analysis of the financial report of hoa phat group from 2017 2021

Quick ratio =

ANALYSIS OF THE FINANCIAL REPORT OF HOA PHAT GROUP

Lecturer: Nguyen Quang Minh Nhi

THE UNIVERSITY OF ECONOMICS – UNIVERSITY OF DANANG

COURSE: CORPORATE FINANCE

Group 1 46K01.2 –

1 Truong Ngoc Dieu An

2 Vo Thi Thien An

3 Bui Le Nhu Hoa

4 Tran Thi Thao Nhi

5 Huynh Trong Tin

TABLE OF CONTENTS

A DESCRIPTION OF THE COMPANY 2

1 Company name 2

2 Type of business structure 2

3 Ownership/management team 2

4 Location 2

5 Company history 2

6 Mission statement 3

7 Vision statement 3

8 Company’s positions 3

9 Target markets 3

10 Key competitors 3

B ANALYSIS OF FINANCIAL STATEMENTS OF HOA PHAT GROUP 4

I/ LIQUIDITY RATIOS 4

1 Current ratio 4

2 Quick ratio 5

II/ CAPITAL STRUCTURE RATIOS 6

1 Total debt ratio 6

2 Debt/equity ratio 7

III/ TURNOVER RATIOS 8

1 Inventory turnover 8

2 Days’ sales in inventory 9

3 Receivable turnover 10

4 Days’ sales in receivable 11

5 Fixed asset turnover 12

6 Total asset turnover 13

IV/ PROFITABILITY RATIOS 14

1 Profit margins 14

2 ROA 15

3 ROE 16

4 ROI 17

V/ MARKET VALUE RATIOS 18

1 Earnings per share 18

2 Price / earnings ratio 19

3 Market- -book ratio to 20 C SUMMARY OF THE FINANCIAL PERFORMANCE OF HOA PHAT 21

D EVALUATION FORM 22

E APPENDIX 22

F REFERENCES 23

Group 1 Hoa Phat Group

2

A Description of company

1 Company name: Hoa Phat Group - HPG

2 Type of business structure: Corporation

3 Ownership/management team

- Ông Trần Đình Long (Chairman of the board of directors);

- Ông Doãn Gia Cường (Vice Chairman of the Board of Directors);

- Ông Nguy n M nh Tu n (Vice Chairman of the Board of Directors); ễ ạ ấ

- Ông Trần Tuấn Dương (Vice Chairman of the Board of Directors)

- Ông Hoàng Quang Việt (Member of the Board of Directors)

- Ông Nguy n Ng c Quang (Member of the Board of Directors) ễ ọ

- Ông Nguy n Vi t Th ng (General Manager/Member of the Board of Directors) ễ ệ ắ

- Bà Nguy n Th ễ ị Thảo Nguyên (Deputy General Manager)

- Bà Ph m Th Kim Oanh (Chief Accountant/ Chief Financial Officer) ạ ị

- Bà Bùi Th H i Vân (Heị ả ad of the Board of Supervisors)

- Bà Lê Minh Th y (Member of the Board of Supervisors) ủ

- Bà Ngô Lan Anh (Member of the Board of Supervisors)

- Bà Thái Th L c (Member of the Board of Supervisors) (Hoa Phat Group) ị ộ

4 Location: Pho Noi A Industrial Zone, Giai Pham Ward, Yen My District, Hung Yen Province (Hoa Phat Group)

5 Company history

- 1992: Established Hoa Phat Equipment and Accessories Co., Ltd - The first company of Hoa Phat brand

- 2004: Established Hoa Phat Trading Co., Ltd

- February 2017: Established Hoa Phat Dung Quat Steel Joint Stock Company, deploying Hoa Phat Dung Quat Iron and Steel Integrated Complex in Quang Ngai Province

Group 1 Hoa Phat Group

3

6 Mission statement: To provide leading products, contribute to improved life quality and gain customers’ trust (Hoa Phat Group)

7 Vision statement: To become an industrial manufacturer with a leading product quality

as its steel production being its core business sector (Hoa Phat Group)

8 Company’s positions

Hoa Phat has a long-term progress in Steel, Steel Products, Agriculture, Electrical Appliances and Real Estate, the company has continuously innovated to produce a variety of products with high economic value in satisfaction the market’s demands Steel sector is the core business, accounting for 90% of the Group's revenue and profit (Hoa Phat Group) With a capacity of 8 million tons of crude steel per year, Hoa Phat is the largest steel producer in Southeast Asia Hoa Phat is the only Vietnamese enterprise that can produce hot rolled coils (HRC)

Hoa Phat maintained and continued to affirm its No.1 position in terms of market share in Vietnam with over 31% market share With a record output is the most successful affirmation of Hoa Phat steel in investing in expanding production in the direction of focusing on products and optimizing the value of the product chain from steel Nowadays, Hoa Phat is gradually transforming digitally with effective and responsive overall management solutions use of information technology in management organization

9 Target markets

• External customers: Business related to steel, billet, household goods manufacture; shipyards; irrigation, road construction; construction contractors; etc not only in Vietnam but also in ASEAN, and even some foreign markets such as JIS (Japan), ASTM (USA), BS EN (UK) …This group of customers requires high standards of size and volume (AMIS MISA, 2022)

• Internal customers: These are member companies of Hoa Phat group such as steel company, equipment parts company, refrigeration company, furniture company Although the number of internal customers cannot be compared with external customers, they are loyal and long-term users of the company's products (AMIS MISA, 2022)

10 Key competitors

Hoa Phat’s competitors can be listed as VNSteel, Vina Kyoei, Pomina, PY Vina, TISCO, who are big and reputable steel manufacturer (Brade Mar, 2022)

Group 1 Hoa Phat G

B ANALYSIS OF FINANCIAL STATEMENTS OF HOA PHAT GROUP

to the strong increase of current assets, the current ratio also tends to increase more than 3 years ago, reaching 1.3% Compared to the industry average ratio in 2021 of 1.25%, the company's current ratio in 2021 is 1.28% higher than the industry means that the company's ability to solve short-term problems is relatively good, the company's current short-term assets are en

0,0 0,5 1,0 1,5 2,0

2017 2018 2019 2020 2021

Current ratio

Group 1 Hoa Phat G

short-term liabilities However, the current ratio can only be determined at any point in time about a business's ability to pay its de

"outline" will not reflect the long-term solvency of the business that profession

Inventory (mil VND)

Quick ratio

in 2019, but not significantly From 2019 to 2021, the quick ratio increased steadily over the years, in which there was a huge incfactors: short-term assets, short-term liabilities and inventory From 2019 to 2021, there is a huge increase in three factors: current liabilities, inventory As of 2021, the company's quick ratio reached 0.71%, down 1.5 times compared to 2017

Compared to the industry average quick ratio in 2021 of 0.39%, the company's ratio is more than double with 0.708% That show

is completely capable of paying off the company's short-term debts immediately

0,00 0,20 0,40 0,60 0,80 1,00 1,20 1,40

2017 2018 2019 2020 20

Quick ratio

Group 1 Hoa Phat G

II/ CAPITAL STRUCTURE RATIOS

1 Total debt ratio =𝒕𝒐𝒕𝒂𝒍 𝒂𝒔𝒔𝒆𝒕𝒔−𝒕𝒐𝒕𝒂𝒍 𝒆𝒒𝒖𝒊𝒕𝒚

𝒕𝒐𝒕𝒂𝒍 𝒂𝒔𝒔𝒆𝒕𝒔

Year Total assets

(mil VND)

Total equity (mil VND)

Total debt ratio (%)

As we can see, this ratio increased gradually from 38.9% in 2017 to 55.0% in 2020, which means the firm needed to use more dassets as a proportion year by year After that, this ratio decreased to 49.1% in 2021 due to the significant increase of total assets brise of total debt, which means the company operations were less dependent on debt

In these 5 years, these ratios were all lower than the average total debt ratios of the steel industry which were 52.73%, 55.87%, 57.52.91% respectively It can be seen that in 2017, the difference between the average data (52.73%) and the actual one (38.9%) wwhich could be implied that the company didn’t take the advantage of financial leverage as well as its peers Therefore, in the newould notice the increase in using debt to finance for the total assets, and from 2018 to 2021, these ratios became nearly equal tdata of the industry, which could mean the company put their effort into using financial leverage effectively to gain more return

0,00 10,00 20,00 30,00 40,00 50,00 60,00

2017 2018 2019 2020 2021

Total debt ratio (%)

Group 1 Hoa Phat G

to 0.963 lower than 1 due to the considerable rise of equity (from 59,219 billion VND to 90,780 VND)

However, during the period 5 years except 2017, Hoa Phat tried to balance the usage of debt and equity which can be seen froequal-1 of the data Compared to the average debt to equity ratio of steel industry which were 1.1155, 1.2658, 1.3340, 1.3180, 1.123

0,00 0,20 0,40 0,60 0,80 1,00 1,20 1,40

Debt/equity ratio

Group 1 Hoa Phat G

from 2017 to 2021, the data of Hoa Phat Corporation were all lower Similar to debt ratio, in 2017, it was much lower than avindustry Because, compared to peers it was mainly funded by equity, but the gap has narrowed in the following years, which couldthat the company has had a tendency to depend more on debt than on equity

III/ TURNOVER RATIOS

0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00

2017 2018 2019 2020

Inventory turnover (times)

Group 1 Hoa Phat G

to sell, leading to a lot of inventory, causing the ratio to drop From 2019 to 2021, the ratio has increased or decreased, fluctsignificantly, still remained at a stable level, showing that the company's business activities are keeping at a stable level The industry average in 2021 reached 3.6 times, the company's ratio that year is lower with 3.174 times This is a sign that tbusiness is not doing well, the sales volume is not high or the inventory is still high The company needs to have trade promotiopromote the exchange of goods, to free up inventory so that it can find better signs in the company's business activities in the com

2 Days’ sales in inventory = 𝟑𝟔𝟓 𝒅𝒂𝒚𝒔

it is close to the industry average in each year, which shows that the company's inventory situation is not alarming In addition,deals in steel products, so the inventory period will be quite long because the product quality is not easy to fade, damage, and durcan be stored for a period of time from 3 months to 6 months

100 105 110 115 120

2017 2018 2019 2020 2021Days' sales in inventory (days)

Group 1 Hoa Phat G

However, compared to the industry average in 2021 with the ratio at 101.50 days, the firm has a higher ratio at 115.011 days Ththe company's trade flow is stable but still not really effective The company needs to accelerate sales, expand the scope of goods

it can shorten the company's inventory liquidation ratio

The bar chart above shows the change in the company's receivable turnover ratio in the 5 years from 2017 to 2021 It can be clearthe first 2 years of 2017 and 2018, the company's ratio was at a low level (10.315 times and 11.435 times) compared to industr16.47 times and 13.06 times, indicating that the company has a poor collection process, a bad credit policy or the inability of itspay Often a company with a low receivables turnover ratio should revise its credit policy to ensure a timely recovery However, from 2018 to 2019, the company saw a spike in its receivable turnover from 11.435 times to 18.801 times, doubling in

It can be seen that, after noticing bad signals from low receivable turnover in previous years, the company has focused on adjus

0,00 5,00 10,00 15,00 20,00 25,00

2017 2018 2019 2020

Receivable turnover (times)

Group 1 Hoa Phat G

policy to become more effective That has made the ability to collect receivables and debts from customers become more effectivthe increase in revenue nearly 10 times higher than the increase in receivables The high receivables turnover ratio also shows tha

is cautious in granting credit to customers A prudent credit policy can be beneficial because it helps a company to somewhat prerisk

From 2019 to 2021, this ratio of the company remains high and tends to increase By 2021, the company's receivable turnover rattimes It can be seen that the company's credit policy is more interested in adjusting and perfecting to achieve the highest benef

to the industry average of 21.27 times, the company's ratio is slightly better, which is a good sign to assess that the company's cappropriate and beneficial to the company

4 Days’ sales in receivable = 𝟑𝟔𝟓 𝒅𝒂𝒚𝒔

2017 2018 2019 2020 2021

Days' sales in receivable (days)

Group 1 Hoa Phat G

Year Sales (mil

VND)

Total asset (mil VND)

Total asset turnover (times)

2017 2018 2019 2020 202

Total asset turnover (times)

0,00 5,00 10,00 15,00 20,00 25,00

Profit Margin (%)

Group 1 Hoa Phat G

Profit margin is the percentage indicating how many VND of profit Hoa Phat has generated for each VND of sale (Segal, 2022) Looking in the table, we can see that there was a trend of decline of profit margin in the period from 2017 to 2019, and thenincreased in the period 2019 to 2021, up to almost 2 times (2021 to 2019) In the year 2019, net income is the lowest because thsteel industry faces a stormy reality, with the raw prices of Steel-making fuels such as iron ore, coals and selling prices of Stfluctuating very sensitive to the world market, difficult to predict and mostly stay in the high ranges High sales, but the value is r

so net income is not very high Even though sales gradually increase over the years, the drop in net income leads to the profit mbeing the lowest In comparison with 2019, each VND in sales of Hoa Phat in 2021 generated more profit, which meant an ueffectiveness of cost management And Hoa Phat the profit margin is slightly higher than the industry’s average which is 0.22 scontinue to accelerate the distance higher

ROA is a financial ratio that indicates how profitable a company is in relation to its total assets (Hargrave, 2022)

This chart illustrates the proportion of the return on assets of Hoa Phat between 2017 and 2021 Overall, there was a gradual declinbetween 2017 and 2019 Starting at 18.6% in 2017, Hoa Phat’s ROA ratio witnessed a decrease of 18.6%, and 13.1% in 20

0,00 5,00 10,00 15,00 20,00 25,00

2017 2018 2019 2020 2021

ROA (%)

Group 1 Hoa Phat G

respectively, before ending the period at 8.4% in 2019 This phenomenon described the fact that Vinamilk's assets were not reeffectively in the period between 2017 to 2019, especially in 2029 when the net income has a major decrease because of the highvalue of finished goods, plus the spike in the material prices After that is a considerable comeback, rising from 8.4% to 22.3% in And in 2021, Hoa Phat’s ROA is higher than the industry’s average ROA in the same year which is 19.9% This shows that in th

2019 to 2021 Hoa Phat has exploited its assets significantly more effectively

ROE is a financial ratio that indicates how profitable a company is in relation to its total assets (Fernando, 2022)

The profit generated by using the equity in the year 2019 has a drop, an immense rise of almost 1.8 times in the next year, 202equity has steadily increased in the period 2017 to 2020, and in the year 2021, there is a spike of 1,4 times equity compared to 20equity kept increasing, the drop in the profit in the year 2019 brought a noticeable decrease in the ROE ratio, which means thequity wasn’t being managed effectively in 2019 And Hoa Phat’s ROE is slightly higher than the industry’s average in the yearyears after Hoa Phat shows that equity was used more effectively than in the previous period

0,00 10,00 20,00 30,00 40,00 50,00

2017 2018 2019 2020 2021

ROE (%)