Organizational structure
The board of directors holds the authority to elect or hire the general director and vice directors of the company Additionally, they are responsible for establishing the company's current and future strategies while overseeing financial management.
A director holds the responsibility for overseeing company activities and driving development, with the authority to modify the team structure beneath the vice directors They make informed decisions based on reports from vice directors, can implement layoffs across all departments, and bear legal responsibility for company decisions, including signing contracts.
The Vice General Director oversees the business department, project management department, administrative organization office, planning-engineering department, and financial-accounting department They are responsible for evaluating new ideas from staff and presenting them to the director, as well as analyzing contracts to ensure effective decision-making.
- Business department: conducting market analysis, building business networks, negotiating and sending the contracts to vice general directors.
- Project management department: organizing construction activities, consulting on issues related to the project’s processing management At the same time, searching and finding the most effective plans to develop projects.
The Engineering Department plays a crucial role in planning by providing guidance on production and business plan progress, ensuring alignment with the company's development objectives It oversees investment planning and construction activities as per regulations, while also managing the organization of vehicles, tools, and personnel involved in construction projects.
- Financial-accounting department: advising and assisting in the fields of finance and accounting; capital and asset management; internal inspection and control; cost management and economic performance analysis.
The Office of Administrative Organization is responsible for the systematic organization and training of personnel, overseeing all company activities It focuses on planning, arranging, and methodically training staff to align with the specific tasks required at each stage of operations.
2.1.4 Business orientation of SONG MINH Development Investment
Aiming to establish itself as a leading company in construction, technical infrastructure, and transportation, the firm is committed to delivering high-quality and effective products The COVID-19 pandemic significantly slowed progress on the "Nam Cum 4" project; however, the company is focused on accelerating the completion of this and three other ongoing projects Once finished, the company plans to expand its involvement in additional projects and residential construction.
The company owner is focusing on diversifying into new industries, with plans to produce tea and engage in environmental treatment and agricultural land improvement using Japanese BiO technology A key initiative involves distributing Japanese iron paint in Vietnam, for which the staff has conducted extensive research comparing it to local products Further testing under harsh conditions is necessary before samples can be delivered to local shops for feedback and to identify potential retailers Transportation logistics will depend on the construction site of Song Minh, and the company’s website is currently under development The product launch is scheduled for 2028.
On the other hands the company also have a big side project is the
"SongMinh tea" is a premium Vietnamese specialty known as "Shan Tuyết" tea, characterized by its large gray-white buds and a delicate layer of fine white fluff covering the leaves, earning it the nickname "snow tea."
Shan Tuyết tea is a soothing, aromatic beverage characterized by its yellow hue and honey-like consistency This tea is crafted using traditional methods by the Tay, H'mong, and Dao ethnic groups SongMinh tea offers a diverse range of products, including Dragon-tail tea and Bach tra, showcasing the rich heritage of tea processing.
Finishing the large unfinished projects
Song Minh Tea Construction on housing and others big infrastructure projects.
Japanese iron paint in Vietnam
Source: Song Minh profile’ documents
Business orientation of SONG MINH
Investment Join Stock Company in the period of 2018-2020
The world’s economy according to the United Nation (2018, 2019, 2020): In
In 2018, over half of the world's economies experienced accelerated growth, with developed nations achieving a steady rate of 2.2% Many of these countries approached their potential growth levels, resulting in significantly low unemployment rates Meanwhile, East and South Asia maintained strong growth, with increases of 5.8% and 5.6%, respectively Additionally, commodity-exporting countries, especially those exporting gasoline, showed signs of gradual improvement.
In 2018, global economic growth held steady at 3.1%, driven by fiscal measures in the United States, which counterbalanced slower growth in other major economies, despite ongoing vulnerabilities to price volatility.
Global economic activity is projected to grow at a solid rate of 3% in 2019; however, signs indicate that this growth may have peaked Since early 2018, there has been a noticeable slowdown in global industrial output and merchandise trade, especially in the capital and intermediate goods sectors Leading indicators suggest that many economies may face a slowdown in 2019 due to escalating trade conflicts, financial volatility, and geopolitical concerns Additionally, several developed economies are reaching capacity limits, which could hinder short-term growth.
In 2019, the global economy experienced its slowest growth since the financial crisis, with a coordinated downturn affecting nearly all major economies Growth rates declined across all regions except for Africa, with around two-thirds of countries anticipated to report lower GDP growth compared to previous years.
In 2019, GDP growth slowed across both developed and developing regions, primarily due to decreasing trade activity and subdued domestic investment This decline in economic performance coincided with a drop in world industrial production and a significant fall in the Global Manufacturing Purchasing Managers' Index, reaching its lowest point since 2012 Despite this, private consumption remained relatively stable in many countries, supported by tight labor markets and low inflation However, signs of declining household spending emerged in several economies, indicating a growing pessimism among consumers.
In 2020, the world's gross GDP is expected to fall by 4.3 percent, the greatest drop since the Great Depression During the Great Recession of 2009,
In 2020, global output experienced a decline of 1.7 percent, significantly impacting developed economies due to stringent lockdown measures implemented by various governments in Europe and parts of the United States It is projected that output in these developed nations will decrease by 5.6 percent, but a recovery is anticipated in 2021, with growth expected to reach 4.0 percent.
Vietnam’s economy according to General Statistics (2018, 2019, 2020):
In the fourth quarter of 2018, the gross domestic product (GDP) surged by 7.31%, reflecting a 3.90% increase year-on-year, driven by significant growth in the agricultural, forestry, fishing, construction, and industrial sectors, which rose by 8.65% The service sector also saw a notable increase of 7.61% Although this growth was lower than in 2017, it surpassed the performance recorded between 2011 and 2016 Additionally, final consumption grew by 7.51%, gross capital formation rose by 9.06%, and exports of goods and services increased by 10.69%, while imports expanded by 9.5%.
In 2018, GDP growth soared to 7.08%, marking the highest rate since 2008, driven by effective government solutions and decisive actions across all levels of authority The agricultural, forestry, and fishing sectors contributed 3.76% to the overall growth rate, accounting for 8.7%, while the industrial and construction sectors experienced an impressive growth of 8.85%, representing 48.6% of the total Additionally, the service sector played a significant role, contributing 42.7% to the overall economic growth.
In 2018, the economy's current-price size reached 5,535.3 trillion VND, with a GDP per capita estimated at 58.5 million VND (approximately 2,587 USD), marking an increase of 198 USD from 2017 The agricultural, forestry, and fishing sectors accounted for 14.57% of the GDP within the economic structure of that year.
In the economic structure, the industry and construction sector accounted for 34.28%, while the service sector represented 41.17% Additionally, the product tax, excluding production subsidies, was recorded at 9.98% Comparatively, the previous figures were 15.34% for industry and construction, 33.40% for services, and 10% for product tax.
In 2019, Vietnam's socio-economic landscape was impacted by a slowing global economy, exacerbated by trade conflicts between the United States and China and various geopolitical challenges These factors heightened insecurity in the global trading system, undermining business confidence and investment decisions Additionally, fluctuations in international financial markets and oil prices affected credit growth and market sentiment Despite achieving positive outcomes, Vietnam encountered significant difficulties and challenges within its macroeconomic framework.
In 2018, adverse weather conditions significantly affected productivity and crop yields, while the cattle industry struggled due to the widespread impact of African swine fever across all 63 provinces and cities under the Central Government This situation contributed to a slowdown in the growth of several key export products.
In 2019, GDP experienced a notable increase of 7.02%, surpassing the National Assembly's target of 6.6% to 6.8% The growth rate for the third quarter reached 7.48%, while the fourth quarter saw a rate of 6.97% Although this growth was higher than the period from 2011 to 2017, it was slightly lower than the 2018 figure of 7.08% The agricultural, forestry, and fishery sectors grew by 4.6%, with an expansion of 2.01%, while the industrial and construction sectors contributed 8.90% to overall growth, accounting for 50.4% of the total The service sector also saw an increase of 7.3%, representing 45% of the overall growth.
In 2020, GDP rose by 2.91 percent (in the first quarter, by 3.68 percent; in the second quarter, by 0.39 percent; in the third quarter, by 2.69 percent; and in
In the fourth quarter of 2020, Vietnam experienced a growth rate of 4.48%, marking the lowest growth during the period from 2011 to 2020 Despite the challenges posed by the Covid-19 crisis, this achievement highlights Vietnam's resilience, as its development rate was among the highest globally that year The success can be attributed to effective government guidance and administration aimed at healing the economy while managing the pandemic, along with the collective efforts of the political system, the government, and the business community Notably, agriculture, forestry, and fishery contributed 13.5% to the overall growth, with an increase of 2.68%, while the industry-construction sector, accounting for 53% of the economy, grew by 3.98%, and the service sector, representing 33.5%, saw a rise of 2.34%.
In 2018, the construction industry experienced robust growth, with an 8.79% increase in the industries and buildings sector, contributing 2.85 percentage points to the overall economic growth The manufacturing sector emerged as a key growth driver, achieving a 12.98% growth rate, although this was slightly lower than the previous year's increase Notably, building operations also showcased strong performance with a 9.16% growth rate, accounting for 0.65% of the total economic value added.
Assets, Liabilities and Owners' Equity structure of Song Minh
Over the three-year period from 2018 to 2020, the company has not reported any long-term assets on its balance sheet This absence is primarily due to the company's small capital size and its recent establishment, as it was launched to manage existing projects owned by the founder By leveraging these projects and the owner's extensive network, the company effectively relies on current assets, eliminating concerns about depreciation Additionally, the owner's evolving mindset and the diverse industries in which the company can operate further clarify the lack of investment in long-term assets.
Assets structure remained stable with 100% of the total asset is current assets and experienced a slight changes and Capital structure over the time:
- The current assets declined 6.68% in 2019 from 11,773,087,591 to 10,986,718,921 After that in 2020, the company witnessed a significant rise in current assets up to 21.96%, which was 13,399,207,284.
In 2019, the company's equity grew at a faster rate than its liabilities, resulting in equity surpassing liabilities Liabilities decreased from 16.1% in 2018 to 9.6% in 2019, primarily due to a reduction in short-term advances from customers This decline in liabilities was further influenced by a significant increase in short-term trade payables, statutory obligations, and other short-term payables, leading to a rise in liabilities in 2020 Consequently, the company resorted to short-term loans and debts, causing liabilities to increase to 22.8% of total equity by the end of that year.
The rise in liabilities indicates the company's growing capital requirements Although the liabilities themselves are not excessively high, they highlight the challenges faced when undertaking larger projects.
Source: Song Minh balance sheet
Current assets structure of Song Minh
The current asset structure of Song Minh exhibits significant fluctuations, and notably, the company lacks short-term financial assets and inventories, which is attributed to its focus on construction services.
- Cash in 2018 was very big, it occurred 83.4% of total current asset.
The company's limited operational history of just a few months necessitated immediate cash flow to ensure smooth operations, highlighting its liquidity challenges In response, Song Minh adjusted its current asset structure, resulting in a decrease in cash holdings, which accounted for only 23.3% in 2019 and further declined to 20.7% in 2020.
In 2018, short-term accounts receivable constituted only 16.6% of current assets due to a substantial cash surplus However, significant changes in 2019 and 2020 resulted in a dramatic increase, with short-term accounts receivable rising to 76.1%.
The transition from cash to other short-term receivables indicates that the company is undergoing equitization, a strategy that may not be ideal given its insufficient capital, as evidenced by short-term loans and debts in 2020 Although the company remains fully owned by its original owner, this move could prove beneficial once it demonstrates operational efficiency, allowing for the potential attraction of additional capital From the owner's perspective, these receivables, while not cash, enable the reallocation of funds to other investments, preserving the company's perceived value to investors despite unfinished projects and underlying assets.
2.2.2.3 Liabilities and equity structure analysis
Source: Song Minh’s balance sheet
Liabilities and Owners’ Equity structure of Song Minh structure of
Song Minh's company has no long-term liabilities, as it anticipates completing several projects within a year, generating sufficient profits to easily cover its debts This strategic decision aims to prevent any long-term effects on future cash flow.
Owner's equity experienced fluctuations over three years, hitting a low of 77.2% in 2020 Despite this decline, the share capital of total owner's equity peaked in 2020 at 10,350,334,907, representing only 77.2% of the total equity.
In 2020, current liabilities represented 22.8% of total equity, reflecting a significant increase of 1.88 times from 2019, rising from 1,060,108,325 to 3,048,872,377 This surge was primarily driven by the emergence of short-term loans and debts, stemming from cash flow challenges faced by the company amid numerous large projects Notably, in 2018, the proportion of current liabilities peaked at over 20%, largely due to short-term advances received from customers.
At the end of 2020, Song Minh's owner's equity increased by only 4.27% compared to 2019 and 4.73% compared to 2018, indicating a modest growth in their funds over the past two years This increase in owner's equity was primarily due to undistributed earnings rather than an infusion of new capital, as the company does not possess any common or preferred stock.
1 Revenue from sale of goods and services
3 Net revenue from sale of goods and services
4 Cost of goods sold and services rendered
5 Gross profit from sale of goods and rendering of services
In 2019, the company's revenue from the sale of goods and services reached an impressive 4,927,691,500, marking a substantial increase of 484.85% compared to 2018, primarily driven by the successful completion of a major project.
In 2020, the Ministry of Domestic Affairs experienced a decline in revenue from the sale of goods and services, dropping by 18.57% compared to 2019 Over the three-year period from 2018 to 2020, all revenue generated was solely from services, with no income derived from goods sales.
44 revenue deductible in three years so Net revenue from sale of goods and services depend on Revenue from sale of goods and services.
Over the past three years, the Cost of Goods Sold (COGS) and services rendered by ThanhHung Investment and Construction Joint Stock Company remained relatively low, particularly in 2018, when the company did not initiate any significant projects This lack of large-scale undertakings contributed to the reduced COGS, highlighting a period of minimal operational expenditure.
In 2019, ThanhHung Investment and Construction Joint Stock Company launched a project that significantly influenced its cost of goods sold and services rendered, resulting in an impressive increase of 472.20%.
In 2020, the company's performance experienced a slight decline of 17.75% due to the impacts of Covid-19 Notably, the growth rates for both costs and revenues were closely aligned, with costs increasing by 472.20% and revenues rising by 484.85%.
In 2020, the company experienced a cost of 17.75% and revenue of 18.57%, indicating a challenging pricing negotiation The cost as a percentage of revenue was notably high, with 92.17% in 2018, slightly decreasing to 90.18% in 2019, but rising again to 91.09% in 2020.
Despite an increase in both revenue and costs, the gross profit from the sale of goods and services remains relatively low In 2018, gross profit was 65,947,546, accounting for just 8.49% of the cost of goods sold and services rendered Although there was a significant increase of 633.89% in 2019, this only raised the proportion to 10.89% In 2020, gross profit declined by 26.16%, further reducing its share to 9.78% of the cost of goods sold and services rendered These figures highlight a concerning trend of low interest rates and inefficiencies in investment.
Song minh Development Investment Join Stock Company have a very small finance income because the source off this was coming from interest in
In 2020, the company reported a significant increase in finance income, rising by 75.80% from the previous year, despite a 25.74% decrease in 2019 The total finance income for 2020 amounted to 21,667 The company primarily utilizes its banking deposits for the secure storage and management of cash.
General and administrative expenses are a key indicator of a company's operational efficiency In 2018, these expenses totaled $176,707,280, and in 2019, they surged by 148.77%, largely due to the company's investment in larger projects.
2020, the figure run low, it declined by 36.75% compared to 2019.
The company's operating profit has faced significant challenges due to high costs of goods sold and elevated general and administrative expenses In its inaugural year, 2018, the company reported a substantial loss of 110,743,136 Although the operating profit turned positive in 2019, it represented merely 1.00% of the cost of goods sold and services rendered The situation improved in 2020, with a notable 75.80% increase in operating profit, yet it still constituted only 2.13% of the costs Additionally, the net profit after tax mirrored the operating profit trends, but in 2020, the company incurred other expenses of 4,309,364 due to transportation penalties, resulting in a 66.07% increase in net profit compared to 2019.
Table 2.3 Cash flow statement (unit: VND)
I Cash flows from operating activities
2 Cash paid to people providing goods and services
Net cash flows from operating activities
II cash flows from investing activities
III cash flow from financing activities
Net cash flow from financing activities
Net increase in cash and cash equivalents for the period
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
In the cash flow from operating activities, profit before tax rose significantly from 2,015,219,850 in 2018 to a notable increase of 49.05% in 2019 However, in 2020, this figure experienced a sharp decline of 33.41% compared to 2019, marking it as the lowest profit recorded over the three-year period.
The profit before tax was low, meanwhile Cash paid to people providing goods and services were very over three years, specially in 2020 The number for
Short term solvency ratios
Over the past three years, the company's current ratio has consistently remained above 1, indicating financial stability Notably, in 2019, the current ratio surged by 66%, rising from 6.22 in 2018 to 10.36 However, in 2020, the ratio fell to 4.39, marking a 58% decrease from the previous year This fluctuation can be attributed to a substantial amount of current assets relative to current liabilities, despite a slower growth rate of current assets compared to current debts In 2020, the company maintained 4.39 current assets for every current liability, demonstrating adequate security for its debts, although it indicates an over-investment in current assets, which is ultimately a positive sign for the company's financial health.
2 Construction industry: https://www.stockbiz.vn/Industries.aspx?Code#50&view=1
A quick ratio of 50 indicates that the company has a strong ability to cover its current debts, significantly reducing business risk With no inventory on hand, the quick ratio aligns with the current ratio, reflecting the company's consistent solvency over the years The absence of inventory means that the company can quickly access cash to meet immediate payment obligations, further enhancing its financial stability.
The firm's current and quick ratios are notably high due to the absence of long-term assets, resulting in a disproportionate ratio when short-term assets are compared to short-term liabilities An analysis of industry benchmarks reveals that the ratios for 2018, 2019, and 2020 were significantly elevated This indicates that Song Minh is not utilizing its current assets efficiently, which places the company's financial health at risk The lack of long-term assets means the company relies on renting essential resources, including office space and construction tools, further exacerbating its financial challenges.
While the current and quick ratios provide some insight, they do not fully capture the company's payment capacity To gain a more accurate understanding, it is essential to analyze additional financial indicators, such as the cash ratio.
Between 2018 and 2020, the company experienced a significant decline in its cash ratio, dropping from 5.19 in 2018 to just 0.9 by 2020 This sharp decrease, particularly the halving of the cash ratio to 2.41 in 2019, indicates serious financial difficulties as the company attempted to complete multiple ongoing projects, resulting in increased financial loans The situation highlights the challenges of equitization and suggests that pursuing numerous projects during a time of financial strain was a misguided decision.
2.2.5.2 Long-term solvency or financial leverage ratios
Table 2.5: Long-term solvency ratios
Source: Song Minh’s financial statements and Stocbiz
Source: Song Minh’s financial statements and Stocbiz
Long term solvency ratios
The company primarily relies on owner’s equity, with current liabilities making up the remainder, resulting in no interest expenses and the absence of Times Interest Earned and Cash Coverage Ratios Between 2018 and 2020, the total debt ratio remained relatively low, starting at 0.16 in 2018, indicating that 16% of the company's assets were financed through debt This figure decreased to 0.096 in 2019, showing only 9.6% of assets financed by debt However, in 2020, the total debt ratio rose significantly to 0.23, marking the highest level during this period.
In 2020, the company financed only 23% of its total assets through debt, indicating a lack of capital exacerbated by significant project investments and the impact of COVID-19 Despite this, the company's total debt was comparatively low against industry standards, highlighting a missed opportunity to leverage financial debt for enhanced profitability This situation raises concerns about the company's financial strategy and its ability to capitalize on available resources.
In 2018, the debt-equity ratio of the company was 0,19 The figure for
In 2019, the company's debt-equity ratio declined to 0.11, a 44% decrease compared to 2018 However, in 2020, it rebounded significantly to 0.29, marking a 176% increase from the previous year Historically, the company's debt-equity ratio remained below 1, indicating a reliance on equity rather than debt for financing assets This approach minimized debt dependency; however, during the equitization process in 2019, the company faced cash flow challenges, leading to an increased reliance on debt in 2020 The financial autonomy and ability to manage debt effectively that were present in 2018 diminished as the company navigated its equitization phase.
The equity multiplier has shown an upward trend over time, with a slight decline from 1.19 in 2018 to 1.11 in 2019, followed by a significant increase to 1.29 in 2020 Despite remaining above 1 for three consecutive years, the multiplier indicates a relatively low leverage ratio, which reduces the risk of default on debts and provides the company with greater financial flexibility This low leverage also allows for the potential to take on additional debt if necessary However, challenges persist, including the higher cost of equity compared to debt and a lack of sufficient capital to meet requirements.
Source: Song Minh’s financial statements and Stocbiz
Asset utilization ratios
The company does not have inventory so the inventory turnover cannot be calculated
In 2018, the company's asset turnover was just 0.071 VND per VND of assets, but it surged to 0.44 VND in 2019, reflecting a more than fivefold increase However, in 2020, this figure declined to 0.29 VND, indicating inefficient asset management Additionally, the company's receivable turnover was notably low, typical for a construction firm, with a turnover rate of only 0.43 in 2018 and an average collection period of 848 days These figures highlight the challenges the relatively new company faces in effectively managing its assets and receivables.
54 turnover slightly increased to 0.59, the average collection period was 620 days.
In 2020, the company experienced a significant decline in its receivable turnover, dropping to 0.37, the lowest recorded figure, with an average collection period extending to an excessive 964 days This prolonged collection period indicates that the company is engaging in lengthy credit sales, which may imply that credit is being extended to customers with poor creditworthiness and that collection efforts are proving ineffective.
Source: Song Minh’s financial statements and Stocbiz
Profitability ratios
In 2018, the company experienced its lowest net profit margin in three years, registering at -13.14%, indicating a loss from sales However, in 2019, the profit margin significantly rebounded to 0.9%, and by 2020, it surged to approximately 1.94%, reflecting a 1.16 times increase from the previous year Despite these improvements, the construction industry faced a challenging environment, with its net profit margins falling below the company's lowest point Song Minh was not immune to these industry struggles; its relatively high profit margin was largely attributed to short-term debts, as noted in the cash flow statement Furthermore, the company’s smaller size within the industry made its losses less pronounced, especially considering that several projects had already been signed by both parties.
The graph reveals a gradual increase in Song Minh's return on assets (ROA) over three years, starting from a low of -0.94% in 2018, which marked the lowest point in that period In 2019, the ROA improved to 0.40%, and further increased to 0.55% in 2020; however, these figures remain significantly below the industry average of 3.91% This trend indicates that Song Minh has been inefficient in utilizing its assets to generate sales and profits, ultimately reflecting a concerning operational performance compared to its competitors.
Song Minh's Return on Equity (ROE) has historically been low, closely mirroring the company's Return on Assets (ROA) due to minimal liabilities In 2018, the ROE was negative at -1.12%, indicating that the owner's investments yielded a loss However, there was a positive shift in 2019, with ROE rising to 0.45%, and further increasing to 0.71% in 2020, demonstrating consistent improvement Despite this progress, Song Minh's ROE remains significantly below the industry average, which exceeds 14%, highlighting the company's need for enhanced performance to compete effectively in its sector.
Ineffective capital utilization can make a company appear unattractive to potential investors, especially when it seeks funding This situation serves as a negative signal to investors, owners, and the company itself, potentially hindering growth opportunities.
Source: Song Minh’s financial statements
The DuPont analysis of Song Minh for 2020 reveals key financial activities impacting its Return on Equity (ROE) The company experienced a weak ROE of -1.12% in 2018, but showed improvement with an increase to 0.45% in 2019 and further to 0.71% in 2020 This trend suggests that Song Minh is gradually utilizing owner-provided equity more effectively, particularly in 2020 Despite having a consistent equity multiplier due to a single owner, the profit margin has steadily increased, reaching its highest point in 2020, contributing to the gradual rise in ROE.
Song Minh is facing challenges with its return on equity compared to industry standards, indicating a decline in its competitive position against rivals This issue may stem from decreasing sales and the company's relatively recent entry into the industry.
In conclusion, the company is actively working to enhance its Return on Equity (ROE) by focusing on three key factors: equity multiplier, profit margin, and total asset turnover Over the past three years, both the equity multiplier and profit margin have shown significant growth, contributing positively to the overall ROE.
57 period (2018-2020) showing the intension of the company, however the total asset turnover increased significantly in 2019 but decreased in 2020.
The assets turnover in 2020 declined 33% compared to 2019, the assets of the company had not been used properly in 2020 The company faced the struggle on managing the assets.
In 2019, the profit margin saw a remarkable recovery, rising from a low of -13.14% to 0.90% This upward trend continued into 2020, with the profit margin increasing by 1.16 times compared to 2019, reaching approximately 1.94% This indicates a positive shift in net revenue for the company.
2020 generated 1.19 dong in profit With the small amount of profit, the company still tried to improve its ROE.
The equity multiplier experienced fluctuations over the years, starting at 1.19 in 2018 and slightly decreasing to 1.11 However, in 2020, it rose significantly by 17%, reaching 1.29, primarily due to an increase in short-term debt.
The growth of Return on Equity (ROE) can be attributed to two key factors: profit margin and equity multiplier The rise in profit margin indicates that the company is generating profit despite initial struggles, which is a positive sign However, the increase in the equity multiplier, primarily driven by debt, raises concerns as it signifies a higher level of risk for the company.
LITERATURE REVIEW ON FINANCIAL STATEMENT ANALYSIS
Overview of financial statements
According to the Institute of Certified Public Accountants (AICPA):
Financial statements are essential accounting reports that periodically assess a firm's investment situation and performance According to the Vietnam Accounting System (2010), these statements provide a comprehensive overview of a company's assets, capital, and business results over a specific timeframe They serve as vital resources for external parties such as investors, creditors, and tax organizations, while also offering crucial insights for management to evaluate and analyze the company's financial health and production outcomes A complete financial statement typically includes a balance sheet, income statement, cash flow statement, and accompanying notes.
According to the scope of the study, the author applies the definition for financial statements from Viet Nam Accounting system (2010) in this thesis.
Financial statements are crucial for analyzing a company's financial activities and play a significant role in its overall business operations, as highlighted by Nguyen Nang Phuc (2009).
The financial statement offers a comprehensive overview of the economy and finance, facilitating the analysis of productivity outcomes and the current financial status of Company 3 over time This document is essential for monitoring capital utilization and assessing the company’s potential for productivity growth Additionally, it evaluates the effectiveness of the company's financial economic policies.
Financial statements serve as a crucial foundation for analysis, revealing the economic potential and enabling forecasts on a company's productivity and growth trends This essential information guides operational and productivity decisions for the company while also assisting investors, creditors, and prospective shareholders in making informed choices.
Financial statements offer valuable insights into a company's asset analysis, equity status, and productivity results over a specific period They reflect the current financial condition, including asset movement, the scale of the company's assets, capital structure, and payment capacity.
Financial statement data serves as a crucial foundation for calculating key economic ratios, which are essential for evaluating and analyzing productivity efficiency and capital utilization.
In the realm of financial statements, various reports, sheets, and statements exist; however, four key types stand out for their widespread use among investors and managers.
The balance sheet, as described in "FSA Gibson 12e," serves as a snapshot of a firm's financial position, reflecting the company's resources through its assets, which are financed by owner’s equity and liabilities.
4 a specific period of time, this “picture” can be as the firm stand stood The balance sheet has three parts, which can be represented by the equation:
A balance sheet, as outlined in “FSA Gibson 12e,” offers crucial insights into a company's assets and liabilities, detailing the sources of asset generation over a specific timeframe It aids in analyzing the current financial status of the company by highlighting changes in asset scale and structure, payment capabilities, and overall liquidity Furthermore, it evaluates the company's potential to attract capital based on its future productivity.
The income statement serves as a comprehensive overview of a firm's activities over a specified period, detailing revenues, expenses, gains, and losses, ultimately culminating in the net income figure According to "FSA Gibson 12e," this financial statement encapsulates the firm's performance from inception to the end of the reporting period, adhering to the fundamental accounting equation.
The income statement, as outlined in "FSA Gibson 12e," offers crucial insights into a company's productivity over a specific period and its financial obligations to the government Analyzing this statement aids management in assessing the company's potential for economic resource control, evaluating profit generation, and measuring the effectiveness of resource utilization.
The cash flow statement is a crucial component of financial statements, emphasizing cash and cash equivalents It reports the inflows and outflows of cash within a company, categorizing cash flows into three main areas: operating activities, investing activities, and financing activities.
A cash flow statement, as outlined in "FSA Gibson 12e," offers insights into a company's financial fluctuations, enabling the analysis of its investment, financial, and operational activities This statement is essential for assessing the firm's ability to generate future cash flows and cash equivalents, which can be utilized for ongoing business operations and financial investments.
The notes to the financial statements, as outlined in "FSA Gibson 12e," play a crucial role in enhancing the understanding of financial statements They provide essential explanations and detailed information that complement the balance sheet, income statement, and cash flow statement.
Notes to the financial statements, as outlined in "FSA Gibson 12e," offer comprehensive insights into a company's production and financial status These notes enhance the analysis by providing detailed information that the financial statements alone may not convey, thereby offering a clearer picture of the company's overall financial health.
Overview of the financial statements analysis
1.2.1 Definition of financial statements analysis
Financial statement analysis, as defined by Nguyen Nang Phuc (2009), involves reviewing and comparing current financial data with historical information This analytical process offers valuable insights for users to assess a company's potential, operational efficiency, and future financial risks.
1.2.2 Roles of financial statements analysis
Financial statement analysis, as outlined by Nguyen Nang Phuc (2009), aims to provide essential information that enables users to objectively evaluate a firm's financial strength, profitability, and potential for future growth This analysis attracts a diverse audience, including board members, investors, creditors, suppliers, current and prospective stockholders, customers, insurers, and employees, each with unique information needs Consequently, various stakeholders approach the firm's financial data from different perspectives, highlighting the multifaceted nature of its financial situation.
In order to achieve the basic purpose of the financial statements analysis, the role of it is reflected to several following aspects:
A comprehensive analysis of financial statements is essential, as it equips investors, lenders, and other stakeholders with crucial information to make informed decisions regarding investments and lending.
Analyzing financial statements is essential for providing comprehensive insights to business owners, investors, and lenders This analysis helps evaluate the company's cash flow dynamics, asset utilization efficiency, financial health, and payment capacity, enabling stakeholders to make informed decisions.
Analyzing financial statements is essential for understanding a company's owner's equity, liabilities, and the outcomes of its production activities This analysis also highlights events and circumstances that could impact the firm's capital and debt levels.
Regular analysis of financial statements is essential for effective corporate governance, as it offers a clear view of the current financial situation This practice helps identify weaknesses and assess the impact of the firm's financial health Consequently, it enables the development of strategic solutions to stabilize and improve the financial condition of the organization.
1.2.3 Process of financial statement analysis – EIC analysis
EIC analysis, which stands for Economic Industry Company Analysis, is a popular method for evaluating financial statements This top-down approach begins with an assessment of the overall economy, followed by an identification of the most attractive industries based on current economic conditions Finally, the analyst focuses on the most promising companies within those appealing industries, providing a comprehensive view of investment opportunities.
Economic analysis involves examining key factors that influence business activities, industries, and regions from an expert perspective This process relies on real-world activities and overall economic conditions, enabling companies to make informed decisions.
Economic analysis offers insights into key factors such as inflation and exchange rates, which can significantly influence businesses To identify external opportunities and threats, companies must conduct a thorough evaluation of economic elements.
Many companies invest in strategic planning by developing two to three-year economic scenarios They analyze these scenarios to understand their potential impact on the business This economic analysis helps evaluate specific projects, ensuring they align with the current economic conditions and financial feasibility.
The analysis provides company owners with a detailed understanding of the current economic landscape, enabling them to assess their development potential while gaining insights into market strengths and weaknesses.
Industry analysis involves evaluating a specific business sector by examining market supply and demand, competitive dynamics, future growth potential, and external influences This analysis is crucial for stock evaluation, as it offers insights into the production landscape, competitive advantages, development opportunities, and financial risks associated with a firm.
Industry analysis has an important role in basic investment method:
A comprehensive understanding of a company's business structure and environment is crucial, as it offers insights into the production landscape, competitive advantages, growth opportunities, and financial risks By conducting credit and industry analysis, businesses can effectively assess their capacity to meet debt obligations and navigate the complexities of their market.
To maximize investment potential, investors should adopt a top-down approach by conducting thorough industry analysis This method allows for the evaluation of growth opportunities and profitability within the industry, ultimately leading to informed investment decisions.
- Portfolio diversified: Industry analysis helps the portfolio manager to select industries and fields in order to maximize the investment.
Company analysis is a process that includes financial situation analysis, goods and services analysis and the competitive strategy of the company.
Company analysis will be started after the analyst figures out the external factors, macroeconomics, demographic, government, technology and society that can impact the industry competitively.
The function of Company analysis is:
- Provide the overview of the company, including: the basic understanding about business activities, investment activities, corporate management and the strength and weakness of the company.
- Explain characteristics relevant to the industry which the company operates in.
- Analyze the need for goods and services of the company.
- Analyze the goods and services supply, including analyzing the expenses.
- Analyze the factors affecting the price of a company’s goods and services.
- Explain the financial ratio, compare in time and competitors.
Company analysis usually include forecasting the financial statement, especially when its purpose is the company valuation.
1.2.4.1 Common-Size analysis (vertical analysis)
Common-size analysis is a financial evaluation method that expresses each item in a financial statement as a percentage of a base amount for the same period, according to Investopedia This analytical technique can be applied to both a company's balance sheet and income statement, providing a clearer understanding of financial performance.
In Common-Size analysis, the following equations is used:
Common Size Amount = (Analysis Amount / Base Amount) x 100%
Factors affecting financial statements analysis
External factors that impact a company's financial status include the political and social environment, economic growth rates, technological advancements, and monetary policy, collectively referred to as subjective factors (Michael, 2016).
Growth motivation and direct conduct are shaped by subjective factors, although objective factors can also significantly influence outcomes Three interconnected external factors play a crucial role in this dynamic: the industry environment, the national environment, and macroeconomic conditions.
The industry analysis environment needs to evaluate the competitive structure of that industry, including the competitive position of the company
20 and its main competitors, the trend in development of the industry This also help evaluate the impact of globalization on industry competitive
A national environment analysis enables companies to assess the operational conditions within a country If the country's environment aligns with the company's competitive needs, it is beneficial to remain there; otherwise, relocating to a more suitable location may be necessary.
In conducting a comprehensive macroeconomic analysis, it is essential for the company to evaluate various factors, including the prevailing social conditions, government policies, national regulations, international dynamics, and technological advancements, all of which can significantly influence the firm's operations and strategic decisions.
Objective factors, as defined by Michael (2016), refer to the internal elements of a company's organization that can be analyzed to identify its strengths and weaknesses This analysis is crucial for maximizing benefits and understanding the unique capabilities, capital, and skills necessary for maintaining a competitive advantage To achieve and sustain profitability, a company must focus on operational efficiency, continuous product development, and strong customer commitments While strengths can enhance a company's position in the market, weaknesses can hinder performance and growth.