financial analysis of sai gon – dong xuan beer and alcohol joint stock company

Academy of Finance Graduation paper MINISTRY OF FINANCE ACADEMY OF FINANCE FACULTY OF FOREIGN LANGUAGES -***** - GRADUATION THESIS FINANCIAL ANALYSIS OF SAI GON – DONG XUAN BEER AND ALCOHOL JOINT STOCK COMPANY Academy of Finance Graduation paper MINISTRY OF FINANCE ACADEMY OF FINANCE FACULTY OF FOREIGN LANGUAGES -***** - FINANCIAL ANALYSIS OF SAI GON – DONG XUAN BEER AND ALCOHOL JOINT STOCK COMPANY SUMMITED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF BACHELOR OF ART IN ENGLISH FOR FINANCE AND ACCOUNTING Academy of Finance Graduation paper DECLARATION I hereby declare that this thesis is my own work and effort It has not been submitted anywhere for any award Where other sources of information have been used, they have been acknowledged Signature: … Mông Hữu Lộc Date: ………………… Academy of Finance Graduation paper ACKNOWLEDGEMENT Firstly, I want to express my deep gratitude to Ms Bui Thi Tuyet Mai for her supports and advices to help me complete this study She has been an outstanding advisor; always very flexible and willing to let her students work at their own pace, while making sure that things are going all right I always found her highly accessible and I thank her for the weekly meeting that kept me motivated and suggested idea to complete my study Secondly, without the kind support of board of directors, managers and employees of Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company for their participation in my study, it never becomes such a real case so I would like to express my great acknowledgement to them Last but not least, I also want to express my thanks to my family who gave me enthusiastic support and shared house work with me during the last years while I was doing my study Thank you very much Mông Hữu Lộc Academy of Finance Graduation paper ABSTRACT In the business world, managers understand that constantly posting profits requires careful planning Corporate finance analysis determines useful interrelations in operating information and also enables firms to find suitable ways to raise funds, usually on financial markets Therefore, this study, titled “Financial analysis of Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company”, focuses on the following main content: Firstly, this study analyzes the liquidity, performance and profitability position of the company in order to determine in an effective manner by using financial tools combined Secondly, it is carried out to evaluate the financial situation, the operational results as well as financial progress of a business based on financial statements Ratio Analysis and Comparative balance sheet Finally, this study also explains ways in which ratio analysis can be of assistance in long-term planning, budgeting and asset management to strengthen financial performance and help avoid financial difficulties In conclusion, I hope that this study will help to identify and bring out suggestions about weak position of business transactions at Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company Academy of Finance Graduation paper TABLE OF CONTENT CHAPTER I: SOME BASIC THEORIES ABOUT CORPORATE FINANCIAL ANALYSIS 1.1 Definition, objectives and missions of corporate financial analysis 1.1.1 Definition of corporate finance and corporate financial analysis 1.1.1.1 Definition of corporate finance 1.1.1.2 Definition of corporate financial analysis 1.1.2 Objectives and missions of corporate financial analysis 1.1.2.1 Objectives of corporate financial analysis 1.1.2.2 Missions of corporate financial analysis 1.2 Information used in financial analysis 1.2.1 The balance sheet 1.2.2 The income statement 1.2.3 The cash flow statement 1.3 Methods of financial analysis 1.3.1 Comparison method 1.3.2 Ratio analysis method 1.3.3 DuPont analysis method 1.4 Content of financial analysis 1.4.1 Liquidity ratios 1.4.2 Asset and Debt structure ratios Academy of Finance Graduation paper 1.4.3 Asset Management ratios 1.4.4 Profitability ratios CHAPTER II: FINANCIAL ANALYSIS OF SAI GON – DONG XUAN BEER AND ALCOHOL JOINT STOCK COMPANY 2.1 Overview about Sai Gon – Dong Xuan Beer and Alcohol Joint stock company 2.1.1 History and development progress 2.1.2 Some characteristics of the company 2.1.2.1 Product key 2.1.2.2 Organization structure 2.1.2.3 Characteristics of input and output market 2.2 Financial analysis of Sai Gon – Dong Xuan Beer and Alcohol Joint stock company 2.2.1 Financial ratio analysis 2.2.1.1 Liquidity ratio analysis 2.2.1.2 Asset and Debt structure ratio analysis 2.2.1.3 Asset Management ratio analysis 2.2.1.4 Profitability ratio analysis 2.2.2 DuPont analysis CHAPTER III: RECOMMENDATIONS FOR IMPROVING FINANCIAL SITUATION OF SAI GON – DONG XUAN BEER AND ALCOHOL JOINT STOCK COMPANY Academy of Finance Graduation paper 3.1 Development orientation of company 3.2 Recommendations for improving financial situation of company CONCLUSION REFERENCES Academy of Finance LIST OF ABREVIATIONS DSO : Days’ sales outstanding EBIT : Earning before interest and tax ROA : Return on assets ROAE : Economic return on assets ROE : Return on equity ROI : Return on investment Graduation paper Academy of Finance Graduation paper LIST OF TABLES, CHARTS AND FIGURES Figure 2.1: Organization structure of Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company Table 2.1: The liquidity ratios Table 2.2: Asset and Debt structure ratios Table 2.3: The asset management ratios Table 2.4: Profitability ratios Table 3.1: Business plan of the company in 2013 Table 3.2: Relation between current assets and equity Table 2.5: DuPont analysis Chart 2.1: Liquidity ratios Chart 2.2: The debt ratio Chart 2.3: Short-term asset ratio Chart 2.4: Days’ sales in inventory Chart 2.5: Days’ sales outstanding Chart 2.6: Fixed asset turnover and Total asset turnover Chart 2.7: The profitability ratios Academy of Finance Graduation paper company’s Debt to Equity is, the more ROE the company will gain and vice versa Therefore, ROAE of Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company in 2012 is 23.91% while the market interest rate is 14% – 15% per year It means that ROAE > i, so the company should apply the second strategy which uses financial leverage to expand business and raises ROE in case of shortage of capital In conclusion, profitability ratios of Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company are very high, so the company has a great development potential Therefore, the company should focus on investing in expanding production, advertising products and promoting consumption Academy of Finance Graduation paper CHAPTER III: RECOMMENDATIONS FOR IMPROVING FINANCIAL SITUATION OF SAI GON – DONG XUAN BEER AND ALCOHOL JOINT STOCK COMPANY 3.1 Development orientation of company In 2013, many economists forecast that economic recession and political instability continue to grow and have negative impact on Vietnam on many aspects such as prices of fuels, unstable materials and so on This also affects to the production orientation and business results of Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company Consumption markets continue to compete fiercely and potentially decline Unemployment can occur on a large scale and the purchasing power of unessential products such as alcohol drinks is likely to decline sharply Therefore, the goal of the company in 2013 is to maintain business stability, preserve capital and assets of the company, promote the advantages, overcome the difficulties and strive hard to complete the task as planned Table 3.1: Business plan of the company in 2013 No Criteria Unit Plan in 2013 Value of production Millions VND 220,450 Net sales Millions VND 420,200 - Beer 1000 liters 50,000 - Alcohol 1000 liters 2,500 - Ethanol 1000 liters 1,800 Academy of Finance Graduation paper Taxes Millions VND 90,600 Net profit after tax Millions VND 47,500 Average income Millions VND 4.5 (Source: The draft of 2013) To achieve these objectives and capture opportunities from the market, the company needs synchronic financial solutions, including solutions to further improve the efficient use of working capital This will help improve productivity and enhance competitiveness of the company in the process of international economic integration 3.2 Recommendations for improving financial situation of company Through the financial analysis of Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company, we found that the company also has certain limitations Based on the development trend of the economy, the development orientation of the company and my internship at the company, I would strongly recommend some solutions to improve the financial situation of the company 3.2.1 Determining the needs of working capital and using it as a basis for planning and mobilizing working capital Determining the needs of working capital and planning of mobilization and use of working capital is one of the important financial solutions to improve business performance of the company If the company can not identify operation orientations and targets in a certain scale and can not predict proactively the business plan in short-term and long-term based on capital able to be mobilized, the investment orientation and efficient use of capital will be very difficult In order to improve the efficiency of capital, it is Academy of Finance Graduation paper required to strengthen the management in use of capital So, first of all the company need to proactively identify the needs of their working capital which will be an important prerequisite for the company to set mobilization plans and use business capital in an effective manner Building plans to mobilize and use working capital is aimed to form intentions about the funding sources of working capital needs of the company and investment plans which show how to use them most effectively In financial management, there are many ways to calculate the working capital needs of the business, but through my internship at Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company, in my opinions, at this stage, the company should use Percentage to revenue method This is a method to predict short-term needs which has the advantage that it is usually quite simple and suitable for using at the company especially when annual sales of the company are stable and increasing over the years I would like to illustrate this method when applied at Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company for determining working capital needs in 2013 is as follows based on the data collected: Revenue from sales in 2012: 443,593,646,098 VND Profit margin: 0.0935 Revenue in 2013 (planed): 470,200,000,000 VND Profit margin (planed): 0.11 In order to predict the demand for working capital in 2013, we as follows: Choose items related directly and closely with sales, and calculate the percentage of these items per revenue as compared to the following table: Academy of Finance Graduation paper Table 3.2: Relation between current assets and equity Unit: Millions VND Assets Use % Account receivables 20,053 4.5% Equity Payables to seller Use % 15,04 3.4% Inventory 45,166 10.2 Taxes % Other current assets 35,520 8.00 % 53,06 11.9% Payables to 2,347 0.5% Accrued expenses 3,318 0.7% Other payables 3,366 0.7% 193 0.1% employees Advantages from customers Total 22.7 Total 17.3 % % (Source: Balance sheet in 2012) Look at the table, we can see that: With dollar of the increase of sales, the company needs 22.7 dollars of capital to finance working capital With dollar of the increase of sales, the company appropriates 17.3 dollar of capital to finance additional assets Therefore, with dollar of the increase of sale, the company only needs to add: 22.7 – 17.3 = 5.4 dollars to finance working capital So, we have Academy of Finance Graduation paper Total saving in working capital = [Sales (planed) – Sales (current year)] x Percentage of working capital needs per revenue = (470,200 – 443,593) x 0.054 = 1,436.778 (millions VND) If it is assumed that profit margin in 2013 is 0.11, the net profit of the company will be: 470.200 x 0:11 = 51,722 (millions VND) In this case, we find that the company only takes about 2.8% of profit after tax to finance working capital However, when considering the management of working capital in the company, I see that working capital arrangement is not reasonable because of the backlog of inventory which caused large working capital backlog So the company should rearrange the structure of working capital, withdraw working capital in inventory, improve inventory turnover, so the company can improve the efficiency of capital use 3.2.2 Managing strictly capital, especially cash capital In the previous year, the cash reserve of the company increased but was still a very small proportion of the current assets (accounts for 9.8% of the total working capital) Cash is primarily deposited in bank which brings low profitability because interest rates of bank have decrease and been more stable than before However, the small proportion of cash reserves will affect negatively to the cash ratio of the company Therefore, the above reserve is too small for the needs of the company to spend In the future, the company should have the cash reserves adjusted according to the following ways: Academy of Finance Graduation paper The company should calculate the cash reserve reasonably Determining appropriately cash reserve is very significant because it helps the company ensure the required cash payments during the period and retain credibility with suppliers Besides, it also helps companies reduce the costs related to managing and reduce the opportunity cost due to storing of cash excessively Cash reserve can be calculated by experience statistic method or minimal cost synthesis method Information to make decisions based on the production plan, payment plan, detailed predictions of cash flows during the period On a comparison between the cash inflows and cash outflows, the company can determine what the cash reserve is excess or shortage and propose appropriate solutions management In addition, the company needs to strengthen the management of revenues and expenditures in cash, with the completion of the internal rules and regulations of the management of revenues and expenditures, especially in cash The company should primarily make a payment through a bank account If the company has cash collection and payment, it must be proved by the evidence from legitimate, legal… Thus, the use of cash can bring high efficiency and contribute to improve the efficiency of capital use 3.2.3 Managing and reserving inventory reasonably Reasonable inventory reserve is very important to the company because it ensures the continuity of producing without stagnant and it also reduces storage costs In fact, the proportion of inventory in total asset is always high, especially the merchandise and finished goods In order to make sure that the Academy of Finance Graduation paper inventory of company is economical and reasonable, the company should follow these ideas The first is building a detailed plan for consumption and market demand With finished goods, company must arrange a proper production structure to fit with consumer trend and climate changes Besides, the company should have suitable production and saving plans in the hot time of the year The second is setting provision for diminution of raw materials cost, especially malt and hops These imported materials are purchased at high prices but easy to be lost and damaged during the warehousing and preserving process To specify the accurate money for provision, the company must collect reliable information about type, quantity and damaged rate of these materials Furthermore, the company should provide proofs to convince that the net worth of materials is lower than the history cost of it to make provision by the difference between history cost and net value of materials The third is determining a reasonable material reserve rate This idea helps company in having enough material for producing, saving the storage cost and other costs The determination of reserve rate is based on production plan, market demands, expense norm, supply capacity of input markets, materials cost and other expenses in ordering, warehousing and so on The last recommendation for inventory management is checking storage situation regularly to avoid losses and quality reduced More than that, the company has to timely detect unsold, poor quality materials and quick handle them to assure the quality of all the materials Academy of Finance Graduation paper In conclusion, to maintain the logical storage and management of inventory, company ought to apply these ideas and upgrade production bases to protect the goods and materials 3.2.4 Enhancing the management of account receivables In 2012, receivables seemed not to be changed very much The proportion of receivables from customers was the highest and the proportion of advantages to suppliers was the lowest This shows us the efficiency of capital managing policies that had been applied in this year To strengthen the management of account receivables, the company should consider some solutions The first solution comes with the receivables from customers The company needs to maintain the straight sales method and prepayment In purchase and sale contracts, there should be regulations on which payment methods customers will choose With the postpaid method, customers have to carry the deferred interest which is higher than bank interest rates and on the contrary, if they choose the prepaid method, customers will get the better discount rate If the company wants to get their cash sales sooner from sale agents, they should propose a higher bonus with the faster agents in collecting cash sales Another solution is keeping the payment discipline with foreign suppliers along with building trust and prestige in customer relationship and helping the company avoids the huge amount of advance money Besides, the company ought to put effort on finding domestic suppliers with the lower order cost and not have to pay in foreign currency Academy of Finance Graduation paper 3.2.5 Managing costs and reducing cost of good manufactured In recent years, because of economic changes in Viet Nam and over the world, the company has come under pressure of the raising of material cost and the hard competition In order to solve this problem, the company must improve their cost management activities The better the management cost activities are, the more profit the company will get Besides, if the company can save input materials cost, they will cut down the demand of working capital and have more accumulated capital to expand business I have three recommendations for the company in managing good expenses The first is increasing the checking activities of production process on the basis of consumption norm The second recommendation is closely examining the import and export process of raw materials to ensure the quantity and quality of materials, limiting the quantity of damaged materials and creating a reasonable production plan to save the storage and warehouse cost The last recommendation is upgrading and improving facilities to save material cost and increase working performance Besides, the company needs to improve the organizing and working level, control the implementation of technological processes and strictly punish with employees that harm and waste materials 3.2.6 Expanding markets and promoting consumption Consumption is an important step in an enterprise’s business cycle Thanks to consumption, enterprise can get their revenue to pay for expenses and earn Academy of Finance Graduation paper profit Consumption also helps enterprise in continuing the reproduction process Therefore, seeking for potential markets and promoting consumption should be the regular work of the company The company should use these ideas as the oriented plan The first idea focuses on building and implementing an effective marketing plan based on improving the professional marketing team, creating strategies for promoting brand and developing business activities comprehensively The second idea is widening the company’s market, branches, sale representatives and sale system all over Viet Nam More than that, the company should keep improving after-sold-policies like promotion, customer cares…, pay attention on quality management and complete distribution system The last is building a proper price policy to ensure the company’s profit and stimulate customers on the basis of suitable price and quality 3.2.7 Improving capabilities, qualifications and skills of staff employees Human resources are the key for the success of an enterprise To improve their qualifications and level, the company may try some of following ideas The first idea is focusing on training employees in their expertise, capacity, discipline and sense of community The second idea is making the exchange of management experience between employees, so as to improve the efficiency of the overall financial management of the company Academy of Finance Graduation paper For employees of the company, who directly influence to the management of production costs and operate modern devices of the company, the company should organize training courses to improve employees’ skills, knowledge and raise their awareness about saving facilities and materials Besides, the company must avoid the labor wastage and have a reasonable remuneration Academy of Finance Graduation paper CONCLUSION Vietnam integrate into global economy, the demand for financial information resource is the most interested consideration of every components of the economy Financial analysis can indicate the strengths and weaknesses, advantages and disadvantages in production and business activities of the company to bring out reasonable policies to overcome weaknesses and develop strengths Financial situation is always an “efficient hand” for the success of a company With a long term strategy based on knowing clearly about financial situation, a company not only can maximize their value and make profit but also deal with financial risks I hope this study will help Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company gain a full view of financial situation, advantages and disadvantages of financial activities in order to find out solutions to improve the efficiency of financial activities Due to the short of time, resources and knowledge of the researcher, the study could not avoid the shortcomings Therefore, comments are highly appreciated Academy of Finance Graduation paper REFERENCES Nhiều tác giả (2007), Giáo trình Tài chính doanh nghiệp, NXB Tài chính Hà Nội GS.TS Ngô Thế Chi, Giáo trình Phân tích tài chính doanh nghiệp, NXB Tài chính Hà Nội Nhiều tác giả (2011), Giáo trình Phân tích báo cáo tài chính, NXB Đại học kinh tế quốc dân Financial statement of Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company in 2009, 2010, 2011, 2012 Ross, S.A Westerfield, R.W., Jaffe, J.F (2005), Corporate finance, 7th Edition, Irwin-McGraw-Hill William Sackley (2000), Fundamental of corporate finance, Irwin-McGrawHill Website of Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company http://www.saigondongxuan.com.vn P Jea Jun, How the DuPont Analysis Helps to Break Down ROE, Retrieved 18th December, 2012, from http://www.gurufocus.com Academy of Finance Graduation paper APPENDICES Appendix 1: ... suggests: Financial analysis of Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company , to touch upon the background and characteristics of Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company. .. CHAPTER II: FINANCIAL ANALYSIS OF SAI GON – DONG XUAN BEER AND ALCOHOL JOINT STOCK COMPANY 2.1 Overview about Sai Gon – Dong Xuan Beer and Alcohol Joint stock company 2.1.1 History and development... methods and content of financial analysis Chapter 2: Financial analysis of Sai Gon – Dong Xuan Beer and Alcohol Joint Stock Company Chapter two presents an overview and development progress of Sai Gon