analyze and assess the liquidity situation of cho lon investment and import export corporation joint stock company stock code clx in three years from 2018 to 2020

This study will go into some aspects to analyze the liquidity of Cho Lon Investment and Import-Export Corporation Joint Stock Company from 2018 to 2020 and offer solutions to improve the

ACADEMY OF FINANCE FACULTY OF CORPORATE FINANCE DEPARTMENT OF CORPORATE FINANCE

Full name: Trần Quang Thành Student ID number: 1972202010111

Credit Class: CQ57/51.02LT1 Class:CQ57/51.03

Ordinal number: 30 Exam Room ID: 581 058 3016

Examination Date: 24/03/2022 Time: 9h15’

SUBJECT: CORPORATE FINANCE

Exam form: Assignment Exam time: 3 days

Topic Code 10: Analyze and assess the liquidity situation of Cho Lon Investment and

Import-Export Corporation Joint Stock Company (Stock code: CLX) in three years, from 2018 to 2020

INTRODUCTION

1.The importance of the study: Corporate finance is a system of economic relations in the

form of value arising in the process of distributing social wealth, which relates to the creation and use of the enterprise's money funds to serve the production and business requirements of the enterprise and the general needs of the society The liquidity, an ability to convert assets into cash or to obtain cash to meet short-term obligations Lack of liquidity may affect seriously the continuity of the company activities This study will go into some aspects to analyze the liquidity of Cho Lon Investment and Import-Export Corporation Joint Stock Company from 2018 to 2020 and offer solutions to improve the company’s acitivities

2.The objectives of the study: To analyze and assess the liquidity of Cho Lon Investment

and Import-Export Corporation Joint Stock Company in the period from 2018 to 2020 After that, we will understand the financial situation of the firm

3.The scope of the study: The study will be carried out in the situation of Cho Lon

Investment and Import-Export Corporation Joint Stock Company, with the limitation of 15 pages Moreover, I will explain the related terms in this study and make calculations based on the activities of the company There will be recommendations for the company at the end of the study, in order to improve the refered situation of the company

4.The structure of the study: Part 1: Theories of the research topic

1.1: Definition, content of the research topic 1.2: Financial indicartors of the research topic 1.3: Factors affecting the research topic

Part 2: The situation of the research topic at Cho Lon Investment and Import-Export Corporation Joint Stock Company

2.1: Overview of Cho Lon Investment and Import-Export Corporation Joint Stock Company

2.2: The situation of research topic

2.3: Assessment of the research topic at Cho Lon Investment and Import-Export Corporation Joint Stock Company

Part 3: Suggested solutions

Conclusion References

PART 1: THEORIES OF THE STUDY

1.1.Definition, content of the study

Liquidity is defined as the capacity of the company to rapidly transform the current assets in cash or to obtain cash to meet its short term obligations Usually, the company’s liquidity is measured by comparing the value of the current assets with the value of the current liabilities (on short-term)

+ Current assets are all the assets of a company that are expected to be sold or used as a result of standard business operations over the next year They include cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and other liquid assets If current assets include items that have a life cycle that is longer than twelve months, the sums that are assigned to the next financial year must be disclosed into the notes Short-term investments must be presented as current assets only if they are expected to be sold in less than twelve months (even these titles have a higher liquidity, the intention of the management is prior to their liquidity potential)

+ Current liabilities are a company's short-term financial obligations that are due within one year or within a normal operating cycle Current liabilities are typically settled using current assets, which are assets that are used up within one year They include accounts payable, short-term debt, dividends, and notes payable as well as income taxes owed Current liabilities are obligations expected to be satisfied within a relatively short period of time, usually one year

Liquidity ratios, as any other ratios that are use in financial analysis, are not relevant as absolute values They must be computed and interpreted for a longer period of time (that must allow to observe the trend over time for the analysed entity) or by comparisons through different entities

Another method to compute the liquidity of a company is represented by the quick ratio The quick ratio measures a company's capacity to pay its current liabilities without needing to sell its inventory or obtain additional financing It is considered a more conservative measure than the current ratio, which includes all current assets as coverage for current liabilities The higher the ratio result, the better a company's liquidity and financial health; the lower the ratio, the more likely the company will struggle with paying debts

The cash ratio is a liquidity measure that shows a company's ability to cover its short-term obligations using only cash and cash equivalents The cash ratio is derived by adding a company's total reserves of cash and near-cash securities and dividing that sum by its total current liabilities The cash ratio is more conservative than other liquidity ratios because it only considers a company's most liquid resources

A balance sheet is a financial document that presents the financial status of a business through an accounting of a company’s assets, liabilities, and equity A balance sheet, when looked at with a business’ other financial statements, can help investors understand a company’s current fundamentals

An income statement is one of the three important financial statements used for reporting a company's financial performance over a specific accounting period, with the other two key statements being the balance sheet and the statement of cash flows

1.2.Indicators of the study

Current liquidity ratio:

Current liquidity ratio = Current assets / Current liabilities

This ratio reflects the ability to convert assets into cash to cover short-term liabilities, it also shows the level of assurance to pay current liabilities of the enterprise Generally, if this ratio is low, it will show that the ability of paying the current liabilities of the business is weak and warn the business about the potential financial problems may face during paying process However, in some cases, the high ratio doesn’t go with good liquidity

Quick ratio:

Quick ratio = ( Current assets - inventories ) / Current liabilities

This is a figure that creditors use to determine whether a company has the ability to pay current liabilities immediately without relying on the sale of inventories or goods The creditor will be more secure if the company are always capable of quickly responding and paying current liabilities on time

Cash ratio:

Cash ratio = Cash and cash equivalents / Current liabilities

Cash ratio reflects the fastest solvency of the business, almost instantaneously In which money includes cash, deposits, money in transit Cash equivalents are short-term investments in stock, other short-term investmentscan easily turn into cash in 3 months without hugh risks

1.3.Factors affecting the study

The final settlement of the state-owned enterprise stage has not been completed yet to handed over the official assets to the joint stock company The asset value of the company may change after finishing above procdures

PART 2: THE LIQUIDITY SITUATION AT CHO LON INVESTMENT AND IMPORT-EXPORT CORPORATION JOINT STOCK COMPANY

2.1.Overview of Cho Lon Investment and Import-Export Corporation Joint Stock Company

Company name: Cho Lon Investment and Import-Export Corporation Joint Stock Company

Shorten name: CHOLIMEX

Certificate of business registration number: 0301307933 Charter capital: 866.000.000.000 VND

Equity: 866.000.000.000 VND

Address: 631-633 Nguyen Trai, Ward 11, District 5, Ho Chi Minh City Telephone: (84 28) 38 547 102

Fax: (84 28) 38 555 682 Website: www.cholimex.vn Stock code: CLX

Cholimex, in 15/04/1981, called Direct Utilization and Specialty Goods Export and Import Joint State Public and Private Partnership Company of District Five= (Cholimex Company), was approved to operate by People’s Committee of HCMC according to the Decision No 73/QÐ-UB dated April 15th 1981 and was managed by People’s Committee of District 5 This company has been being assessed as the experimental breakthrough model of joint-stock company operating in HCMC with participation and contribution of private and state Cholimex is also one of first direct export and import trading companies established in HCMC

On May 1st 1981, the first trading consignment exported to Hong Kong market with the form as the commodity exchange was done by Cholimex: 70 tons of peanut exported for 30 tons of PE, 30 tons of fiber, 10 tons of monosodium glutamate and 1 ton of alum imported In 1983, Direct Utilization and Specialty Goods Export and Import Joint State Public and Private Partnership Company of District Five= changed into <Supply Chain Export Company of District Five= (also called Cholimex Company) according to Decision no 78/QÐ-UB dated June 2nd 1983 promulgated by People’s Committee of HCMC and was directly managed by People’s Committee of District 5

In 1989, <Supply Chain Export Company of District Five= changed into <District Five Business Union of Export and Import= (also called Cholimex Company) according to Decision no 172/QÐ-UB dated April 7th 1989 promulgated by People’s Committee of HCMC and was still directly managed by People’s Committee of District 5

In 1993, <District Five Business Union of Export and Import= changed into <Cho Lon Invesment and Import Export Company= 3 a state-owned enterprise - (also called Cholimex Company) according to Decision No 21/QÐ-UB dated January 15th 1993 and was still directly managed by People’s Committee of District 5

In 1997, Cholimex company honorably became a constructive investor of Vinh Loc Industrial Park in Binh Chanh Ward, Hoc Mon District with an area of 207 hecta scale as the The Prime Ministry’s nomination according to the ordinance no 81/TTg dated February 5th 1997 This project was formally getting started to construct on April 30th 1997, this event has opened to Cholimex many new opportunities and great potential developments Presently Vinh Loc Industrial Park has attracted 110 investors including 33 foreign companies with the capital of 54,536 million USD and 77 domestic enterprises with the investment of 5,449 billion VND that providing employment for nearly 22,000 employees In 2005, Cho Lon Investment and Import - Export Company (CHOLIMEX) was transformed to the other organizational model - Parent and Subsidiary Company as the 3Decision No 145/2005/QÐ-UBND dated August 16th 2005 promulgated by The People’s Committee of HCMC This Committee directly managed and owned the whole capital of company

From 2005 to 2007, Cholimex started equalizing all the depended accounting entities to convert into the joint stock companies including Cho Lon Pharmacy Joint Stock Company, Cholimex Food Joint Stock Company, Cholimex Garment Joint Stock Company, Cholimex Mechanics Electronics Joint Stock Company, Cholimex Construction Investment Joint Stock Company and also merging Tanimex Joint Stock Company into the operated system From 2010 to 2014, CHOLIMEX changed its name into <Cho Lon Investment and Import-Export Single Share-Holder Limited Company=, the shorten name was still called Cholimex according to Decision number 3074/QĐ UBND of the People’s Committee of Ho Chi Minh -

City and kept working under the Parent-Subsidiary Company model

In 2016, the company worked under the Parent-Subsidiary Company model with the charter capital of 866.000.000.000 VND

In 2017, the company official joined in the Upcom market with stock code CLX

2.2.The liquidity situation of the company

From 2018 to 2020:

1.Current assets (billions VND) 152 112 190 2.Cash and cash equivalents (billions

VND )

4.Current liabilities (billions VND) 94 80 242

6.Quick ratio (times) ((1)-(3))/4 1,55 1,29 0,76

Board 2.2.0 Current liquidity of Cho Lon Investment and Import-Export Corporation Joint Stock Company from 2018-2020

(Source: the researcher calculated based on the information from https://finance.vietstock.vn/CLX/financials.htm)

1.Current assets:

From 31/12/2018 to 31/12/2019, the current assets of the company decreases noticeably, which is 40 It is the result of slightly droping in both current ratio and current liabilites From 31/12/2019 to 31/12/2020, in spite of the continous decrease in current ratio (0,61), the current liabilities of the company has a hugh boost, up to 162 Consequently, the current assets also increases remarkably (78)

2.Cash and cash equivalents:

From 31/12/2018 to 31/12/2019, the cash and cash equivalents of the company decrease deeply (45) The reason is a slight drop in current liabilities and the cash ratio decreases as twice as the previous year

From 31/12/2019 to 31/12/2020, the value of the section rises again with a bigger number than before (62), the company has a little more ability to pay liabilities, although the liabilities ratio is more bigger

From 31/12/2019 to 31/12/2020, the current ratio and quick ratio both decrease as the current liabilities rise noticeably (162), but the cash ratio increase slightly because of the big increase in cash and cash equivalents (62)

PART 3: SUGGESTED SOLUTIONS:

● Understanding Liquidity Ratios

A company can calculate its liquidity ratio by taking the difference between liabilities and conditional reserves and using that figure to divide its current assets This ratio can be a valuable metric for market analysts and potential investors in helping determine if a company is stable and financially healthy enough to pay off its debts and the outstanding liabilities it has incurred

A low liquidity ratio could signal a company is suffering from financial trouble Two commonly reviewed liquidity ratios are the current ratio and the quick ratio Moreover, the liquidity of Cho Lon Investment and Import-Export Corporation Joint Stock Company isn’t high It’s time for the company and its shareholders learn more about the problem they are facing

● Increasing Liquidity Ratios

One way to quickly improve a company's liquidity ratio is by using sweep accounts that transfer funds into higher interest rate accounts when they're not needed, and back to readily accessible accounts when necessary Paying off liabilities also quickly improves the liquidity ratio, as well as cutting back on short-term overhead expenses such as rent, labor, and marketing

To improve a company's liquidity ratio in the long term, it also helps to take a look at accounts receivable and payable Ensure that you're invoicing customers as quickly as possible, and they're paying on time When it comes to accounts payable, you'll want to ensure the opposite longer pay cycles are more beneficial to a company that's trying to 4improve its liquidity ratio You can often negotiate longer payment terms with certain vendors

● The Bottom Line

A company's ability to pay off its obligations is an important measure of its financial health A company that can pay its business expenses and pay down its debts through the profits it generates from its business operations and efficient use of assets is one that is likely to succeed and grow

Liquidity ratios, which measure a firm's capacity to do that, can be improved by paying off liabilities, cutting back on costs, using long-term financing, and managing receivables and payables That being noted, a higher liquidity ratio does not always indicate a stronger company, as it could reveal a company that is not managing its assets efficiently to grow its business

CONCLUSION

The study I made above has covered all the definitions and contents of the topic From introducing Cho Lon Investment and Import-Export Corporation Joint Stock Company and its history to the current liquidity situation of it Morever, my study also carry out 3 methods used to analyze the liquidity of a company: current ratio, quick ratio and cash ratio; following are 3 formulas to calculate the value of different aspects Finnaly, this study will also provide some solutions for the studied company to help it improve the liquidity as well as the effectiveness of its businesss