Suggestions to improve sa giangs financial performance (2010 2015)

TR NG IH CM TP.HCM UNIVERSITÉ LIBRE DE BRUXELLES HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL 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) 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 29th January 2011 in Ho Chi Minh City Tran Nam Hai ii 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 iii Ho Chi Minh City – Vietnam Jan 29, 2011 TUTOR’S COMMENT Title: SUGGESTIONS TO IMPROVE SA GIANG'S FINANCIAL PERFORMANCE (2011-2015) Author: TRẦN NAM HẢI Tutor: Dr TRẦN DUYÊN ĐỊNH 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 years Content The thesis consists of 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 years In the last chapter, the author summarizes the findings from the analysis in Chapter that include financial strengths and financial weaknesses, and thereby recommends a solution package that includes groups of suggestions for improving the company's financial performance in the next 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 TRẦN DUYÊN ÑÒNH iv 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 v TABLE OF CONTENTS INTRODUCTION I Rationale of the Study II Objectives and Questions .2 III Scope of the Study IV Methodology V Organization of the Study .3 CHAPTER ONE: LITERATURE REVIEW ON FINANCIAL ANALYSIS FOR EVALUATING FINANCIAL PERFORMANCE 1.1 The Need for Evaluating Financial Performance 1.2 Financial Statements as Data for Analysis on Financial Performance 1.2.1 Balance Sheet 1.2.2 Income Statement 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 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 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 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? 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 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 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 62 operations; and after all, companies go bankrupt because they cannot pay their bills, not because they are unprofitable Therefore, wise investors will look at both company‟s income statement – to see if that company is profitable or not – and its cash flow statement – to see if that company has a good source of cash to finance its business As we all know, the operating cash flow is considered the most important for the company; therefore, we will start the analysis at this point We will have a group of ratios that is the indicator for the cash flow; or we can call this group the Cash Flow Indicator Ratios This ratio will show us how many dollars of cash we get from every dollar of sales or the ability to turn sales into cash From the Cash flow statements of Sa Giang, we can see that: Items Operating Cash Flow Net Sales Indicator Illustration A B C = A/B 2009 (9,349,310,269) 110,648,840,643 2008 3,921,411,567 109,350,658,346 2007 3,161,866,409 118,916,867,369 -8.4% 3.6% 2.7% From this table, we can see that in 2007 and 2008, Sa Giang could improve its ability in turning sales into cash, from 2.7% to 3.6%; however, in 2009, due to the negative Operating Cash Flow, which could be caused by huge payments to suppliers and other payments, Sa Giang was unable to turn its sales into cash and this could be the reason for Sa Giang to get more debt so that it could pay its bills and finance its daily operations The cash flow statements also show the reduction of both Collections and Payments from other operating activities in 2009 They also indicate the big loss in 2007 and big gain in 2008 from investment into the stock market Next, we will have a closer look at Sa Giang‟s free cash flow (FCF) This is a crucial point because if a company‟s cash flow is not “free,” it will have problem in 63 mobilizing its cash to finance its business Let us recall the way to estimate FCF of a company: Cash Flow from Operations (Operating Cash) - Capital Expenditure = Free Cash Flow One note is that what capital expenditure includes? According to the definition from website www.investopedia.com, capital expenditures are “Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment.” Therefore, from items Cash Flow Investing Activities, we just select lines that involve in physical assets – or we can call fixed assets For Sa Giang situation, we can have data as follow: Item Illustration 2009 2008 2007 OCF A (9,349,310,269) 3,921,411,567 3,161,866,409 Cap Exp B (941,479,595) (1,216,171,980) (6,061,281,670) (10,290,789,864) 2,705,239,587 (2,899,415,261) FCF C=A+B We can see from this table that free cash flows of Sa Giang were not stable year over year, and this is absolutely not a good signal for its investors One notice is that negative free cash flow is not always a bad news because it implies that the company is spending a huge amount of cash on investing in new facilities and this huge amount of spending will make the free cash flow negative From Sa Giang situations, we can see that this is the case of year 2007 The money Sa Giang spent for investing is two times bigger than the cash in flow from operating activities making the free cash flow negative In 2008, Sa Giang generated a positive free cash flow and this is a good signal for company‟s management board as well as its investors However, in 2009, due to the huge amount of negative operating cash out flow together with a large amount spent on investing, Sa Giang‟s free cash flow reached to over minus VND10 billion And this is totally not a good sign 64 Now we will move to another ratio, that is Comprehensive Free Cash Flow Ratio This ratio will answer the question: How many percentages does FCF account for in the net operation cash flow of a company? Just look at the formula below: For Sa Giang situation, we will have percentages as below: Items FCF OCF Percentage Illustration A B 2009 (10,290,789,864) (9,349,310,269) 2008 2,705,239,587 3,921,411,567 2007 (2,899,415,261) 3,161,866,409 -110.07% 68.99% -91.70% C = A/B From the table above, in 2007, due to large investment making FCF negative, we can see that there is a negative percentage for Sa Giang‟s FCF in this year However, in 2008, this is much better because the FCF of Sa Giang accounted for around 69% of its operating cash flow But then, in 2009, Sa Giang‟s business seemed to have problems because the FCF was much smaller than the OFC, making a negative over-100% for the FCF There are dark clouds over heads of Sa Giang‟s management and investors in 2009 Conclusion After this chapter, we have a clearer view about Sa Giang and its business We also apply various methods and tools to analyze Sa Giang‟s financial performance From our analysis, we can draw out some findings and then in the next chapter, we will suggest some ways to improve Sa Giang‟s financial performance and then enhance the value of Sa Giang and its shareholders‟ investment 65 CHAPTER THREE FINDINGS AND SUGGESTIONS TO IMPROVE SA GIANG’S FINANCIAL PERFORMANCE (2010 – 2015) Introduction After a thorough analysis on 3-year financial performance of Sa Giang JSC, it is time for us to have our findings and suggestions In this chapter, we will show our findings about Sa Giang including its strong points and weak points Then, it comes up with some suggestions to improve Sa Giang‟s financial performance in the coming years 3.1 Findings Drawn out From the Analysis of Sa Giang’s Financial Statements Generally, like other companies and organizations, Sa Giang will have its strong points as well as its weak points From our analysis, strong points and weak points of Sa Giang will be shown here in this chapter Let us have a look at the result that we have after analyzing Sa Giang‟s financial statements from 2007 to 2009 No Items 2009 2008 2007 Profit Margin Assets Turnovers Leverage ROE 16.6% 0.98 1.43 23.4% 13.9% 1.27 1.24 21.8% 15.8% 1.42 1.24 27.8% ROA 16.3% 17.6% 22.5% Gross Profit Margin 23.93% 19.96% 21.56% Current Ratio 16.17 8.23 6.26 Quick Ratio 14.03 6.62 4.93 Accounts Receivable Turnover 5.86 6.45 5.79 62 days 8.02 45 days 68% 56 days 7.87 46 days 39% 63 days 18% 9% 18% 10 11 12 13 Average Collection Period Inventory Turnover Inventory Period Plowback Ratio 14 Sustainable growth 59% 66 No Items 2009 2008 2007 15 Internal Growth 15% 7% 14% 16 Sale Growth 1.19% -8.04% 34.39% 17 Cash Flow Indicator -8.4% 3.6% 2.7% 18 Earnings Per Share 3,081 3,017 4,597 First, we will look at the ROE of Sa Giang We can see that ROE in 2008 decreased compared with that of 2007 and then in 2009 it slightly increased but still far too low compared with that of 2007 This could be the effect of the global financial crisis that makes ROE in 2008 decrease However, in 2009, Sa Giang started to overcome this crisis and we can see that in 2009 Sa Giang is rather effective in using money that investors paid in to generate profit However, if we have a closer look at components of this ratio – Profit Margin, Asset Turnover and the Leverage – we will see there are some problems here Profit margin in 2009 is higher than that of 2008, which is a good news, but when we look back at 2007, we can realize that this ratio in 2007 is higher than that of 2008 Once again, we can see that the ratio of Sa Giang in 2008 was worse than that of 2007 but got better in 2009 This showed that the cost management of Sa Giang in 2008 is not so good This may be due to the global crisis But it got better in 2009 The asset turnover of Sa Giang decreased year over year from 2007 to 2009, which reflects that Sa Giang is not so effective in managing its assets to generate its revenue The third component of ROE is the financial leverage, the debt that Sa Giang used in 2009, which is also higher than that of 2008 and 2007 From the table above, we can see that Sa Giang kept the level of leverage at 24% in 2007 and 2008, but it increased using debt in 2009, up to 43% This implies that Sa Giang will have to pay more interest for its debts So, for ROE, two of its three components are in negative directions – using more debt and ineffective management of assets to generate sales – the only component 67 that is in positive position is the profit margin, showing that Sa Giang is rather good in controlling its cost in 2009 Then we move to ROA Because Sa Giang is not so effective in controlling its assets, as reflected above in the Sa Giang‟s asset turnover, it will take Sa Giang more assets to generate its annual revenue This is the reason for the decrease of ROA in 2009 compared with that of 2008 and 2007 This could be the consequence caused by the global financial crisis The gross profit margin in 2009 is higher than that of 2008, which is a good indicator for investors because it shows that Sa Giang can control its cost of goods sold better and can generate more sales at the same time However, when comparing gross profit margin of 2008 with that of 2007, we can see that 2008 ratio is a little bit lower than that of 2007 This shows that control of cost of goods sold of Sa Giang fluctuates year over year In terms of liquidity ratio, it shows that Sa Giang is rather good in its ability to pay the short term liabilities because its current assets can cover totally its current liabilities In terms of efficiency ratio, we can easily see that the account receivable turnover of Sa Giang in 2009 is worse than that of 2008 because this ratio in 2009 is lower than that of 2008, indicating that the company is not so effective in “turning” its account receivables This is the reason why Sa Giang will take more time to collect its account receivable, from 56 days in 2008 up to 62 days in 2009 We can see that the account receivable turnover of Sa Giang in 2008, when the financial crisis was happening, was the best within years However, this is not always a good signal because when we look back at the Balance Sheets and Income Statements of Sa Giang, we can see that the sales and the account receivables in 2008 were the lowest ones This partly explains the improvement of Account Receivable Turnover in 2008 68 The inventory turnover of Sa Giang is better in 2009 This means that Sa Giang can force its inventory to “run” faster and it can also turn its inventory over a little bit faster, from 46 days in 2008 down to 45 days in 2009 In terms of growth, in 2009, the plowback ratio of Sa Giang is higher than that of 2007 and much higher than that of 2008, indicating that the company may need more money to invest in the coming projects We also notice that the sustainable growth in 2008 was the worst one, just 9% while that of 2007 and 2009 was 18% This could be due to the effect of the global financial crisis that made the exporting activities of Sa Giang decrease We can see from the table above that in 2009, the sustainable growth rate of Sa Giang is higher than its internal growth rate and much higher than its sales growth The same story happened to 2008 but not in 2007, when the sales growth is much higher than sustainable growth This implicates that Sa Giang was experiencing a too fast growth with the problem of lacking of cash to finance its growth and then in 2008 and 2009, Sa Giang experienced a too slow growth with the problem of redundant cash without good projects to invest in So, what happened with this redundant cash? From our analysis in the previous chapter, we can see that, in 2009 there was a large amount of cash went into the item „cash payment to suppliers.‟ This shows that the relationship between Sa Giang JSC and its suppliers is not so good In terms of cash flow, there is a big problem with Sa Giang‟s cash flow in 2009 when the net operating cash flow of Sa Giang got a huge negative amount because of the significant cash out flow that it has to pay its suppliers This will be a bad sign for Sa Giang‟s management board as well as its investors One more notice after our analysis of Sa Giang‟s cash flow statements is that Sa Giang got a loss from investing in stock market in 2007 and then, in 2008, it got a huge earning from short-term investment, up to VND9 billion However, in 2009, the profit from investment has been minimized significantly This could be due to the chaos of Vietnam stock market 69 In terms of EPS, we can see that 2007 is a good year of Sa Giang, its EPS in 2007 was nearly VND4.6 thousand It then dropped down to around VND3.0 thousand in 2008 and 2009 We can assume that these two years were not so good for Sa Giang; however, when we have a closer look on the calculation how to come up to these numbers, then, we will see that: Items Net income Number of Shares EPS Illustration A B C = A/B 2009 18,351,613,889 5,956,402 2008 15,151,945,231 5,956,402 2007 18,794,044,326 4,088,700 3,080.99 2,543.81 4,596.58 Somebody will wonder why there is difference between our recalculation and the result posted by the auditor Remember that Sa Giang had increased its number of outstanding shares in 2008 and therefore, in order to calculate the EPS properly, we should take the average number of outstanding shares Then the average share number in 2008 will be: Average outstanding share = (5,956,402 + 4,088,700)/2 = 5,022,551 Then, the EPS of 2008 will be: 2008 EPS = 15,151,945,231/5,022,551 = 3,016.78 Therefore, the EPS stated by in the financial statements is reasonable And we know that this is not absolutely because the company‟s business is not good but partly because it increased the number of outstanding shares 3.2 Suggestions to Improve Sa Giang’s Financial Performance (2010 – 2015) After having analyzed and drawn some findings out of the analyzing, there should be some suggestions for Sa Giang JSC to overcome its weak points as well as to improve its financial performance in the coming years (from 2010 to 2015) 3.2.1 Suggestions to Improve Asset Management to Enhance Asset Turnover First of all, the asset turnover of the company should be improved Let us recall the formula of this ratio as below: 70 In order to improve this ratio, there are two ways that Sa Giang should apply - Sa Giang should increase its annual sales by taking advantages of all the available resources to push up its production and increase the quality of its products Then it should enhance the exporting activities to sell its products to other countries and spend more time to explore other potential markets - Sa Giang should use its assets more effectively It can this by implementing a better method to manage its assets Try to avoid the redundancy of available assets At the moment, it is taking Sa Giang more assets to generate inadequately sales Therefore, Sa Giang should pay more attention to this point 3.2.2 Suggestions to Better Utilize Financial Leverage All companies will need debts to finance its business operation and Sa Giang is not an exception However, when taking more debts, we should always bear in mind that we will have to pay more interest for the loan we get If our business goes well and the profit we get is good enough to pay for the interest and we can still have profit in our pocket, it is alright to have more debts in this case But for Sa Giang, getting more bank loan should be the last action to take because as a listed joint stock company, it can always generate more capital to finance its business by its internal funding (retained earnings) or by borrowing from company‟s shareholders and investors if its business is alright and it can show a bright future for its business This kind of borrowing will be more economical because it will be less expensive for the company The company‟s profit margin is going well and if these two ratios are considered and improved, ROA and ROE of Sa Giang will be enhanced and Sa Giang itself will become more attractive in its investors‟ eyes 3.2.3 Suggestions to Control Customers’ Debts Making Faster Accounts Receivable Turnover In 2009, the accounts receivable turnover ratio of Sa Giang is worse than that of 2008; therefore, Sa Giang should pay more attentions to this area Let us recall the formula of this ratio as below: 71 In order to improve this ratio, Sa Giang can either improve its Sales as we have mentioned above or it can set a better control on its Account Receivables For improving Account Receivables, Sa Giang can have following ways: - Invoice promptly Many companies have billing routine, let‟s say, at the end of each month or at the end of each quarter This is not a good habit because this way will leave money that could be sitting in their bank accounts improving their cash flow in their clients‟ pockets Therefore, instead of waiting to invoice, Sa Giang should bill its customers right away when the job is completed Or Sa Giang can bill its customers more regularly, for example, instead of billing once a month, now Sa Giang can bill its customers twice a month to get some of its money coming in sooner and the account receivable will reduce by then - Ask for partial payment up front Instead of waiting for the full amount of money to be received, Sa Giang could ask its customers to pay a certain percentage amount of the whole bill before delivering its products to its customers For example, Sa Giang may ask its clients to pay 40% of the total value of the bill before shipping This will reduce the account receivable by exactly 40% - Give a reward on quick payment Sa Giang can encourage its clients to pay sooner by giving them incentives For example, Sa Giang can give a 3% discount to its clients if they pay within two weeks This method will make clients pay sooner because they also get profit when doing that and will reduce the account receivables for Sa Giang - Go after receivables Sa Giang may review its receivables and then identify clients that are late for payment Then it could remind these clients to pay the bill by making a phone call or sending them a letter or email for requesting payments 72 Once the account receivables are minimized, surely the accounts receivable turnover will be improved by then 3.2.4 Suggestions to Improve Supplier Relationships for More Free Cash Flow Besides improving the account receivables – the relationship between Sa Giang and its customers – it is necessary for Sa Giang to improve the relationship with its suppliers as well From the cash flow statement of Sa Giang in 2009, we can see the item „cash payment to suppliers‟, which increased dramatically in 2009 This shows that Sa Giang‟s relationship with its suppliers is not so good If Sa Giang can improve this kind of relationship, instead of paying cash immediately in advance to its suppliers, Sa Giang can still owe money to its suppliers for a short time in terms of interest-free loan And the cash flow of Sa Giang will be improved 3.2.5 Suggestions to Balance the Growth Rate for More Sales, Investments and Dividends That Enhance Stock Price In terms of growth, we can see that the sustainable growth of Sa Giang in 2009 is much higher than its internal growth and sales growth This implicates that Sa Giang is experiencing a too slow growth with redundancy of cash without good projects to invest in In order to control its growth, Sa Giang could carry out the following methods - Instead of using money to pay suppliers and let the company‟s cash flow worse day by day, Sa Giang could improve its relationships with suppliers to improve its free cash flow - Together with enhancing the relationship with suppliers, Sa Giang should set a better control on its account receivables in order to minimize its cash to be used by others Then, with this redundant cash, Sa Giang could: - Pay more dividends to its shareholders By this way, Sa Giang‟s stocks will be more attractive for investors seeking for high dividend securities Then, the price of Sa Giang‟s stock will increase at some extends 73 - Pay more attention to R&D activities so that Sa Giang could create new products that are suitable for other groups of consumers like vegetarian, diabetic patients, obese people and etc - Explore new markets to increase its exporting activities and then push up its annual revenue to keep up with its sustainable growth Recently, African is emerging to be a very potential market, and this could be the next target for Sa Giang to penetrate Japan and China are also potential market for Sa Giang because these nations share the Asian taste with Vietnam, which will be an advantage for Sa Giang compared with other competitors from Europe - Invest in other business to create more value to its shareholders This is also an effective way to increase Sa Giang‟s stock price Conclusion After this chapter, we hope that our findings about Sa Giang and our suggestions will help Sa Giang to get better in the coming time In a nutshell, maintaining and developing strengths and overcoming weakness are keys to improve Sa Giang‟s financial performance in the years to come 74 CONCLUSION In general, financial analysis to evaluate financial performance of a company is a “must” because it will strongly affect the benefit of both the company to be analyzed and people investing or having intention to invest into that company This is true to any country especially in Vietnam, where stock market has not matured and the number of companies to be established and listed has become larger and larger This study, hopefully, aims to bring the most basic knowledge about financial analysis based on the available sources of information to the financial statement users Once mastering how to apply this knowledge into their own business and understand the meaning of numbers, then financial statement users can take more advanced analysis based on this foundation and they can be more confident when making investment decisions and doing changes to their own business The illustration for the analysis in this study is a joint stock company named Sa Giang, whose main activities are manufacturing and exporting products from meat, fish, rice… to other countries After the analysis, as any other companies, we can see that Sa Giang has its strong points and weak points Strong points of Sa Giang include efficient cost management reflected in its profit margin and gross profit margin; and good liquidity showed in its current ratio and quick ratio which indicate the ability to use its current assets to cover its current liabilities Beside its strong points, Sa Giang also has some weak points needed to be improved They are: - Inefficient asset management shown in its asset turnover - Using more debt to finance its operation - Poor relationship with supplier reflected in its huge prepayment to them - Problem in managing its receivables which took Sa Giang quite a long time to collect money from its customer after delivering goods 75 - Problem in managing growth reflected in the gap between Sa Giang‟s sustainable growth and its sales growth After analyzing the financial performance of Sa Giang and recognizing its strong points and weak points, this study also gives out some suggestions to improve Sa Giang financial performance They fall into five groups: - Suggestions to improve Asset Management to enhance Asset Turnovers - Suggestions to better utilizing Financial Leverage - Suggestions to control customers‟ debts making faster Accounts Receivable Turnover - Suggestions to improve supplier relationships for more Free Cash Flow - Suggestions to balance the growth rate for more sales, investments and dividends that enhance stock price Of course Sa Giang should maintain and enhance its strong points and hopefully, these suggestions could contribute to the development of Sa Giang and create more value for its shareholders 76 REFERENCES Vietnamese: Nguyen Tan Binh (2003), Phan Tich Hoat Dong Doanh Nghiep, Publish House of Vietnam National University English: George T Friedlob and Lydia L.F Schleifer (2003), Essentials of Financial Analysis, John Wiley & Sons, Inc Jonathan Berk and Peter DeMarzo (2007), Corporate Finance, Pearson International Edition Richard A Brealay, Stewart C Myers and Alan J Marcus (2001), Fundamentals of Corporate Finance - Third Edition, McGraw-Hill Robert C Higgins (2007), Analysis for Financial Management – Eighth Edition, McGraw-Hill Websites: http://www.investopedia.com/ http://sagiang.com.vn/ ... AND SUGGESTIONS TO IMPROVE SA GIANG‟S FINANCIAL PERFORMANCE (2010 – 2015) 65 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... husband to the busy study and work iii Ho Chi Minh City – Vietnam Jan 29, 2011 TUTOR’S COMMENT Title: SUGGESTIONS TO IMPROVE SA GIANG'S FINANCIAL PERFORMANCE (201 1-2 015) Author: TRẦN NAM HẢI Tutor: