Chapter 2 financial ratios analysis of vinhomes joint stock company in the period of 2019 – 2021

Financial analysis also referred to as financial statement analysis or accountinganalysis or Analysis of finance refers to an assessment of the viability, stability andprofitability of a

HỌC VIỆN CHÍNH SÁCH VÀ PHÁT TRIỂN

VIỆN ĐÀO TẠO QUỐC TẾ

Gi ng viên hả ướng dẫẫn: Th.S Nguyêẫn Trẫần KhánhSinh viên th c hi n:ự ệ Đỗẫ Trung Thành

Hanoi, June 2022

TABLE OF CONTENT

Chapter 1: Literature review on financial ratios analysis 4

1.1 Overview of financial statements 4 1.1.1 Definition of financial statements 5

1.1.2 Categories of financial statements 5

1.2 Overview of Financial ratios analysis 6 1.2.1 Role of financial ratios analysis 6

1.2.2 Categories of financial ratios analysis 7

1.2.2.1 Short-term solvency or liquidity ratios 7

1.2.2.2 Long-term solvency or financial leverage ratios 8

1.2.2.3 Asset management or turnover ratios 8

1.2.2.4 Profitability ratio 9

Chapter 2: Financial ratios analysis of Vinhomes Joint Stock Company in the period of 2019 – 2021 10

2.1 Short-term solvency or liquidity ratios 10 2.2 Long-term solvency or financial leverage ratios 14 2.3 Asset management or turnover ratios 16 2.4 Profitability ratios 18 2.5 Market value ratios 20 2.6 Evaluation of financial ratios analysis at Vinhomes JSC in the period of 2019 – 202121 2.6.1 Achievements 21

2.6.2 Limitations and causes 23

Chapter 3: Solutions to improve financial ratios of Vinhomes JSC towards 2025 23

3.1 Solutions to improve Short-term solvency or liquidity ratios 23 3.2 Solutions to improve financial leverage ratios 24 3.3 Solutions to improve turnover ratios 25 3.4 Solutions to improve Profitability ratios 25 3.5 Solutions to improve Market value ratios 26 Reference 27

Chapter 1: Literature review on financial ratios analysis

1.1 Overview of financial statements

Financial analysis (also referred to as financial statement analysis or accountinganalysis or Analysis of finance) refers to an assessment of the viability, stability andprofitability of a business, sub-business or project (Kieso et al., 2007).

Financial statements are written records that convey the business activities and thefinancial performance of a company Financial statements are often audited by governmentagencies, accountants, firms, etc to ensure accuracy and for tax, financing, or investingpurposes According to Kieso et al. (2007), it is performed by professionals who preparereports using ratios that make use of information taken from financial statements and otherreports These reports are usually presented to top management as one of their bases inmaking business decisions

Financial statements include :

Balance sheet

Income statement

Cash flow statement

1.1.1 Definition of financial statements

Acorrding to the Vietnam accounting system in 2015, “Financial statement is aeconomy, financial information system of accounting unit was represented bydocument which follow by standard and regime of accounting Specically, finacialstatement which includes displaying about asset, equity, payable as well as the result

of bussiness activities of the company happened in the same period Therefore, we canassess the financial situations and coming up with the solutions”

1.1.2 Categories of financial statements

Liabilities are amounts of money that a company owes to others This can include allkinds of obligations, like money borrowed from a bank to launch a new product, rentfor use of a building, money owed to suppliers for materials, payroll a company owes

to its employees, environmental cleanup costs, or taxes owed to the government.Liabilities also include obligations to provide goods or services to customers in thefuture

Shareholders’ equity is sometimes called capital or net worth It’s the money thatwould be left if a company sold all of its assets and paid off all of its liabilities Thisleftover money belongs to the shareholders, or the owners, of the company

Income Statements

An income statement is a report that shows how much revenue a companyearned over a specific time period (usually for a year or some portion of a year) Anincome statement also shows the costs and expenses associated with earning thatrevenue The literal “bottom line” of the statement usually shows the company’s netearnings or losses This tells you how much the company earned or lost over theperiod

Cash Flow Statements

Cash flow statements report a company’s inflows and outflows of cash This isimportant because a company needs to have enough cash on hand to pay its expensesand purchase assets While an income statement can tell you whether a company made

a profit, a cash flow statement can tell you whether the company generated cash

A cash flow statement shows changes over time rather than absolute dollaramounts at a point in time It uses and reorders the information from a company’sbalance sheet and income statement The bottom line of the cash flow statement showsthe net increase or decrease in cash for the period Generally, cash flow statements aredivided into three main parts Each part reviews the cash flow from one of three types

of activities: (1) operating activities; (2) investing activities; and (3) financingactivities

1.2 Overview of Financial ratios analysis

1.2.1 Role of financial ratios analysis

Financial ratios show the state of your business’s financial health either at acertain point in time or during a specific period These ratiosare one way to measure

around growth For example, a common financial ratio called current ratio (whichwe’ll review in detail shortly) is helpful in determining if your business has thenecessary cash flow to grow Another financial ratio, inventory turnover (which we’llalso review shortly), indicates how quickly or slowly your inventory is moving and ifyou need to make any tweaks to better align your product with market demand.Calculating and analyzing financial ratios not only helps you track how yourcompany’s current performance compares to its performance in the past, but you candetermine how your business stacks up against the competition by comparing yourfinancial ratios with industry standards

Financial ratios are grouped into four broad categories—liquidity, safety (orleverage), profitability and efficiency Within these categories, there are several

financial ratios, and each help you measure different aspects of your business’sproductivity—using assets, generating profits, moving inventory

1.2.2 Categories of financial ratios analysis

1.2.2.1 Short-term solvency or liquidity ratios

Statement(s)

Formula to Calculate Ratio

Current Ratio Measure your company’s

ability to pay both short and long-term debts.

Balance Sheet Current Assets /

Current Liabilities

Quick Ratio Measure your company’s

ability to generate cash to pay short-term financial debts—how much money you have in liquid assets

Balance Sheet (Current Assets

-Inventory) / Current Liabilities

1.2.2.2 Long-term solvency or financial leverage ratios

Financial Ratio Function Which Financial

Statement(s) Formula to Calculate Ratio Debt Ratio (debt to

financial liabili against shareho equity

Balance Sheet Total Liabilities / Share

holders’ Equity

1.2.2.3 Asset management or turnover ratios

Financial Ratio Function Which Financial

Statement(s)

Formula to Calculate Ratio

Inventory Turnover See how long it takes

for inventory to besold and replacedduring the year

Income Statementand Balance Sheet Cost of Goods Sold /Inventory

Asset Turnover Measure your

company’s ability togenerate sales throughassets

Income Statementand Balance Sheet Net Income / AverageTotal Assets

1.2.2.4 Profitability ratio

Financial Statement(s)

Formula to Calculate Ratio

Gross Profit

Margin

Measure how muchmoney you have fromsales after subtracting the

cost of goods sold(COGS)—money your

company earns on thedollar

IncomeStatement

(Revenue − Cost ofGoods Sold) / Revenue

Profit Margin See how much your

company earned afterdeducting all expenses

Balance Sheet (Revenue − Expenses) /

Revenue

Return on Equity Measure how efficiently

your company is using its

equity to generate profit

IncomeStatement andBalance Sheet

Net Income / AverageShareholders’ Equity

Return on Assets Measure how efficiently

your company is using its

assets to generate profit

IncomeStatement andBalance Sheet

Net Income / AverageTotal Assets1.2.2.5 Market value ratio

Financial

Financial Statement(s)

Formula to Calculate Ratio

P/B represents the minimum

value of a company's

equity and measures

the book value of a firm

on a per-share basis

BalanceSheet Total Equity − Preferred Equi ty / Total share outstanding

P/E hows what the market is

willing to pay today for a

stock based on its past or

future earnings

Balance

EPS This financial ratio calculates

how much profit the

company is generating per

share In other words, it tells

you how much

money shareholders would

receive if the company were

to be liquidated

IncomeStatementand BalanceSheet

Net profit/ Number of common

(Source: Calculated from financial statements)

According to the calculation, the current ratio of 1,25 indicates that a companyhas just enough money to pay its short-term debts in 2019, Look at carefully intothese figures, which means that in order to pay off 1 dong of short-term debt,enterprises need to use an average of 1.25 VND of short-term assets After sightly godown by 0.98 in the following year but rehabilitate in 2021 by 1,14, about 15%compared with 2020 By compared to the industry average of 2.1 times, thisnumber is still quite low but enough to maintain the company's solvency Liquidassets are kept in huge reserve, reflecting inefficient use of assets, because this firm

is not operating and is not profitable… And then the actual solvency of theenterprise will not be high

Short-term liabilities are debts that the enterprise is required to pay in theperiod, so the enterprise must use the assets that the enterprise actually has, thefirm converts these assets into cash and uses that money to pay the currentliabilities and due debt The assets that can be converted into cash the fastest arethe short-term assets, which are the assets that the enterprise is managing and underthe right of use of the enterprise

2020, this number continually decrease to 0,57, it means that the company could be in

a circumstances when they had difficulty paying debts and in order to pay debts,enterprises may have to sell goods and assets urgently to pay debts, when they haddifficulty paying debts and in order to do that enterprises may have to sell goods andassets urgently to pay debts Short-term debt may be large but if it doesn't need to bepaid immediately, the quick solvency of the business could also be considered as a bigproblem

In the year 2021, this number has been improved moderately from 0.57 to 0.87,equivalent to nearly half of this figures in 2020 To explain this trend, at this time thecurrentliabilities has been solved, by falling down from 103,385 Billion VND to75,401 On the other hand, this coefficient equals 1 is ideal, this indicator allows for abetter assess the bankruptcy risk of the enterprise However, because prepaid expenses

as well as receivables… have a much slower conversion to cash, other criteria can beused to supplement

be quickly converted to cash in time to meet short-term liabilities Looking into thedetail, there are two contrasting trends here from 2019 to 2021, current liabilities ofVHM is gradually paid off, dropping from 121,577 Billiion VND to 75,401 BilliionVND, stand for 37,9% debts have been gone Hence, the number of cash and cashequivalent is 4,626 Billiion VND, this’s also the reason why cash ratio of this period is0,06 The cash ratio shows how quickly a company can pay off its debts, since cashand cash equivalents are the most liquid assets Although a large amount of debt hasbeen paid off, this coefficient is very low compared with its ideal recommendation,fluctuating from 0,5 to 1 In the future, the enterprise will face many difficulties inpaying the debt.

2.2 Long-term solvency or financial leverage ratios

Financial year

Figure

2021, stand for 30% and 62,5% respectively compared with 2019 Changing in term debt and assets tend to have the greatest impact on the D/E ratio because theytend to be larger accounts compared to short-term debt and short-term assets Ifinvestors want to evaluate a company’s short-term leverage and its ability to meetdebt obligations that must be paid over a year or less, they can use other ratios It isclearly that the amount of total shareholders equity has been boosted significantlyfrom 64,715 in 2019 to 131,407 in 2021, about more than 50% compared with thefirst year in the table.

long-If a lot of debt is used to finance growth, a company could potentially generatemore earnings than it would have without that financing If leverage increasesearnings by a greater amount than the debt’s cost (interest), then shareholders shouldexpect to benefit However, if the cost of debt financing outweighs the increasedincome generated, share values may decline The cost of debt can vary with marketconditions Thus, unprofitable borrowing may not be apparent at first

by the enterprise, there would be 3,2 dong of equity, this upward trend couldexplained by the go up of total equity of VHM with 103.05% new equity has beenadded to the firm, showing a big amount of new captial running into the company,leading to the amount of total assets aslo increased 16,7% in 2021 when comparedwith 2019, from 197,241 billion VND to 230,516 billion VND However, a company'sequity multiplier can be seen as high or low only in comparison to historicalstandards, the averages for the industry, this figure of real estate calculated by MiraeAsset Vietnam Research is approximately 0.75, which means these figure of VHM arestill below average of the industry.

2.3 Asset management or turnover ratios

Financial year

Figure

Starting with 0.4 times in 2019, in 2020 this figure had a huge improvement bymore than 50% to 1,5 before reaching its peak in 2021 with 1.6 times It isunderstandable when the number of inventory in 2020 has decreased 29,8 %compared with the previous year while COGS in three years has a upward tendencyfrom 24,171 billion VND to just 36,526 billion VND in 2021.

In 2019 , this figure of VHM was just 0.92, due to improper debt collection process ofthe business, bad credit policy or due to customers On the other hand, revenueincreased from 51,627 billion VND to 84,986 billion VND in 3 three years, while thesame trend could be seen in acount receivables when in 2021, this figure has rised50% compared with 2019.

Besides, The real estate industry tends to have a long term of debt due to thespecificity of the industry, acorrding to the balance sheet of VHM in 2021, long-termassets in progress (production and contruction) and long-term receivables have aproportion of 26% in total assets of VINHOME JSC Receivables turnover in next 2years is around 1,5 and 1,6, which nearly doubled with 2019, shows that the ability ofcompany to collect debts from customers, partners, and suppliers is good and thecompany has reputable customers and suppliers, quality, sales policy, and effectiveoperation