Improving financial situations of minh dang construction and trading joint stock company

––––––––– ACADEMY OF POLICY AND DEVELOPMENT INTERNATIONAL SCHOOL OF ECONOMICS AND FINANCE GRADUATION THESIS Topic: “Improving Financial Situations of Minh Dang Construction and Trading Joint Stock Company” Supervisor: Mrs Dang Thuy Nhung Student: Vo Thi Bich Ngoc Student ID: 5083402210 Class: TC CLC 8.3 Hanoi, June 2021 i ACKNOWLEDGEMENT I would like to express my gratitude to the faculty members of the Faculty of International Economics - Finance for facilitating my completion of the graduate thesis, especially Ms Dang Thuy Nhung, who patiently taught me during the process and provided me with helpful suggestions and ideas In addition to that, I would like to express my heartfelt gratitude to the leaders of Minh Dang Construction and Trading Joint Stock Company, especially Mr Hoang Thanh Hanh, as well as the company's Finance Accounting Department and Business Department, who enthusiastically supported me during my internship Developing a company's business is a large subject for me, and it requires a great deal of professional expertise in the discipline As a result, despite best efforts, flaws cannot be avoided I'm looking forward to hearing from teachers and friends on how I can enhance my study Student Vo Thi Bich Ngoc ii TABLE OF CONTENTS ACKNOWLEDGEMENT .ii TABLE OF CONTENTS .iii LIST OF TABLES LIST OF FIGURES LIST OF ABBREVIATIONS INTRODUCTION Origin of the study .4 Objective of the study Scope of the study .5 Research Methodology 5 Structure of the study CHAPTER 1: LITERATURE REVIEW ON THE STATEMENT ANALYSIS 1.1 Overview of financial statement 1.1.1 Definition of financial statement 1.1.2 Function of financial statement 1.1.3 Categories of financial statements 1.1.3.1 Balance sheet 1.1.3.2 Income statement 1.1.3.3 Cash flow statement 10 1.1.3.4 Notes 11 1.2 Overview of financial statements analysis 11 iii 1.2.1 Definition of financial statements analysis 11 1.2.2 Role of financial statements analysis .11 1.2.3 Process of financial statement analysis 12 1.2.3.1 Economic analysis 12 1.2.3.2 Industry analysis .13 1.2.3.3 Company analysis .14 1.2.4 Financial statement analysis techniques 14 1.2.4.1 Common size analysis .14 1.2.4.2 Horizontal analysis 14 1.2.4.3 Ratio analysis 15 1.2.4.4 Dupont identity 21 1.3 Factors affecting financial statement analysis 22 1.3.1 Subjective factors 22 1.3.2 Objective factors 22 CHAPTER 2: FINANCIAL STATEMENT ANALYSIS OF MINH DANG TRADING AND CONSTRUCTION JOINT-STOCK COMPANY IN THE PERIOD OF 2018 – 2020 24 2.1 Overview of Minh Dang Construction and Trading Joint Stock Company 24 2.1.1 Establishment and development .24 2.1.2 Functions and business line 25 2.1.3 Organizational structure 26 2.1.3.1 Organizational chart 26 iv 2.1.3.2 Role of department 26 2.2 Background of economy and industry 28 2.2.1 Economic analysis 28 2.2.2 Industry analysis 30 2.2.2.1 Segmentation of construction industry 30 2.2.2.2 Profit rate of the Vietnam construction industry 32 2.2.2.3 Evaluating the Vietnam construction industry life cycle 32 2.3 Financial statement analysis of minh dang construction and trading joint stock company in the period of 2018 – 2020 34 2.3.1 Balance sheet analysis 34 a Analysis of volatility and asset structure of the company 34 b Analyzing the capital source's volatility situation and structure .42 2.3.2 Income statement analysis 47 2.3.3 Cashflow statement analysis 54 2.3.4 Ratio analysis 62 a Short term solvency ratios 62 b Asset utilization ratios 65 c Long term solvency ratios 68 d Profitability ratios 74 2.3.5 Compare financial ratios of companies in 2020 with average industry 78 2.3.6 Compare financial ratios of companies in 2020 with company in the same industry 79 v 2.3.7 Dupont identity 81 2.4 Evaluation of financial situation 86 2.4.1 Achivements .86 2.4.2 Limitations .86 2.4.2.1 Disadvantage about capital structure 87 2.4.2.2 Disadvantage about cash flow 87 2.4.2.3 Disadvantage about account payable management 88 2.4.2.4 Disadvantage about inventory management 88 2.4.3 Causes of limitations 89 CHAPTER 3: SOLUTIONS TO IMPROVE FINANCIAL SITUATION OF MINH DANG TRADING AND CONSTRUCTION JOINT STOCK COMPANY TOWARDS 2025…………………………………………………… 90 3.1 Back ground 90 3.1.1 World situation 90 3.1.2 Domestic situation 92 3.1.2.1 Socio-economic situation 92 3.1.2.2 The development prospects of the sector in the coming period 93 3.2 Business orientation of Minh Dang Construction and Trading Joint Stock Company towards 2030 95 3.3 Swot analysis 96 3.4 Solutions to improve financial situation of Minh Dang company towards 2025 102 vi 3.3.1 Solutions to improve the efficiency of capital structure management 102 3.3.2 Solutions to improve the efficiency of cash flow 103 3.3.3 Solutions to improve debt management 103 3.3.4 Solutions to increase the efficiency of inventory management 103 CONCLUSION 105 REFERENCE 106 vii LIST OF TABLES FIGURE 1: ORGANIZATIONAL STRUCTURE OF MINH DANG CONSTRUCTION AND TRADING JOINT STOCK COMPANY'S MANAGEMENT APPARATUS FIGURE 2: SEGMENTATION OF VIETNAM CONSTRUCTION INDUSTRY FIGURE 3: PROFIT RATE OF THE VIETNAM CONSTRUCTION INDUSTRY 32 FIGURE 4: VIETNAM CONSTRUCTION GROWTH RATE FIGURE 5: CONSTRUCTION INDUSTRY GROWTH IN THE WORLD FIGURE 6: ASSET STRUCTURE OF THE COMPANY FIGURE 7: CASH FLOWS FROM OPERATING FIGURE 8: CASH FLOWS FROM INVESTING ACTIVITIES FIGURE 9: CASH FLOWS FROM FINANCIAL ACTIVITIES FIGURE 10: NET CASH FLOW OF COMPANY FIGURE 11: THE CHART REFLECTS THE GROWTH OF CAPITAL OF MINH DANG CONSTRUCTION AND TRADING JOINT STOCK COMPANY IN 2018 – 2020 FIGURE 12: GRAPH OF THE RELATIONSHIP BETWEEN LIABILITIES AND EQUITY OF MINH DANG CONSTRUCTION AND TRADING JOINT STOCK COMPANY IN 2018 - 2020 FIGURE 13: PROFITABILITY RATIOS LIST OF FIGURES FIGURE 1: ORGANIZATIONAL STRUCTURE OF MINH DANG CONSTRUCTION AND TRADING JOINT STOCK COMPANY'S MANAGEMENT APPARATUS - FIGURE 2: SEGMENTATION OF VIETNAM CONSTRUCTION INDUSTRY FIGURE 3: PROFIT RATE OF THE VIETNAM CONSTRUCTION INDUSTRY - 32 FIGURE 4: VIETNAM CONSTRUCTION GROWTH RATE FIGURE 5: CONSTRUCTION INDUSTRY GROWTH IN THE WORLD FIGURE 6: ASSET STRUCTURE OF THE COMPANY FIGURE 7: CASH FLOWS FROM OPERATING FIGURE 8: CASH FLOWS FROM INVESTING ACTIVITIES -FIGURE 9: CASH FLOWS FROM FINANCIAL ACTIVITIES -FIGURE 10: NET CASH FLOW OF COMPANY -FIGURE 11: THE CHART REFLECTS THE GROWTH OF CAPITAL OF MINH DANG CONSTRUCTION AND TRADING JOINT STOCK COMPANY IN 2018 – 2020 - 68 FIGURE 12: GRAPH OF THE RELATIONSHIP BETWEEN LIABILITIES AND EQUITY OF MINH DANG CONSTRUCTION AND TRADING JOINT STOCK COMPANY IN 2018 - 2020 -FIGURE 13: PROFITABILITY RATIOS Acronym COGS ROA ROE EM MĐ CTX BMI GSO FPTS positive to be good for the company which shows that the company is having difficulty in paying and paying interest due to the Minh Dang company have more finance lease and finance loans activities ➢ Opportunity - In recent times, Vietnam has signed and negotiated 17 free trade agreements, most newly are VIFTA and VN-EFTA FTA These agreements by the government can help companies integrate into the world market, especially with the expansion of Minh Dang's market share globally - The Vietnam construction market is considered a potential market that has attracted a lot of FDI capital and interest from large companies in the world This is a great opportunity for companies to perform well and receive international investment - The trend of urbanization is increasing, so the demand for construction of houses, commercial centers, urban infrastructure and so on which also increases This will help companies receive more customers and projects - During the period of economic decline due to the Covid 19 pandemic, many companies have faced difficulties in business, including Minh Dang Company, the government has had timely and reasonable policies to promote economic growth which includes as follows: reduce loan interest rate, tax reduction, and so on These are extremely helpful for Minh Dang company to continue to develop business activities and increase profits - Although the economy dramatically decreased compared to previous years and the policy on interest rates was greatly reduced, Vietnam's inflation rate remained low (under 4%) compared to other countries in the region This illustrates that the market is stable and does not put pressure on commodity prices which helps the company not to be affected too much by prices ➢ Threat - The construction industry is highly dependent on the price of raw materials When the price of raw materials is low, the company will save costs 99 and increase profits By contrast, when the price increases, it will be a huge barrier for businesses when implementing projects Vietnam's construction market is very potential and has attracted the - attention of large construction companies in the world There have been many international companies entering the Vietnamese market which are companies have grown very well in both capital and scale and these companies also have many market shares in other countries Minh Dang Company will not only have to compete with domestic companies but also with foreign companies above They compete mainly on price to attract more customers This will put pressure on the profit and revenue of Minh Dang company Moreover, foreign companies and large domestic companies both have better staff who can help companies have better development policies The COVID-19 pandemic has caused economic decline and stop - doing business This will make it difficult for companies to business and affect the company's profitability ➢ S–O Combining good staff teams in the company with preferential policies - from the government which incude as follow: reduce loan interest rates, reduce tax, economic support, and so on, after that establishing effective policies that bring business projects new and improve profits for the company Receiving positive things when Vietnam has entered free trade - agreement, Minh Dang company can penetrate new markets to increase development prospects for the company The company takes advantage of its existing potential in terms of trust with customers and suppliers, along with a well - developed distribution network in the country and the strength of capital source to confidently develop on a global scale - The trend of urbanization is increasing along with the need to build houses, commercial centers and infrastructure, this will be an advantage for the company when receiving projects compared to other companies when the 100 capital resource are strong and available which can immediately meet the capital for the company when implement and finish the project quickly ➢ W-O - Market research and sales promotion activities such as marketing and advertising are lacking To attract more customers, the company must take advantage of the development potential of the construction industry to develop the market, research and enter other more promising markets, and develop and strengthen cooperation outside the company - Looking for opportunities to increase the company's share in the market because Vietnam's construction market is very potential and attracting a lot of FDI To this, the company needs to have policies to deal with the backlog of profits, expenses, and other company activities ➢ S–T - Use the advantage of a well-developed distribution network, the trust of customers and suppliers to the company, and the available financial strengths to continue to maintain and create a position of the Minh Đang comapy in the construction market, thereby attracting more projects and customers - In order to protect its market share from increasingly fierce domestic and international competition, the company must develop strategies such as flexible price, stronger trade promotion, better customer service, expand relationships with domestic and foreign partners, and so on Develop training programs to develop staff weekly W–T - ➢ - The company must take advantage of possibilities and invest in research and development in order to take quickly change of the market and activity of competitors 101 - Maintain the mentality and actively market share grow of the firm with their strategies which will help the Minh Dang company restrict and reduce the company's internal and external weaknesses 3.4 Solutions to improve financial situation of Minh Dang company towards 2025 3.3.1 Solutions to improve the efficiency of capital structure management - Firstly, the conpany build an optimal capital structure - Secondly, actively mobilize capital for business activities, always ensuring timely capital sources for production and business with the lowest cost of capital - The company should consider a plan to raise capital in the direction of lowering the debt ratio and increasing equity by: + Consider investment projects the company is implementing and withdraw investment capital to have capital suitable with the development of the company + The company has not issued ordinary shares, preference shares can research more about the issuance, or go on the floor to attract investment capital or can attract more from outside individuals by capital contribution + Accumulate capital from retained earnings, increase accumulated profits to invest in business expansion + Exploiting more appropriated capital sources such as: having to pay the seller, the buyer pay in advance, which helps the company appropriated without cost of capital and low cost + Make the most of commercial credits, undue debts such as salaries, social insurance and so on The use of this capital will significantly reduce the cost of capital, thereby improving efficiency business capital + Balance between occupied capital and capital used in another company to bring the best effect to the company 102 3.3.2 Solutions to improve the efficiency of cash flow - The company needs to establish an effective management policy to ensure the balance between cash in and cash out for the business operation - Identifying the deficit, or surplus cash flow of the company by planning cash flow, measuring and analyzing cash flows in and out of each given time period Simultaneously, proposing cash flow control strategies, achieving a balance of cash flow in and out, and managing the cash flow of corporate transactions in line with the business's life cycle 3.3.3 Solutions to improve debt management - Enterprise should have policies to deal with their secured assets and increase the appropriation of capital by the suppliers - Regularly compare debts, continue to promote the collection of due receivables, urge customers to pay on time Measures to encourage customers to pay early and on time To attract business customers should have discounts at the appropriate rates (payment discounts) which will help the company quickly collect money without having to take out a loan to meet production needs while waiting for customers to pay off backlogs - In addition, it is necessary to conduct debt classification, monitor bad debts There are several bad debts for Minh Dang Construction and Trading Joint Stock Company As a result, it is also important to pay attention to long-term debts, particularly the provision of bad debts, so that the company's financial condition is not harmed when bad debts occur Debt collection should be done on a regular basis and should not be left until the end of the year - Along with strengthening debt collection, business must also pay off past-due obligations, reduce debt capacity, improve reputation, and reduce financial risks 3.3.4 Solutions to increase the efficiency of inventory management - The calculation determines the necessary material structure in the plan year to reserve inventories, to avoid capital shortage or capital stagnation 103 affecting the production and business process On the basis, proactively choose suppliers in terms of quantity, quality and price Improved warehouse management and management to limit the loss of inventories - With the characteristics of the commercial industry, the process of acceptance and settlement is relatively complicated The company needs close coordination between departments to complete technical, financial documents to meet the investor's requirements and quickly answer the investor's problems with acceptance documents to acceptance process, settlement is happening faster - Reduce investment in inventory through solutions to enhance inventory management 104 CONCLUSION Vietnam is on the path to international economic inclusion and growth, with a focus on small and medium-sized businesses Researching the corporate financial situation and providing financial solutions to improve efficiency Business performance in a business is essential Researching corporate finance activities is one of the important activities in the management of each business Financial research is important and must be done on a daily basis because it impacts management decisions and the quality of company development During the practical work at the unit, the enthusiastic help of the teacher Mrs Dang Thuy Nhung, and based on the knowledge learned at the Faculty of International Finance, I would like to offer some reference solutions with the desire to contribute to better business performance at the Minh Dang Construction and Trade Joint Stock Company Due to limited terms of time, as well as the ability to recognize in the process of research and assess the financial situation inevitable shortcomings As a result, I eagerly anticipate receiving feedback from teachers and friends in order to continue to develop this thesis I'd like to thank Mrs Dang Thuy Nhung once more for her unwavering support and guidance during the creation of this topic I'd like to express my gratitude to the company and my coworkers at Minh Dang Vietnam Construction and Trading Joint Stock Company for their assistance in completing this thesis Thank you very much! 105 REFERENCE MSc Tran Thi Quyen, 2018, Posted in Industry and Trade magazine "Analyzing the financial situation at Song Da Consulting Joint Stock Company" Luong Hong Thai, 2019, "The Financial Situation at Sao Viet Joint Stock Company" Master Thesis in Economics Dr Ngo The Chi (editor) - Associate Professor, PhD Nguyen Trong Co, 2015, "Curriculum on corporate financial analysis" texbook - Finance Publishing House K.R Subramanyam, 2009, “Financial statement analysis” texbook STEPHEN A ROSS, 2011, “Corporate finance” texbook Associate professor of PhD Nguyen Nang Phuc, 2009, “Financial statement analysis” Dr Bui Van Van - Dr Vu Van Ninh (co- editor), 2015, "Business finance textbook" Finance Publishing House Financial statements of Minh Dang Construction and Trading Joint Stock Company in periods 2018 - 2020 Management reports of Minh Dang Construction and Trading Joint Stock Company from 2018 to 2020 10 Overview industry FPTS 2018 – 2020 11 https://www.gso.gov.vn 12 https://www.investopedia.com 106 ... THE PERIOD OF 2018 – 2020 2.1 Overview of Minh Dang Construction and Trading Joint Stock Company 2.1.1 Establishment and development Minh Dang Construction and Trading Joint Stock Company was... Construction and Trading Joint Stock Company" Objective of the study Goal: The study was conducted to evaluate: ? ?Improving financial situations at Minh Dang Construction and Trading Joint Stock Company? ??... review of financial situation statement and - financial statement analysis Analyzing the financial situations of Minh Dang Construction and - Trading Joint Stock Company over the course of years