Analyzing and planning financial management at garmex saigon company

Chapter 2: Analyzing Financial Statement at Garmex Saigon 243.2.2 Direction for a stricter and more Effective Management of... The organization of this research is as follows: Chapter I

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HO CHI MINH CITY UNIVERSITY OF FOREIGN LANGUAGES

AND INFORMATION TECHNOLOGY (HUFLIT)

: NGUYEN THI QUYNH, MSBA

: VO THUY VAN KHANH : KA9602

HO CHI MINH CITY

JULY, 2000

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AT GARMEX SAIGON COMPANY.

First of all, I gratefully acknowledge my deep indebtedness to Ms Nguyen Thi Quynh, who

advised, provided materials for my study, reviewed and made comments on present paper

I would also like to thank President Huynh The Cuoc, Dean Luong Thi Ly, Vice Dean Le

Thi Thu Hang for their helpful comments and advice

In addition, I wish to express thanks to Chief Accountant Nguyen Thi Chinh, Ms Nguyen

Thi Hanh and the whole staff of the Garmex Saigon Company for their valuable

experience and guidance from which I have benefited greatly in the writing of this report

Last but not least, I also wish to express my great appreciation to my friend's supports and

encouragement

'I

Chapter 1: General Introduction about Garmex Saigon Company 3

1.3.2 The Tasks, Functions and Relations between Departments 12

Chapter 2: Analyzing Financial Statement at Garmex Saigon 24

3.2.2 Direction for a stricter and more Effective Management of

LIST OF TABLES

***

Table 3.2 Pro forma Financial Statement for Garmex Saigon, 2000 - 2005 47

LIST OF FIGURES

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Figure 1.6 Growth Rate of Sales, Income, Workforce, Given to Budget,

Figure 2.2 Comparison in percentage of components of Total assets (a) and of Total

J

The company's business activities exists and develops as its financial

management is good Therefore, studying finance is necessary to those who

want to understand a company's performance, and then can evaluate the

effectiveness of its finance For that reason, this study involves analyzing and

forecasting financial management at the Garmex Saigon Company.

The study begins an introduction about Garmex Saigon, such as history,

development, function tasks, and organizational structure Based on the general

analysis of Garmex Saigon, the study also mentions the SWOT analysis Besides

that, the study states the strategy for the year 2000 and the future In general, this

part provides necessary information about Garmex Saigon's business situation.

The second part discusses the major criteria for analyzing financial

management To deal with this problem, data from 1995 to 1999 at Garmex Saigon

shown in Balance Sheets and Income Statements brings a further understanding of

Garmex Saigon's performance over time especially liquidity, leverage, activity,

profitability ratios In addition, industry average data is also taken into account in

order that we can have better look on this issues.

The third part presents plan for the future, and measures improving capital

and financial ratios On the basic of the financial ratios, we forecast the income

statements and balance sheets for six years to achieve what we would like to.

The last part concerns suggestion to the company and government that we

have got during the time doing this research Moreover, the proposes would make

great contribution to our enterpreneurs, and promote more rapid and efficient

financial activities at Garmex Saigon.

••

INTRODUCTION

Since the "Doi main policy, which was a call for foreign investment was

introduced ten years ago, sources of capital flowing into Viet Nam have rapidly

increased each year Besides, being situated in the dynamic economic region of the Asia

- Pacific, our business people have many opportunities in the business sector However,

they are facing several challenges due mainly to effects of the regionally financial crisis

They have to deal with low consumer demand, a shortage of capital, high level of debt

and low profit In this case, finance is a main solution in problem solving

Finance is not as specialized or complex as you might think In fact, it is a daily

concern of people and organization, such as businessmen and government The study of

finance can benefit anyone Especially, to exit and develop in the competitive market,

most enterprises now use finance "as the most effective tool in their competition But what

methods contribute to the success of their financial management? And how can they

analyze financial activities logically and effectively?

As a matter of fact, financial management plays a central role in the company If

marketing is considered as a bridge linking information from factory to market; financial

analyzing and planning are decisive factors that influence the operation of the enterprise

Financial activities are looked upon as blood flowing into the body of organization, any

interruption will affect the business operations

The main objective of this research is to analyze a company's financial activities

so that we can have a better understanding of corporate finance, which is the basic of a

business enterprise

1

This research focuses on the financial situation at Garmex Saigon Company The

intensification of financial analyzing and planning is a main factor in helping Garmex

Saigon achieve its financial goal, and profit maximization

The organization of this research is as follows: Chapter I introduces the general

overview of Garmex Saigon including the company's history and development,

functions, organizational structure, and business performance The SWOT analysis is also

described in this chapter Chapter 2 shows the basic criteria for analyzing Garmex

Saigon's financial situation Financial statements from 1995 - 1999 are also analyzed in

this chapter In chapter 3, come the making plan and measures of raising the

effectiveness of using capital and improving the financial ratios Conclusions and

suggestions from the research are stated in chapter 4

Chapter 1 Generallntroduction about Garmex Saigon

1.1 The History and Development of Garmex Saigon

Originated from The Union of Garment Factories of Ho Chi Minh City, Saigon

Garment Manufacture Import - Export Company, which was established by the approval

of Ho Chi Minh City People Committee according to theDecision 36/QEl-UB, 1976 The

Union of Garment Factories included 4 affiliated enterprises: Saigon 1, Saigon 2, Saigon

3, and Saigon 4 Garment Factories Their tasks were to produce and export garment

products to Eastern European, and other countries in the world

Since 1992, when our nation has implemented the development of market

economy under the State's management, our garment export market was expanded

Saigon 2 and Saigon 3 Garment Factories were transferred into Saigon 2 and Saigon 3

Garment Companies

On December 9,1993 Ho Chi Minh City People Committee issued the Decision

No.1845/QEl-UB-CN that ended the operation of the Union of Garment Factories of

HCM City, and added the other garment factories into Saigon Garment Import - Export

Company with its trade name Garmex Saigon Co This is a legal organization in the

import-export garment business, which is located at 213 An DlWng Vuong Street, District

5, Ho Chi Minh City

During the past ten years, Vietnam Garment and Textile Corporation, and

Garment Saigon Company, in particular, have posted rapid growth, and accomplished

their international venture to settle a premise for the next development Increased export

sales have contributed to economic growth, improved people's living standards

Chapter 1 General Introduction about Garmex Saigon

Among the local textile and garment industries, Garmex Saigon Company has

developed both the strength and depth The number of customers coming to visit,

co-ordinate, and exchange experience with Garmex Saigon increases daily Customers do

not only stop at a CMP (Cutting Making Packing) order form, but also invest in the textile

machinery, equipment, and apply modern technology for processing Then, the finished

products will be exported to aboard market

However, because of limited factories, Garmex Saigon Company just partially

satisfies customer's demand Now, the garment export market has really expanded from

quota markets (decided by import countries) to non-quota markets, such as Japan,

Taiwan, Northern Europe, and West Asian countries For this reason, the Garmex Saigon

has a cooperation with Garment 12 Factory to establish Garment 2 (An Nho'n Factory)

Garmex Saigon also rents floor-space to set up factories, such as Wash, May, etc

Nowadays, the company has the following factories:

Garment 1 Factory located at 107 Tran Hung Dao B Street, District 5, Ho Chi

Minh City, where jacket, shirt, pants and various kinds of shorts are produced

Garment 2 Factory located at 236/7 Nguyen Van Luong Street, Go Vap District,

Ho Chi Minh City, where all kinds of polo-shirts, and cotton sweaters are produced

Garment 3 Factory located at 55E Minh Phung Street, District 6, Ho Chi Minh

City, where T-shirts, and various kinds of pants are produced

Garment 4 Factory located at 213 An Duong Vuong Street, District 5, Ho Chi

Minh City, where sweat shirts, and coach jackets are produced

4

Chapter I General Introduction about Garmex Saigon

At the present time, Garmex Saigon has over 2,200 employees working at

controlled factories with 1,350 kinds of the garment machines and equipment Each

month, Garmex Saigon can manufacture 50,000 jackets, 120,000 shirts or 250,000

blouses, 120,000 various pants, and 40,000 T-shirts and polo-shirts or 20,000 knitted

pajamas

In the renovation process, Garmex Saigon is undergoing a vIgorous change to

grow up and take a suitable position in the new conditions Although there are a large

number of qualified staff and workers, the company is always focusing on managerial

training, technical staff, and skilled workers, which highlights Garmex Saigon goals of

expanding the market, improving production and increasing export sales

Garmex Saigon was the first company ready for entering international markets,

when Vietnam has adopted its open-door policy The company first introduced its

products to Japan, and was later successful in opening up Asian countries With annual

sales reaching US$ 4 million, it is still at the top of the list of Vietnam's biggest textile

exporters

1.2The Functions, Tasks and Production Technology

1.2.1Functions

The Garmex Saigon Company is specialized in import- export, production and

direct trade of garment products, raw materials and equipment for the textile and

garment industry

Besides that, the company undertakes the design service, grading pattern pieces

and m~er in computer system and original samples making, and providing computer

aided design services

Chapter 1 Genera/Introduction about Garmex Saigon

The main function in the field of processing activity is to receive the accessories

and raw materials from the foreign customers, and transfer them to affiliated enterprises;

after that the finished products will be sent to the customers

However, to catch up with the new mechanism of the market economy, the

company is diversifying its business activities in other fields, such as carrying out

raw-material import services on consignment for other factories in the garment sector

1.2.2 The Tasks of Garmex Saigon

.: Organizing and expanding its production dimension; successive improvement of its

efficiency in business, and establishing a loyalty to manufacture many products, which

meet the consumer's demand

•: Cooperating with other enterprises to improve the technical process, learning from

other experience, strengthening and widening their relationship with local and

international partners

•: Fulfilling its duty to government in full

.: Distributing the workforce, taking care of the living standard of the staff and workers,

increasing their income, and creating jobs for thousands of labours countrywide

Enhancing knowledge, managerial skills, and foreign language skills as well as

technology for all employees and workers

•: Keeping its capital intact, and guarantee its effectiveness in using the capital With

their technical knowledge and existing machinery, it is trying to manufacture high quality

products, and creating prestige with customers in business

6

Chapter I General Introduction about Garmex Saigon

1.2.3 Products Categories and Business Market

Garmex Saigon's products are specialized in shirts, T-shirts, polo-shirts, trousers,

jackets, men's suits, ladies' suits, track suits, knitted garments, woolens, fashionable

clothes for men, ladies, and various kinds of clothing for children With the following

brands: Converse, Allegri, Ellese, Goldwin, Champion, Meato, Calvin Klein, Nike,

Pierre Cardin, Jean France, Arrow, Spengler-Snoopy, etc

Garmex Saigon has manufactured and exported to a number of famous customers,

such as Nissho Iwai, Mitsui, Kanematsu (Japan) : Asiatex (USA) - Fashion Force,

Chungtex (Hong Kong), Second International B.Y (the Netherlands) - Zydy, Full Beam,

Formostar (Taiwan) and Jao Trading (Korea)

Garmex Saigon strives to approach the U.S market through reexport market to

gain a foothold there Thus, step by step, it can continue strengthening its position in the

U S market

Garmex Saigon carries out its customer's orders under two forms: The CMP

orders, which the company fulfills within one month after completely receiving the

accessories and materials The company manufactures within four months towards the

FOB (free on board) orders after being accepted by customers for a 20 feet container

The finished products will be moved to the Tan Cang port about half an hour

1.2.4 Production Technology

Technical production lines are equipped with different kinds of machinery and

equipment Depending on the products composition, Garmex Saigon will install various

kinds of production lines based on each products structure with the main focus on

specialization of each factory

Chapter 1 General Introduction about Garmex Saigon

the material

,.

~

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Figure 1.1 Process of Production Technology

8

Chapter i Genera/introduction about Garmex Saigon

D igning pattern, androving patternorting accessoriesmaterials

igning technical process

Figure 1.2 Process of Clothes Manufacturing at Garmex Saigon

Chapter i General introduction about Garmex Saigon

1.3 Organizational Structure of Garmex Saigon

1.3.1 The Management Structure

After the establishment of the company, Garmex Saigon has quite a neat

structure, which has improved with each passing day Each enterprise has its closed

production process from manufacture to finished products, and delivery stages with its

labour capacity rapidly increasing (at enterprises has also its own company

management)

The allocation of right person to the right job helps employees accomplish their

duties easily, and bring high efficiency to the company Hence, the arrangement of the

management structure requires an objectivity that contributes an important role in the

business activities

The management structure of Garmex Saigon is organized by both directing and

coordinating This is an efficiently managerial method According to this structure, the

president of the company is a person who has knowledge, and high management skill,

especially in creating internal solidarity, and in considering the advice from consultants

that help him when making decision The information from various departments just

carries out its role in advising the president Therefore, the company's president can

make well informed decisions for factories, and departments

The entire company (including factories) have 2,200 employees, more than 2,100

employees directly work on the manufacturing of products The situation of the

company's personnel management is as followed:

•: Board of Directors

•: Financial -Accounting Department

•: Organizational - Administration Department

•: Import-Export Planning Department

: 3 people : 4 people : 6 people : 8 people

Chapter I General Introduction about Garmex Saigon

1.3.2 The Tasks, Functions and Relations between Departments

The Board of Directors includes three units, and has following functions

President

Representative of both the government and company as required by law, he has

final decision, and is responsible for the overall management of the organization He sets

up the operating policies and guides the company's interaCtions with its environment He

carries out the targets of socio-economics issued by Communist Party and Government

The president is the highest responsible person

Vice President Production

Responsible for the production, and import-export of the company, consulting the

president about necessary matters such as discussing, offering advice about various

decisions in production activities, taking part in the management of company's

operations, and planning the production process in a logical and efficient way

Vice President Personnel

Responsible for organizing the accounting-administration, designing the system

of internal information logically, allocating employees, calculating salaries and work

safety measures, and building unity between board of directors and the employees when

president is absent

The following units and departments are under the control of president

Directors of Factories

Directing management to all production and business activities under the

guidance of president, they are also responsible for the results of their company

operation in front of the president

12

Chapter I General Introduction about Garmex Saigon

Each factory has its own management department, and workshops These working

units are supplied a concrete guide by the factories' director At the end of each month,

they report to the director about business activities

Organizational- Administration Department

Responsible for staffing and carrying out organizational work and personnel

management such as:

- Setting up plans, developing the human resources, and implementing the

direction given by Board of Directors

- Solving problems concerning labour relations, labour contracts based on labour

law, labour agreements, and the company's operation

- Administrating salary, social insurance, health insurance, building bonus-salary

policies and suggesting working standard process to reach the target, so as to keep the

efficiency of company's operation

Import-Export Planning Department

Its primary purpose is the overseeing of all of import-export activities in entire

company, such as giving import-export plans, seeking for customers, expanding domestic

and overseas markets, exploring the consumptive market insight and outside countries,

setting up a selling system

Besides that, it is also responsible for contacting factories, companies, III the

scope of the import-export business, suggesting optimum methods aimed at enhancing

the efficiency of products such as advertising, and marketing

Chapter 1 General Introduction about Garmex Saigon

Financial-Accounting Department

In charge of gathering production expenses, calculating cost of goods sold It

includes recording figures about the company's transactions and the keeping of financial

records The chief accountant also sets up a system of internal control of efficiency to

prevent fraud For these functions, they help the company's managers determine how

effective the company's performance is and which sectors are strong or weak during the

business time

Because they are familiar with all aspects of the company's operations,

management accountants often have an important effect on the firm's decision making

Chief Accountant

Cashier

Figure 1.4 Accounting Structure

14

Chapter I General Introduction about Garmex Saigon

The main task of the accountants at factories is to give managers the information

needed to make wise' decisions They also help plan, budget and control cost It is their

responsibility to see that the company has good records, prepares proper financial

reports, and complies with tax laws and government regulations

An Overview of Accounting System

Garmex Saigon keeps a business account, uses its accounting books according to

documents, and regulations issued by the Financial Ministry The order of keeping

business accounts, and rotating documents are reflected through following diagram:

Transaction source documents

Chapter I General Introduction about Garmex Saigon

1.4 General Analyzing of Garmex Saigon

1.4.1 The Situation of Business at Garmex Saigon

In the 1990s, our socio-economy has gone through complex changed, such as the

changes from a central managed economy to the market economy The textile and

garment industry as well as the other industries went through many hardships

Garmex Saigon was not excluded, quota resources were more limited than

previous years due to the decrease in orders The orders were divided into many styles

for different kinds of customers with unstable prices Garmex Saigon was willing to

process at any price because of excess supply For this reason, the company had to cut

448 jobs, and arrange the production process in a way suitable to market's preference

and customer's demand

In order to get market-shares and customers, Garmex Saigon gives prominence to

the increasing of labour efficiency in production and quality of products, keeping the trust

of customer, and delivering products at the time agreed upon

In time, the flexible and corrective appraisal contributed to the development rate,

such as processing rate for Mitsui was up to 64%, Kanematsu 430%, Secon Group

increased to 147.2% from the previous year However, Garmex Saigon could not avoid a

decrease in customers, such as Chungtex dropped 93%, Tahsin fell 76%

In reality, Garmex Saigon is striving to arrange, and improve the technical

production process to match customer's demand For example, Garmex I factory has

specialized in 3 production lines (shirt, pants, sweatshirt, and coach-jacket), Garmex 2

factory has carried out 1,3 million items with brand name Nike, Garmex 4 factory has

already received the orders from Goldwin, Sanyo, Style Fair

16

Chapter 1 Generallntroduction about Garmex Saigon

1.4.2 The Results of Business Activities through Years

thousand, VND)

Table 11 Business Performance 1997 1999

Table 1.2 Annual Growth Rate of Sales, 1997 1999

Chapter 1Genera/Introduction about Garmex Saigon

Last year, despite falling prices in both local and overseas markets, the company

still made nearly VND 48 billion in sales, an increase of 1.5%from 1998 In the 4 months

of this year, the reported revenue was VND 2,420 million.

To get that result, Garmex Saigon has tried in market expansion, along with

investment in machinery, equipment and management ability of managers as well as

high discipline and responsible morale of workers All employees in the company

contributed to the success of Garmex Saigon Although the income in 1998 increased

more than the previous years, fulfIlled its duties to government, Garmex Saigon needs to

try hard to keep on its development speed, find the method to make progress as long as

possible, and decreasing in management expenses to raise income.

1.4.3 Market structure

Garmex Saigon's export revenue of 1999 is shown in Table 1.3

wth tt

S'

a e • armex alJlon s expor ~o ra e

Figure 1.7 Sales Proportion from Exporting

18

Chapter 1 Generallntroduction about Garmex Saigon

1.5 SWOT Analysis

(Strengths, weakness, opportunities and threats)

1.5.1 Strengths

.: The company has skillful workers who recruited from the training center, and

together with their loyalty to the organization

•: Most of managers are graduated from university as well as their dynamic and ,

enthusiastic in work

•: Garmex Saigon's management IS decentralized This helps director of factories

become more independent in decision making Each director has the right to use

50million dong without asking the president's permission

•: Gathering a stable production, Garmex Saigon consolidates its domestic market, and

expands its overseas market

.: The number of garments exported is rapidly increasing

•: Accessories and raw-materials are supplied stable, and activity

•: Garmex Saigon is ready to serve markets that are ignored by other companies

•: With the company's prestige in business, it is easy to mobilize or loan capital from

creditors organization or banks

These results come from a sizeable investment in marketing work, and upgrading

machinery and equipment That is the results of logical organization, the management of

the Board of Director and Departments, and hard workers

Chapter 1 Generallntroduction about Garmex Saigon

1.5.2 Weakness

.: Garmex Saigon has faced strong competition among the textile-garment sectors

Especially in the price competition, many companies receive the processing contracts at

any price Besides that, there are several private enterprises doing business with

unhealthy competition, such as imitating the company's trade name, producing bad

quality products, etc

•: Because of the serious shortage of capital, production and investment have to use the

company's own capital that is quite small comparing with the demand For this reason, it

causes a slow speed in company's growth rate, and sometimes the loss of opportunities

•: The consumption in Europe is high, however quotas are limited

1.5.3 Opportunities

.: According to the Youth newspaper on September 22,1998, Ministry of Trade

announced the creating of more opportunities for the transactions between domestic and

foreign companies about export duty, and customer procedure

•: Vietnam integrated into ASEAN, promising more of a chance for our entrepreneurs

•: Ministry of Trade signed an official commission with the EU in Brussels on

increasing garment export quotas between the Vietnam Textile and Garment Corporation

and the EU up 25%-35% from previous years, and with an annual growth rate of 3%-5%

•: Since quotas for the ED markets are set, the company's efforts are being made to

increase exports to non-quota markets

•: Garmex Saigon's objective is that when Vietnam joints the AFTA, local and foreign

markets will be well acquainted with Garmex Saigon's products

20

J

Chapter 1 General Introduction about Garmex Saigon

.: Many exhibitions for the garment - textile industry have been organized inside and

outside countries where have attracted lots of foreign partners from different countries

1.5.4 Threats

The recent economic turmoil in the regIOn nearly drove Garmex Saigon's

production to standstill It almost went under because of the heavy competition with local

and foreign producers

The Garmex Saigon faces an ever mounting burden of paper work formalities,

when it explores a new market In addition, marketing skills of managers are still limited,

whereas support from state and trade promotion institutions are ineffective, and

impractical

1.6 Strategy for the year 2000 and the future

1.6.1 Garmex Saigon's goals for 2000

.: In 2000, the company is planning to further invest in technology, expand its market

network, promote its brand, and penetrate deeper into non-quota markets

•: Garmex Saigon expects to increase the FOB portion to 50% this year To reach this

target, the company will restructure the system of sales agents, marketing prices, and the

input materials supply to maintain a high level of quality production for Garmex Saigon's

customers Also in 2000, the company will fully qualify for ISO 9002 certification, and

will adjust its management apparatus and quality control system

•: Increase revenues by 16% per year, raise its income by 10% per year in comparison

with 1999 (average income912,000 dong/person/month), and keeping the average labour

force at 1,800 workers Furthermore, contributing to Government's budget up 5%

year-on-year

Chapter 1 General Introduction about Garmex Saigon

.: The company expects to increase export turnover by more than 69% in 2000 chiefly

in FOB contracts The company admits that in the present situation, the only way to

increase revenues is to increase FOB shipments since the profit gained from processing

contracts are too slow

1.6.2 Planning for future

.: Garmex Saigon intends to gain a new export market by investing US$ 2 million in

equipment to manufacture quality products The company is also seeking a stake in the

U.S market as part of its development plan

•: Garmex Saigon will mobilize capital sources from basic depreciation, state

preferential loans, and customer's credit Garmex Saigon signed a lending capital

contract of US$ 150,000 for long-term payment with Fashion Force in order to build up

infrastructure for Garmex Saigon 5 Factory (Tan Xuan) that intends to start in the fourth

quarter of this year Besides, the company is expecting to establish the following

workshops:

.: Garmex 5 Factoty located at Tan Xuan, Hoc Mon where sport clothes with brand

name Nike are sewed This is a joint venture with Nissho Iwai Company, which is going

to invest in 150 various kinds of industrial sewing machines, and production technology

•: Wash and May Factory located at 236/7 Nguyen Van Luong Street,Go Vap District,

Ho Chi Minh City, where sewing garment items are produced This workshop is a

joint-venture between Garmex Saigon and Hongamex Company (Hong Kong)

•: Consolidating its customer's relation, enhancing sales promotion exploring new

markets, expanding market share, and engaging actively in the integration process In

22

Chapter 1 General Introduction about Garmex Saigon

addition, Garmex Saigon is trying in using local materials to produce items for export, as

well as restructuring production, and lowering costs to raise its competitiveness

•: Garmex Saigon intends to open its first share issuance following the Government's

March 10 go - ahead The company expects to publicize its equitization, and begins

accepting share - purchase registrations in early December to facilitate the process

Garmex Saigon plans to retain 40% stake of the chartered capital while 25% will be

reserved for employees, and the remaining 30% for outsiders

Chapter 2 Analyzing Financial Statements

AT GARMEX SAIGON

2.1 Analyzing Gamex Saigon's Financial Statement

Financial Statements' reported in forms of balance sheets, and income

statements convey a lot of important information about the company's operation

2.1.1 The Balance Sheet

The balance sheet provide a snapshot of the company's financial position at a

specific point in time, presenting its assets holdings, liabilities, and owner-supplied

capital Assets represent the resources owned by the firm, whereas the liabilities and

owners' equity indicating how those resources are financed The basic relationship is

Total assets = Total liabilities +owner's equity

Garmex Saigon basic balance sheet equation for 1999 is

VND 34,633 M dong = 14,344 M dong +20,289 M dong

Chapter 2 Analyzing Finandal Statements

Figure 2.1 Generation of a Balance Sheet

25

Chapter 2 Analyzing Financial Statements

Table 2.1 Balance Sheets of Garmex Saigon 1995 -1999

Chapter 2 Analyzing Financial Statements

Table 2.1 showed the financial position of the company during five years from

1995 to 1999

Data from Table 2.1 demonstrated that the company ended the period year

(1998) with about VND 34,272 million in assets, compared to 34,633 million dong at the

end of 1999, with an increase of 4.6% Most of this growth was in fixed assets, account

receivable namely, an increase of 1,456 million dong in gross plant and equipment, and

4,047 million dong in accounts receivable

In the bottom half of the balance sheet, we should notice the growth in current

liabilities owner's primarily occurred in the account payable (an increase of 1,449

million dong), along with an increase in equity This growth in account payable is due to

a majority of the increase in total assets, such as buying new equipment, and building

workshop in Garmex 3

Cash and cash equivalent decreased by 83.2%, from 3,543 million dong to 595

million, in 1999 The account receivable increased by 61 %, from 6,680 million dong to

10,727 million dong The inventory also raised by 9,8% from the previous year due

mainly to a slump in demand for domestic's consumption as well as reserves for

Southeast Asia exposures

_-

_-fT~fJfL~UT

I

27

ClUJpter2Analyzing Financial Statements

(a)

100%

90%

80%

70.A> CI Net plant and equipment

~ .Allow ance for depreciation

IJ Short-term loan

Figure 2.2 Comparison in percentage of components of Total assets (a) and

of Total liabilities and equity (b)

2.1.2 The Income Statement

The income statement is a financial statement summarizes the amount of

revenues earned and expenses incurred by a business over a period of time (Needles et

al., 1996), i.e, it reflect<;the annual performance of a business unit.

Less Cost of goods sold

Operatingactivities

Less Operating expenses (SeUing expenses, general and administrations expenses).

Less Interest expenses

Financing

Figure 2.3 Generation of an Income Statement

The basic relationship is.

Net Cost of - Operating - Interest + Other - Taxes = Net

29