies in host countries member companies and a network of 200 level - CADIVI is entering the central and Northern 1 agents all over the country Along with a region markets, so there will be many changes diversified product portfolio from civil wiring in design, packaging At the same time, products, bare conductors, data transmission CADIVI will also expand to penetrate into cables, control cables, fireproof cables, to developed countries such as the US, Japan, products for export On the way of national Australia Export activities of the company construction and modernization, CADIVI when entering these markets will face tariff and electric cable manufacturing company is an non-tariff barriers The most difficult non-tariff important factor providing construction barrier is the technical barrier (TBT) equipment to make the national grid system a CADIVI’s products, in addition to having modern safe, and bring a happy life to citizens superior quality and price than competitors in - With the advantage of being a leading host countries, must also meet such enterprise in the industry, CADIVI has also certifications as UL certification (US market), established a large supplier network in both SAA certification (Australian market), domestic and foreign markets, thereby certified JIS, PSE (Japanese market) ensuring the stability of supply and price III FINANCIAL ANALYSIS 1 LIQUIDITY ANALYSIS Liquidity ratio measures the ability of firm to repay the short-term loan without raising capital from outside so the ability of firm to pay short-term borrowings, short- term debts and current 5 Downloaded by BINH NGUYEN (tailieuso.15@gmail.com) lOMoARcPSD|38590726 position for long- term liability is called short-term liquidity Short – term liquidity issues can emerge from untimed inflows or cashflows or high degree of leverage In this report, we analyze ratios affecting the liquidity in short-term liquidity: current ratio, quick ratio, operating cash flow to current liabilities ratio, working capital turnover ratio 1.1 Current ratio 2017 2018 2019 Current ratio 1.2 1.1 1.2 Table 3.1 Current ratio shows us the ability to repay the loan from firm’s assets in short term From the table 3.1, we can see some statistics that current ratios and quick ratios are quite stable, but they are very small For the current ratios, there is a stable trend over three year, from 1.1 to 1.2, which are quite low compared with the benchmark is 2 and consistent with the improvement of current assets and current liabilities in following table Current assets 2017 2018 2019 Current liabilities 1,463,797,900,112 1,671,922,573,152 1,913,663,656,341 1,241,992,799,760 1,534,500,141,913 1,663,499,757,762 Table 3.2 The current ratio compares the book value of current assets with current liabilities The ratio is over 1:1 is considered to be acceptable and the ratio is under 1:1 needs consideration because its may indicate a shortage of fund In more detail in figure 3.2, we can see that ratio from 2017 to 2019 were over 1.0, indicating that the company’s current assets is sufficient to repay short-term debt obligations In 2017 and 2018, the inventories were accounted for 43% of current assets and it increased to 52% in 2019 The inventories took time to be converted into cash so the company should increase sale and receive cash from customers All the ratios suggest that the company has not done well in paying short- term debts to creditors, it might be raised funds from outsides and needs to be extend the time to pay debts In sum, the current ratios show that the ability of paying debt of company is not effectively 6 Downloaded by BINH NGUYEN (tailieuso.15@gmail.com) lOMoARcPSD|38590726 1.2.Quick Ratio Quick ration is an indicator of company’s short-term liquidity position and measures the ability to meet the short-term obligations with most liquid assets (Investopedia.com) Because it indicates the ability of company to use the nearest assets (that how fast the assets can be converted into cash) to pay its current liabilities, it is also called acid test ratio Quick ratio = (𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝑐𝑎𝑠ℎ 𝑒𝑞𝑢𝑖𝑣𝑒𝑙𝑒𝑛𝑡+𝑀𝑎𝑟𝑘𝑒𝑡𝑎𝑏𝑙𝑒 𝑠𝑒𝑐𝑢𝑟𝑖𝑡𝑒𝑠+𝑆ℎ𝑜𝑟𝑡−𝑡𝑒𝑟𝑚 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑙𝑒) 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑡𝑖𝑒𝑠 It’s more conservative than the ratio because it excludes the inventories and current assets which are difficult to be converted into cash This ratio covers only the assets can be converted into cash easily Normal quick ratio is usually 1, it shows that the business has fully assets to be instantly liquidated to cover the current liabilities Company has quick ratio less than 1, indicating this company is unable to pay fully its current liabilities in short-term In contrast, if the ratio is higher than 1, the company can reject its current liabilities 2017 2018 2019 Quick ratio 0.7 0.7 0.5 Table 3.3 It can be seen in table 3.3, the quick ratio decreased in 2019 with only 0.5 compared with 0.7 in last two years All quick ratios of company are lower than 1.0, it can come from lower of quick assets compared with current liabilities Total quick assets were accounted just 60% over current liabilities Cash and cash equivelent 2017 2018 2019 Short-term investment 102,459,663,879 158,864,523,862 115,873,664,674 Short-term receivable 139,524,375,000 126,000,000,000 Current liabilities 600,523,750,779 678,397,429,767 774,486,658,580 1,241,992,799,760 1,534,500,141,913 1,663,499,757,762 Table 3.4 7 Downloaded by BINH NGUYEN (tailieuso.15@gmail.com)