financial ratios analysis of vinhomes joint stock company in the period of 2019 2021

6 Chapter 2: Financial ratios analysis of Vinhomes Joint Stock Company in the period of 2.2.. This leftover money belongs to the shareholders, or the owners, of the company Income Statem

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Chapter 2: Financial ratios analysis of Vinhomes Joint Stock Company in the period of

2.2 Long-term solvency or financial leverage ratios 14

2.4 Profitability ratios 18

2.5 Market value ratios 20

2.6 Evaluation of financial ratios analysis at Vinhomes JSC in the period of 2019 —

202121

P TH ốe 21

Chapter 3: Solutions to improve financial ratios of Vinhomes JSC towards 2025 23

3.4 Solutions to improve Profitability ratios 25

3.5 Solutions to improve Market value ratios 26

Chapter 1: Literature review on financial ratios analysis

Financial analysis (also referred to as financial statement analysis or accounting analysis or Analysis of finance) refers to an assessment of the viability, stability and profitability of a business, sub-business or project (Kieso et al., 2007)

Financial statements are written records that convey the business activities and the financial performance of a company Financial statements are often audited by government

agencies, accountants, firms, etc to ensure accuracy and for tax, financing, or investing

purposes According to Kieso et al (2007), it is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports These reports are usually presented to top management as one of their bases in making business decisions

Financial statements include :

* Balance sheet

® Income statement

* Cash flow statement

11.1 Definition of financial statements

Acorrding to the Vietnam accounting system in 2015, “Financial statement is a economy, financial information system of accounting unit was represented by document which follow by standard and regime of accounting Specically, finacial statement which includes displaying about asset, equity, payable as well as the result

of bussiness activities of the company happened in the same period Therefore, we can assess the financial situations and coming up with the solutions”

1.1.2 Categories of financial statements

Liabilities are amounts of money that a company owes to others This can include all kinds of obligations, like money borrowed from a bank to launch a new product, rent for use of a building, money owed to suppliers for materials, payroll a company owes

to its employees, environmental cleanup costs, or taxes owed to the government Liabilities also include obligations to provide goods or services to customers in the future

Shareholders’ equity is sometimes called capital or net worth It’s the money that would be left if a company sold all of its assets and paid off all of its liabilities This leftover money belongs to the shareholders, or the owners, of the company

Income Statements

An income statement is a report that shows how much revenue a company earned over a specific time period (usually for a year or some portion of a year) An income statement also shows the costs and expenses associated with earning that revenue The literal “bottom line” of the statement usually shows the company’s net earnings or losses This tells you how much the company earned or lost over the period

Cash Flow Statements

Cash flow statements report a company’s inflows and outflows of cash This is important because a company needs to have enough cash on hand to pay its expenses and purchase assets While an income statement can tell you whether a company made

a profit, a cash flow statement can tell you whether the company generated cash

A cash flow statement shows changes over time rather than absolute dollar amounts at a point in time It uses and reorders the information from a company’s balance sheet and income statement The bottom line of the cash flow statement shows the net increase or decrease in cash for the period Generally, cash flow statements are divided into three main parts Each part reviews the cash flow from one of three types

of activities: (1) operating activities; (2) investing activities; and (3) financing activities

12 Overview of Financial ratios analysis

1.2.1 Role of financial ratios analysis

Financial ratios show the state of your business’s financial health either at a certain point in time or during a specific period These ratiosare one way to measure your business’s productivity and performance and drive your decisions and strategies around growth For example, a common financial ratio called current ratio (which we'll review in detail shortly) is helpful in determining if your business has the necessary cash flow to grow Another financial ratio, inventory turnover (which we'll also review shortly), indicates how quickly or slowly your inventory 1s moving and if you need to make any tweaks to better align your product with market demand Calculating and analyzing financial ratios not only helps you track how your company’s current performance compares to its performance in the past, but you can determine how your business stacks up against the competition by comparing your financial ratios with industry standards

Financial ratios are grouped into four broad categories—liquidity, safety (or leverage), profitability and efficiency Within these categories, there are several financial ratios, and each help you measure different aspects of your business’s productivity—using assets, generating profits, moving inventory

1.2.2 Categories of financial ratios analysis

Current Ratio Measure your company’s Balance Sheet Current Assets /

ability to pay both short Current Liabilities and long-term debts

Financial Ratio Function

Debt Ratio (debt to Debt Ratio (debt to

asset) asset)

Debt-to-Equity Ratio See the total deb

financial liabili against shareho equity

Income Statement and Balance Sheet

Long-term solvency or financial leverage ratios

Which Financial Statement(s)

Balance Sheet

Balance Sheet

Which Financial Statement(s)

Financial Ratio Function

Inventory Turnover See how long it takes

for inventory to be sold and replaced during the year

Asset Turnover Measure your

company’s ability to generate sales through assets

Financial Ratio Function

Income Statement and Balance Sheet

Income Statement and Balance Sheet

Which Financial Statement(s)

Cash and cash equivalent/Total

liabilities

Formula to Calculate Ratio

Total Liabilities / Total Assets

Total Liabilities / Share holders’ Equity

Formula to Calculate Ratio Cost of Goods Sold / Inventory

Net Income / Average Total Assets

Formula to Calculate Ratio

Gross Profit Measure how much Income (Revenue — Cost of

sales after subtracting the

cost of goods sold (COGS)—money your

company earns on the dollar

deducting all expenses

Financial Function Which Formula to Calculate Ratio Financial Ratio

Statement(s)

equity and measures

the book value of a firm

on a per-share basis

stock based on its past or

future earnings

how much profit the Statement share

company is generating per and Balance

share In other words, it tells Sheet

you how much

money shareholders would

receive if the company were

(Source: Calculated from financial statements)

According to the calculation, the current ratio of 1,25 indicates that a company has just enough money to pay its short-term debts in 2019, Look at carefully into these figures, which means that in order to pay off | dong of short-term debt, enterprises need to use an average of 1.25 VND of short-term assets After sightly go down by 0.98 in the following year but rehabilitate in 2021 by 1,14, about 15%

compared with 2020 By compared to the industry average of 2.1 times, this number is still quite low but enough to maintain the company's solvency Liquid assets are kept in huge reserve, reflecting inefficient use of assets, because this firm

is not operating and is not profitable And then the actual solvency of the enterprise will not be high

Short-term liabilities are debts that the enterprise is required to pay in the period, so the enterprise must use the assets that the enterprise actually has, the firm converts these assets into cash and uses that money to pay the current liabilities and due debt The assets that can be converted into cash the fastest are the short-term assets, which are the assets that the enterprise 1s managing and under the right of use of the enterprise.

2020, this number continually decrease to 0,57, it means that the company could be in

a circumstances when they had difficulty paying debts and in order to pay debts, enterprises may have to sell goods and assets urgently to pay debts, when they had difficulty paying debts and in order to do that enterprises may have to sell goods and assets urgently to pay debts Short-term debt may be large but if it doesn't need to be paid immediately, the quick solvency of the business could also be considered as a big problem

In the year 2021, this number has been improved moderately from 0.57 to 0.87, equivalent to nearly half of this figures in 2020 To explain this trend, at this time the current liabilities has been solved, by falling down from 103,385 Billion VND to 75,401 On the other hand, this coefficient equals | is ideal, this indicator allows for a better assess the bankruptcy risk of the enterprise However, because prepaid expenses

as well as receivables have a much slower conversion to cash, other criteria can be used to supplement

10

be quickly converted to cash in time to meet short-term liabilities Looking into the detail, there are two contrasting trends here from 2019 to 2021, current liabilities of VHM is gradually paid off, dropping from 121,577 Billtton VND to 75,401 Billiton VND, stand for 37,9% debts have been gone Hence, the number of cash and cash equivalent is 4,626 Billiion VND, this’s also the reason why cash ratio of this period is 0,06 The cash ratio shows how quickly a company can pay off its debts, since cash and cash equivalents are the most liquid assets Although a large amount of debt has been paid off, this coefficient is very low compared with its ideal recommendation, fluctuating from 0,5 to 1 In the future, the enterprise will face many difficulties in paying the debt

11

Financial year

2019 2020 2021 Figure

2021

Financial year

2019 2020 2021 Figure

Total Liabilities 132,526 126,196 99,109

12

2021, stand for 30% and 62,5% respectively compared with 2019 Changing in long- term debt and assets tend to have the greatest impact on the D/E ratio because they tend to be larger accounts compared to short-term debt and short-term assets If investors want to evaluate a company’s short-term leverage and its ability to meet debt obligations that must be paid over a year or less, they can use other ratios It is clearly that the amount of total shareholders equity has been boosted significantly from 64,715 in 2019 to 131,407 in 2021, about more than 50% compared with the first year in the table

If a lot of debt is used to finance growth, a company could potentially generate more earnings than it would have without that financing If leverage increases earnings by a greater amount than the debt’s cost (interest), then shareholders should expect to benefit However, if the cost of debt financing outweighs the increased income generated, share values may decline The cost of debt can vary with market conditions Thus, unprofitable borrowing may not be apparent at first

by the enterprise, there would be 3,2 dong of equity, this upward trend could explained by the go up of total equity of VHM with 103.05% new equity has been added to the firm, showing a big amount of new captial running into the company, leading to the amount of total assets aslo increased 16,7% in 2021 when compared with 2019, from 197,241 billion VND to 230,516 billion VND However, a company's equity multiplier can be seen as high or low only in comparison to historical standards, the averages for the industry, this figure of real estate calculated by Mirae Asset Vietnam Research is approximately 0.75, which means these figure of VHM are still below average of the industry

Financial year

2019 2020 2021 Figure

14

Starting with 0.4 times in 2019, in 2020 this figure had a huge improvement by more than 50% to 1,5 before reaching its peak in 2021 with 1.6 times It is understandable when the number of inventory in 2020 has decreased 29,8 % compared with the previous year while COGS in three years has a upward tendency from 24,171 billion VND to just 36,526 billion VND in 2021

Receivables 0.928827 1.566402 1.612485

†urnover

Recetvables turnover indicates the debt management status of a business and the company's ability to recover capital on its liabilities in business periods.If this ratio is too high, it may not be good because enterprises may tighten sales credit, thus affecting the revenue of enterprises Therefore, when evaluating the ability to convert receivables into cash, it is necessary to consider the sales credit policy of enterprises

In 2019 , this figure of VHM was just 0.92, due to improper debt collection process of the business, bad credit policy or due to customers On the other hand, revenue increased from 51,627 billion VND to 84,986 billion VND in 3 three years, while the same trend could be seen in acount receivables when in 2021, this figure has rised

50% compared with 2019

Besides, The real estate industry tends to have a long term of debt due to the specificity of the industry, acorrding to the balance sheet of VHM in 2021, long-term assets in progress (production and contruction) and long-term receivables have a proportion of 26% in total assets of VINHOME JSC Receivables turnover in next 2 years is around 1,5 and 1,6, which nearly doubled with 2019, shows that the ability of company to collect debts from customers, partners, and suppliers is good and the company has reputable customers and suppliers, quality, sales policy, and effective operation