Financial situation of thanh do joint stock company

MINISTRY OF FINANCE ACADEMY OF FINANCE DE[PARTMENT OF CORPORATE FINANCE TRINH KHANH LINH GRADUATION THESIS Topic FINANCIAL SITUATION OF THANH DO JOINT STOCK COMPANY Major corporate finance Class CQ54/[.]

ACADEMY OF FINANCE DE[PARTMENT OF CORPORATE FINANCE

THANH DO JOINT STOCK COMPANY

Major: corporate finance

Code: 11 Supervisor: Ph.D Tran Thanh Thu

Hanoi – 2020

I hereby declare that this is a study done by myself with the support of thesupervisor The figures and the results stated in the thesis are honest from the actualsituation of the internship company In case any information given in this thesis proves

to be false or incorrect, I shall be responsible for consequences

Signature of thesis’s author

Trinh Khanh Linh

In order to complete the thesis and finish the course, I would like to express myprofound gratitude to the Academy of Finance for enabling me to have a goodstudying environment during my time at the school

I would like to thank Dr Tran Thanh Thu, who assisted in the research processand directly guided the completion of this graduation thesis

In addition, I express my warm thanks to all my colleagues at Thanh Do JointStock Company, specially accounting department who provided me with the facilitiesbeing required and conductive conditions for my report

During the internship due to the limitation in theories and practical experiences, Icannot avoid the shortcomings, I am looking forward to receiving feedbacks,comments, and suggestions to complete the thesis

Sincerely,

Trinh Khanh Linh

TABLE OF CONTENTS

DECLARATION I ACKNOWLEDGEMENT II TABLE OF CONTENTS III LIST OF FIGURE VI LIST OF TABLES VII

INTRODUCTION 1

CHAPTER I : OVERVIEW OF FINANCIAL SITUATION OF A COMPANY 3

1.1 CORPORATE FINANCE AND CORPORATE FINANCE MANAGEMENT 3

1.1.1 Corporate finance and financial decisions 3

1.1.2 Financial management 5

1.2 FINANCIAL SITUATION OF A COMPANY 10

1.1.1 Indicators for assessing financial situation of a company 10

1.3 DETERMINANTS OF FINANCIAL SITUATION OF A COMPANY 25

1.3.1 Objective factors 25

1.3.2 Subjective factors 25

CHAPTER II : THE S0054ATUS OF FINANCIAL SITUATION IN THANH DO JOINT STOCK COMPANY IN THE PAST TIME 27

2.1 OVERVIEW OF THANH DO JOINT STOCK COMPANY 27

2.1.1 Establishment and Development of Thanh Do JSC 27

2.1.2 Organizational structure of Thanh Do JSC 29

2.1.4 Advantages and Disadvantages of Business Activities of Thanh Do JSC 31 2.2 ASSEST AND ASSET STRUCTURE OF THANH DO JOINT STOCK COMPANY 31

2.2.1 Sources of capital and capital structure 3

2.2.2 Operating performance 10

10

2.2.3 Cash flows situation 14

2.2.4 Liabilities situation and Liquidity 22

2.2.5 Asset's utilization and profitability on using capital situation 26

2.2.6 The situation of profit distribution of the company 33

2.3 GENERAL ASSESSMENT ON THE FINANCIAL SITUATION OF THANH DO JOINT STOCK COMPANY 34

2.3.1 The achievements 34

2.3.2 Limitations and reasons 34

CHAPTER III : SOLUTIONS TO IMPROVE THE FINANCIA SITUATION OF THANH DO JOINT STOCK COMPANY 37

3.1 SOCIAL ECONOMIC BACKGROUND AND DEVELOPMENT ORIENTATION OF THANH DO JOINT STOCK COMPANY IN THE COMING TIME 37

3.1.1 Socio-economic context 37

3.1.2 Objectives and development orientation of Thanh Do Joint Stock Company .42

3.2 SOLUTION TO IMPROVE THE FINANCIAL SITUATION Ò THANH DO JOINT STOCK COMPANY 45

3.2.1 Inhence inventory management and credit policy of Thanh Do JSC 45

3.2.2 Improve liquidity 45

3.2.3 Increase equity and reduce interest expenses 46

3.2.4 Improve business cost management solutions 46

3.2.5 Find potential markets, diversify products and approach customers 48

3.2.6 Perform regularly, proactively and effectively the business financial analysis 48

3.3 CONDITIONS FOR IMPLEMENTING SOLUTIONS 49

3.3.1 Business environment 49

3.3.2 For the company 49

CONCLUSION 51

REFERENCES 52

LIST OF FIGURE

Figure 1.1: Financing models of a company 22

Figure 2.1: Chart of organization structure of Thanh Do JSC 38

Figure 2.2 Capital structure of Thanh Do Joint Stock company in 2016-2019 3

Figure 2.3: Financing models of Thanh Do JSC 2017-2019 10

LIST OF TABLES

Table 2.1 Ownership structure of Thanh Do JSC 37

Table 2.1: Asset structure of Thanh Do Joint Stock Company in 2016-2019 (Unit: million dong) 41

Table 2.2: Difference in assets structure Thanh Do Joint Stock Company in 2016-2019 .42

Table 2.3: Capital structure of Thanh Do Joint Stock Company in 2016-2019 (Unit: million dong) 5

Table 2.4: Difference in capital structure in 2016-2019 6

Table 2.6:Operating performance of Thanh Do JSC 2016-2019 (Unit: million dong) 10

Table 2.7: Difference in operating performance of Thanh Do JSC 2016-2019 (Unit: million dong) 11

Table 2.8: Cost use level of the Company in 2016-2019 (Unit: million dong) 13

Table 2.9: Cash flows statement of the Thanh Do JSC 2016-2019 (Unit: million dong) 14

Table 2.10: Difference of cash flow statement of Thanh Do JSC 2016-2019 16

Table 2.11: The ability to create cash from cash outflows of Thanh Do JSC 2016-2019 .19

Table 2.12: Liabilities situation and liquidity of Thanh Do JSC 2016-2019 (Unit: million dong) 23

Table 2.13: Liquidity ratios of Thanh Do Joint Stock Company in 2016-2019 24

Table 2.14: Indicator reflecting the capital's ultilization of Thanh Do JSC 2016-201927 Table 2.15: Profitability ratios of Thanh Do JSC 2016-2019 30

Table 2.16: Profit distribution of Thanh Do JSC 2016-2019 33

Table 3.1: Growth rate of per capita income in ASEAN region 38

Table 3.2: Retail growth vs GDP 39

Table 3.3: Retail growth rate 39Table 3.4:Forecasting the impact of the Covid-19 epidemic on Vietnam's economy in

2020 under 3 scenarios (updated on 9/4/2020) 41Table 3.5: Swot analysis model of Thanh Do JSC 42

1 Rationale of the thesis

The process of globalization opens countries with opportunities to promoteeconomic growth and social development Specifically, on November 12, 2018, theResolution on ratifying the CPTPP Agreement was approved by the NationalAssembly and came into effect for Vietnam from January 14, 2019; On 12/02/2020,the free trade agreement between the European Union (EU) and Vietnam (EVFTA)was approved by the European Parliament (EP) In the context that Vietnam is gettingdeeply involved in the global market, this is an opportunity and also a challenge forVietnamese enterprises in the quest to gain a foothold in the international market

The world economy is showing complicated changes, leading to Vietnam'seconomy are also affected, the most influential part is to mention that businesses, inwhich small and medium enterprises are occupying a large percentage of the economy,and also the place to create a major job in Vietnam Therefore, the health of small andmedium enterprises also greatly influences Vietnam's competitiveness in theinternational arena Therefore, businesses have to proactively maintain their financialsituation, leveraging the potential and resources available to drive business operations

To implement effective management of business operations, assessment andanalysis of the financial situation of enterprises must often be held regularly This isimportant not only for the business but also for investors, creditors, employeesinterested in decisions making The financial situation is the introduction of the currentstate of the business, determining the factors affecting the business situation to bringthe legal timely, an overview to stabilize and improve the profitability as well as firmvalue

Arising from the role of financial situation in corporate finance, after theinternship period at Thanh Do Joint Stock Company, with the guidance of mysupervisor, PhD Tran Thanh Thu and the help of the Accounting department of Thanh

Do JSC, I chose to examine: "Financial situation of Thanh Do Joint Stock Company" in my graduation thesis.

2 Research Scope and Research Objectives

Research subject : Financial situation of a company

Scope of research:  

- Space: The study was about the case of Thanh Do Joint Stock Company

- Time period: from 2016 to 2019

Research objectives: This study aimed at three main points:

- Firstly, overview of theories of financial situation of a company

- Secondly, examine the financial situation of Thanh Do JSC; indicateachievements and limitations;

- Thirdly, propose some solutions to enhance the financial situation of Thanh DoJSC in the coming years

3 Data & Methodology

Data: This study ultilized both primary data and secondary data Primary data

were collected during the internship at Thanh Do JSC Secondary data were extractedfrom financial statements, official website, and other reliable sources

Methodology: The study used both qualitive and quantitative method to examine

the financial situation of Thanh Do JSC In term of qualitative method, the study,based on collected information, made assumptions and statements about the financialsituation of Thanh Do JSC In term of qualitative method, the study applied threetechniques, namely common size financial statements, trend analysis, andbenchmarking Using the secondary data, financial ratios were calculated andcompared, and concluded

4 Thesis structure

Besides Introduction and Conclusion, the thesis is divided into three main chapters:Chapter 1: Overview of Financial Situation of a company

Chapter 2: Financial situation of Thanh Do Joint Stock Company

Chapter 3: Solutions to improve financial situation of Thanh Do Joint StockCompany

CHAPTER I : OVERVIEW OF FINANCIAL SITUATION OF A

COMPANY

1.1 Corporate finance and corporate finance management

1.1.1 Corporate finance and financial decisions

1.1.1.1 Definition of corporate finance

Corporate finance is an economic relationship in the form of value associatedwith the creation and use of a company's monetary funds to carry out its business.Corporate finance deals with the financial structure of a corporation, including itsfunding and the steps taken by the management to maximize corporate finance.Corporate finance also involves methods and research used to allocate capital Theultimate goal of corporate finance is to maximize shareholders’ wealth through thepreparation and execution of resources, while balancing both profitability and risk

The economic relations associated with the creation, distribution and use ofcorporate monetary funds constitute the financial relationships of a company.Generally, there are several financial relationships as following:

- Relationship between companies and the government: It is expressed in thestate funding of operating businesses and the financial obligations to the government

of companies such as taxes payments and fees, etc

- Relationship between companies and other economic entities: This involvespayment relationships in borrowing and lending, capital investment, purchasing orselling of properties, products, goods and other services

- Other relationships (including relationships between companies and labors,shareholders, and internal relations): These relations reflect in enterprises’ payments ofsalaries, wages, bonuses and fines to employees; the relationship among departments

of a company in the distribution of net income; dividend distribution to shareholdersand establishment of corporate funds, etc

1.1.1.2 Financial decisions

Basically, finanacial managers have to make financial decisions, both in term and long-term course, to meet the objectives of corporate finance Long-termfinancial decision, also called strategic financial decisions, include three decisions:investment decision (capital budgeting); financing decision (source of finance); anddividend decision In short-term, it is about working capital management, which refers

short-to the current assets and current liabilities

a Strategic financial decisions:

Investment decision (Capital Budgeting) relates to the total value of assets andthe value of each type of assets (fixed assets vs current assets) In detail, investmentdecision is about:

Decision on investment in current assets: How much money should a companyput in inventories, accounts receivable, marketable securities, etc

Decision on investment in fixed assets: Decision on new asset purchase orreplacement, long-term investment, financial lease, etc

Deciding on asset structure, which indicates the ratio between current assets and fixedassets Also it refers to investment in fixed assets, operating leverage, and break-evenanalysis

Investment decision is considered the most important decision because it createsvalue for the business A right investment decision will contribute to increase the value

of the business, thereby increasing the value of the property for the owner Conversely,

a wrong investment decision will damage the value of the business, then resulting inloss of owners’ wealth

Financing decision: This decision associates with sources of finance and how toorganize capital structure That means:

Decision on short-term financing: decision on short-term loan or use ofcommercial credit; decide whether to take a short-term bank loan or use a companybills

Decision on long-term financing: decision on long-term debt through long-termbank loans or corporate bond issues; decision on equity (retained earnings or newshare issuance); decision on capital structure.

Raising fund decision is a significant challenge for corporate financial managers

In order to make the right capital mobilization decisions, financial managers have toconsider both advantages and disadvantages of using capital raising tools, accuratelyassessing the current situation and forecasting

Decisions on profit distribution: This decision associates with the distribution ofdividends or dividend policy of a company Financial managers will have to choosebetween using net profit to pay dividends to shareholders or keep to reinvest Thesedecisions relate to how a company should pursue a dividend policy, and whether thedividend policy will affect the value of the business or the company's share price in themarket

Working capital management: Main short-term policies include decisions oncapital reserve in cash, decisions on receivable debts, decisions on implementation ofpayment discounts, decisions on reserve capital reserves, decisions on depreciation offixed assets The reasonableness and correctness of these decisions affect certainrisks and benefits for the enterprise as well as its owners

In short, financial managers must make financial decisions to maximize businessvalue With every financial decision, the manager must always face the trade-offbetween risk and return A wise financial decision is a decision that can maximize thevalue of the business, so that the financial decision must minimize risks and maximizeprofits for the owner This is very difficult for managers in the process of analyzingand making decisions to choose the appropriate financial decisions

1.1.2 Financial management

Definition of financial management

In order to achieve the goal of maximizing the profits of a business, managersneed to make financial decisions, which can be in a long-term course or short-termcourse Long-term financial decisions are also known as strategic financial decisions,

including investment decisions, financial decisions, and profit distribution decisions(dividend policy within a corporation) Short-term financial decisions related tocurrent assets and liabilities That is the decision to manage working capital

 Profit Distribution Decision

The decision about profit distribution is also known as the dividend policy of thecompany With this type of decision, the CFO will have to choose between using after-tax profits to pay dividends or keep for reinvestment In addition, the CFO needs todecide which dividend policy to follow and whether the dividend policy has any effect

on the value of the business or its stock market price

Contents of financial management

- Participate in the evaluation and selection of investment project decisions

Project evaluation and selection are carried out by many departments in acompany From a financial perspective, the key factor is the economic value added of

a project To make a relevant investment decision, financial managers collectinformation about proposed cash flows and calculate NPV or IRR and other indicators

to select the best one

Determining capital needs and organizing sources of finance for all businessativities and investment requirements of a company

All business activities of a company require capital When going into business,corporate financial management needs to identify the capital needs for the activities ofthe enterprise during the period Alternatively, determining working capital to meet theoperational needs of the business The organization of sources of finance greatlyaffects the performance of a company To decide on the appropriate form and method

of capital mobilization, enterprises need to consider many aspects such as capitalstructure, cost of capital , advantages and disadvantages of various raising method

Using capital effectively and efficiently, managing strictly revenues andexpenses, ensuring ability to pay off liabilities

Corporate financial management must find ways to mobilize the maximumamount of existing capital for business activities, free up stagnant capital, closelymonitor and implement well the recovery of sales and receivable, strict management ofexpenses incurred during the operation of the business; regularly seek measures toestablish a balance between revenue and expenditure with money to ensure theenterprise is always able to pay

Profit distribition and Using other company’s funds

Appropriate distribution of after-tax profits as well as the appropriation and gooduse of enterprise funds will make an important contribution to business developmentand improvement of workers' lives Profit is the goal of business activities, which is anindicator that businesses must pay special attention to because it relates to theexistence and expansion of the business It can not be said that the business operateswell and has high efficiency while the operating profit decreases, the enterprise needs

to have an optimal method of distributing the enterprise's profits In determining the

ratio and form of enterprise funds such as development investment fund, financialreserve fund, reward and welfare fund.

- Monitoring, supervising, and controlling all business activities through financialworkflows

Through daily revenue and expenditure situation, the implementation of financialindicators allows to regularly check and control the operation of the business On theother hand, through periodic analysis of corporate financial situation to assess thestrengths and weaknesses in management Thereby, helping business leaders in time tomake appropriate decisions to adjust business operations of enterprises in the newperiod

- Making and Implementing financial plans

The financial activities of the business should be anticipated through financialplanning Good implementation of financial planning is an essential tool for businesses

to be proactive in giving timely solutions when there are market fluctuations Theprocess of implementing a financial plan is also an appropriate financial decision-making process to reach the goals of the business

The role of corporate financial management

Financial management is closely related to other activities in an organizationsuch as asset management, marketing management or human resource management.Besides, financial management also helps managers to plan and estimate reasonablecosts for situations arising in the future In addition, good financial management willhelp businesses easily find new sources of profits such as equity investments, loans.Specifically, corporate financial management has the following roles:

- Raising sufficient capital to maintain the business activities of a company

Monetary capital is a premise for business activities In the course of operations,enterprises often generate short-term and long-term capital needs for regular businessactivities, as well as for investment and development of enterprises Failure tomobilize in time and sufficient capital will make business activities difficult orimpossible to implement Therefore, the assurance for business activities is carried outnormally and continuously depends greatly on the organization of capital mobilization

of enterprise finance

Financial managers take into consideration the financial market situation, capitalneeds and specific conditions of the enterprise, thereby making the most optimaldecision in organizing the mobilization of capital sources (within , outside, meet theneeds of the business operations.A proper financing policy not only helps businessesminimize financial risks, but also has a great impact on the realization of the goal ofmaximizing Enterprise value.

- Organizing the use of capital in an effective and efficient manner, contributing

to ehance the efficiency of a company

With the selection of optimal investment projects on the basis of considerationand comparison between the profitability rate, capital mobilization cost and the level

of risk of investment projects the financial management has created a premise forthe use of capital savings and high efficiency

The organization of timely and sufficient capital mobilization will helpbusinesses to seize business opportunities, increase business revenue and profits Theselection of appropriate forms and methods of capital mobilization, ensuring optimalcapital structure can help businesses reduce capital use costs, contribute to increasingprofits and return on equity of the business

On the other hand, by raising the maximum amount of existing capital intobusiness operations, enterprises can avoid losses due to capital stagnation, increaseasset turnover, reduce the amount of borrowed capital, thereby reducing interestpayment loans, contributing to increasing profit after tax of the business

- Comprehensively monitor and supervise all business activities of a companyThe business operation process of an enterprise is also the process of mobilizingand transforming the form of monetary capital Therefore, through the review of dailyrevenues and expenditures of money, and especially through the analysis andevaluation of the corporate financial situation and the implementation of financialindicators, financial administrators can control promptly and comprehensively theactivities of the enterprise, thereby pointing out the shortcomings and untappedpotentials to make appropriate decisions, adjusting activities to achieve title of thebusiness

1.2 Financial situation of a company

- Definition and objectives of financial situation of a company

Financial situation is the status of the assets, liabilities, and owners' equity (and theirinterrelationships) of an organization, as reflected in its financial statements

The financial situation of businesses may also be gauged by comparable factors

to assess the viability of a company as a going concern For instance, if a company hasrevenue coming in and cash in the bank, yet is expending its resources on newinvestments in production equipment, officer space, new hires, and other businessservices, it may raise questions about the long-term financial health and survivability

of the company If more money is spent that does not contribute to the overall stabilityand potential to growth of the business, it can lead to a decline that makes it difficult topay regular expenses such as utilities and employee salaries This may forcebusinesses to freeze or cut salaries in order to give the company the fiscal allowance tocontinue its operations

Assessing the financial situation of corporation is a comprehensive analysis of allaspects of corporate finance to see whether the financial situation is good or bad, findout the causes and impact of the factors on the financial situation, which helpsmanagers make timely decisions to improve the efficiency of firms

Objectives of financial situation assessment:

- To present a comprehensive understanding of business activities of a company.

- To provide sufficient useful information to investors, creditors and other users so

that they can make right decisions

- To assist managers of a company in forecast and adjustment to realistic

conditions.

1.1.1 Indicators for assessing financial situation of a company

Assets and asset structure

To analyze Assets and Assets Structure, financial managers use data of assets onthe balance sheet to compare the total assets between the end of the period and thebeginning of the period or the previous years, including both absolute numbers andRelative figures are used to determine the fluctuations in the size of the enterprise's

assets across different business periods In particular, it is necessary to consider thefluctuation in the scale of detailed targets such as cash in cash, short-term financialinvestments, receivables, inventories, long-term assets Thereby, to assess the pastand present financial situation as a basis for estimating the future financial potential ofenterprises.

In addition to comparing the total assets at the end of the period compared withthe beginning of the year, it is still necessary to consider the proportion of assetsaccounted for in the total assets and the fluctuation trend of asset allocation This isbased on the business nature and the fluctuation of each department Depending on thetype of business to consider the proportion of each type of assets accounted for in total

non-Non-current asset ratio = Non-currnet asset

Total assets

Current asset ratio and Non-current asset ratio show the overall structure of thecompany's assets These two ratios reflect the balance between short-term assets andlong-term assets of enterprises There are no standard ratios for businesses, butdepending on the industry and business strategy, the number of these ratios varies

Sources of finance and capital structure

The company could raise funds from many sources to meet the needs for capital.Sources of finance refer to all sources that a company can use to finance its investmentand operations

There are two ways to classify sources of finance: by ownership and by term

- By ownership, capital classified into liabilities và shareholders’ equity.Liabilities are future obligations that a company has to pay off Mainly liabilities comefrom bank loans with interest expense Shareholders’ equity is capital contributed byowners of a company

Capital structure is the ratio between liabilities and shareholders’ equity Debtratio reflects how many percentage of assets are financed by debts Capital structure of

an enterprise is expressed through the following main criteria:

Debt ratio = Total liability

Total assets

The debt ratio reflects the percentage of liabilities paid to the enterprise's capital,

or what percentage of its assets are derived from liabilities

Equity ratio = Shareholder’s equity

Total assets

Equity ratio reflects the percentage of equity in total assets In general, the capital

of an enterprise is formed from two sources: equity and liabilities

So the following formula is formed:

Equity ratio = 1 - Debt ratio

In addition, the capital structure is reflected in the debt to equity ratio:

Debt ratio to equity (D/E) = Total Debts

capital Resources for business operations and development can be reviewed andassessed through corporate financing policies:

Net working capital = Long-Term soueces – Non-current assets

Or

Net working capital = Current assets - Short-term sources

NWC > 0: it indicates that companies have surplus long-term capital; Equity andlong-term debts allow full financing for fixed assets and long-term investments, while

it partially funds short-term fixed and liquid assets, and financing is kept balanced Italso reflects that the proceeds from current assets and short-term investments willenable the business to not only be able to pay due debts, but also to spend a certainamount of money

NWC <0: shows that long-term capital is only partially secured for long-termassets, while the remaining part of the capital is used in short-term to finance long-term assets Thus, financing is unbalanced.Moreover, it shows that money that can beobtained from current assets and short-term investments is insufficient to cover short-term debts so liquidity is not guaranteed

NWC = 0: If current assets are equal to short-term liabilities, or long-termsources equal to fixed assets, NWC = 0 This kind of financing shows that only fixedassets are financed by long-term capital, while current assets are financed by short-term capital This case does not create stability in the production and businessactivities of companies, especially for industries with slow capital turnover

Figure 1.1: Financing models of a company

In order to facilitate the flexible use of financial resources, consider the followingfunding models:

Model 1: Fixed assets and part of current assets are financed by long-term

financing sources while temporary working capital are financed by temporary financial

resources By applying this model, businesses can reduce payment risk, ensuring higher

level of safety and reduce the cost of capital use However, there is one weakness thatthere is no flexibility in the organization of capital use

Model 2: All fixed assets, current assets and part of current assets are secured by

long-term capital, and part of the remaining temporary assets is secured by temporarycapital By using this model, we can ensure high affordability and safety Nevetheless,companies must utilize more long-term and medium-term loans as to pay more for theuse of capital

Model 3: All fixed assets and part of current assets are secured by regular

capital, while part of current assets and all temporary assets are secured by temporarycapital

- By term capital classified into temporary capital and permanent capital

 Temporary capital means a capital source of short-term nature (less than oneyear) that the enterprise can use to meet the needs of a temporary nature arising in itsproduction and business activities This source of capital includes short-term loansfrom banks and credit institutions, and other short-term debts

 Permanant capital is the sum of stable capital sources that businesses can use forbusiness activities This capital source is often used to procure, form fixed assets and a part ofcurrent assets that are frequently necessary for the business activities of the enterprise

Permanant capital of an enterprise at a time is determined by the following formula:

Bussiness performance of a company

Business performance is a term indicating the degree to which businessobjectives are achieved Specifically, business results are often expressed by profit inthe period and the efficiency of using available resources of the enterprise From thatresult, the manager will propose measures to improve the current situation

Business performance reflects the outcome of business activities over a particularperiod Ussually financial managers get information through Income Statement.

- Revenues: is the amount used to offset the business capital and expensesincurred during the operation of the enterprise The profit of the business is alsodetermined from the revenue Revenue indicates the business situation of theenterprise, thereby giving directions for the future development of the business.Besides, revenue is also a factor confirming the existence and development ofbusinesses in the marketplace

- Expenses: are cash outflows, or allocation of cash outflows from the pastresulting from the business activities of a company Based on the business resultsreport, we can calculate the expenses of the business From there, it is easy to calculatethe targets, the proportion of costs compared to revenue, thereby taking measures tochange and find solutions to suit the goals of the business to minimize costs andmaximize benefits

- Profits: is an aggregate indicator representing the results of the businessprocess Profits reflect adequately on the quantity and quality of companies, reflectingthe efficiency of labor and machineries In order to understand the businessperformance of a company, we need to analyze the relationship between total revenue,total cost and profit achieved by the business The ultimate goal of the business is tocreate products with the lowest cost and highest profit; at the same time, increaseaccumulation, expand production, and improve the productivity of workers

- To evaluate, in addition to the absolute number of each criterion, theadministrator evaluates the proportion of each item with net sales through common-size income statement or trend-analysis

 A common size income statement is an income statement in which each lineitem is expressed as a percentage of the value of revenue or sales It is used for verticalanalysis, in which each line item in a financial statement is represented as a percentage

of a base figure within the statement

 Trend analysis is a technique used in technical analysis that attempts to predictthe future stock price movements based on recently observed trend data Trendanalysis is based on the idea that what has happened in the past gives traders an idea of

what will happen in the future There are three main types of trends: short-,intermediate- and long-term.

Cost of good sold to net sales = COGS

Net sales

Administration expense ratio = Administration expense ratio

Net sales

Sellings expense ratio =

Sellings expense ratio

Net sales

These indicators help managers realize the proportion of each expense in the totalcost, thereby making accurate decisions to minimize the high proportion of expenses

Cash flows situation of a company

The cash flows statement describes the business’s cash receipts (cash inflows)and cash payments (cash outflows) and explain the change in the business’s cashbalance during the year

Cash flows can be classified into three categories: cash flows from operatingactivities, cash flows from investing activities, and cash from financing activities Cashflows from operations include cash sales and collection of accounts receivable less theamount of cash paid for goods & services, wages, salaries, and interest Cash flowsfrom investing include the cash received from sales of property, plant and equipment,investments, and other long-lived assets less the cash spent to purchase such long-termassets The cash flows from investing by a healthy, growing business will usuallyrepresent an excess of expenditures over receipts Cash flows from financing are thecash contributed by owners and borrowed from creditors less the amount paid toowner’s as dividends and repayments of liabilities A business can finance growtheither internally with cash generated by operations or externally with cash frominvestors and borrowers

Criteria assessing cash flow situation of enterprises:

 Time to convert into money is determined as follows:

Cash conversion cycle = Days of sale oustanding + Days of inventory out standing – Days of payable oustanding

 Ratio of generating money from business activities This criterion is to helpmanagers evaluate the ability to generate money from business activities compared tothe revenue achieved

Cash Flow from Operating Activities ratio =

Cash Flow from Operating Activities

Revenues

 Ratio of revenue in cash to revenue: This ratio reflects the level of collectingmoney from sales of goods in the period This assesses the ability to recover moneyfrom sales

Revenue in cash to revenue = Revenue in cash

Revenue

 Interest coverage ratio: This ratio is used to assess whether the ability togenerate money from production and business activities meets the loan interestpayment requirements

Interest coverage ratio = Net cash flow + Interest expense

Interest expense

 Current Liabilities coverage ratio : This ratio is used to consider the ability ofenterprises to pay short-term debts through operating net cash flows Thereby,assessing the ability to make money from business operations of the business issufficient to repay the debt or not

Current Liabilities coverage ratio = Net cash flow

Current liability

Liabilities situation and Liquidity & Solvency of a company

The debt situation shows the financial strength of the business expressed throughthe recovery of accounts receivable and the payment of debts

Solvency "is the ability to meet long-term fixed expenditures and have thenecessary amount of money to expand and grow" (Investopedia defined)

The criteria reflecting the debt situation of the enterprise include:

Indicators reflecting the size of liabilities: indicators reflecting receivable andpayable debts on the accounting balance sheet

Indicators reflecting debt structure:

- The ratio of receivable to payable

The ratio of receivable to payable = Receivable x 100%

Payable

If this ratio is greater than 100%, it means that the capital appropriated by theenterprise is larger than the capital that the enterprise appropriates Conversely, if thisindex is less than 100%, it means that the amount of capital appropriated by businesses

is smaller than the amount of capital appropriated

Solvency ratio

- Current ratio

Current ratio = Current assets

Current liability

This is also known as the ability to pay short-term debt ratio

Total current assets comprise short-term financial investments The currentliabilities are due within 12 months This ratio reflects the ability to convert assets intomoney to cover short-term debts, so this ratio also shows the level of guarantee to payshort-term debts of the business

To evaluate this coefficient, it is necessary to base on the average coefficient ofthe enterprises in the same industry It should be noted that this coefficient variesamong different businesses An important basis for evaluation is to compare thecurrent solvency coefficient at the previous time of the enterprise

Normally, when this coefficient is low (especially when it is less than 1), it showsthat the ability of the enterprise to repay the debt is weak and also a warning signal ofpotential financial difficulties encounter in repayment This high coefficient indicatesthat the enterprise has a high ability to be ready to pay its due debts However, in somecases, this coefficient is too high, which probably does not reflect good corporatepayment capacity Therefore, to better assess, it is necessary to consider the situation

of the business

- Quick ratio

As an indicator that more closely assesses the solvency of an enterprise, which isdetermined by current assets minus inventory divided by short-term debt, inventoriesare excluded because in current assets, inventory is considered a less liquid asset Thiscoefficient indicates the ability to pay short-term debts of the enterprise without having

to make an urgent liquidation of inventories, which is determined by the formula:

Quick ratio = Current assets – Inventory

Current liability

- Cash ratio

Cash ratio = Cash and cash equivalents

Current liability

This coefficient is very useful when assessing the solvency of an enterprise in aperiod of economic crisis, when inventories are not sold and many debts are difficult

to recover

- Interest Coverage Ratio

Interest expenses

This coefficient indicates the ability of the enterprise to pay interest on its loanand also reflects the level of risk that may be faced by creditors

Asset ultilization efficiency and Profitability

Asset utilization efficiency

Capital use efficiency indicates whether the level of exploitation and use ofresources of an enterprise is effective and reasonable An efficient use of capital iswhen that enterprise has high capital efficiency

Capital use efficiency can be analyzed according to 2 contents: Working capitalutilization efficiency and fixed capital efficiency

- Working capital efficiency, also known as working capital turnover rate, isshown by the following criteria:

Average working capital

This indicator reflects the turnover of working capital in a given period, usually 1year The average working capital is determined by the arithmetic average method, theworking capital at the beginning and the end of the quarters of the year The larger theturnover of working capital, the higher the efficiency of working capital

Working capital turnover

This indicator reflects how many days it takes a working capital rotation Theshorter the rotation, the faster the rotation will be and vice versa.

In addition, on the balance sheet, the target of Inventories and Receivables are 2items accounting for a large proportion in the current assets, considering the factorsrelated to these two indicators such as after:

- Regarding inventory

Average value of inventory in the period

Normally, inventory turnover is high compared to other enterprises in theindustry, indicating that: The organization and management of the company's reservesare good, the business can shorten the business cycle and reduce the amount of capitalput into inventory If the inventory turnover is low, it often proves that the enterprisemay have excessive stock of supplies, resulting in a stagnant stock or slowconsumption of the product From there, it can lead to reduced cash flow of businessesand may put businesses in financially difficult situations in the future This criterion isgreatly influenced by the characteristics of the business sector and the policy oninventory capital of the enterprise

From the inventory turnover, we can calculate the average number of days inwhich an inventory rotation takes place

Inventory turnover

- Regarding receivable

Short-term receivables turnover

Short-term receivables turnover =

Total short-term receivables The average balance of short-term

receivables

This index reflects the turnover of receivables and the efficiency of short-termdebt recovery If the turnover of short-term receivables is large, it proves thatenterprises recover goods promptly and have little capital appropriation However, if

the turnover of short-term receivables is too high, it will not be good because it canaffect the volume of goods sold because the payment method is too tight (mainlypayment in a short time).

Average collection period

Receivables turnover

This indicator reflects the average time to collect short-term receivables, theshorter the time to collect money, the faster the collection speed of goods, the lesscapital the enterprise takes On the contrary, the longer the collection time, the slowerthe collection speed of goods, the more capital the enterprise takes and vice versa

Profitability ratios

The efficiency of capital use reflects the level of capital exploitation, use andmanagement, which makes them maximize profits in order to maximize theprofitability of their owners Therefore, the coefficient of profitability is the mostaccurate reflection of capital efficiency

- Basic Earnings Power (BEP)

This coefficient reflects the relationship between profit after tax and net revenue

of the enterprise It shows, when making a revenue in a period, how much profit abusiness earns

- Returns on assets (ROA)

Average total assets

This ratio is also known as the net rate of return on assets This coefficientreflects how much profit each taxpayer uses during the period

- Returns on equity (ROE)

Average shareholder’s equity

This criterion reflects all aspects of the level of financial management, includingthe level of revenue and cost management, the level of asset management, the level ofcapital management of enterprises

- DuPont Analysis

The profitability of an enterprise's equity is a result of a series of measures andmanagement decisions To see the impact of the relationship between the level of costmanagement, capital management, capital management to the profitability of theowner of the business, a system of criteria has been developed to consider Theinfluence of factors on the rate of return on equity

total assets x

1

1 - Debt ratio

- Earnings per share (EPS)

EPS = Net income - Preferred dividends

Weighted average shares outstanding

This indicator reflects how much profit after ordinary shares (or common shares)

in the year A higher EPS compared to other competing businesses is one of the goalsand business managers are always aiming at

Profit distribution of a company

Profit distribution policy has great significance for businesses, a change in profitdistribution policy will change the price of stocks in the stock market affectingshareholder's income The optimal rational profit distribution policy has a positiveeffect on the development of the business and the increase in enterprise value

- Dividend per share (DPS)

DPS = Total dividends paid - Any special dividends

Share outstandings

This indicator reflects how much dividends each year usually yields

- Dividend payout ratio

1.3 Determinants of financial situation of a company

1.3.1 Objective factors

Objective factors are factors that cannot be controlled by the enterprise; inmanagement, the managers must constantly grasp these factors because it affectsbusiness operations in different trends, both create opportunities and limit the ability torealize the goals of the business

- Type of business: each enterprise chooses different legal forms such as: owned enterprises, Joint-stock companies, Limited liability companies, Privateenterprises, Foreign-invested enterprises Each type of business will have differentorganizational arrangements, so there will also be different forms of capitalmobilization, production and business, and profit distribution

State Characteristics of business lines: each of the different fields will have differenteconomic and technical characteristics, namely: The nature of the business sectoraffects the composition, capital structure of business, regulations The size of capitalfor production and business thus affects the rate of capital turnover (fixed capital andworking capital) affecting investment methods, payment methods

- Business environment: Business environment includes all externalconditions that strongly affect all activities of the enterprise, including financialactivities Business environment includes: Stability of the economy (directlyaffecting the level of turnover and capital demand of enterprises); effects on marketprices, interest rates and taxes (impacting profitability); competitors and technicalprogress (requires businesses to always find ways to innovate products, improvetechniques),

1.3.2 Subjective factors

Subjective factors refer to internal factors which come from the specificcharacteristics of a company

- Financial strength: Financial strength is reflected in the total capital (owner’s

equity, working capital) that businesses can raise into business, the ability to

effectively manage the capital sources in business Financial strength is reflected in theability to pay short-term, long-term debts, profitability ratios of enterprises, etc.

- Human potential: Demonstrated in knowledge and experience capable of

meeting high requirements of the business, successfully completing the assignedtasks, the staff of loyal businesses is always oriented towards the business highlyspecialized, skilled workers capable of solidarity, dynamic take advantage andexploit business opportunities

- Technology: Nowadays, digital technology is extremely developed, which

helps people to access information faster A company with good technologyplatform can develop business a faster and easier, on the other hand, developinginformation technology to help businesses reduce expenses such as marketing andadvertising costs,

- Company culture: company culture is very important to the long-term

development of the business Company culture helps increase work efficiency, inparticular, if the members feel comfortable with the operating culture of the company,they will be more proactive in their work

- Manager’s competences: is the ability to manage, plan and ideas of managers

in enterprises, take advantage of professional and social knowledge to operate incombination with financial factors , people, technology, harmoniously, maximizeusges of the company's resources Therefore, the qualifications of business managershave a great impact on business operations

CHAPTER II : THE S0054ATUS OF FINANCIAL SITUATION

IN THANH DO JOINT STOCK COMPANY IN THE PAST

TIME

2.1 Overview of Thanh Do Joint Stock Company

2.1.1 Establishment and Development of Thanh Do JSC

General information

- Name of enterprise: Thanh Do Joint Stock Company

- Address: Group 4, block 5, Cao Loc town, Cao Loc district, Lang Sơn province

- Phone: 025861686

- Fax: 025861628

- Tax code: 4900225821

- Business license: 4900225821

- Charter capital: VND 25,000 million

- Owner's equity: VND 25,684.28 million (December 31, 2019)

- Form of ownership: Joint stock company

Principal activities: Retailing other goods in general trading and food wholesaleshops; wholesale computers, peripherals and software (wholesale of computerequipment, printers, barcode readers, office and home appliances);

History and Development

Thanh Do JSC was established in 2004 in Lang Son Province According to thecertificate of enterprise registration of joint stock company No 4900225821 issued byLang Son Department of Business Registration and Investment in Lang Son provincefor the first time on February 11, 2004, changed for the 13th time on August 20, 2015

At the time of establishment, the charter capital of the company is 1 billion VND, butbecomes to 20 billion in August 2015 At present, Thanh Do Joint Stock Company has

5 supermarket branches in Hanoi and Lang Son The main business types of thecompany are: Supermarket, wholesale, retail, distribution of products to districts inLang Son province

Table 2.1 Ownership structure of Thanh Do JSC

Amount of capital contribution (VND)

Percentag e

1 Le Hong Phan

P306 - D5 collective 8/3 Quynh Mai ward, Hai Ba Trung district, Hanoi

24.746.000.000 98,98%

2 Mai Thanh Tung

P302 CT4C, X2 Linh Dam, Hoang Liet, Hoang Mai, Hanoi

127.000.000 0,51%

3 Vu Quoc Tai

No 15 Gieng Tien, Chi Lang Ward, Lang Son City, Lang Son

127.000.000 0,51%

Main consumption market

Thanh Do's main business is retailing in supermarket chains and wholesalers fordistributors Currently the company has a network of branches and shops in Hanoi Cityand Lang Son Province including 3 supermarkets in Lang Son and 3 stores in Hanoi.The company distributes products through direct retail channels or wholesalers

The company has a system of supermarkets and buffet shops in Lang Sonprovince and Hanoi city, including:

At Lang Son 1 Thanh Do 1 supermarket: 96 Phai Ve, P.Dong Kinh

2 Thanh Do 2 Supermarket: Bac Son district

3 Buffet shop: Huong Ha (P.Vinh Trai)

At Hanoi 4 Thanh Do Supermarket 3: 352 Giai Phong

5 Thanh Do Supermarket 4: 27 Lac Trung

6 Thanh Do Supermarket 4: 886 Duong Lang

Since 2019, the Company has separated the entire supermarket system in Hanoiand accounted into a new legal entity, Truong Ha Joint Stock Company, the currentsize of Thanh Do Company has shrunk Truong Ha Joint Stock Company and Thanh

Do Joint Stock Company have the same capital shareholders, with offices in 352 GiaiPhong (Hanoi), previously Truong Ha Company specializes in consulting andproviding supermarket equipment: prices , shelves, cameras, supermarket businessconsulting and operating a number of supermarkets in Hanoi, distributing some items

2.1.2 Organizational structure of Thanh Do JSC

General organization of management

Figure 2.1: Chart of organization structure of Thanh Do JSC

Through the organizational chart of the Company's management apparatus, thefunctions and tasks of each department can be clearly seen as follows:

CHEIF

ACCOUNTANT

MANAGING DIRECTOR BOARD OF MANAGEMENT

- The agency with highest decision making authority is the General Meeting ofShareholders The General Meeting of Shareholders elects the Board of Directors inaccordance with the charter of the Joint Stock Company.

- The Board of Directors appoints and dismisss the CEO position TheExecutive Director appoints and dismisses the titles: Deputy Director of the Company,heads and deputy heads of departments;

- The legal representative of Joint Stock Company is the Chairman of the Board

- Planning - Sales Department: Including Planning and Sales division.Department of Planning - Business has the function of researching, planning andorganizing the implementation of the Company's business strategies Personnelorganization and administrative affairs in the Company Report and advise the Board

of Directors on the resources and business results of the Company

- The head and decision making of the Company is Mr Vu Quoc Tai, Chairman

of the Board cum General Director Assist the General Director include:

Deputy General Director is Ms Vi Thi Huong who is in charge of Planning Business Department

-Chief Accountant is Ms Dao Thi Thu Thuy in charge of Accounting Department

At Thanh Do Joint Stock Company, due to its small scale and its business mainlyfocusing on the retail of essential goods, the organizational structure is notcomplicated Financial functions are assumed by the Board of Directors based onfinancial statements from the Accounting Department The information from the

Accounting Department will be taken into consideration, considered by the Board ofDirectors and the decision of the General Director is final.

2.1.4 Advantages and Disadvantages of Business Activities of Thanh Do JSC

The company mainly wholesale and retail items in the form of supermarketbusiness With reasonable prices, diverse and abundant items, many consumers knowand trust In Lang Son province, the company has the largest market share compared toother companies of the same type of business In addition, since 2014, the companyhas expanded its business of construction materials, which has initially started togenerate revenue and profits

The company has a clear, effective business strategy Always looking for ways toexpand production and business activities, enhance competitiveness with othercompetitors in the area, create stable jobs for employees

The company always has customer policies suitable to each business period such

as promotions, discounted items to attract consumers

Thanh Do Joint Stock Company has diversified business items, a large number ofclose customers with a wide distribution network, capable of developing andexpanding business scale In the short term the company has an advantage to grow.However, in the long term, before the expansion of the scope of activities of majordistributors, not to mention many other distributors have consulted and found locations

to open supermarket chains such as Big C; with the appearance of VINMART and anumber of mini supermarkets the market share of the company will face fiercecompetition from these competitors

2.2 Assest and asset structure of Thanh Do Joint Stock company