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

Categories of financial ratios analysis Statements Formula to Calculate Ratio Current Ratio Measure your company’s ability to pay both short and long-term debts.. Balance Sheet Current A

Gi ng viên h ả ướ ng dẫẫn: Th.S Nguyêẫn Trẫần Khánh

Hanoi, June 2022

TABLE OF CONTENT

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 accounting analysis or Analysis of finance) refers to an assessment of the viability, stability and profitability of a business, sub-business or project (Kieso et al. , 2007).

Financial statements are written records that convey the business activities and the financial performance of a company Financial statements are often audited by government agencies, accountants, firms, etc to ensure accuracy and for tax, financing, or investing purposes According to Kieso et al. (2007), it is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports These reports are usually presented to top management as one of their bases in making 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 a economy, financial information system of accounting unit was represented by document which follow by standard and regime of accounting Specically, finacial statement 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 can assess 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 all kinds of obligations, like money borrowed from a bank to launch a new product, rent for 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 the future.

Shareholders’ equity is sometimes called capital or net worth It’s the money that would be left if a company sold all of its assets and paid off all of its liabilities This leftover 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 company earned over a specific time period (usually for a year or some portion of a year) An income statement also shows the costs and expenses associated with earning that revenue The literal “bottom line” of the statement usually shows the company’s net earnings or losses This tells you how much the company earned or lost over the period.

Cash Flow Statements

Cash flow statements report a company’s inflows and outflows of cash This is important because a company needs to have enough cash on hand to pay its expenses and 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 dollar amounts at a point in time It uses and reorders the information from a company’s balance sheet and income statement The bottom line of the cash flow statement shows the net increase or decrease in cash for the period Generally, cash flow statements are divided 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) financing activities.

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 a certain point in time or during a specific period These ratiosare one way to measure your business’s productivity and performance and drive your decisions and strategies around growth For example, a common financial ratio called current ratio (which we’ll review in detail shortly) is helpful in determining if your business has the necessary cash flow to grow Another financial ratio, inventory turnover (which we’ll also review shortly), indicates how quickly or slowly your inventory is moving and if you need to make any tweaks to better align your product with market demand Calculating and analyzing financial ratios not only helps you track how your company’s current performance compares to its performance in the past, but you can determine how your business stacks up against the competition by comparing your financial ratios with industry standards.

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

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

1.2.2 Categories of financial ratios analysis

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

(excluding inventory) compared to liabilities

Cash Ratio how many time

immediately payment when outdated debts and debts due.

Income Statement and Balance Sheet Cash and cash

equivalent/Total liabilities

Financial Ratio Function Which Financial

Statement(s) Formula to Calculate Ratio

Debt Ratio (debt to asset) Debt Ratio (debt to asset) Balance Sheet Total Liabilities / Total Assets

Debt-to-Equity Ratio See the total deb

financial liabili against shareho equity

Balance Sheet Total Liabilities / Share

holders’ Equity

Financial Ratio Function Which Financial

Statement(s)

Formula to Calculate Ratio

Inventory Turnover See how long it takes

for inventory to be sold and replaced during the year.

Income Statement and Balance Sheet Cost of Goods Sold / Inventory

Asset Turnover Measure your

company’s ability to generate sales through assets.

Income Statement and Balance Sheet Net Income / Average Total Assets

Financial Statement(s)

Formula to Calculate Ratio

Gross Profit Margin

Measure how much money you have from sales after subtracting the cost of goods sold (COGS)—money your company earns on the dollar

Income Statement

(Revenue − Cost of Goods Sold) / Revenue

Profit Margin See how much your

company earned after deducting all expenses.

Balance Sheet (Revenue − Expenses) /

Revenue

Return on Equity Measure how efficiently

your company is using its equity to generate profit

Income Statement and Balance Sheet

Net Income / Average Shareholders’ Equity

Return on Assets Measure how efficiently

your company is using its assets to generate profit

Income Statement and Balance Sheet

Net Income / Average Total Assets

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.

Balance Sheet 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 Sheet

Share price/ EPS

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

Income Statement and Balance Sheet

Net profit/ Number of common

Financial year Figure

Current Liabilities

Current ratio 1.252463 0.98962 1.1408

(Source: Calculated from financial statements)

According to the calculation, the current ratio of 1,25 indicates that a company has just enough money to pay its short-term debts in 2019, Look at carefully into these figures, which means that in order to pay off 1 dong of short-term debt,

down 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, this number is still quite low but enough to maintain the company's solvency Liquid assets 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 the enterprise will not be high

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

Financial year Figure

Inventory

Current Liabilities

As can be seen from the table in 2019 the quick ratio of VHM is just 0.65, solvency of enterprises is assessed as positive However, to assess whether if this coefficient is ideal or not, it has to consider business conditions of the enterprise In

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

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 the

75,401 On the other hand, this coefficient equals 1 is ideal, this indicator allows for a better 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 be used to supplement

Cash Raito

Financial year Figure

Cash and cash equivalent

Current Liabilities

Compared with other short-term liquidity ratios such as the current ratio, or the quick ratio, the cash ratio is more demanding on liquidity Inventories and short-term receivables are excluded from the formula because there is no guarantee that they can

be quickly converted to cash in time to meet short-term liabilities Looking into the detail, there are two contrasting trends here from 2019 to 2021, current liabilities of VHM is gradually paid off, dropping from 121,577 Billiion VND to 75,401 Billiion VND, stand for 37,9% debts have been gone Hence, the number of cash and cash equivalent is 4,626 Billiion VND, this’s also the reason why cash ratio of this period is 0,06 The cash ratio shows how quickly a company can pay off its debts, since cash and cash equivalents are the most liquid assets Although a large amount of debt has been 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 in paying the debt.

Financial year Figure

Average Total Asset

Total asset turnover

Total asset turnover ratio tells us how much revenue for 1 dollar of assets involved in the operation of the business This ratio is often useful for businesses in capital-intensive, property-intensive sectors, and is often associated with businesses in sectors such as manufacturing, banking, insurance, and hospitals , schools, etc Because the total asset turnover ratio varies greatly between companies in different fields In 2019 with 0.26 in this figure, it shows that with 1 Dong of investment, investors receive 0.26 Dong profit In next two years 2020 and 2021, it went up to 0.33 and 0.36 respectively due to the ỉncreasing in net income of Vinhomes Joint

when total asset increased 155% compared with 2019 and keep that figure steadily to 2021.

2.2 Long-term solvency or financial leverage ratios

Financial year Figure

Total Shareholders Equity

Equity Ratio

A high D/E ratio is often associated with high risk; it means that a company has been aggressive in financing its growth with debt The company's debt to equity ratio

in 2019 is 2.04 times, it shows that for every 1 dong of debt, there will be 2.04 dong of

that a company has been aggressive in financing its growth with debt In the following year, this figure showed an downward trend with 1,41 in 2020 and 0,75 in

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 they tend to be larger accounts compared to short-term debt and short-term assets If investors want to evaluate a company’s short-term leverage and its ability to meet debt obligations that must be paid over a year or less, they can use other ratios It is clearly that the amount of total shareholders equity has been boosted significantly from 64,715 in 2019 to 131,407 in 2021, about more than 50% compared with the first year in the table.

long-If a lot of debt is used to finance growth, a company could potentially generate more earnings than it would have without that financing If leverage increases earnings by a greater amount than the debt’s cost (interest), then shareholders should expect to benefit However, if the cost of debt financing outweighs the increased income generated, share values may decline The cost of debt can vary with market conditions Thus, unprofitable borrowing may not be apparent at first.

v

Financial year Figure