financial management project kinh do corporation financial analysis

The main goal is to analyze its performance using ratio analysis, value it by estimating the values of a company's financial management, and then draw conclusions based on the company's

HANOI UNIVERSITY

FACULTY OF MANAGEMENT AND TOURISM

FINANCIAL MANAGEMENT PROJECT

KINH DO CORPORATION FINANCIAL ANALYSIS

Tutor: Mr Tran Son Tung

EXECUTIVE SUMMARY

This essay provides an analysis of the KIDO Group's 2020 financial statements The main goal is to analyze its performance using ratio analysis, value it by estimating the values of a company's financial management, and then draw conclusions based on the company's performance This research can then determine whether KIDO has strong financial management capabilities and the company's potential profitability The evaluation procedure is divided into four stages: introduction, ratio analysis, valuation, and recommendation The findings revealed that KDC has had a strong growth potential, and KDC also needs a steadier, slower step towards solid growth to offset the losses of previous years.

KIDO Group has several notable highlights, especially in the confectionery segment In 1993,

Kinh Do Construction and Food Processing Co., Ltd was first established in Ho Chi Minh City

with an 1.4 billion VND investment From 1993 to 1994, the company increased its equity capital to 14 billion VND From 2001, the company has accelerated its export to foreign markets

(America, France, Laos, Thailand, etc.) Afterward, in 2014, the company sold all of its

confectionery operations to become a fully-fledged subsidiary of Mondelez International, based in the United States Mondelez International has long been the source of many well-known

products among global consumers, including Oreo, Trident, Milka, Nabisco, Douwe Egberts, and

others

Kinh Do's success is assessed by its financial capacity, media reputation and consumer awareness and satisfaction Kinh Do 'red crown' on product packaging has for many generations become a well-known image of Vietnamese consumers, which gives them peace of mind when they choose to buy pastries from shops or supermarkets Likewise, its brand credibility, product quality, hygiene of food and protection can be said to be contributing to creating the brand's

characteristic and identity for 19 consecutive years

It is impossible to mention KIDO Group without citing the great representatives who have helped it achieve such remarkable success The two founders of Kido Group, Chairman Tran

Kim Thanh and his brother General Director Tran Le Nguyen, as well as family members, own

the majority of the company’s stock.

Regarding stock information, the stock symbol for KIDO Group is KDC, and the company's tax code is 0302705302 According to the announcement of KIDO Group’s listed shares and stock trading changes, 279,741,356 shares were issued on the market this year, and the number of

outstanding shares is 228,749,100 Each share has a par value of VND 10,000 The current

market price of shares at 13:00 on 29 April 2021 is 51,200 VND Shares are issued at Ho Chi Minh City Stock Exchange (HOSE), and are included in the group of Food Manufacturing, thanks to its large market share in the confectionary product industry Currently, there are 5 shareholders holding the largest percentage of shares, namely CEO Tran Le Nguyen (13.52% of outstanding shares), PPK One Member Limited Company (9.13% of outstanding shares), KIDO Investment Company Limited (7.37% of outstanding shares), Allright Asset Limited (6.43% of outstanding shares) and VIETNAM INVESTMENTS FUND III, LP (6.23% of outstanding shares) The CEO Tran Le Nguyen's wife, Mrs Vuong Ngoc Xiem, is also a member of the KIDO’s Board of Directors

Il PERFORMANCE APPRAISAL 1 Ratio analysis

To assess the company’s performances, 5 categories of ratios which are liquidity, assets management, debt management, probability and market value will be calculated and analysed Firstly, liquidity is computed to understand the firm’ abilities to pay off debt

Operating cash flow ratio | 0.74 | 0.19 | 0.06 | 0.08 | 0.09

Figure 1: Liquidity ratios

Current ratio and quick ratio (2016-2020)

0.5 0

2016 2017 2018 2019 2020 2021

=——— Current ratio Quick ratio

It is shown that Kinh Do company has the ability to pay its short-term obligation and the current ratios in five years are greater than 1 suggests the well-being of the company The current ratio from 2016 to 2020 has tended to decrease The reason is that the growth rate of short-term debt is greater than that of short-term assets Moreover, the data of quick ratio was expected to decrease gradually and be much lower than the industry average Especially compared to two companies in the same industry in 2020, Haihaco (1.65) and Bibica (1.67) have better ability to pay the short-term debt On the positive side, the capital is gradually taking advantage of partners’ capital On the other hand, the focus here is on venture business policy

Next, to evaluate the company's efficiency in using its assets, asset management ratio will be

Debt to equity ratio 42.60 44.64 49.69 46.3 60.39 68.98%

2016 2017 2018 ——— Debt ratio

2019 2020 Debt to equity ratio

Industry

Debt ratio reflected in 100 VND assets of an investment enterprise with 29 VND assets (2016), 30 VND (in 2017), 33 VND (in 2018), 31 VND (in 2019), 37 VND (in 2020) from external loans It can be seen that the ratio in 2020 is the highest in five years Increasing the debt ratio causes an increase in financial risks for the business However, the debt ratio in 5 years is low which proves that the enterprise has enough and excess solvency, the situation of the business is still positive This is an attractive factor to credit institutions for long-term loans

The debt-to-equity ratio is a financial ratio indicating the relative proportion of shareholders’

equity and debt used to finance a company’s assets Generally, the ratio increases over five years,

and in 2020 is the highest ratio at 60.39 The increased rate proves that businesses increase the form of capital mobilization by borrowing, mainly short-term loans, which creates payment pressure for businesses in the short term It is necessary to consider borrowing and mobilizing equity for a reasonable reason, avoiding imbalance and increasing risks in payment

Kinh Do is also at a quite high level of 63.51% compared to the industry average which is 68.98% This shows that these businesses are keeping the rationality of capital, and avoiding

Figure 3: Efficiency Ratios

Total asset turnover is a financial ratio that measures the efficiency of a company's use of its

assets in generating sales revenue or sales income to the company From an overall perspective, the asset turnover ratio fluctuates over 5 years and the ratio in 2017 is the highest with 0.71%

The inventory turnover indicator shows how many cycles on average inventories turn to generate

revenue, and the inventory date shows how many days on average an enterprise's inventories

take Hence, the lower the inventory turnover, the better the company will be The inventory turnover ratio tends to decrease gradually from 2016-2019 and suddenly increase in 2020

Especially the average ratios of inventory turnover in 5 years are higher than the industry

average with the rate at 6.59 and 6.53 respectively

Thirdly, profitabilities ratios will be calculated to show how profitably the firm is operating and utilizing its assets

Return on assets ratio | 13.09% | 4.37% 1.24% | 1.7% 168% | 22.47%

Return on equity ratio | 18.94% | 6.28% 1.83% |2.51% |2.57% | 28.88%

Figure 4: Profitability Ratios

The gross margin ratio shows how much profit a company makes after paying off its Cost of Goods Sold (COGS) and indicates the percentage of each dollar of revenue that the company retains as gross profit It can be seen clearly that the gross profit margin ratio of an uptrend is not stable However, this ratio has always been maintained at a relatively high level compared to the industry average It shows that the company's production activities have made improvements in the production process, the quality of the products makes the efficiency continuously improved The operating margin indicates the operating profit per dollar of sales Kinh Do company has an operating margin ratio of 9.2% which is much lower than 20.94% of the industry average

The next elements are ROE and ROA As we can see, there were similarities between ROA and ROE that the statistics from 2016 to 2018 declined, 2018 to 2020 increased and were lower than

that of industry It presented the weaknesses in producing revenue by assets and equity Moreover, it can be indicated the firm was having too much debt, which may lead to high-

interest costs and relatively low net income

Lastly, the market value will be estimated to determine which brings at the stock price and what investors think about the firms and their prospects

The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS) From the above table, the price-earnings ratio of Kinh Do is much higher than the industry average This illustrated that with strong financial, efficient operation, and effective capital management, Kinh Do attracted more investors, and its shares were valued to be appreciated and had potential

The numbers calculated and shown above were taken out of the Annual reports of Kinh Do company The annual reports were collected from year 2015 to 2020 to calculate the company’s

ROE in which to measure how effectively the company uses equity — or the money contributed

by its stockholders and cumulative retained profits — to produce income ROE can also be referred to as “Return on equity”

For 5 years, Kinh Do’s ROE has fluctuated considerably This suggests that the company has been struggling with generating enough income or poor reinvesting decisions

2 Strengths and Weaknesses of the company

a Strengths

Firstly, Kinh Do was ranked 4th in the top 10 most famous brands in Vietnam, Kinh Do’s brand

is associated with Vietnamese people This aspect gives Kinh Do great advantages in branding recognition which can boost the customer’s base because customers will think of the company first when making the purchase Kinh DO is one of the biggest companies in the confectionary

industry in Vietnam, holding 35% of the domestic confectionery market share and has become

the largest confectionery consumer in the industry With a great distribution system, Kinh Do

owns a wide retail system in Vietnam with nearly 40 Kinh Do bakery, more than 200 distributors and 70,000 confectionery retailers, 335 distributors and 104,000 retail outlets, soft drink and 70 distributors and 15,000 retail outlets of ice cream and wholefoods Furthermore, when Vietnam

joins WTO, Kinh Do will be able to expand its market as well as developing more market segments Providing fast moving consumer goods, Kinh Do is now leading the market share in providing cooking oil, holding 75% of market share for solely this product line This contributes to Kinh Do brand recognition due to the fact that fast moving consumer goods are a type of

necessity and consumed continuously by customers Kinh Do offers an enormous range of

products to customers, promising to bring affordable and healthy products to people of all age, gender, and social status Beside the cooking oil products line, Kinh Do also has a great market

share in cold foods, holding about 17,7% of market share b Weaknesses

It is undeniable that Kinh Do has achieved a lot of success in the industry since the start of the

enterprise However, peaks and valleys are a natural concept for businesses to go through Kinh Do has stumbled through several mistakes and reveals its weakness during managing the enterprise, some of these mistakes have been detected and improved and some of them need constant planning to be dealt with In 2019, the product quality of Kinh Do was allegedly reported to decrease drastically Several complaints from customers about ruined products This is due to the lack of product maintenance after production The ruined products mentioned above are mooncakes which were reported to have been molded and changed color Facing the constant complaints from their customer, Kinh Do chose to be silent with the allegations of the molded mooncakes Not for the first time that Kinh Do has shown the lack of product management and

communication with their customer In 2017, Kinh Do also complained with the same issue

Despite the incident in 2017 was handled by Kinh Do customer service, changes were not seen in the products and the proof lied in the 2019 incident Kinh Do is, inactively, recognized as a

traditional brand when it comes to mooncakes, However, the incidents about the mooncakes

definitely have become an inferior good to their targeted customers Not only the decrease in their products quality, Kinh Do also faces another problem in the lack of professional skills of the staff department Kinh Do has recently imported machinery technology to manufacture their products However, this machine requires less labor to produce products, but requires more skillful and well-knowledged workers in the factories Kinh Do must come up with plans to deal with their human resources without starting any conflicts with their current workers

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