Suggestions to improve Sa Giang's financial performance (2010 - 2015)

MBAVB3 TRAN NAM HAI SUGGESTIONS TO IMPROVE SA GIANG’S FINANCIAL PERFORMANCE (2010 – 2015) MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION (PART – TIME) Tutor’s Name: Dr. TRAN DUYEN DINH Ho Chi Minh City (2010) TRNG I HC M TP.HCM HO CHI MINH CITY OPEN UNIVERSITY UNIVERSITÉ LIBRE DE BRUXELLES SOLVAY BRUSSELS SCHOOL ii DEED OF DECLARATION I, Tran Nam Hai, hereby submit my research paper for oral defense, entitled “Suggestions to Improve Sa Giang’s Financial Performance (2010-2015)” and truthfully declare that the above-titled paper is a product of my original research investigation. Signed on 29 th January 2011 in Ho Chi Minh City. Tran Nam Hai iii ACKNOWLEDGEMENTS Foremost, I would like to express my sincere gratitude to my advisor Dr. Tran Duyen Dinh for the continuous support of my MBA study and research, for his patience, motivation, enthusiasm, and immense knowledge. His guidance helped me in all the time of research and writing of this thesis. I could not have imagined having a better advisor and mentor for my MBA study. Besides my advisor, I would like to say thanks to Belgian Professors from Solvay Brussels School, Professors and Lecturers from Ho Chi Minh City Open University for valuable knowledge and enthusiasm provided to me during my MBA program. Thanks also go to Mr. Serge Bywalski, program coordinator, and Ms. Bao Tran, program administrator for their kind and well-arranged coordination which has helped me and my classmates to attend and finish courses so far. I thank my colleagues for giving me time and condition to complete my courses while I am up to neck with works. I also say thanks to my classmates at MBA class for their cooperation, for discussing, for arguing evenings we were spending time for group study and for all the fun we have had in the last two years. Last but not least, I would like to thank my big family: my grandmother, my parents, my brothers for supporting me spiritually throughout my life and my small family – my wife – for her silent support while losing her husband to the busy study and work. iv Ho Chi Minh City – Vietnam Jan. 29, 2011 TUTOR’S COMMENT Title: SUGGESTIONS TO IMPROVE SA GIANG'S FINANCIAL PERFORMANCE (2011-2015) Author: TRAÀN NAM HAÛI Tutor: Dr TRAÀN DUYEÂN ÑÒNH Practicality Analyzing the financial statements of a company to find the way to improve its financial performance is the most important responsibility of the top management. The thesis “Suggestions to Improve Sa Giang's Financial Performance (2011 - 2015)” takes the practical meaning in making financial analysis on a specific company for the purpose of improving its financial performance in the next 5 years. Content The thesis consists of 3 chapters apart from introduction and conclusion. The first chapter gives an overview of financial analysis literature. The second chapter introduces the Sa Giang Company, and analyzes its financial statements over the past 3 years. In the last chapter, the author summarizes the findings from the analysis in Chapter 2 that include 2 financial strengths and 5 financial weaknesses, and thereby recommends a solution package that includes 5 groups of suggestions for improving the company's financial performance in the next 5 years. These suggestions are feasible. Presentation The thesis is presented in the bright and illustrative way with many tables and figures. The in-text citation and references follow the guidelines of MBAVB program. General Assessment The thesis takes the practical meaning presented in a very good form. The arrangement is systematic and suggestions are feasible. Suggested Grade: Excellence Tutor, Dr TRAÀN DUYEÂN ÑÒNH v ABSTRACT Financial performance is considered as the backbone of a company’s business. It is very important to the business operation and even the existence of a company. More than that, it may cause good or bad effects to related parties of that company like shareholders, investors, suppliers, bankers and etc. However, as Vietnam is an emerging market, there are very few studies about the financial management and performance of a company and what will happen when there is problem in a company’s financial health. Once Vietnam became an official member of World Trade Organization, Vietnamese enterprises will have to face foreign players coming into the local market. In order to compete with foreign companies, it is necessary for Vietnamese enterprises to have a good financial performance, which will enable the company to operate its business better like taking more market share, attracting more investors, expanding business to overseas…and after all, making more profit to survive this competitive market. This study will have an overview about tools and methods to analyze financial statements of a company. Then an analysis on Sa Giang company’s financial statements in three fiscal years is also carried out basing on tools and methods mentioned above and it will give comments on findings from the analysis as well as point out some suggestions to improve the company’s financial performance in the coming time. It is hopeful that financial statement users can apply knowledge in this study to real life business to get a fundamental analysis for themselves and then making reasonable decision in their investments as well as improving their financial management if they have their own business. TABLE OF CONTENTS INTRODUCTION 1 I. Rationale of the Study 1 II. Objectives and Questions 2 III. Scope of the Study 3 IV. Methodology 3 V. Organization of the Study 3 CHAPTER ONE: LITERATURE REVIEW ON FINANCIAL ANALYSIS FOR EVALUATING FINANCIAL PERFORMANCE 4 1.1. The Need for Evaluating Financial Performance 4 1.2. Financial Statements as Data for Analysis on Financial Performance 5 1.2.1 Balance Sheet 6 1.2.2 Income Statement 9 1.2.3 Cash Flow Statement (CFS) 13 1.2.3.1 Cash flow from operating activities 15 1.2.3.2 Cash flow from investing activities 16 1.2.3.3 Cash flow from financing activities 17 1.2.3.4 Free Cash Flow 18 1.3 Financial Ratios Used to Evaluate Financial Performance 19 1.4 Sustainable Growth as a Signal of Financial Health for Development 24 1.5 Other Analytical Tools: Horizontal and Vertical Analysis. 27 1.5.1 Horizontal Analysis 27 1.5.2 Vertical Analysis 29 CHAPTER TWO: ANALYSES ON SA GIANG FINANCIAL PERFORMANCE (2007 – 2009) 32 2.1 An Overview of Sa Giang Joint Stock Company 32 2.2 Financial Statements of Sa Giang JSC 38 2.2.1 Balance Sheets 38 2.2.2 Income Statements 41 2.2.3 Cash Flow Statements 42 2.3 Financial Ratio Analysis on Sa Giang JSC 42 2.3.1 Profitability Ratios 42 2.3.2 Liquidity Ratios 46 2.3.3 Efficiency Ratios 48 2.4 Sustainable Growth Rate of Sa Giang JSC 49 2.5 Horizontal and Vertical Analysis 52 2.5.1 Vertical Analysis 53 2.5.1.1 Balance Sheets 53 2.5.1.2 Income Statements 56 2.5.2 Horizontal Analysis 57 2.5.2.1 Balance Sheets 57 2.5.2.2 Income Statements 60 2.5.3 Cash Flow Analysis 61 CHAPTER THREE: FINDINGS AND SUGGESTIONS TO IMPROVE SA GIANG‟S FINANCIAL PERFORMANCE (2010 – 2015) 65 2 3.1 Findings Drawn out From the Analysis of Sa Giang‟s Financial Statements 65 3.2 Suggestions to Improve Sa Giang‟s Financial Performance (2010 – 2015) 69 3.2.1 Suggestions to Improve Asset Management to Enhance Asset Turnover 69 3.2.2 Suggestions to Better Utilize Financial Leverage 70 3.2.3 Suggestions to Control Customers‟ Debts Making Faster Accounts Receivable Turnover 70 3.2.4 Suggestions to Improve Supplier Relationships for More Free Cash Flow 72 3.2.5 Suggestions to Balance the Growth Rate for More Sales, Investments and Dividends That Enhance Stock Price 72 CONCLUSION 74 REFERENCES 76 INTRODUCTION Being better over time in financial performance is essential to any business. However, measures to improve the financial performance differ from country to country, and from business to business. As a result, this study “Suggestions to Improve Sa Giang‟s Financial Performance (2011 – 2015)” develops under the following 5 dimensions. I. Rationale of the Study Vietnam is in the stage that business development is booming. This means more and more enterprises - both foreign and domestic - appear in this attractive market. More enterprises appearing will lead to a very strong competition among companies. In order to survive in this furious and attractive market, enterprises, especially small and medium enterprises (SMEs) need to be profitable to keep on their business and develop more. From this view-point, it is supposed that profitability is very important to SMEs and considered as the backbone of each enterprise. However, the problem raised in this time is that SMEs seem to have difficulties in controlling their financial performance; therefore they cannot be profitable and cannot have the competitive advantage compared with foreign enterprises due to the financial problem and financial constraint. It is supposed that a suitable financial performance will help SMEs to be financially independent and easy to survive in the furious times. In the recent time, the Vietnamese market, which is very attractive as mentioned above, also has faced economical and financial chaos making hard time for SMEs. For one style of SMEs, which is Joint Stock Companies (JSCs), the turbulence in economics and finance will be more difficult for them because they are directly exposed to the public. Therefore, the financial performance of this kind of SMEs will be crucial for their development because the investors will expect the stock price going down or going up based on the financial performance of that company. 2 Stock price of listed companies will partly show the company‟s value and the potential to develop. However, there is very little study showing the way to improve the financial performance and the stock price of the joint stock companies. This study will hopefully contribute to the development of JSCs, particularly Sa Giang JSC, through the improvement of financial performance and thereby stock price. II. Objectives and Questions Objectives This study is a secondary research basing mainly on the past and existing data and information of a joint stock company naming Sa Giang. This is a JSC specializing in manufacturing, importing and exporting its products to other areas of the country as well as the world. The aims of this study are: - To introduce Sa Giang JSC and its business - To analyze the environment that affects the company‟s activities - To analyze the business operations of the company basing on the financial statements of the company and other factors - To evaluate the company‟s performance - To suggest some ways to improve the financial performance Research Questions The Research Area: - Financial Performance Evaluation of JSC. Research Questions: - What are main factors that affect the financial performance of a company? - What could be done to improve the current financial performance of Sa Giang JSC? - How should Sa Giang cope with a short-term chaos caused by the macro environment? 3 III. Scope of the Study This paper will mainly concentrate on the available data and information of the company such as financial statements of the company as well as the macro economy information to analyze the financial performance and the operation of Sa Giang JSC. After the analysis, this paper will point out some financial managerial suggestions to improve the financial performance of Sa Giang. IV. Methodology This is a secondary research basing on the data and the information of the company and the economics information. The method focuses on using financial statements to analyze the current financial situation of the company and then comparing the result from the analysis among 3 fiscal years to see if this company has been doing better or not. V. Organization of the Study This paper consists of five parts. The first part is the introduction that includes the research background, objectives, and methodology. The second part is Chapter one which is an overview about financial statements and financial analysis. Then Chapter two is the analysis of Sa Giang financial performance and operation. The third Chapter comes with the suggestions to improve Sa Giang financial performance and stock price. After this chapter, there will be a conclusion that will summarize the content of this study. In a word, the study flow starts with literature review on financial analysis for evaluating financial performance, then goes to financial analysis on 3 fiscal years of Sa Giang Company, and finally comes up with findings and suggestions to improve Sa Giang‟s financial performance in the next five years. [...]... liabilities -to- the measurement of the financial leverage The financial leverage ratio shows us the amount of equity used to finance the assets Therefore, in order to increase the ROE, the indicator of the financial performance, h of its components separately This financial performance and its operation Below we can see the ROE in 2004 of ten big companies in America and its components Source: Analysis for Financial. .. with cash, the increase in the value of inventory is deducted from net sales A decrease in inventory would be added to net sales If inventory was purchased on credit, an increase in accounts payable would occur on the balance sheet, and the amount of the increase from one year to the other would be added to net sales The same logic holds true for taxes payable, salaries payable and prepaid insurance If... dollar of sales - The second way to manage the ROE is through the Asset Turnover This ratio indicates the sales generated from each dollar of assets employed - The last way to control the ROE is through the Financial Leverage 21 There may be a little confusion here if anyone questions that why the Financial this ratio down again to see the reason why As we know, on the balance sheet, the total Assets... important for those who are running a business to regularly review and analyze the financial performance of their business so that they can have in-time 5 owners will have less time to do this important task As a result, the company will r the solutions to solve the problems caused by the neglect of financial review and analysis A well-prepared evaluation of financial performance will probably bring First of... without availability of good projects to invest 1.5 Other Analytical Tools: Horizontal and Vertical Analysis Besides using ratios as tool to analyze the financial performance of a company, there are other ways to consider if a company is working well or not Now we will have a look on two other techniques used largely by the investors and analysts to evaluate the financial health of a company They are... the Free Cash Flow at the bottom line, which will allow the company to pursue opportunities that come ahead 1.3 Financial Ratios Used to Evaluate Financial Performance Enterprises will not survive in this period if they do not have a good operation management and a good performance in the business This section of the study will focus on the important role of financial performance in the survival of... to be the key to survive; however, there is a very close relationship between the operating decision of a company and its financial performance In a company, if the operating decision goes east and the financial performance goes west, there must be problem in that company These two elements, together, will decide whether a company will survive and develop more operating decision and its financial performance. .. third part is about financial ratios which can be a useful tool for financial statement users in terms of evaluating the financial status of the company through the information from last part will introduce two ways through which financial statement users can utilize to have an easier and better understanding on financial statements of a company 1.1 The Need for Evaluating Financial Performance It is... CHAPTER ONE LITERATURE REVIEW ON FINANCIAL ANALYSIS FOR EVALUATING FINANCIAL PERFORMANCE Introduction Financial performance is now considered as a backbone of a company and it is crucial to the survival of that company However, there is a sad fact that nowadays many companies have been in trouble with financial constraint, and a lot of companies have gone bankruptcy due to lacking the reasonable awareness... with limited knowledge about the financial analysis This section of the study will emphasize on the tools for analyzing the financial performance of the company and the way through which the financial statement users can evaluate a company financial health This section will be divided into five main parts The first part is about the need for evaluating the financial performance of a company ts and the . AND SUGGESTIONS TO IMPROVE SA GIANG‟S FINANCIAL PERFORMANCE (2010 – 2015) 65 2 3.1 Findings Drawn out From the Analysis of Sa Giang‟s Financial Statements 65 3.2 Suggestions to Improve Sa. company and other factors - To evaluate the company‟s performance - To suggest some ways to improve the financial performance Research Questions The Research Area: - Financial Performance Evaluation. Giang‟s Financial Performance (2010 – 2015) 69 3.2.1 Suggestions to Improve Asset Management to Enhance Asset Turnover 69 3.2.2 Suggestions to Better Utilize Financial Leverage 70 3.2.3 Suggestions