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 C[.]
OVERVIEW OF FINANCIAL SITUATION OF A COMPANY
C ORPORATE FINANCE AND CORPORATE FINANCE MANAGEMENT
1.1.1 Corporate finance and financial decisions
Corporate finance is essential for managing a company's monetary funds, focusing on its financial structure, funding strategies, and maximizing shareholder wealth It involves analyzing and implementing methods to allocate capital efficiently, ensuring a balance between profitability and risk The primary goal of corporate finance is to optimize resource management through strategic planning and decision-making, ultimately enhancing the company's value for its shareholders.
The economic relations associated with the creation, distribution and use of corporate monetary funds constitute the financial relationships of a company. Generally, there are several financial relationships as following:
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- Relationship between companies and other economic entities: This involves payment relationships in borrowing and lending, capital investment, purchasing or selling of properties, products, goods and other services.
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Financial managers play a crucial role in making both short-term and long-term financial decisions to achieve corporate finance objectives Long-term financial decisions, also known as strategic financial decisions, encompass three key areas: investment decisions (capital budgeting), financing decisions (sources of finance), and dividend decisions In contrast, short-term financial management focuses on working capital management, which involves managing current assets and current liabilities to ensure smooth daily operations.
Investment decision, also known as capital budgeting, involves evaluating the total value of assets and the significance of each asset type, such as fixed assets and current assets It focuses on determining the potential return on investments to ensure optimal deployment of resources This process is crucial for aligning asset allocation with the company's financial goals and long-term growth strategy Effective investment decisions maximize returns while minimizing risks associated with asset management.
Decision on investment in current assets: How much money should a company put in inventories, accounts receivable, marketable securities, etc.
Decision on investment in fixed assets: Decision on new asset purchase or replacement, long-term investment, financial lease, etc.
Deciding on asset structure, which indicates the ratio between current assets and fixed assets Also it refers to investment in fixed assets, operating leverage, and break-even analysis.
Making the right investment decision is crucial because it directly adds value to the business and enhances the owner's wealth A well-informed investment choice can increase the company's value and, consequently, the property's worth On the other hand, a poor investment decision can harm the business's value, leading to significant financial losses for the owner Therefore, sound investment decisions are essential for sustainable business growth and wealth preservation.
Financing decision: This decision associates with sources of finance and how to organize capital structure That means:
Decision on short-term financing: decision on short-term loan or use of commercial credit; decide whether to take a short-term bank loan or use a company bills.
Deciding on long-term financing involves choosing between options such as long-term bank loans or corporate bond issues to meet funding needs It also includes determining whether to finance through retained earnings or by issuing new shares, which impacts the company's equity structure Ultimately, these decisions play a crucial role in shaping the company's optimal capital structure, balancing debt and equity to support sustainable growth and financial stability.
Raising fund decision is a significant challenge for corporate financial managers.
Effective capital mobilization requires financial managers to carefully evaluate the advantages and disadvantages of various capital raising tools By accurately assessing the current financial situation and forecasting future needs, they can make informed decisions that align with organizational goals and optimize funding strategies.
Decisions on profit distribution involve establishing a company's dividend policy, which impacts how profits are allocated between paying dividends to shareholders and reinvestment for growth Financial managers must determine whether to distribute net profits as dividends or retain earnings to fund future expansion These dividend policies can influence the company's market valuation and share price, highlighting their importance in overall financial strategy.
Effective working capital management involves key short-term strategies such as maintaining adequate cash reserves, managing receivables efficiently, implementing strategic payment discounts, setting appropriate reserve capital levels, and optimizing depreciation of fixed assets These decisions significantly influence the company's risks and rewards, ensuring financial stability and maximizing value for owners Proper management of these components is crucial for sustaining operational efficiency and achieving long-term business success.
Financial managers play a crucial role in making financial decisions that aim to maximize business value They constantly face the challenge of balancing risk and return to ensure optimal outcomes A sound financial decision is one that enhances company value by minimizing risks and maximizing profits for owners However, analyzing and selecting the right financial strategies can be complex and demanding, requiring careful consideration to achieve the best possible results.
To maximize business profits, managers must make strategic financial decisions, encompassing long-term choices such as investments, financial planning, and profit distribution policies like dividends Short-term financial decisions focus on managing current assets and liabilities, particularly working capital management Effective financial decision-making, both long-term and short-term, is essential for achieving sustainable business growth and profitability.
Investment decisions relate to the total value of assets (current assets and non- current assets) Investment decisions affect the left side of the balance sheet include:
- Decisions on current assets investments: Inventories, trade policy, and short- term financial investments, etc.
- Decisions on non-current assets investments: Acquisition of new fixed assets, old fixed assets disposal, project investments and long-term financial investments, etc.
- Decisions on the structure of short-term and long-term assets: Operating leverage usage and break-even point, etc.
Financing decisions include decisions about which sources of finance to choose for investment decisions Major capital mobilization decisions of a company include:
- Decisions on short-term capital mobilization: Short-term loan or commercial credit usage and short-term bank loan or corporate bills usage, etc.
- Decisions on long-term capital mobilization: Long-term debt or equity, long- term borrowing from banks or corporate bonds issuance, etc.
- Decisions on capital structure: Debt ratio, financial leverage, and the optimal capital structure.
The company's dividend policy involves decisions on how to distribute profits, influencing its overall financial strategy CFOs must determine whether to allocate after-tax profits for dividends or reinvest them into the business for growth Additionally, the choice of dividend policy can impact the company's valuation and stock market performance, making it a crucial aspect of corporate finance decision-making.
- Participate in the evaluation and selection of investment project decisions.
Effective project evaluation and selection involve multiple departments within a company, with a focus on the project’s economic value added Financial managers analyze proposed cash flows and utilize indicators such as NPV and IRR to assess profitability By meticulously calculating these financial metrics, they ensure informed investment decisions that maximize corporate value.
Determining capital needs and organizing sources of finance for all business ativities and investment requirements of a company.
Effective corporate financial management begins with accurately identifying a company's capital needs to support all business activities and meet operational requirements Organizing and selecting appropriate sources of financing is crucial, as it significantly influences overall company performance When choosing methods of capital mobilization, enterprises must carefully consider factors such as capital structure, cost of capital, and the advantages and disadvantages of different funding options to ensure sustainable growth.
Using capital effectively and efficiently, managing strictly revenues and expenses, ensuring ability to pay off liabilities
F INANCIAL 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 their interrelationships) of an organization, as reflected in its financial statements
Assessing a company's financial health involves examining key indicators, such as revenue and cash reserves, to determine its viability as a going concern While investing in new equipment, office space, and staff can support growth, excessive or unproductive expenditures may signal financial instability When a business spends more than it earns without boosting long-term stability, it risks declining liquidity, making it difficult to cover essential expenses like utilities and salaries Consequently, companies may be forced to freeze or reduce employee wages to maintain operational continuity.
Assessing a corporation's financial situation involves a comprehensive analysis of all aspects of corporate finance to determine its overall health This process helps identify the causes and impacts of financial factors, enabling managers to make informed decisions Ultimately, this assessment is crucial for improving the firm's efficiency and ensuring its financial stability.
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
Financial managers analyze a company's assets and asset structure by examining balance sheet data to compare total assets across different periods, using both absolute figures and relative changes to identify fluctuations in the enterprise's asset size They pay particular attention to detailed asset categories such as cash, short-term financial investments, receivables, inventories, and long-term assets to assess the company's financial health This analysis helps evaluate the past and present financial situation, serving as a foundation for forecasting future financial potential and making informed business decisions.
When analyzing a company's financial performance, it is essential to not only compare total assets at the end of the period with those at the beginning of the year but also to examine the proportion of different asset types within total assets Additionally, understanding the trend of asset allocation fluctuations provides insights into business stability and strategic shifts The significance of each asset category varies depending on the company's industry and operational characteristics, highlighting the importance of considering asset proportions in relation to the company's specific business nature.
When analyzing the structure of the enterprise's assets, there should be assessments on the overall asset structure as well as some important asset components of the enterprise.
The current asset ratio: is the ratio describing the propotion of current asset in total asset of a company, it is calculated by dividing the current assets by total assets
Current asset ratio = Currnet asset
The non-current asset ratio measures the proportion of non-current assets within a company's total assets, indicating the company's long-term investment stability It is calculated by dividing non-current assets by total assets or alternatively by subtracting the current asset ratio from one This ratio provides insight into the company's asset structure and its reliance on long-term investments.
Non-current asset ratio = Non-currnet asset
The current asset ratio and non-current asset ratio provide insight into a company's overall asset structure by illustrating the balance between short-term and long-term assets While there are no universal standards for these ratios, their ideal values may vary depending on the industry and business strategy Monitoring these ratios helps assess the company's liquidity position and long-term financial stability, making them essential metrics for financial analysis.
Sources of finance and capital structure
A company can raise funds from various sources to meet its capital requirements, ensuring the smooth operation and growth of the business Sources of finance encompass all the options available for financing investments and operational needs, including equity, debt, and alternative financial avenues By diversifying its funding sources, a company can optimize its capital structure and enhance financial stability Effective management of these financial sources is crucial for supporting business expansion and long-term success.
There are two ways to classify sources of finance: by ownership and by term
Ownership in a company is classified into liabilities and shareholders’ equity Liabilities represent future obligations the company must settle, primarily arising from bank loans that include interest expenses Shareholders’ equity, on the other hand, consists of the capital contributed by the company's owners.
Capital structure refers to the proportion between a company's liabilities and shareholders’ equity, indicating how the enterprise finances its assets The debt ratio is a key metric that shows the percentage of assets financed through debt, reflecting the company's leverage level Overall, the capital structure of an enterprise is characterized by these essential criteria, providing insight into its financial stability and risk profile Optimizing capital structure is crucial for enhancing profitability and ensuring sustainable growth.
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 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:
In addition, the capital structure is reflected in the debt to equity ratio:
Debt ratio to equity (D/E) = Total Debts
Beside, capital is the source of assets, so analysis of assets is also essential when considering the capital situation.
When evaluating a company's financial health, it is crucial to consider the optimal balance between liabilities and equity to ensure sufficient resources for operations and growth A well-structured financial model helps reduce the overall cost of capital, enhancing profitability Corporate financing policies play a vital role in reviewing and assessing resources, enabling businesses to efficiently fund their development initiatives while maintaining financial stability.
Net working capital = Long-Term soueces – Non-current assets
Net working capital = Current assets - Short-term sources
A positive Net Working Capital (NWC > 0) indicates that companies have surplus long-term capital, enabling full financing of fixed assets and long-term investments through equity and long-term debts This surplus also partially funds short-term fixed and liquid assets, maintaining a balanced financial structure Moreover, a positive NWC reflects that the proceeds from current assets and short-term investments will enable the business to meet its debt obligations and allocate funds for operational needs, supporting overall financial stability.
A negative Net Working Capital (NWC < 0) indicates that long-term capital is only partially secured for long-term assets, while the remaining funds are used to finance short-term assets, leading to an unbalanced financing structure Additionally, this situation reveals that the liquidity generated from current assets and short-term investments is insufficient to cover short-term debts, thereby compromising the company's liquidity position.
Net Working Capital (NWC) equals zero when current assets exactly match short-term liabilities or when long-term sources are equal to fixed assets This indicates that fixed assets are financed with long-term capital, while current assets rely on short-term funding Such a financial structure lacks stability in a company's production and business operations, particularly in 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 following funding 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 that there 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 temporary capital 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 the use 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 temporary capital.
- By term capital classified into temporary capital and permanent capital
D ETERMINANTS OF FINANCIAL SITUATION OF A COMPANY
Objective factors are uncontrollable elements that significantly influence business operations Effective management requires constantly monitoring these external factors, as they can create new opportunities or impose limitations that impact the company's ability to achieve its goals Understanding and adapting to these unavoidable influences are essential for strategic planning and sustained success.
Different types of businesses, including state-owned enterprises, joint-stock companies, limited liability companies, private enterprises, and foreign-invested enterprises, each have unique organizational structures These variations influence their methods of capital mobilization, production, business operations, and profit distribution, shaping their overall operational approach.
Different business lines exhibit unique economic and technical characteristics influenced by their specific industry sectors The nature of each business sector impacts the composition and capital structure, including regulatory requirements Additionally, factors such as the size of capital allocated for production and operations influence the capital turnover rate, encompassing both fixed and working capital These variations ultimately affect investment strategies and payment methods, shaping the overall financial management within each business field.
The business environment comprises external factors that significantly influence all company activities, including financial operations Key components include economic stability, which directly impacts turnover levels and capital requirements, and market dynamics such as prices, interest rates, and taxes that affect profitability Additionally, competition and technological progress compel businesses to continuously innovate products and improve techniques to maintain a competitive edge.
Subjective factors refer to internal factors which come from the specific characteristics of a company
Financial strength is a key indicator of a business’s stability and resilience, reflected in its total capital—including owner’s equity and working capital—and its capacity to effectively manage various capital sources It demonstrates a company's ability to meet both short-term and long-term financial obligations, with profitability ratios serving as additional measures of its financial health and performance.
Human potential is reflected in employees' knowledge and experience, enabling them to meet high business demands and successfully complete assigned tasks Loyal staff members are dedicated to the company's growth, showcasing specialized skills and teamwork They are dynamic, proactive, and capable of identifying and exploiting business opportunities to drive success.
In today's digital age, advanced technology enables rapid access to information and streamlines business operations Companies equipped with robust technology platforms can expand more quickly and efficiently, gaining a competitive edge Additionally, leveraging information technology helps businesses reduce expenses related to marketing and advertising, enhancing overall profitability and growth.
A strong company culture is essential for the long-term success of any business, as it boosts work efficiency and promotes a positive environment When employees feel comfortable with the company's operating culture, they become more proactive and engaged in their work, driving overall productivity and growth Cultivating a supportive and cohesive organizational culture is key to maintaining motivation and ensuring sustainable development.
Effective manager competencies involve the ability to plan, lead, and leverage professional and social knowledge to optimize business operations A skilled manager integrates resources such as people, technology, and financial factors to ensure harmonious functioning within the enterprise Their qualifications significantly influence overall business performance and success.
THE S0054ATUS OF FINANCIAL SITUATION IN THANH DO
O VERVIEW OF T HANH D O J OINT S TOCK C OMPANY
2.1.1 Establishment and Development of Thanh Do JSC
- Name of enterprise: Thanh Do Joint Stock Company
- Address: Group 4, block 5, Cao Loc town, Cao Loc district, Lang Sơn province.
- 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 wholesale shops; wholesale computers, peripherals and software (wholesale of computer equipment, printers, barcode readers, office and home appliances);
Thanh Do JSC was founded in 2004 in Lang Son Province, Vietnam, and holds enterprise registration certificate No 4900225821 issued by the Lang Son Department of Business Registration and Investment Since its establishment, the company has undergone multiple updates, with its registration details amended for the 13th time on August 20, 2015.
At the time of establishment, the charter capital of the company is 1 billion VND, but becomes 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 the company are: Supermarket, wholesale, retail, distribution of products to districts inLang Son province.
Table 2.1 Ownership structure of Thanh Do JSC
No Name of shareholder Address
Amount of capital contribution (VND)
P306 - D5 collective 8/3 Quynh Mai ward, Hai Ba Trung district, Hanoi
P302 CT4C, X2 Linh Dam, Hoang Liet, Hoang Mai, Hanoi
No 15 Gieng Tien, Chi Lang Ward, Lang Son City, Lang Son
Thanh Do specializes in retailing through supermarket chains and wholesale distributors, with a strong presence in Hanoi City and Lang Son Province The company operates a network of six stores, including three supermarkets in Lang Son and three retail outlets in Hanoi, ensuring broad market coverage Their distribution channels include direct retail sales and partnerships with wholesalers, enabling efficient product delivery across regions.
The company has a system of supermarkets and buffet shops in Lang Son province 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 restructured its operations by separating the entire supermarket system in Hanoi into a new legal entity, Truong Ha Joint Stock Company As a result of this strategic move, the current size of Thanh Do Company has decreased.
A Joint Stock Company often shares capital with its shareholders and may operate from offices such as the location at 352 Giai Phong in Hanoi Previously known as Truong Ha Company, this business specializes in consulting services and supplying supermarket equipment, including shelving, security cameras, and other retail fixtures They also offer supermarket business consulting and assist in the management and operation of several supermarkets across Hanoi, along with distributing various retail items.
2.1.2 Organizational structure of Thanh Do JSC
Figure 2.1: Chart of organization structure of Thanh Do JSC
Through the organizational chart of the Company's management apparatus, the functions and tasks of each department can be clearly seen as follows:
BOARD OF MANAGEMENT BOARD OF MANAGEMENT
The General Meeting of Shareholders holds the highest decision-making authority within the company It is responsible for electing the Board of Directors, in accordance with the company's charter This structure ensures that major corporate decisions are made by the shareholders, promoting transparency and proper governance.
- The Board of Directors appoints and dismisss the CEO position The Executive 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 of Directors.
According to the organizational chart of Thanh Do Joint Stock Company we can see that the Company has a simple apparatus of 2 rooms:
The Finance - Accounting Division is responsible for conducting accounting operations in strict compliance with national accounting standards It monitors and updates the company's financial ratios regularly to ensure accurate financial reporting Additionally, this division provides comprehensive reports and strategic advice to the Board of Directors regarding the company's financial and accounting status, supporting informed decision-making and regulatory compliance.
The Planning and Sales departments play a vital role in the company's success The Planning Department is responsible for researching, developing, and organizing the implementation of the company's business strategies to ensure alignment with overall objectives It also handles personnel organization and administrative tasks, contributing to efficient business operations Additionally, the department provides reports and strategic advice to the Board of Directors regarding resource management and business performance, supporting informed decision-making.
- 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.
Thanh Do Joint Stock Company operates on a simple organizational structure due to its small scale and primary focus on retailing essential goods The company's financial management is centralized within the Board of Directors, which relies on financial statements prepared by the Accounting Department This streamlined setup enables efficient decision-making and effective oversight of the company's financial performance.
Accounting Department will be taken into consideration, considered by the Board of Directors and the decision of the General Director is final.
2.1.4 Advantages and Disadvantages of Business Activities of Thanh Do JSC
The company specializes in wholesale and retail supermarket operations, offering a wide variety of products at competitive prices that have earned the trust of many consumers In Lang Son province, it holds the largest market share among competitors in the same industry, demonstrating its dominance and customer loyalty Since 2014, the company has expanded into the construction materials sector, leading to initial growth in revenue and profitability, further diversifying its business portfolio.
The company has a clear and effective business strategy focused on expanding production and business activities to drive growth By continually seeking new opportunities, it aims to enhance competitiveness within the industry Additionally, the company is committed to creating stable jobs for employees, ensuring a strong and sustainable workforce.
The company always has customer policies suitable to each business period such as promotions, discounted items to attract consumers.
Thanh Do Joint Stock Company boasts diversified business offerings and a large customer base supported by an extensive distribution network, enabling strong growth potential in the short term However, long-term success may be challenged by major distributor expansions and the emergence of competitors like Big C, VINMART, and various mini supermarkets, which could lead to intense market rivalry and a potential decline in market share.
2.2 Assest and asset structure of Thanh Do Joint Stock company
Table 2.1: Asset structure of Thanh Do Joint Stock Company in 2016-2019 (Unit: million dong) Itmes
IV Non-current assets in progress 2,323.60 1.70% 2,077.22 1.77% 3,422.48 2.72% 4,767.88 4.26%
1 Long-term work in progress - - - - - - - -
3 Investments in equity of other entities 1,500.00 1.10% 1,500.00 1.27% 1,500.00 1.19% 1,500.00 1.34%
VI Tother non-current assets 1,280.98 0.94% 1,050.28 0.89% 259.36 0.21% 11,377.31 10.18%
(Excerpt: Financial Statements of Thanh Do Joint Stock Company for the period of 2016-2018)
Table 2.2: Difference in assets structure Thanh Do Joint Stock Company in 2016-2019 Items
Difference 2018-2019 Difference 2017-2018 Difference 2016-2017 Amount Proportion
IV Non-current assets in progress 246.38 11.86% -1,345.26 -39.31% -1,345.40 -28.22%
1 Long-term work in progress - - - - - -
3 Investments in equity of other entities 0.00 0.00% 0.00 0.00% 0.00 0.00%
VI Tother non-current assets 230.701124 21.97% 790.92 304.95% -11117.95 -97.72%
Between 2016 and 2019, corporate total assets experienced steady growth, primarily driven by increases in current assets The overall asset structure remained stable during this period, with short-term assets continuing to dominate, mainly comprising inventory and accounts receivable.
Between 2016 and 2019, the company's short-term assets showed consistent growth, starting at VND 79.75 billion in 2016 and reaching VND 105.59 billion in 2018, driven primarily by increased short-term internal receivables The significant rise in the initial two years was due to the company's expansion efforts, including a fully invested branch in Hanoi, which contributed an additional VND 10 billion to short-term receivables from customers By 2019, the increase remained primarily due to a rise in short-term receivables, with total assets up VND 18.7 billion, reflecting a 17.78% growth This trend highlights the importance of short-term receivables in the company's asset growth during this period.
Receivables: Receivables from customers in 2016 were VND 2.39 billion, in
In 2017, Thanh Do's total assets increased to VND 32.78 billion, primarily due to a VND 10 billion investment in affiliated units, including its branch in Hanoi The company's short-term customer receivables surged from VND 1.33 billion to VND 21.65 billion, mainly driven by partners placing end-of-year orders for the Lunar New Year, with the largest debt owed by Truong Ha Joint Stock Company, which absorbed Hanoi's supermarket system from 2019 Despite this significant increase, Thanh Do's receivables were generally considered reasonable, though close management of debt collection is necessary By 2018, receivables decreased by over VND 1.61 billion, indicating improved sales and recovery management; however, by the end of 2019, receivables rose sharply by VND 21.3 billion, likely due to extended credit policies to retain key partners amid intense market competition.
Inventory levels consistently account for more than 50% of total assets over the years, primarily due to companies stockpiling goods in anticipation of increased demand during the Lunar New Year In January, inventory tends to swell as businesses prepare to meet the shopping surge associated with this festive period, with inventory indices from 2018 onward reflecting this seasonal trend.
G ENERAL ASSESSMENT ON THE FINANCIAL SITUATION OF T HANH D O J OINT
From 2016 to 2019, Thanh Do has achieved some remarkable results:
Between 2016 and 2019, Thanh Do's business performance consistently improved year over year despite growing competition from local supermarkets and convenience stores, including Vinmart, Dong Tien supermarket, and Lasvilla supermarket.
In 2019, the company enhanced its solvency and interest payment capabilities, ensuring that its short-term assets could be converted into cash to meet short-term debt obligations This improvement helps reduce debt repayment pressure and strengthens overall financial stability for the business.
- Thirdly, Thanh Do has improved profitability targets by saving cost of sales thereby contributing to increasing profits for the company and owners.
- First, assets structure is irrelevant because too much capital invested into current assets Moreover, inventories and account receivable accounted for very large proportion of current assets (Inappropriate asset structure)
The company's capital structure is concerning due to an excessively high debt ratio, particularly in terms of current debt This situation is worsened by weak operating cash flow and significant repayment pressures, which hinder the business's ability to meet interest obligations efficiently.
- Third, the company's working capital is not large that the capital depends mainly on temporary capital, the financing model is very risky due to the small scale of equity;
- Fourth, the efficiency of asset exploitation decreases over years due to capital tie up in invetories and account receivable
- Fifth, fixed costs like Selling cost, genaral and administration cost greatly which lead to the reducing the company's operating
- Lending policies of the bank are not really favorable for small and medium enterprises while this is the main type of business in Vietnam in recent years.
The fluctuating economic conditions and the ongoing COVID-19 pandemic have significantly impacted consumer shopping behaviors, leading to a decline in foot traffic As people tend to avoid crowded places for safety reasons, supermarkets, which are typically busy shopping spots, have experienced reduced customer visits Consequently, this decline in footfall has adversely affected the revenue of many retail businesses.
Due to the retail industry's nature, inventory turnover is constantly increasing, necessitating significant short-term assets to support daily operations As a result, companies often rely on short-term loans to finance this crucial component of their business, ensuring smooth inventory management and operational efficiency.
- Currently, there are many competitors in the area that make it difficult for businesses to reach customers so businesses are trying to make policies that are beneficial to partners.
- Ability to manage financial strength is not really effective, specifically, high interest expenses and receivables have not been thoroughly managed.
- The qualification of a part of the labor force at the enterprise is not high, some new departments have replaced personnel, making some assessments and decisions not really reasonable.
- The company has not focused on information technology, has not really expanded its sales channels, and has not had quick and reasonable ways to reach consumers.