Financial analysis of corporate customers in credit activities at vietnam joint stock commercial bank for industry and trade east hanoi branch

BANKING ACADEMY OF VIETNAM FACULTY OF FINANCE GRADUATION THESIS FINANCIAL ANALYSIS OF CORPORATE CUSTOMERS IN CREDIT ACTIVITIES AT VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND T

BANKING ACADEMY OF VIETNAM

FACULTY OF FINANCE

GRADUATION THESIS

FINANCIAL ANALYSIS OF CORPORATE CUSTOMERS IN CREDIT ACTIVITIES AT VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE - EAST HANOI BRANCH

Student: Ngo Mai Trang

Student ID: 23A4030360

Instructor: Assoc Prof Dr Mai Thanh Que

Ha Noi, May 2024

BANKING ACADEMY OF VIETNAM

Student: Ngo Mai Trang

Student ID: 23A4030360

Instructor: Assoc Prof Dr Mai Thanh Que

Ha Noi, May 2024

PROMISE

I hereby declare that the content of this thesis is entirely my own research work, with input from my instructor, Assoc Prof Dr Mai Thanh Que, and without any unauthorized use or copying of others' research work All information used in the thesis has been cited clearly, honestly, and with accompanying evidence Furthermore, any comments or evaluations from various sources used in this paper have been appropriately referenced and cited

I take full responsibility for this declaration

Hanoi, May 2nd 2024

Ngo Mai Trang

ACKNOWLEDGEMENT

Throughout my four years of study and training at the Banking Academy up to now, I have received a great deal of care and assistance from my teachers, friends, and peers With a dynamic learning environment and numerous opportunities for exploration, development, and self-realization, I have been able to expand my potential significantly while absorbing knowledge from the lecturers at the Banking Academy This has enabled me to apply the theories provided into practical situations, ultimately completing my thesis

During my recent internship, I had the opportunity to gain practical experience

in the Credit Department of VietinBank East Hanoi Branch, Duc Giang Transaction Office This was my first experience in a professional work environment, and the time spent there helped me gain a comprehensive understanding of the practical environment after graduation

To complete this thesis, I would like to express my deepest gratitude to all the teachers working at the academy in general and the lecturers of the Finance Department, as well as the supervisors of the Advanced Program at the Banking Academy, for their dedicated guidance, instruction, and support I especially want to thank Assoc Prof Dr Mai Thanh Que for his dedicated guidance, feedback, suggestions, and imparting valuable knowledge to me for this project

I would also like to extend my sincere thanks to the leadership and colleagues

at the Duc Giang Transaction Office of Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch for helping me complete my internship thoroughly Despite the workload, they always provided guidance, instruction, and answers to my inquiries, assisting me in gathering necessary materials and information for my report

Due to the limited duration of the internship and my relatively small amount of knowledge and experience, there may be some mistakes in both the internship and the completion of my thesis I sincerely hope to receive valuable feedback from my teachers to continue learning, improving, and perfecting my report I sincerely thank you all!

CONTENTS

PROMISE i

ACKNOWLEDGEMENT ii

CONTENT iii

LIST OF ABBREVIATIONS viii

LIST OF TABLES ix

LIST OF CHARTS & GRAPHS ix

INTRODUCTION 1

1 The urgency of the subject 1

2 Thesis Purposes 2

3 Object and Scope of the thesis 3

4 Research Questions 3

5 Research Methods 3

6 Literature review 4

6.1 Foreign research studies 5

6.2 Domestic research studies 7

7 Thesis Structure 9

CHAPTER 1: THEORETICAL BASIS OF CORPORATE FINANCIAL ANALYSIS IN CREDIT ACTIVITIES AT COMMERCIAL BANKS 10

1.1 Credit activities at commercial banks 10

1.1.1 Commercial banks 10

1.1.2 Credit Activities 10

1.1.2.1 Definition of credit activities 10

1.1.2.2 Characteristics of credit activities 11

1.1.2.3 Role of credit activities 11

1.1.2.4 Classification of credit activities 14

1.2 Corporate financial analysis in credit activities 16

1.2.1 Definition of corporate financial analysis 16

1.2.2 Role of corporate financial analysis in the credit activities of commercial banks 17

1.3 Information used in corporate financial analysis 18

1.3.1 Financial statements of business 18

1.3.1.1 Balance Sheet 18

1.3.1.2 Income Statement 19

1.3.1.3 Cash Flow Statement 19

1.3.1.4 Notes to Financial Statements 19

1.3.2 Non-financial information 20

1.3.2.1 Macroenvironmental information 20

1.3.2.2 Microenvironmental information 20

1.4 Method used in corporate financial analysis 21

1.4.1 Comparative method 21

1.4.2 Division method 22

1.4.3 Dupont method 22

1.4.3.1 Content of the Dupont analysis method 22

1.4.3.2 Steps to perform the Dupont analysis 23

1.4.4 Forecasting method 24

1.4.5 Ratio method 25

1.5 Process of analyzing the financials of corporate customers 25

1.5.1 Planning the analysis 25

1.5.2 Data collection and processing 26

1.5.3 Identifying characteristic indicators 26

1.5.4 Data analysis 26

1.5.5 Conclusion and recommendations 26

1.5.6 Follow-up 27

1.6 Contents of financial analysis for corporate customers 27

1.6.1 Balance Sheet Analysis 27

1.6.1.1 Assets Analysis 27

1.6.1.2 Capital Analysis 28

1.6.1.3 Relationship between assets and capital 28

1.6.2 Income Statement Analysis 30

1.6.2.1 Income Statement using horizontal comparison: 30

1.6.2.2 Income Statement using vertical comparison: 30

1.6.3 Cash Flow Analysis 30

1.6.4 Financial Ratio Analysis 32

1.6.4.1 Activity ratios 32

1.6.4.2 Liquidity ratios 33

1.6.4.3 Solvency ratios 34

1.6.4.4 Profitability ratios 36

1.7 Factors influencing the financial analysis of corporate customers 38

1.7.1 Objective factors 38

1.7.2 Subjective factors 39

CONCLUSION OF CHAPTER 1 40

CHAPTER 2: CURRENT STATUS OF CORPORATE FINANCIAL ANALYSIS IN CREDIT ACTIVITIES AT VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE - EAST HANOI BRANCH 41

2.1 General introduction about Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch 41

2.1.1 History of formation and development 41

2.1.2 Functions, duties, and organizational structure 43

2.2 Current status and credit approval process for corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch 44

2.2.1 Business activities of Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch from 2020 to 2023 44

2.2.2 Credit approval process for corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch 51

2.3 Current status of business financial analysis in credit activities at Vietnam Joint Stock Commercial Bank For Industry And Trade - East Hanoi Branch54 2.3.1 Database serving financial analysis of corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch 54

2.3.1.1 Information used in analyzing corporate financial statements 54

2.3.1.2 Principles for selecting financial statements for analysis 55

2.3.2 Methods of financial analysis for corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch 56

2.3.3 Process of analyzing financial statements of corporate customers at

Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi

Branch 57

2.3.4 Content of financial analysis for corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch 59

2.3.4.1 Assets and Capital Structure and Fluctuations Analysis 59

2.3.4.2 Business Operations Analysis 62

2.3.4.3 Solvency Analysis 66

2.3.4.4 Business Cash Flow Analysis 70

2.3.4.5 Forecasting Company Cash Flow 75

2.3.4.6 Debt Security Analysis 78

2.3.4.7 Coordinating Analytical Contents to Evaluate Comprehensive Enterprise Situation 80

2.3.5 Example of financial analysis of corporate clients at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch 81

2.4 Evaluating the current situation of financial analysis of corporate customers in credit activities at the Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch 107

2.4.1 Strengths and achievements 107

2.4.2 Existing limitations and causes of limitations 110

2.4.2.1 Existing limitations 110

2.4.3.2 Causes of limitations 114

CONCLUSION OF CHAPTER 2 116

CHAPTER 3: SOLUTIONS TO IMPROVE THE CORPORATE FINANCIAL ANALYSIS IN CREDIT ACTIVITIES AT VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE - EAST HANOI BRANCH 118

3.1 Development direction of Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch 118

3.1.1 Capital mobilization activities 118

3.1.2 Credit activities 120

3.1.3 Management, handling, and recovery of NPL 121

3.2 Solutions to improve financial analysis of business customers in credit activities at the Vietnam Joint Stock Commercial Bank for Industry and

Trade - East Hanoi Branch 122

3.2.1 Improving the collection and processing of information, enhancing the quality and diversity of data for financial analysis of corporate customers 122

3.2.2 Enhancing the method of financial analysis for corporate customers 123

3.2.3 Completing the contents of business financial analysis 125

3.2.3.1 Analyzing customers from all aspects 125

3.2.3.2 Analyzing the Cash Flow Statement 126

3.2.3.3 Comparing with industry average indicators 126

3.2.4 Upgrading, improving, and developing information technology and technical capabilities to serve the financial analysis of corporate customers 127

3.2.5 Improving the quality and competence of credit officers 128

3.2.6 Establishing a team or department for market analysis 129

3.3 Recommendations to improve the financial analysis of business customers in credit activities at Vietnam Bank for Industry and Trade - East Hanoi Branch 129

3.3.1 Recommendations for the State Bank of Vietnam 129

3.3.2 Recommendations for the Business Customers 131

CONCLUSION OF CHAPTER 3 132

GENERAL CONCLUSION 133

REFERENCES 134

APPENDIX 138

ETC Electronic Toll Collection

FD Fixed Deposit L/C Letter of Credit NIM Net Interest Margin NII Net Interest Income NWC Net Working Capital POS Point of Sale

ROS Return on Sales ROA Return on Assets ROE Return on Equity SBV The State Bank of Viet Nam SME Small and Medium Enterprise VAT Value Added Tax

LIST OF TABLES

Table 2.1 Capital mobilization situation from 2020 to 2023 45 Table 2.2 Financial situation and business results at the branch over the years (2020-2023) 47 Table 2.3 Loan outstanding situation at the branch over the years (2020-2023) 48 Table 2.4 Situation of non-performing loans and overdue debt at the branch over the years (2020-2023) 49 Table 2.5 7 Factors Impact on a company's cash flow 76 Table 2.6 Assumptions to proceed with the cash flow forecast 77 Table 2.7 Example of financial analysis of corporate clients at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch 81 Table 2.8 Outstanding Balance and Overdue Debt Classified by Customer Groups Over the Years 2020-2023 110 Table 3.1 Dupont analysis indicators of Gia Bao Loc Trading Limited Liability Company 123

LIST OF CHARTS & GRAPHS

Graph 2.1 Organizational structure of Vietnam Joint Stock Commercial Bank for Industry and Trade 43 Graph 2.2 Organizational structure of VietinBank East Hanoi Branch 44 Graph 2.3 Process of analyzing financial statements of corporate customers at VietinBank 57

INTRODUCTION

1 The urgency of the subject

In 2023, the world faced a period of significant turmoil, difficulties, and challenges with changes in the economy and ecology impacting global prospects The prolonged conflict between Russia and Ukraine significantly increased the likelihood of political disruptions, while serious political risks arose with conflicts between Israel and Hamas, hindering the immediate return to normal global trade growth Inflation, although cooled compared to its peak in 2022, remained high The impact of the COVID-19 pandemic has diminished in most countries; however, its prolonged waves continued to disrupt economic activities, particularly in China Additionally, central banks in many countries continued to pursue tight monetary policies that significantly impacted economic growth, investment, and consumption

In 2024, it is expected that over 30% of countries globally will continue to face the threat of increasing debt risks

Against the backdrop of the global economy facing major challenges, rapid changes, unpredictability, and high instability, our country achieved positive results

in 2023 Macroeconomic stability and major balances were ensured The government closely directed ministries, sectors, and localities to focus on implementing Resolution No 01/NQ-CP dated January 6, 2023; the Economic Recovery and Development Program; and Directive No 03/CT-TG dated January 27, 2023, of the Prime Minister In the determined effort to create breakthrough momentum for economic development as outlined, the Finance and Banking sector played a crucial role, actively and timely serving as the positive, effective backbone of the economy; the main channel for capital mobilization serving production and business, contributing to promoting economic structural transformation, building an independent, self-reliant economy associated with proactive, positive deep and wide international integration, substantial, effective, and improving people's lives Banking activities are closely linked to the people, enterprises, and affect the entire economy Therefore, a stable, healthy, safe, and efficient banking system leads to a

stable and developing economy Conversely, a stable and developing economy leads

to a stable, healthy, safe, and efficient banking system

Due to the significant role as a financial intermediary, credit activities of banks become an indispensable capital circulation activity of the economy Credit carries many risks and uncertainties Therefore, analyzing the financial capacity of customers before making credit decisions is essential, playing a guiding role in helping banks understand the financial situation and health of enterprises, thereby making credit decisions for enterprises, reducing the risk of credit

At the Vietnam Joint Stock Commercial Bank for Industry and Trade, the ratio

of non-performing loans according to the customer's debt status tends to fluctuate and be unstable Specifically, based on the report summarizing the bank's business activities from 2020 to 2023, at the end of 2020, the ratio of non-performing loans accounted for 1.2% of the average outstanding balance, 0.19% in 2021, 0.45% in

2022, and 0.22% in 2023 The causes of the fluctuations can partly be attributed to the impact of the COVID-19 pandemic and increasing inflation, as well as deficiencies in assessing the repayment capacity in the future when credit to customers Therefore, I have chosen the topic "Improving the analysis of enterprise financial reports to serve credit activities at the Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch" as the research topic for my thesis

to contribute to the branch's improvement in effectiveness in banking credit activities

2 Thesis Purposes

Firstly, conduct a comprehensive study and systematize fundamental theories regarding enterprise credit activities and financial analysis of enterprises in credit activities at the bank, along with assessing the quality of analysis

Secondly, identify and study the current situation of financial analysis of corporate customers in credit activities at the Vietnam Joint Stock Commercial Bank for Foreign Trade - Dong Ha Hanoi Branch Evaluate and comment on the current state of financial analysis work of corporate customers at VietinBank East Hanoi

Branch, thereby recognizing achievements that need to be promoted and pointing out limitations that need to be overcome in the bank's financial analysis work

Thirdly, propose solutions and recommendations to optimize and improve the financial analysis work of corporate customers in credit activities at the Vietnam Joint Stock Commercial Bank for Foreign Trade - East Hanoi Branch

3 Object and Scope of the thesis

Research object: Financial Analysis of Corporate Customers in Credit Activities at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

Research scope:

Spatial scope: Credit Activities at Vietnam Joint Stock Commercial Bank for

Industry and Trade - East Hanoi Branch

Temporal scope: Based on the data provided by the bank from the period of

5 Research Methods

The thesis applies various qualitative research methods and analysis techniques such as comparative method, classification method, listing method, statistical method, etc., to provide results, observations, evaluations in analyzing the financial

statements of corporate customers at the Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

Statistical methods are used to compile and synthesize data and information from documents, reports, and assessments of the branch or from the credit specialists

of the East Hanoi Branch

Primary data: Interviews with leaders and credit officers of the Transaction

Office, gathering information from the data warehouse of the Duc Giang Transaction Office - Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

Secondary data: Textbooks, manuals on financial analysis of enterprises and

bank credit from the Banking Academy; previous research works, master's theses, doctoral dissertations with related topics in the Library and digital Library of the Banking Academy; scientific research journals on related issues such as Scientific Technology Journal, Finance Accounting Journal; gathering consolidated financial reports, annual reports of the bank and enterprises through financial information websites such as Vietstock, Stockbiz, and requesting documents, files, memoranda from the Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch to serve the thesis research

In addition, modeling methods through diagrams and tables are also used to visualize the research issues

6 Literature review

Financial analysis in credit activities of banks is a topic of continuous interest not only for managers but also as a highly attractive research subject for domestic and international students due to its importance in assessing the financial health of a business - an essential component of the economy Along with the development of the global economy and financial markets, many research works aim to clarify, enhance, and improve the ability to analyze finances and the effectiveness of credit activities Each individual's topic has diverse perspectives, thoughts, and evaluations

6.1 Foreign research studies

The implementation of lending activities on the balance sheet is covered in Onyiriuba Leonard (2015)’s book "Emerging Market Bank Lending And Credit Risk Control” Leonard emphasizes that banks need to be able to evaluate customers' capacities regardless of the documentation they submit In addition, credit analysts had a duty to help clients by suggesting appropriate credit packages that will reduce future unnecessary risks

Charles H.Gibson (2012), ‘Financial Reporting Analysis-Using financial Accounting information, 13th Edition’ comprising 13 chapters The initial 11 chapters gave a general review of the different financial analysis problems that firms face By the 12th chapter, the author had addressed the difficulties in examining particular economic sectors, pointed out recent developments in industry reporting and suggested some adjustments to improve the standard of work The effects of every area and industry on a business's operations were outlined by the author The author then led readers into the last chapter, where he provided suggestions for enhancing the efficacy of financial statement analysis by determining a company's place in its sector

Igor Zdravko Ski (2013), with conference paper titled ‘Dimension and importance of ratio analysis through financial statements as a reliable basis for future

of business entities’, asserted that ratio analysis is a crucial method for analyzing a company's financial health, liquidity, risk level, profitability, debt-paying ability, and operational efficiency This analysis aided in evaluating trends, commenting on financial results, and serves as the basis for lending decisions by commercial banks

“The Role of Financial Analysis Tools in Granting Loans: Field Study on Banks Operating within Aqaba Special Economic Zone" by Mohammad Abdullah, Laith Ahmad Mohammad (2017) emphasized the significance of financial analysis tools

in commercial banks' loan decision-making The authors came to the conclusion that,

in order to reduce credit risks, bank credit departments categorize consumer requests using financial analysis tools and procedures Relevant international research has

discussed the role of techniques and indicators in credit analysis of financial statements, but it hasn't gone into detail or been very explicit about it

In the article "Equal Gains and Pains? Analyzing Corporate Financial Performance for Industrial Corporate Social Performance Leaders and Laggards" by Jongmin Kim, Soonchul Hyun, and Ying Liu (2023), the authors noted how evaluating a company's behavior and financial capabilities is affected by the correlation between its social activities and financial performance They pointed out that there is a lack of consistency in the methods and reference materials used in the examination of this relationship In order to improve financial capability efficiency for industry managers, the authors rebuilt a theoretical framework and used more suitable analytical techniques to provide new discoveries

In the article "Is the Corporate Financial Strategy in the Oil and Gas Sector Affected by ESG Dimensions?" by the four co-authors Alicia Ramirez-Orellana, MCarmen Martínez-Victoria, Antonio García-Amate, and Alfonso A Rojo Ramírez (2023), it was found that social responsibility had an effect on the financial efficiency and profitability of businesses The authors' investigation revealed that, in an effort

to strengthen their financial position, oil and gas corporations often increase their environmental duties

The Journal "Financial Statement Analysis and Bank Lending in Nigeria" by Abolade Francis Akintola and Samson Ogundipe (2020) used descriptive analysis methods to examine the impact of financial statement analysis on bank lending activities in Nigeria, clarifying how financial indicators play an important role in influencing the lending decisions of banks The study also pointed out that banks need to ensure decisiveness, proactivity, and rigor in the analysis work to draw credit conclusions to resolve difficult debt and bad debt issues on the total outstanding balance; thereby helping the bank's operations to be smoother, and improving profitability

Additionally, there are numerous related books such as "Financial Statement Analysis and Securities Valuation" by Stephen H Penman (2016), "Financial

Statement Analysis" by K.R Subramanyam (2014); which also discussed the topic

of corporate financial statement analysis

6.2 Domestic research studies

The Master's thesis in Economics titled "Quality of Corporate Customer Credit

at Vietnam Joint Stock Commercial Bank for Industry and Trade - Tien Son Branch"

by Le Tung Duong (2021) affirms that improving the credit quality for corporate customers is an objective requirement that is closely linked to the sustainable development of the economy by selectively synthesizing fundamental theoretical issues regarding the bank's corporate customer credit activities Along with outlining accomplishments, constraints, and the root causes that require attention, the thesis also provided a thorough analysis and evaluation of the credit quality issue as it exists

at the research base Finally, based on the objectives and development direction of VietinBank - Tien Son Branch, the thesis proposed a system of solutions and recommendations for relevant authorities to improve the quality of corporate customer credit at the research base in the future

In the graduation thesis "Improving Financial Analysis of Corporate Customers

in Credit Review Activities at Petrolimex Petroleum Joint Stock Commercial Bank - Headquarters," written by Dao Minh Thu (2021), the author discussed the state of credit review analysis at the moment and clearly outlined the theoretical foundation for the bank's credit report analysis and credit review processes In particular, the author methodically described each activity's advantages and disadvantages, along with thorough remedies that addressed each issue

Le Hong Quan (2022), with his graduation thesis "Solutions to perfect the financial analysis of corporate customers in credit activities at Military Commercial Joint Stock Bank - Dong Da Branch", had systemized basic content of the corporate financial analysis process At the same time, it had pointed out the shortcomings in financial analysis, the economic nature of items, analyzed shortcomings of indicators and reports The author also highlighted reasons and made recommendations to improve and better improve corporate financial analysis in credit activities

The subject of Nguyen Thi Thuy (2015) master's thesis in economics was

"Enhancing the Quality of Financial Analysis of Enterprises in Credit Appraisal Activities at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong

Da Branch." She described the steps involved in customer enterprise assessment and analysis and offered ways to break through the impasse in financial report analysis Nguyen Thi Kim Anh (2018) studied the Vietnam Joint Stock Commercial Bank for Foreign Trade on a subject identical to this one as well Her focus, however, was mostly attention on assessing the outcomes of credit activities as a whole; information, methodology, and content analysis were not explored

The doctoral dissertation "Improving Financial Analysis Content in Joint Stock Companies under Vietnam Cement Industry Corporation" by Pham Thi Quyen (2014) offered ways to improve the content of financial analysis, such as organizing

it better, honing analysis techniques, and strengthening the system of analysis indicators The author's suggestions helped the management of the business make financial choices that would increase Vietnam Cement Industry Corporation's production and business activity efficiency

Hoang Thi Minh Huyen (2019) assessed clients and offered thorough solutions

by analyzing financial indicators in detail Still, the study compared financial achievements between years; it hasn’t really offered objective assessments in her master's thesis, "Enhancing Financial Statement Analysis of Corporate Customers at Vietnam Investment and Development Bank - Cau Giay Branch"

With the theme of "Improving financial analysis at Hiep Huong Company Limited" Vu Huong Giang (2020) conducted a thorough investigation of the company but only paid attention to the financial indicators found in the performance report and balance sheet for the business but no cash flow statement As a result, the enterprise’s circumstances and financial potential were not accurately reflected

It is evident that the subject of enhancing corporate clients' financial analysis at commercial banks has been selected for execution numerous times All authors, however, contribute a fresh viewpoint resulting from variations in space and time and ongoing study Different answers and proposals have been put forth by each

author, all of which are appropriate given the current state of corporate customer financial analysis at each branch, branch development orientation, and actual setting Every study piece now has distinct worth as a result of this

The trends of integration and digital transformation are increasingly profound, significantly impacting banking activities Particularly, each economic context has its unique features, so proposed measures and approaches need constant updates to

be most appropriate Moreover, most studies or thesis related to this topic have limited scope regarding research at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch Furthermore, many studies have not clearly outlined the overall situation of the enterprise customer system from the bank's perspective, nor have they identified gaps in credit analysis and risk assessment Therefore, this thesis gives a relatively new perspective within a new scope of time and location, learning from some of the limits of earlier studies In order to improve and enhance the financial analysis of corporate customer operations at the branch and find new, highly practical solutions that are more appropriate for the current context, the thesis was carried out at the Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

7 Thesis Structure

The thesis is structured into 3 chapters with the following content:

Chapter 1: Theoretical basis of corporate financial analysis in credit activities at commercial banks

Chapter 2: Current status of business financial analysis in credit activities

at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

Chapter 3: Solutions to improve the corporate financial analysis in credit activities at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch.

CHAPTER 1: THEORETICAL BASIS OF CORPORATE FINANCIAL ANALYSIS IN CREDIT ACTIVITIES AT COMMERCIAL BANKS

1.1 Credit activities at commercial banks

1.1.1 Commercial banks

Commercial banks are financial institutions whose primary and regular activities involve accepting deposits from customers with the responsibility to repay and utilizing those funds for lending, discounting transactions, and serving as payment intermediaries.(1) As a business organization, the operations of commercial

banks are based on economic accounting principles, aimed at generating profits Commercial banks are legally permitted to engage in a wide range of banking business transactions, such as accepting term and demand deposits, discounting transactions, payment services, and capital mobilization through issuing debt securities (4)

1.1.2 Credit Activities

1.1.2.1 Definition of credit activities

Credit is an economic domain that reflects the transactional relationship between two entities, in which one party transfers a certain amount of value to the other for use over a specified period, while the receiving party commits to repayment within the agreed time frame (5)

This transactional relationship encompasses the following elements:

- The lender transfers a certain amount of value to the borrower This value can

be in the form of currency or tangible assets such as goods, machinery, equipment,

In summary, credit is an economic domain reflecting the reciprocal use of capital between entities in the economy based on the principle of repayment of both principal and interest

1.1.2.2 Characteristics of credit activities

Firstly, the basis for granting credit lies in the bank's trust regarding the customer's proper use of the borrowed capital and their ability to repay the loan on time This is the most crucial factor in the credit relationship (7) The bank needs to trust that the customer will use the loan for its intended purpose and have the capability to repay it on schedule Conversely, the customer trusts in their ability to earn money in the future and repay the loan, along with their commitment to the bank

Secondly, credit is the transfer of the right to use a certain amount of money (currency) or assets (goods) from one entity to another, without altering their ownership rights (7) The credit provided to customers originates from the bank's mobilized capital, primarily from deposits of individuals and organizations domestically and internationally

Thirdly, credit always has a deadline and must be unconditionally repaid (7) Since customers are not the true owners of the borrowed amount, they naturally commit to unconditionally repaying this loan to the bank

Fourthly, the value of credit is not only preserved but also enhanced through credit interest (7) The repayment value must be greater than the value at the time of borrowing, as customers must pay a price for the right to use borrowed capital This interest amount is always positive to offset operating costs and generate profits for the bank

Fifthly, the most inherent characteristic of credit is the high potential for risk (7) Even if customers have goodwill to repay debts, unfavorable business environments, fluctuations in economic indicators, force majeure events, etc., can lead to difficulties in debt repayment, inevitably posing credit risks to the bank

1.1.2.3 Role of credit activities

a) For the economy

Credit is an economic concept closely linked to the commodity economy The emergence and existence of credit stem from the characteristics of monetary capital transfer and the temporary need for profit with idle monetary capital and the need for capital accumulation, leading to the formation of a monetary supply-demand relationship between borrowers and lenders Therefore, credit appears and exists as

an objective necessity in the economy

Credit is economic relations associated with the process of establishing and using credit funds to satisfy the temporary capital needs for the process of reproduction and living according to the principle of repayment (6) Therefore, it is one of the important factors in a market economy

Firstly, credit activities ensure the capital needs for production and business activities as well as the demand for consumption for individuals in the economy (6) The shortage of temporary capital often occurs in enterprises The distribution of credit has contributed to the overall regulation of the economy, creating conditions for continuous production processes

Secondly, credit activity promotes capital concentration and centralized production (6) Banking activities concentrate temporary monetary capital that is not yet used, which is distributed across businesses, state agencies, and individuals, and then lend it to economic entities However, the investment process is not evenly distributed among all entities in need; instead, it is concentrated mainly on large, efficient businesses Concentrated investment is an essential process to avoid credit risks and promote economic growth

Thirdly, credit is a tool for financing underdeveloped sectors and leading industries (6) In Vietnam, agriculture is a sector that meets the essential needs of society, heavily influenced by natural processes, and is undergoing modernization and industrialization Therefore, in the short term, the state needs to focus on investing in agricultural development to address the minimal societal needs and create conditions for the development of other economic sectors Moreover, the state

should focus credit on financing leading industries to create a basis and attract other economic sectors

Fourthly, credit contributes to enhancing the economic accounting system of enterprises (6) A fundamental characteristic of credit is operating based on repayment with interest Therefore, credit activities stimulate efficient capital utilization

When using bank loans, enterprises must respect credit activities, ensuring the repayment of loans according to agreed terms and respecting other conditions stated

in the credit contract Through such actions, enterprises are required to focus on improving the efficiency of capital utilization, reducing production costs, increasing capital turnover, and creating conditions to improve business profits

Economic Contribution: By providing credit, banks fuel economic growth, enabling businesses to expand and consumers to spend

c) For Customers

Financial Leverage: Credit gives customers access to funds for personal or business investment when they lack immediate capital This can be in the form of loans, lines of credit, or credit cards.This helps customers carry out projects, purchase goods and services, or invest in new business opportunities that they cannot afford

on their own with available capital

Convenience and Flexibility: Credit offers customers the ability to make purchases or pay bills conveniently, providing flexibility in managing their cash flow, at the same time, take advantage of incentives and flexible payment policies from the bank

Credit History Building: Using credit responsibly helps customers build a positive credit history A good credit history is an important factor in obtaining future loans with preferential interest rates and more flexible loan conditions This increases the bank's access to other financial products and services

Emergency Buffer: Credit can serve as a financial buffer during emergencies

In unexpected situations such as job loss, sudden medical expenses or other financial incidents, customers can use credit sources to access needed capital and keep their financial lives on track

Overall, credit forms the backbone of modern financial systems by facilitating consumption, investment, and broader economic activity (7)

1.1.2.4 Classification of credit activities

Basically, bank credit is currently classified into two main types:

- Personal credit: Serving the personal capital needs such as buying a house, purchasing a car, business ventures, covering personal expenses, etc

- Business credit: Serving the capital needs of businesses such as purchasing assets, settling debts, supplementing working capital, etc

Additionally, there are other classifications such as:

Based on the credit term:

- Short-term credit: With a term of no more than 12 months, typically used to supplement temporary working capital shortages and meet personal living expenses

- Medium-term credit: With a term ranging from 12 to 60 months, provided for purchasing fixed assets, technological improvements and innovations, expanding and constructing small projects with quick capital recovery

- Long-term credit: With a term exceeding 60 months, this type of credit is used

to fund fundamental construction, improvement, and large-scale production expansion

Based on the credit recipient:

- Working capital credit: This type of credit is used to form the working capital

of businesses, such as providing loans for inventory reserves, purchasing raw materials for production, etc

- Fixed capital credit: This type of credit is used to form fixed assets It is typically provided as medium-term and long-term loans

Based on the purpose of credit usage:

- Production and circulation of goods credit: This type of credit is provided to enterprises or economic entities for the production and business of goods and services

- Consumer credit: This type of credit is provided to individuals to meet their consumption needs

Based on the credit subject:

- Commercial credit: It refers to the credit relationship between businesses and lending institutions, typically involving the purchase and sale of goods or providing advances before receiving goods

- Bank credit: It refers to the credit relationship between banks (lenders) and businesses, individuals, or organizations (borrowers)

- Government credit: It refers to the credit relationship between the government and businesses, individuals, or social organizations In this case, the government can

be both the borrower and the lender

Based on the nature of collateral:

- Secured credit: This type of credit requires the borrower or guarantor to provide collateral or form capital to secure the loan

- Unsecured credit: This type of credit requires the borrower to be secured under

a pledge agreement The lending is carried out according to the government's regulations, and borrowers may be guaranteed by organizations, community groups,

or local authorities

Based on the territorial scope of credit activities:

- Domestic credit: Credit relationships that arise within the national territory are referred to as domestic credit

- International credit: Credit relationships that arise between countries or between an international credit institution and a country

1.2 Corporate financial analysis in credit activities

1.2.1 Definition of corporate financial analysis

Corporate/Business financial analysis is the process of examining and evaluating current and past financial data of a business to assess its financial condition, forecast risks and future potential Based on this analysis, analysts make financial decisions related to their interests in the company (24)

Financial analysis of enterprises relies not only on the data provided in the company's financial statements but also on supplementary information from various sources It helps clarify the financial situation of the enterprise in the past, identify significant changes and trends, and understand the reasons behind financial activity fluctuations This analysis reveals patterns in business operations, providing a basis for current decisions and future forecasts (25)

Stakeholders associated with a business and related parties are all interested in the financial activities of the enterprise and have a need for economic and financial information (24) Each stakeholder is interested from a different perspective and with different objectives Stakeholders interested in the financial situation of the business include:

- Business managers

- Investors (including current and future shareholders)

- Credit providers to the business such as banks, financial institutions, bondholders, other businesses, etc

- Employees of the business

- Government regulatory agencies

- Financial analysts

-

Different stakeholders using financial information will make decisions with different purposes Therefore, financial analysis for each stakeholder will meet different objectives

In summary, business financial analysis is a useful tool used to determine economic value, evaluate strengths and weaknesses of the business, identify objective and subjective causes, and provide each management entity with necessary grounds to make appropriate decisions in line with their objectives

1.2.2 Role of corporate financial analysis in the credit activities of commercial banks

Firstly, financial analysis of corporate customers helps the bank make informed decisions regarding credit limits (26) Financial analysis enables the bank to understand the financial situation, business performance, and repayment capacity of the customer's business Based on information from the analysis, the bank can assess the level of risk and establish appropriate credit limits to ensure capital safety and maximize profitability Consequently, making accurate decisions on credit limits helps the bank minimize credit risk and enhance operational efficiency

Secondly, financial analysis allows the bank to assess the repayment capacity

of the business by examining financial ratios such as the liquidity ratio, financial leverage ratio, and profitability ratio (26) Through this process, the bank can determine whether the business is capable of repaying debts on time and in full, thereby making decisions on whether to grant or deny credit

Thirdly, financial analysis forms the basis for credit rating assessment and appropriate provisioning (26) Financial analysis provides fundamental information for the credit rating assessment process, wherein the bank determines the level of risk associated with each loan and classifies them into different risk categories Based on this assessment, the bank can apply proper provisioning measures to safeguard itself against potential risks from loans with poor repayment capabilities Thus, financial analysis supports the bank in managing credit risks and maintaining the stability and sustainability of the financial system

1.3 Information used in corporate financial analysis

1.3.1 Financial statements of business

Financial reports also serve as crucial bases for developing business plans, economic-technical plans, and financial plans of enterprises They provide scientific grounds for implementing measures to enhance corporate governance, continually improve capital utilization efficiency, enhance production and business efficiency, and increase profitability for the enterprise

According to the current accounting regulations, Circular No BTC and Circular No 53/2016/TT-BTC issued by the Ministry of Finance, the financial reporting system applies to all enterprises in all sectors and economic components throughout Vietnam It includes four report forms:

200/2014/TT Balance Sheet (Form B01 200/2014/TT DN)

- Income Statement (Form B02 - DN)

- Cash Flow Statement (Form B03 - DN)

- Notes to Financial Statements (Form B09 - DN)

1.3.1.1 Balance Sheet

The balance sheet provides a general overview of all current assets and the sources of capital formation for those assets of an enterprise at a specific point in time The items on the balance sheet are presented and organized systematically to facilitate information comprehension and analysis quickly (27) Through the balance

sheet, credit assessors can evaluate the overall efficiency of capital utilization, term solvency, and financial structure of the enterprise

short-The balance sheet is divided into two parts: assets and liabilities based on the principle of balance In the assets section, assets are arranged in decreasing order of liquidity In the liabilities section, liabilities are arranged in order of urgency for repayment

1.3.1.2 Income Statement

The income statement is a financial report that provides a general overview of the business situation and results of operations of an enterprise during a specific period, detailed by main operating activities, financial activities, and other activities (27) In other words, the income statement is a tool for presenting the profit-generating ability and business operations of the enterprise

1.3.1.3 Cash Flow Statement

The cash flow statement is a comprehensive financial report that summarizes the cash inflows and outflows of an enterprise categorized into three activities: operating activities, investing activities, and financing activities during a specific period Based on the cash flow statement, users can identify the sources of cash, the company's spending, assess its liquidity, and forecast cash flows in subsequent periods (27) There are two methods for preparing the cash flow statement: the direct method and the indirect method Both methods present cash flows from investing and financing activities similarly The significant difference between these methods lies in how cash flows from operating activities are presented

1.3.1.4 Notes to Financial Statements

The notes to the financial statements are an integral part of the financial reporting system of an enterprise, used to elaborate on or provide detailed analysis

of the information presented in the balance sheet, income statement, cash flow statement, and other necessary information

The notes to the financial statements include the following basic contents:

- Characteristics of the enterprise's business activities

- Accounting standards and applied accounting policies

- Accounting policies applied

- Accounting period, and the currency unit used in accounting

- Supplementary information for items presented in the balance sheet

- Supplementary information for items presented in the income statement

- Supplementary information for items presented in the cash flow statement

- Other relevant information

1.3.2 Non-financial information

Financial forecasting is the process of estimating future business performance and using that information to inform appropriate decision-making This is accomplished through financial analysis Therefore, financial analysis entails gathering all pertinent information, including non-financial information, about the enterprise's financial situation in addition to studying financial reports Non-financial data can be used to confirm the accuracy of financial data in addition to providing information for evaluating the enterprise's financial health (24)

1.3.2.2 Microenvironmental information

Industry Situation: The development of a business is always viewed in relation

to the industry situation in which the business operates Therefore, it is essential to determine the industry trends over the past few years (approximately the last 3 years)

as well as analyze and forecast industry trends in the future

Company specific information:

- Legal framework for the business customers

- Ownership structure of the company

- Characteristics of the company's business operations: the main products and services the company is engaged in, physical infrastructure capacity, input sources, consumer markets, company scale, etc

- Organizational structure of the company

- Business strategy of the company in each period

- Market position of the company within the industry, competitors, and the company's competitive capabilities

1.4 Method used in corporate financial analysis

To conduct financial analysis of a business, analysts often combine the use of various practical and technical methods such as comparative method, exclusion method, forecasting method, Dupont method, etc Each method has different purposes and is used in different aspects of analysis

1.4.1 Comparative method

Comparative is a widely used method in economic analysis in general and financial analysis in particular Its purpose is to clarify differences or unique characteristics and identify trends, patterns, and fluctuations of the research subject, thereby providing a basis for decision-making for interested parties

In financial analysis of enterprises, the comparative method is employed to analyze and evaluate changes in items/indicators using financial reports from multiple consecutive years:

Analyzing changes over a period of 2 to 3 years in both absolute and relative terms of the indicators in the financial statements as well as long-term trends, based

on comparing data from subsequent years with the base year This method allows for observations on the direction, speed, and trends of items/indicators over the years compared to the base year The advantage of this method is its simplicity, ease of

application, and ability to identify trends in the indicators; however, its disadvantage

is the inability to assess the quality of the information used for analysis

- Detailing according to the constituent factors of the research indicator: detailing the research indicator into constituent parts

- Detailing according to the time of occurrence of the economic process and results: dividing the process and results into chronological order

- Detailing according to the spatial occurrence of the phenomenon and economic results: dividing the process and results based on the location of occurrence and development of the research indicator

1.4.3 Dupont method

The Dupont financial analysis method was developed by F Donaldson Brown,

an American electrical engineer who served as the financial manager of the giant chemical company Dupont When Dupont acquired a 23% stake in the General Motors (GM) conglomerate in the early 1970s, Brown was tasked with restructuring the financial situation of the automobile manufacturer He introduced a system for financial planning and control, in which the Dupont method was applied to study the basic financial indicators of GM According to Alfred Sloan, former chairman of

GM, much of GM's subsequent success can be attributed to Brown's financial planning and control system, which popularized the Dupont method among large corporations in the United States Today, the Dupont method is widely used in financial analysis of business operations (24)

1.4.3.1 Content of the Dupont analysis method

The DuPont method is based on controlling complex financial analysis indicators Each indicator reflects financial relationships in the form of ratios, where the financial ratio increases or decreases depending on the numerator and denominator of that ratio Moreover, each financial ratio is also influenced by the financial relationships of the business with related parties and the internal relationships of the financial activities it reflects Therefore, establishing the relationship of each financial ratio with the factors influencing it in a logical, tight sequence provides a clearer view of the financial operations of the business to impact each factor in the most reasonable and effective manner (24)

1.4.3.2 Steps to perform the Dupont analysis

Step 1: Gathering data from financial reports

Step 2: Performing calculations (using spreadsheets)

Step 3: Explaining the changes in ROA, ROE, etc

Step 4: If conclusions seem inaccurate, verify the data and recalculate

For example, from an investor's perspective, one of the most important indicators is the Return on Equity (ROE)

𝑅𝑂𝐸 = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒

𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 Since equity is a part of the total capital forming assets, it's prudent to split the ratio into two influencing factors:

𝑅𝑂𝐸 = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒

𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠× 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 𝑅𝑂𝐸 = 𝑅𝑂𝐴 × 𝐸𝑀

𝐸𝑀 = 𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦

𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 + 𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 = 1 + 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒

𝑅𝑂𝐴 = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒

𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 =

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒𝑅𝑒𝑣𝑒𝑛𝑢𝑒 ×

𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 = 𝑅𝑂𝑆 × 𝐴𝑈

𝐴𝑈 = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠× 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠

𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 = 𝑆ℎ𝑜𝑟𝑡 𝑇𝑒𝑟𝑚 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 × 𝑆ℎ𝑜𝑟𝑡 𝑇𝑒𝑟𝑚 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 𝑅𝑂𝐸 = 𝑅𝑂𝑆 × 𝑆ℎ𝑜𝑟𝑡 𝑇𝑒𝑟𝑚 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 × 𝑆ℎ𝑜𝑟𝑡 𝑇𝑒𝑟𝑚 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 × (1 + 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒)

Based on identifying the four factors influencing ROE, a company can implement several measures to increase ROE as follows:

- Impacting the financial leverage of the company by adjusting the capital structure between the debt-to-equity ratio in accordance with the specific financial conditions of the company as well as the capital market context

- Influencing capital allocation structure by adjusting the ratio of short-term investments and long-term investments according to the characteristics of the business sector and the company's development cycle

- Improving the efficiency of short-term asset utilization through market development to increase gross revenue and managing working capital rationally and efficiently

- Enhancing the quality of products, services, and reducing the cost-to-revenue ratio to increase the profitability of the company's operations

In summary, analyzing the financial situation based on the Dupont model is of great significance to financial management of the company, providing in-depth and comprehensive assessment of business efficiency, and objectively evaluating the factors influencing the company's business efficiency From there, specific measures can be proposed to enhance the improvement of organizational management and financial operations, contributing to continuously improving the business efficiency

of the company in subsequent periods

1.4.4 Forecasting method

The forecasting method is used to predict a company's financials There are various methods to forecast economic and financial indicators in the future, among which regression methods are quite common In this method, analysts use past data,

data that have occurred over time, or occurred at the same time to establish relationships between relevant phenomena and events Mathematically, it's known as studying the degree of impact of one or more independent variables (explanatory variables) on a variable called the dependent variable (outcome variable) This relationship is represented in the form of an equation called a regression equation Based on the regression equation, one can explain past results, estimate, and forecast events that will occur in the future The regression method is often used in the form

of simple regression, multiple regressions to evaluate and forecast the financial outcomes of a company (24)

1.4.5 Ratio method

The ratio method is a technique in which ratios are used for analysis, established

by comparing one indicator to another This method allows analysts to efficiently exploit data and systematically analyze a series of ratios over continuous time periods

or stages In principle, this method requires identifying benchmarks, reference ratios for assessing the financial situation of a company by comparing its financial ratios with reference ratios Comparing and ratio analysis methods are always used in conjunction during analysis However, from the perspective of credit operations at banks, correlation comparison techniques are often used, meaning that a company's financial ratios are compared with those of similar companies in the industry This helps banks understand the financial situation of the company in relation to similar companies in the industry (24)

1.5 Process of analyzing the financials of corporate customers

The process of analyzing the financials of business customers at commercial banks is the sequence, order, method, and procedures that the bank establishes to analyze the financials of business customers in credit operations to achieve objectives

1.5.1 Planning the analysis

Planning the analysis involves determining the content, scope, timeframe, and organization of the analysis The analysis content needs to be clear about the issues

to be analyzed, which could include the entire financial operations or specific issues such as capital structure, liquidity, etc This forms the basis for developing a specific outline to conduct the analysis The scope of the analysis could be the entire business

or selected units chosen for analysis

1.5.2 Data collection and processing

Credit specialists need to collect information including both financial and financial data This forms the database for analysis Once the information is obtained, analysts need to proceed with selection, verify the legality of the documents containing information, and verify the reliability of the collected information sources The scope of information verification is not limited to directly used documents as the basis for analysis but also includes other relevant documents, especially original documents

non-1.5.3 Identifying characteristic indicators

Based on the collected information, depending on the requirements and content

of the analysis, analysts need to calculate appropriate financial ratios, create tables according to the set criteria, and compare them with previous periods, industry standards, or other companies in the same field of operation They need to provide

an overall assessment of the strengths and weaknesses of the business, identify areas requiring focused analysis

1.5.4 Data analysis

Based on financial ratios, tables, and other data, analysis and evaluation of the operational and financial situation of the analyzed company are provided Key aspects with significant impacts on the current and future financial situation of the company need to be specifically analyzed to clarify relationships and internal factors reflecting the essence of activities by: identifying influencing factors, examining the relationships between factors, and determining the extent of their impact on analytical indicators

1.5.5 Conclusion and recommendations

After the analysis, it's necessary to summarize the results, draw conclusions, forecast development trends, and come to a conclusion on whether the business meets the conditions to be granted credit by the bank

1.5.6 Follow-up

Lastly, it's important to monitor the health of the business after the credit decision to update the latest information about the business and ensure its appropriateness and reliability

1.6 Contents of financial analysis for corporate customers

1.6.1 Balance Sheet Analysis

1.6.1.1 Assets Analysis

The main tool used to analyze asset volatility is comparison, using both horizontal and vertical comparison techniques Horizontal analysis is a financial analysis technique used to evaluate a company's performance over time By comparing current financial results with financial results in the base year, a company

is better able to spot the direction of change in account balances and the magnitude

in which that change has occurred Percentage of change can be calculated as:

in which quarterly and annual numbers are compared over several years to get a sense

of whether performance indicators are improving or declining The proportion of each part in total assets for the analysis of the enterprise's asset structure can be calculated as following:

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 = 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 𝑥 100

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑠𝑜𝑢𝑟𝑐𝑒 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙

= 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑇𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝑒𝑞𝑢𝑖𝑡𝑦 𝑥 100

1.6.1.3 Relationship between assets and capital

From the perspective of capital financing, each kind of asset needs to be financed with a certain source of funding The use of capital to finance capital needs

in businesses is often considered on the principle of balance, which requires managers to take into account both safety factors in the capital structure but still ensure the cost of capital is relatively reasonable to achieve the desired effect of capital use The relationships in the balance sheet are frequently taken into account while analyzing this issue The relationships on the balance sheet are shown through three factors: Net working capital (NWC), Working capital needed and Debt-to-equity Ratio (D/E) (30)

NWC is the difference between the current assets and its current liabilities It's

a commonly used measurement to gauge short-term financial health

Net working capital = Current assets - Current liabilities

Positive NWC shows that current assets are higher than current liabilities, which means the overall structure is reasonable, the company has the ability to repay the debt and there is still residual cash if all current assets need to be sold to cover the debt A negative NWC indicates that not all of the company's current liabilities can be covered by its current assets The company has more short-term debt than it

has short-term resources Negative NWC is a sign of insufficient liquidity, poor short-term health, and potential problems meeting debt obligations when they come due (30)

Working capital needed is a short-term financial requirement that arises in the production and business processes but is not yet supported by a third party

Working capital needed = Business assets - Business liabilities

Business assets include short-term receivables, inventory, and other current assets on the balance sheet that are currently used in the production and operation of the company Business debts are obligations to third parties, such as payables to sellers, payables to employees, and other payables…

Positive working capital requirement indicates that a portion of the company's assets have not been financed by a third party, suggesting that the company has a capital need On the other hand, if the need for working capital is smaller than zero, the capital that the company has appropriated from a third party exceeds all of its short-term capital requirements that arise from its operations (30)

The D/E ratio is an important metric in corporate finance since it indicates how much a firm relies on debt to fund its operations rather than its own resources

𝐷/𝐸 𝑟𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑇𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝑒𝑞𝑢𝑖𝑡𝑦

A corporation that relies heavily on debt funding will have a high D/E ratio, which is frequently associated with high investment risk On the other hand, low D/E ratio indicates that equity from shareholders is the main source of capital of the company The firm is in a safe situation without worrying about repaying the debt However, debt in business is not always a bad thing as expenses to raise capital

by borrowing is much lower than using shareholders' equity, and the profitability by using debt is also much higher The decision to raise capital whether by debt or equity significantly depends on the stage the enterprise is in

In the introduction and growth stage, businesses with limited scope, poor revenue, and high costs shouldn't borrow money through debt because they won't be