Completing the financial analysis of corporate customers in credit activities at vietnam international commercial joint stock bank ba dinh branch hao nam transaction office”

BANKING ACADEMY FACULTY OF FINANCE ------ GRADUATION THESIS TOPIC: COMPLETING THE FINANCIAL ANALYSIS OF CORPORATE CUSTOMERS IN CREDIT ACTIVITIES AT VIETNAM INTERNATIONAL COMMERCIAL

BANKING ACADEMY FACULTY OF FINANCE

- -

GRADUATION THESIS TOPIC: COMPLETING THE FINANCIAL ANALYSIS OF CORPORATE CUSTOMERS IN CREDIT ACTIVITIES AT VIETNAM INTERNATIONAL COMMERCIAL JOINT STOCK BANK - BA DINH BRANCH - HAO NAM

BANKING ACADEMY FACULTY OF FINANCE

- -

GRADUATION THESIS TOPIC: COMPLETING THE FINANCIAL ANALYSIS OF CORPORATE CUSTOMERS IN CREDIT ACTIVITIES AT VIETNAM INTERNATIONAL COMMERCIAL JOINT STOCK BANK - BA DINH BRANCH - HAO NAM

PLEDGE

I assure that this is my personal thesis which conducted under the

guidance of Dr Nguyen Thi Dao

The figures outlined in this thesis are honest, sourced and have not been published in any other researchs

REATHINGS

Nguyen Linh Trang

ACKNOWLEDGEMENT

In order to carry out this thesis, besides a small part is the effort and study effort, most of which comes from the guidance and support from the instructor, the officers from Vietnam International Commercial Joint Stock Bank – Ba Dinh Branch – Hao Nam Transaction Office

self-Firstly, I would like to thank my lecturer - Dr Nguyen Thi Dao, who enthusiastically guided and encourage me Thanks to her advice and assessment that I was able to complete this thesis completely Secondly, I also would like to thank the staffs of Vietnam International Commercial Joint Stock Bank - Ba Dinh Branch - Hao Nam Transaction Office for supporting and helping me to complete

my internship at the bank

Ha Noi, May 2021

Nguyen Linh Trang

CONTENTS

PLEDGE 3

ACKNOWLEDGEMENT 4

ABBREVIATIONS 8

LIST OF TABLES AND FIGURES 9

INTRODUCTION 1

1 Rationales of thesis 1

2 Objectives of thesis 2

3 Subject(s) and scope of thesis 2

4 Thesis methodology 3

5 Literature review 4

5.1 Foreign literature 4

5.2 Domestic literature 5

6 Thesis structure 7

CHAPTER 1: THEORETICAL BASIS FOR FINANCIAL ANALYSIS OF CORPORATE CUSTOMERS IN CREDIT ACTIVITIES OF COMMERCIAL BANKS 8

1.1 THE NECESSARY OF FINANCIAL ANALYSIS FOR CORPORATE CUSTOMERS IN CREDIT ACTIVITIES OF COMMERCIAL BANK 8

1.1.1 Definition of corporate financial analysis 8

1.1.2 The necessary of financial analysis of corporate customers of commercial banks 8

1.1.3 Sources of information for financial analysis of corporate customers 12

1.2 FINANCIAL ANALYSIS PROCESS OF CORPORATE CUSTOMERS AT COMMERCIAL BANK 16

1.2.1 Planning analysis 16

1.2.2 Collect information 16

1.2.3 Analysis 16

1.2.4 Summarizing results 17

1.3 MAJOR METHODS USED IN FINANCIAL ANALYSIS OF CORPORATE CUSTOMERS AT COMMERCIAL BANKS 17

1.3.1 Comparative method 17

1.3.2 Ratio method 18

1.3.3 Dupont analysis method 19

1.3.4 Method analysis factor 21

1.3.5 Regression method 22

1.4 CONTENT OF FINANCIAL ANALYSIS OF BUSINESS CUSTOMERS AT COMMERCIAL CUSTOMERS 23

1.4.1 Balance Sheet Analysis 23

1.4.2 Income Statement Analysis 25

1.4.3 Cash Flow Statement Analysis 26

1.4.4 Financial Ratio Analysis 27

1.5 FACTORS AFFECTING FINANCIAL ANALYSIS OF CORPORATE CUSTOMERS IN CREDIT ACTIVITIES OF COMMERCIAL BANKS 36

1.5.1 Objective factors 36

1.5.2 Subjective factors 37

CONCLUSION CHAPTER I 39

CHAPTER 2: CURRENT SITUATION OF FINANCIAL ANALYSIS OF CORPORATE CUSTOMERS IN CREDIT ACTIVITIES AT VIB BA DINH BRANCH – HAO NAM TRADING OFFICE 40

2.1 OVERVIEW OF VIETNAM INTERNATIONAL COMMERCIAL BANK (VIB) – BA DINH BRANCH – HAO NAM TRANSACTION OFFICE 40

2.1.1 The process of formation and development 40

2.1.2 Organizational structure 41

2.1.3 Mobilized capital 42

2.1.4 Loan 45

2.1.5 Business operation 49

2.2 ACTUAL SITUATION OF FINANCIAL ANALYSIS OF BUSINESS CUSTOMERS IN CREDIT ACTIVITIES AT VIB – BA DINH BRANCH – HAO NAM TRADING OFFICE 51

2.2.1 Organization of analysis 51

2.2.2 Documents required 51

2.2.3 Analytical Process 52

2.2.4 Analytical methods 52

2.2.5 Analytical content 53

2.2.6 Illustrated example 53

2.3 GENERAL ASSESSMENT OF FINANCIAL ANALYSIS OF

BUSINESS CUSTOMERS IN CREDIT ACTIVITIES AT VIB BA DINH

BRANCH – HAO NAM TRANSACTION OFFICE 60

2.3.1 Advantage 60

2.3.2 Disadvantages and reasons 62

CONCLUSION OF CHAPTER 2 67

CHAPTER 3: SOLUTION TO COMPLETE FINANCIAL ANALYSIS OF BUSINESS CUSTOMERS FOR CREDIT ACTIVITIES AT VIB BA DINH BRANCH - HAO NAM TRANSACTION OFFICE 68

3.1 TARGETS OF VIB BA DINH BRANCH – HAO NAM TRANSACTION OFFICE IN CREDIT ACTIVITIES AT VIB BA DINH BRANCH – HAO NAM TRADING OFFICE 68

3.1.1 Credit development 68

3.1.2 Credit policy 68

3.1.3 Credit human resource 69

3.2 SOME SOLUTIONS TO COMPLETE BUSINESS FINANCIAL ANALYSIS IN CREDIT ACTIVITIES AT VIB BA DINH BRANCH – HAO NAM TRANSACTION OFFICE 69

3.2.1 Completing analysis content 69

3.2.2 Completing analytical methods 78

3.2.3 Completing customer information quality 83

3.2.4 Specialization of analysts 83

3.2.5 Improve the quality of credit officer 84

3.3 RECOMMENDATIONS 85

Recommendation to Ministry of Finance 85

CONCLUSION OF CHAPTER 3 86

CONCLUSION 87

REFERENCES 88

ABBREVIATIONS

BIDV

The Joint Stock Commercial Bank for Investment and Development of Vietnam

Stock Bank

Stock Bank

Commercial Joint Stock Bank

VIB Hao Nam

Vietnam International Commercial Joint Stock Bank -

Ba Dinh Branch - Hao Nam transaction office

Bank for Industry and Trade

Commercial Bank

LIST OF TABLES AND FIGURES

Table 2.6: Balance Sheet of Hung Thinh Trade And Service Co., Ltd

Table 3.1: Changes in account Assets of Hung Thinh Automobile

Table 3.2: Receivables of Hung Thinh Automobile Trading and

Table 3.3: Changes in total equity items of Hung Thinh Automobile

Table 3.4: Assessing the relationship between Assets and Equity

Table 3.8: Profitability ratios of Hung Thinh Co., Ltd

96

Table 3.9: Comparing Hung Thinh Automobile Trading and Service

Co., Ltd ‘s Income statement to other companies in same industy in

INTRODUCTION

1 Rationales of thesis

Nowadays, the economy in the World and Vietnam have many changes Especially, the impact of the Covid-19 epidemic, which caused heavy losses to all countries in the world Because Vietnam always keeps an open economic policy, close and integrating with the world, it has also suffered many negative impacts of the epidemic in the socio-economic fields Production, supply and commercial, aviation, tourism, labor and employment activities are limited or interrupted due to the impact of the epidemic Enterprise is one of the subjects has to suffer serious impacts, many enterprises have to suspend operations or go bankrupt, dissolve or reduce the scale of production and business In that case, the relationship between banks and corporates is increasingly tightened Enterprises want more capital to restore and maintain their business by approaching credit institutions, now credit institutions not only provide and allocate capital but also stand side by side with businesses to overcome challenges Therefore, in order to make the most correct credit, the bank must pay special attention

to the process of analyzing the financial situation of the corporate, thereby determining the asset structure, solvency as well as rating corporate credit on the one hand is to enhance risk management, on the other hand, there are flexible policies to share with enterprise

During my study and research at Banking Academy and internship time at Vietnam International Commercial Joint Stock Bank (VIB) - Ba Dinh Branch - Hao Nam Transaction Office, I realized that credit activities are the main revenue source for the commercial banking system And in order to minimize credit risks and increase profits for bank, financial analysis of customers is very necessary, especially corporate customers, who general have large loans to investment or operating However, financial analysis of VIB Hao Nam still has limitaions like young human resources and lack of experience in lending to corporate customers This type of customer is not the advantage

of VIB Hao Nam, so there are many potential risks, but it is both the goal and the task

of VIB in the credit development strategy Next time, VIB Hao Nam really needs to take more solutions to improve financial analysis of corporate customers in credit activities

Stemming from the above practical needs, I decided to choose the topic

"Completing the financial analysis of corporate customers in credit activities at

Vietnam International Commercial Joint Stock Bank - Ba Dinh Branch - Hao Nam transaction office” did my graduation thesis

2 Objectives of thesis

- Systematize the theoretical basis of financial analysis of corporate customers at commercial banks; Analysis of evaluation criteria and factors affecting the financial analysis of corporate customers at commercial banks

- Analyzing and evaluating the current situation of financial analysis of corporate customers in credit activities at Vietnam International Commercial Joint Stock Bank -

Ba Dinh Branch - Hao Nam Transaction Office from which to evaluate the financial analysis of customers at the branch What are the successes and limitations of the branch

in analyzing customer financials?

- From the theoretical basis and realist research at VIB Hao Nam, propose some solutions to improve and fullfil the financial analysis of corporate customers in credit activities at Vietnam International Commercial Joint Stock Bank – Ba Dinh Branch – Hao Nam Transaction Office, helping the branch to prevent and reduce credit risks in its operations

3 Subject(s) and scope of thesis

a Subjects

Financial analysis of corporate customers in credit activities at commercial banks

b Scopes

- Scope of space: Vietnam International Commercial Joint Stock Bank – Ba Dinh Branch – Hao Nam Transaction Office

- Scope of time: Research data for the period from 2018-2020

4 Thesis methodology

To achieve the purpose of the study, I used the following research methods:

* Methods of information collection

- For general argumentative issues on financial analysis, the thesis uses academic documents, which are textbooks for teaching in economic schools, to systematize basic argumentative issues The literature and empirical studies of the authors who have studied this topic are used to write the research review

- For the current situation of customer analysis at Vietnam International Commercial Joint Stock Bank - Ba Dinh Branch - Hao Nam Transaction Office, the thesis uses secondary data to understand the situation of this work at the branch

Secondary data includes:

• Summary reports, annual reports provided by the internship unit

• Decrees, Circulars of the Government, Ministries and Sectors

• Relevant documents, newspapers and magazines

* Analytical method:

In order to provide assessments and solutions to improve customer financial analysis at Vietnam International Commercial Joint Stock Bank - Ba Dinh Branch - Hao Nam Transaction Office, the thesis uses comparative and analytical methods , aggregate, combine statistics, describe

Besides, the thesis also uses modeling methods through diagrams, charts and tables to help the research situation become more intuitive and vivid

5 Literature review

The banking system has been playing an important role in the renewal of the country, promoting economic growth In which, it is impossible not to mention the positive contributions of credit activities at commercial banks For credit activities, the analysis of customers' financial records is very necessary and important That is the premise for credit institutions to make choices for customers with good financial potential, good capital structure, and feasible business characteristics with the economic situation Therefore, the provision of solutions and recommendations to improve the financial analysis of corporate customers in the bank's credit activities must always be updated and appropriately changed from time to time in order to constantly improving credit efficiency, not only helping to increase profits for credit institutions in particular, but also affirming a foothold for the entire banking system in general This is the reason why this topic is interested and researched by domestic and foreign authors

Although the topic of perfecting the financial analysis of corporate customers in credit activities has been chosen by many scholars as a thesis topic, I affirm that the topic completes the financial analysis of customers enterprises in credit activities at Vietnam International Commercial Joint Stock Bank – Ba Dinh Branch – Hao Nam Transaction Office is a topic not same as the topics that have been written before I commit that there has been no topic written on completing the financial analysis of corporate customers in credit activities at Vietnam International Commercial Joint Stock Bank - Ba Dinh Branch

- Hao Nam Transaction Office

5.1 Foreign literature

Foreign authors have had many major studies on corporate financial analysis in general and have their own studies on this work in other fields, particularly the banking industry

In the research of the author M.Sunil Manohar Subbaiah, K.Indira, C.Jayasudha, P.Aswini (2017) with the topic "The role of ratio analysis in finance statement" through

qualitative method, the author draws the conclusions that when analyzing financial ratios can compare and explain the significant features of financial statements; helps identify the strengths and weaknesses of the business and analysis of financial ratios helps evaluate the performance of the company in the past, present condition and future potential of the business

Or for the topic “The Role of Financial Analysis Tools in Granting Loans Field Study on Banks Operating within Aqaba Special Economic Zone” (2017) by 3 authors Mousa Mohammad Abdullah SALEH, Laith Ahmad Mohammad ALKASASBEH, Ahmad Ahed BADER they believe that the decision to lend or to minimize credit risk depends a lot on financial instrument analysis

5.2 Domestic literature

Not only valuable contributions from researches by foreign authors, but also domestic research projects have contributed significantly to complete the quality of assessing the financial situation of enterprises at commercial banks

Master's thesis "Evaluating the financial situation of corporate customers in the lending process at BIDV – Transaction center 1" by Pham Manh Hung in 2018, analyzing the current situation at this transaction center 1 had a specialized department

to periodically analyze customers' financial statements Therefore, the analysis of financial statements at this bank is very interested by the bank's management, and the analysis results of this department have also helped a lot in making loan decisions at the bank

Or in the master's thesis of Tran Thi Thanh Thuy (2016) "Analysis of financial statements of corporate customers in lending activities at Bank for Agriculture and Rural Development - Ninh Binh Branch" gave an opinion that the closer the financial assessment of the borrower to reality, the better the loan quality for Agribank Ninh Binh, helping the bank select the customers with the best loan repayment ability, contributing

to reduce risk of overdue debt or non performing loan

This topic is also often interested by graduating students and selected as a thesis topic such as the graduation thesis: “Improving financial analysis of corporate customers

in lending activities at the Department of Banking and Finance Vietnam Joint Stock Commercial Bank for Industry and Trade – Hoan Kiem Branch” by Le Ky Anh in 2018 pointed out the successes and limitations of customer financial analysis, then there are suitable solutions and recommendations for the branch

Or graduation thesis: "Improving financial analysis of corporate customers in lending activities at Saigon Commercial Joint Stock Bank - Hanoi Branch" by Hoang Thi Thu Thuy (2014) that for the bank, considering the financial ability of the customer helps the bank to reduce risks and avoid making wrong decisions through the financial analysis of its customers

In general, the above studies have good results in providing a sufficient theoretical basis, as a foundation for studying the actual situation of financial analysis of corporate customers at commercial banks Based on the objectives of each bank branch, the researchers provide solutions and recommendations suitable for each research bank Although this is a familiar topic, each author brings different perspectives depend on different research spaces and time periods However, these studies were completed at a relatively long distance, with a different case from the current situation of economic and technological development at the present time In addition, there has not been a research that systematically studies the completion of financial analysis of corporate customers

in credit activities of VIB Hao Nam, especially in the period of 2018-2020 Based on the outstanding results and small limitations from previous research papers, I believe that this article will bring a different perspective from the new research space and time At the same time, I will try to contribute some more practical and complete solutions to fullfil the quality of financial analysis of corporate customers in credit activities of commercial banks

Chapter 2: Actual situation of financial analysis of corporate customers in credit

activities at VIB – Ba Dinh branch – Hao Nam transaction office

Chapter 3: Solutions to complete financial analysis of corporate customers for credit

activities at VIB – Ba Dinh branch – Hao Nam transaction office

CHAPTER 1: THEORETICAL BASIS FOR FINANCIAL ANALYSIS OF CORPORATE CUSTOMERS IN CREDIT ACTIVITIES OF COMMERCIAL

BANKS

1.1 THE NECESSARY OF FINANCIAL ANALYSIS FOR CORPORATE

CUSTOMERS IN CREDIT ACTIVITIES OF COMMERCIAL BANK

1.1.1 Definition of corporate financial analysis

Financial analysis is the process of evaluating businesses, projects, budgets, and other finance-related transactions to determine their performance and suitability Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to warrant a monetary investment (Alicia Tuovila, 2021)

Addcording to Dr Le Thi Xuan, corporate financial analysis usually first focuses

on the figures provided in the financial statements of the enterprise, combined with additional information provided in the financial statements of the enterprise, combined with additional information from different sources, clarifying the past financial position

of the enterprise, indicating major changes, trend changes, calculating factors, causes of change in financial activities, detect operating rules, which form the basis for current decisions and future forecasts

1.1.2 The necessary of financial analysis of corporate customers of commercial banks

For commercial banks, before making a credit decision, together with the appraisal of customer profiles and non-financial appraisal, financial analysis is an indispensable content in the credit process Credit providers are those who lend money

to enterprises to meet capital needs for production and business activities When lending, they must be sure of their ability to repay the loan Their revenue is interest on loans.Therefore, financial analysis of lenders is to determine the customer's ability to repay debt

Financial statement analysis helps commercial banks make the right lending decisions

The corporate finance system is a system of value movement and movement of financial resources in the process of creating and using monetary funds or mobilized capital of an enterprise to achieve business goals benefits within the legal framework Therefore, corporate finance reflects diversified economic relationships in the process of conducting production and operating of enterprises (Vu Van Ninh and Bui Van Van, 2013) On the other hand, the main performance of the enterprise can be shown quite fully and clearly through the financial statements and the main characteristics of the enterprise only

Thus, analyzing financial statements aims to evaluate the business situation of the enterprise to make the right loan decision, to decide the direction and scale of capital financing and the ability to recover capital The right decision-making role of the bank will be: whether to invest or not, and if so, how to invest appropriately and effectively

Business activities of banks with business objects as currency are inherently risky activities Therefore, in order to preserve loan capital and ensure income for themselves, commercial banks have to take care to the business field of the enterprise before lending Commercial banks will certainly not have a credit relationship with customers who are businesses that are always in a state of loss and ineffective business plans Along with the analysis of other aspects, businesses with healthy financial status, high profitability and good development prospects in the future will be prioritized by banks to grant credit

When a financing decision has been made, the financial analysis of a business that focuses primarily on financial statement analysis is actually the process of determining the details of the loan Based on the operation situation, the loan application plan the bank determines the reasonable size of the loan demand Besides, the bank also determines the loan term and repayment term for the credit that has been granted to the business Thus, analyzing corporate finance will help commercial banks make the right credit decisions, thereby increasing profitability and limiting risk

prevention in business activities

Financial statement analysis helps commercial banks clearly determine the solvency of the company, the basis for the bank's ability to recover capital and interest

Credit is a temporary transfer of an amount of value from the owner to the user

so that after a period of time, it will recover a larger amount of value than the original (Nguyen Minh Kieu, 2012) Therefore, the solvency of the enterprise is an important factor affecting the recovery of capital and interest of the bank, the ability to repay is reflected in the production and business activities of the enterprise The higher the profitability, the higher the bank's ability to recover capital and interest from customers For customers' solvency, banks are interested in two aspects: full payment and on-time payment For instance, there are enterprises with good business performance, but due

to negative net cash flows at some point in time, the business does not pay on time From the financial statement analysis criteria, the bank will determine the most reasonable repayment period for the enterprise Because of the important role of determining the solvency of the enterprise in credit activities, most banks always focus

on solvency in the process of analyzing customer financial statements

Analysis of financial statements as a basis for credit rating assessment helps the bank to take reasonable provisioning measures

Business activities of the bank always have potential risks and especially credit risk, this is affected by many reasons that can be subjective causes, can also be objective causes Therefore, once the credit granting decision is correct and the disbursement decision is not completely eliminated, credit risk is not completely eliminated Therefore, once the credit granting decision is correct and the disbursement decision is not completely eliminated, credit risk is not completely eliminated Normally, banks often make provision for risk reserve funds, provision for bad debts and problem debts The provisioning is also stipulated in the law on credit institutions of the State bank of Vietnam In order to add a source of security for their operations, commercial banks also make a provision from residual net profits, in order to ensure that the bank's operations are firmly guaranteed, for the benefit and long-term development bank

In the context of financial and non-financial institutions, there is fierce competition for survival and development The credit relationship between the bank and the customer does not stop at the fact that customers who need capital find ways to approach the credit, but the bank also has to build its own business strategy, appropriate marketing to be able to maintain long-term relationships with customers, maintain business loyalty to the bank; ensure the long-term development cooperation of both sides In other words, for a corporate customer, when the bank has determined that it is promising and potential, the policy applied to that customer is also different, the bank

is also a financial advisor for enterprises to make their financial situation healthier, which is beneficial for both banks and businesses Therefore, the construction of a financial statement analysis system plays a very important role in the sustainable development of the bank The fact that a enterprise often changes the bank providing credit, it has to start the process of building trust with that bank and the financial disclosure also affects the information security requirements for the enterprise, and for the banks identifying customers for long-term relationships is also an advantage to reduce transaction costs and create sustainable development for the bank's credit activities

1.1.3 Sources of information for financial analysis of corporate customers

Financial analysis uses any source of information capable of clarifying the target

of a financial prediction From information provided by enterprises to information from external self-investigation by bank staff, quantitative information to valuable information helps analysts to draw sophisticated conclusions, suitable However, for a basic assessment of the financial position of an enterprise, internal accounting information can be used as the most important source of information With its systematic, homogeneous and rich characteristics, accountants act as an important provider of valuable information for financial analysis And again, businesses are obliged to provide accounting information to partners inside and outside the business Accounting information is fully reflected in the accounting statements, financial analysis is performed on the basis of financial statements – formed through the processing of major accounting statements: That is, Balance Sheet, Income Statement and Cash Flow Statement

1.1.3.1 Financial information

- Balance sheet (BS)

A balance sheet is a financial statement that reports a company's assets, liabilities and shareholders' equity at a specific point in time, and provides a basis for computing rates of return and evaluating its capital structure It is a financial statement that provides

a snapshot of what a company owns and owes, as well as the amount invested by shareholders The balance sheet is used alongside other important financial statements such as the income statement and statement of cash flows in conducting fundamental analysis or calculating financial ratios The balance sheet adheres to the following accounting equation, where assets on one side, and liabilities plus shareholders' equity

on the other, balance out:

Assets = Liabilities + Shareholder’s Equity

This formula is intuitive: a company has to pay for all the things it owns (assets)

by either borrowing money (taking on liabilities) or taking it from investors (issuing shareholders' equity)

+ Assets: Within the assets segment, accounts are listed from top to bottom in order of their liquidity – that is, the ease with which they can be converted into cash They are divided into current assets, which can be converted to cash in one year or less; and non-current or long-term assets, which cannot

+ Liabilities: Liabilities are the money that a company owes to outside parties, from bills it has to pay to suppliers to interest on bonds it has issued to creditors to rent, utilities and salaries Current liabilities are those that are due within one year and are listed in order of their due date Long-term liabilities are due at any point after one year

+ Shareholders' Equity: Shareholders' equity is the money attributable to a business' owners, meaning its shareholders It is also known as "net assets," since it is equivalent to the total assets of a company minus its liabilities, that is, the debt it owes

to non-shareholders

- Income statement (IS)

The income statement shows the movement of money in the production and business process of an enterprise and allows to predict the ability of the business to operate in the future The income statement helps the analyst compare revenue with the actual cash inflows when selling goods and providing services; compare the total costs incurred with the actual amount; fund to operate the business Reflecting the results of production and business activities, reflecting the financial position of the enterprise in a certain period It provides general information about the situation and potential use of capital, labor, technology and management level of the enterprise

- Cash flow statement (CFS)

The statement of cash flows is prepared to answer issues related to cash flow

in and out of the business, the short-term income and expenditure situation of the company The cash flow statement helps financial statement analysts determine the amount of cash generated by business activities during the period and predict future cash flows; assess the ability to pay debts and the ability to pay dividends in cash; show the relationship between profit, net loss and the change in money of the enterprise; is a planning tool

Through that, analysts in general and the analysis department at the bank

in particular will assess the capital turnover of the enterprise, the ability to pay debts

at the bank, the ability to use the money of the enterprise In addition, the cash flow statement also discloses a part of the revenues and expenditures, helping the bank to assess a part of the transparency of business activities at the enterprise

According to the international accounting system as well as the Vietnamese accounting regime, a cash flow statement is divided into 3 parts:

+ Cash flow from business activities: Reflecting all cash inflows or outflows related to business activities of the enterprise

+ Cash flow from investing activities: reflects all cash inflows or outflows related to investment activities of the enterprise

+ Cash flow from financial activities: reflects all cash inflows or outflows directly related to the entire financial activities of the enterprise

1.1.3.2 Non – financial information

As a lender, in addition to the reports provided by businesses, commercial banks also refer to other documents from different sources of information such as:

* General information:

Information about the political and economic situation, the legal and economic environment related to economic opportunities, investment opportunities, technical and technological opportunities, etc The recession or growth of the economy has a strong impact on business results of enterprises Information about market surveys, development prospects in production, business and commercial

services greatly influence business strategies and strategies in each period

* Information by economic sector

Information by economic sector is information that the performance of an enterprise has the nature of the economic sector such as the characteristics of the economic industry related to the entity of the product, the technical process to be carried out, the production structure has an impact on profitability, capital turnover, development rate of economic cycles, market size and development prospects

* Information about the corporate:

In addition to the financial statement system, when doing corporate financial analysis, analysts also combine the use of many different data sources such as: management reports, detailed reports, accounting documents, Statistical documents, public tables of some financial indicators These are important data sources to help analysts consider and evaluate different aspects of financial activities fully , exactly However, most of this data source is for internal use only (except for publicly available financial metrics)

However, it should also be noted that: The collected information is not all quantified in detail, but there are documents that cannot be expressed in specific quantities, it is only expressed through description economic life of the enterprise Therefore, in order for financial analysis to be effective in managing, directing and operating the business, the necessary database for the analysis process must be collected sufficiently and appropriately Completeness represents a measure of the quantity of information, relevancy reflects the quality of information collected or the accuracy, truthfulness and reasonableness of the input data of the analysis

1.2 FINANCIAL ANALYSIS PROCESS OF CORPORATE CUSTOMERS AT COMMERCIAL BANK

1.2.1 Planning analysis

Analytical planning is pre-determining the content, timing, scope, and organization of the analysis The content of the analysis needs to clearly define the problems of analysis because this is the basis for conducting the analysis The time allotted in the analysis plan includes both preparation and analysis time Clearly assign responsibilities to the departments that directly perform and serve the analysis to collect enough opinions, accurately assess the current situation, detect risks and potentials to help the work analyzed effectively

1.2.2 Collect information

Information to be collected is any source capable of explaining the current state

of financial activities of the enterprise, serving the process of financial forecasting, including information provided by enterprises or bankers self-investigation information sources at relevant agencies and the market This information must be accurate, realiable, complete and timely

1.2.3 Analysis

Based on the information gathered, the analyst needs to calculate appropriate financial ratios, tabulate, compare over time, by industry The basic contents that are considered important and have a great influence on the current and future financial situation of enterprises are focused on specific analysis to clarify the relationship, the internal factors showing the nature of the enterprises works by:

- Identify the influencing factors, consider each relationship between the factors

- Determine the degree of influence of factors on the analytical criteria

- Evaluate the causes of success, the causes of existence from the perspective of affecting each factor

1.2.4 Summarizing results

From the results, the credit officer will synthesize, draw evaluation comments, give the causes of the results to forecast the development trend of the business in the future From there, propose plans and solutions to achieve the goal

1.3 MAJOR METHODS USED IN FINANCIAL ANALYSIS OF CORPORATE CUSTOMERS AT COMMERCIAL BANKS

1.3.1 Comparative method

This is a widely used method in economic analysis in general and financial analysis in particular The purpose of comparison is to clarify the differences or specific characteristics and find out the trends and fluctuations of the research object The following points should be kept in mind when using the comparative method:

Firstly: Conditions of comparison:

- Must exist at least 2 quantities (2 criteria) - Quantities (criteria) must ensure comparability It is the unification of economic content, the unity of calculation methods, the unity of time and the unit of measurement

Secondly: Base of comparison:

The base of the comparison depends on the purpose of the analysis The comparative base can be determined from time to time, or can also be determined from time to time Specifically:

- Horizontal comparison: allows investors and analysts to see what has driven a company's financial performance over a number of years, as well as to spot growth trends and patterns such as timing service It allows the analyst to assess relative changes in various indicators and make forecasts for the future

- Vertical comparison: makes it much easier to compare the financial statements

of companies and industries In addition to making it easier to compare previous periods

for time series analysis, quarterly and annual figures are compared over a number of years, to see if performance metrics are improving good or bad

- Comparison by trend: When determining the position of the business, the comparative base is determined as the average value of the industry or the analysis criteria of two competitors

Thirdly: Comparative technique:

Commonly used comparison techniques are absolute numerical comparison, relative numerical comparison:

- Compare with absolute numbers to see the variation in absolute numbers of the analytical criteria When comparing in absolute numbers, analysts will know the fluctuation scale (increase or decrease) of the research target in the middle of the analysis period compared to the base period expressed in money, in kind or in specific tool hours

- Compare with relative numbers to see how much % increase or decrease in actual compared to the base period Relative numbers reflect the structure, relationships, development speed and popularity of research criteria Therefore, comparing with relative numbers, managers will grasp the trend of fluctuations of the indicators

- Compare by average: The average reflects the average level or typical characteristics of a team, a department, a unit When compared with the average, managers will know the level the level that the enterprise achieves compared to the average of the whole, the industry From that, the position of the enterprise in the overall and in the industry can be determined

statements Comparative data can demonstrate how a company is performing over time and can be used to predict future performance

This data can also compare a company's financial position with industry

averages, and measure how a company is performing compared to others in its

industry

Types of ratio analysis

- Group of solvency ratios: This ratio measures a company's ability to pay its

short-term liabilities as they come due, using current assets or short-term current assets

Including current ratio, quick ratio and cash ratio

- Groups of leverage ratios: measure the amount of capital that comes from

debt In other words, leverage financial ratios are used to evaluate a company’s debt levels, which compares a company's debt level and a company's assets, equity, and earnings, to gauge a company's ability to stay afloat over the long term, by paying off its long-term debt as well as interest rates on debt Examples of solvency ratios include: debt-to-equity ratio, debt-to-assets ratio, and interest payment ratios

- Group of profitability ratios: measure a company’s ability to generate income

relative to revenue, balance sheet assets, operating costs, and equity

- Group of efficiency ratios: Efficiency ratios, also known as activity financial ratios, are used to measure how well a company is utilizing its assets and resources

When analyzing, there should be a connection between the aspects, but the priority of the issues will be arranged by the analyst Specifically, for banks, when lending to businesses, they will be more interested in the financial structure of the business

1.3.3 Dupont analysis method

The DuPont analysis (also known as the DuPont identity or DuPont model) is a framework for analyzing fundamental performance popularized by the DuPont

Corporation DuPont analysis is a useful technique used to decompose the different drivers of return on equity (ROE) The decomposition of ROE allows investors to focus

on the key metrics of financial performance individually to identify strengths and weaknesses

Formula and Calculation of DuPont Analysis

ROE = Net profit Margin × Asset turnover × Financial Leverage =

RevenueAverage Assets×

Average Assets Average Owner′s equity

DuPont Analysis Components: DuPont analysis breaks ROE into its constituent

components to determine which of these factors are most responsible for changes in

ROE

+ Net Profit Margin: The net profit margin is the ratio of bottomline profits compared to total revenue or total sales This is one of the most basic measures of profitability The profit margin can be improved if costs for the owner were reduced or

if prices were raised, which can have a large impact on ROE This is one of the reasons that a company's stock will experience high levels of volatility when management makes

a change to its guidance for future margins, costs, and prices

+ Asset Turnover Ratio (ROS): The asset turnover ratio measures how efficiently

a company uses its assets to generate revenue The ratio can be helpful when comparing two companies that are very similar Because average assets include components like inventory, changes in this ratio can be sales are slowing down or speeding up earlier than

it would show up in other financial measures If a company's asset turnover rises, its ROE will improve

+ Financial Leverage: Financial leverage, or the equity multiplier, is an indirect analysis of a company's use of debt to finance its assets Most companies should use debt with equity to fund operations and growth Not using any leverage could put the company at a disadvantage compared with its peers However, using too much debt in

order to increase the financial leverage ratio - and therefore increase ROE - can create disproportionate risks

In summary, financial analysis based on Dupont model has great significance for corporate financial management, assessing business performance deeply and

comprehensively, fully and objectively factors affecting business performance Since then, a system of specific measures has been proposed to enhance the improvement of the organization, management and administration of financial activities of enterprises, contributing to continuously improving the business efficiency of enterprises in

different periods next

1.3.4 Method analysis factor

This method is used to determine the trend and specific influence of each factor

on the fluctuation of each research indicator There are many methods to determine the influence of factors, which method to use depends on the relationship between the analytical criteria and the influencing factors The methods of determining the influence

of factors on the variation of each indicator are also called exclusion methods because in order to study the influence of one factor, the influence of other factors must be excluded The characteristic of this method is that it always puts the object of analysis under different assumptions Depending on the relationship between the analytical criteria and the influencing factors, the continuous substitution method, the difference number method or the balanced method are used

Continuous replacement method is a method to determine the influence of each

factor by replacing in turn and consecutively the factors from the value of the base period

to the analysis period to determine the value of the indicator when that factor change Then, compare the value of the newly calculated indicator with the value of the indicator that has not changed of the factor to be determined to calculate the level of influence of that factor

Difference Number Method is a method also used to determine the influence of

factors on the variation of the indicator reflecting the research object The conditions, content and application sequence of the difference number method are the same as the continuous replacement method, the only difference is that in order to determine the influence level of any factor, the difference in number of factors is directly used the value of the analysis period compared to the base period of that factor (actually, it is a shortened continuous substitution applied in the case that the indicator reflecting the research object has a product relationship with the influencing factors)

The balanced method is a method used to determine the degree of influence of

factors on the indicator reflecting the research object if the indicator reflecting the research object is related to the influencing factor in the form of a sum or brand Determining the degree of influence of a certain factor on the analytical criterion, by means of a balance method, one determines the difference between the actual and the base period of that factor However, it is necessary to pay attention to the positive and negative relationship between the influencing factors and the indicator reflecting the research object (which is actually a shortened form of the continuous replacement method when the factors affecting the analysis criteria are considered) product has a sum and difference relationship)

1.3.5 Regression method

There are different methods to predict future economic and financial indicators;

in which, the regression method is used quite commonly In this method, analysts use historical data, data that have taken place over time or happened at the same time to establish relationships between related phenomena and events The mathematical term

is the study of the impact of one or more independent variables (the explanatory variable)

on a variable called the dependent variable (the outcome variable) This relationship is expressed in the form of an equation called a regression equation Based on the regression equation one can interpret the results that have taken place, estimate and predict the events that will occur in the future Regression methods are often used in the

form of simple regression, multiple regression to evaluate and forecast the financial results of enterprises

Single regression method (or univariate regression) is a method used to examine the relationship between an indicator reflecting the dynamic results of an economic phenomenon (called the dependent variable) and the indicator reflecting the dynamic results of an economic phenomenon (called the dependent variable) reflect the cause

(called the independent variable)

Multiple regression method (multivariate regression is a method used to analyze the relationship between many independent variables and a dependent variable (an outcome indicator with many cause criteria) There are many analytical models using multivariate regression, such as analyzing and forecasting the revenue of enterprises dealing in many products, analyzing total costs with many causes, etc An economic indicator is influenced by many factors Simultaneous action of many factors, both positive and negative, such as revenue depending on the quantity of goods sold, structure

of goods sold, commodity prices, average social income, seasons, weather, advertising Introduction… On the other hand, there is an internal relationship between the factors, therefore, regression analysis both tests the hypothesis about the influencing factor and the degree of influence, and quantifies the economic relations between the factors From there, there is a basis for predictive analysis and appropriate and effective decisions in achieving the desired goals of the subjects

1.4 CONTENT OF FINANCIAL ANALYSIS OF BUSINESS CUSTOMERS AT COMMERCIAL CUSTOMERS

1.4.1 Balance Sheet Analysis

Credit officers review the balance sheet data to compare the increase and decrease

in absolute and relative numbers between years, mainly analyzing and focusing on the following contents:

Firstly, with the asset list: credit officers should pay attention to:

- The type of assets the business owns and their value

- Asset turnover of the enterprise, paying attention to the change of items:

+ Cash reserves and amounts that can be converted into money

+ On the basis of a detailed list of receivables provided by customers, analyze the status of receivables, evaluate receivables of great value, bad receivables, provision for difficult receivables claims, accounts receivable turnover These are important indicators that need to be analyzed carefully as they can be the main source of repayment for short-term loans of customers

+ On the basis of a detailed inventory of inventories: analysis of inventory status, poor quality inventory, provision for devaluation of inventory, inventory turnover The value of inventory is highly dependent on the valuation method There are many methods

of valuing inventory, but this asset class should be valued at the lowest level between cost and market value

+ For fixed assets, usually banks are not interested in selling fixed assets to finance loans, but if fixed assets are used as collateral for loans, the value of fixed assets

is an indicator worthy of attention This value often depends on the amortization method and should be checked by the credit officer directly for a reference to the market value

Secondly, with the list of capital sources, credit officers pay attention to the following issues:

The state of the equity: When considering the customer's liabilities, the problem the bank poses is to check the amount and repayment period Liabilities are divided into two categories: short-term debt and long-term debt

Short-term debt reflects the total amount that enterprises borrow short-term from banks and other credit institutions Credit officers need to have a list of debentures clearly stating the debt amount and collateral for that loan to avoid the situation that businesses use one collateral for many loans at many different banks

For term debt, pay attention to the debt amount and the maturity of the term debt However, credit officers often do not care as much as short-term debt especially for the purpose of short-term loans to businesses Long-term debt should not pose a problem when there are sufficient funds available to repay the long-term debt

long-In addition, the bank is also interested in its position in the customer's list of creditors If the bank holds the most important position, the ability to recover debts when the business goes bankrupt will be given priority

For owner’s equity, this is an item of interest to bankers The increase in equity is

a manifestation of the financial progress of the enterprise The amount of equity needed for a safe debt will vary depending on the nature and size of adequacy of cash flows, collateral and other factors Some banks believe that enterprises need to have equity on the total capital larger than debt However, in some seasonal industries, this rule may not

be appropriate

1.4.2 Income Statement Analysis

In order to control the business activities and business performance of the enterprise, the credit officer needs to consider the fluctuations in the items of the income statement When analyzing, it is necessary to calculate and compare the level and rate of change between the analysis periods compared with the base period on each indicator Besides, it is necessary to compare the fluctuation of each indicator with net revenue Detail:

- Compare expenses with net sales to find out how many units of net revenue must

be wasted to have 1 unit of net revenue The higher the calculated expense compared to the original period, the lower the business efficiency and vice versa

- Compare profits with net sales This comparison shows how many units of profit

a unit of net revenue brings to the business The larger the profit value compared to the original period, the higher the business efficiency and vice versa

1.4.3 Cash Flow Statement Analysis

Using the cash flow statement to analyze the cash flow of the enterprise, the cash flow statement of the enterprise is prepared by two methods: the direct method and the indirect method, respectively, each method has its own reporting form but differs only

in the cash flow part from business activities In case the enterprise cannot provide this report, the analyst can use the automatic scoring and credit rating flow report of the customer

General assessment

Is the firm's Net Cash Flow assessment positive or negative? If the net cash flow

is negative, it is necessary to analyze the cause (because the enterprise is in the investment/expansion stage or the short-term solvency is having problems due to a decrease in payables or an increase in receivables/inventories) ?

Identify the basic source of cash generation and use of the enterprise's money (from operating activities, investing activities, or financial activities?), combined with

an analysis of the current development stage of the enterprise to assess whether the company's cash flow rate is good or not Specifically: A newly established enterprise often has a negative cash flow from operating activities because the enterprise must use money to finance its inventory and receivables This negative cash flow from operating activities is usually financed by loans and equity issuance These funding sources are not sustainable because owners and investors do not finance the lack of cash-generating ability of enterprises, enterprises must have positive operating cash flow otherwise the above sources of support will no longer exist In the long term, businesses have good cash flow if they are able to generate cash flow from operating activities sufficient to cover capital costs, interest for creditors as well as dividends for shareholders

Cash flow analysis is placed in the context of the enterprise's current business and future development: analysts need to evaluate the interplay between the positive side of positive cash flow and the risk that this positive level will not last long long-term and

vice versa between the negative side of negative cash flow with the good prospect when current investment activities will bring benefits in future cash flow Specifically:

Businesses that are experiencing slow growth or a declining market may have a relatively strong cash flow, because they do not have the need to invest in fixed assets

or short-term capital

Businesses that are growing strongly may have negative cash flow because they need to invest heavily to support future growth

1.4.4 Financial Ratio Analysis

When lending capital, what banks are most interested in is the solvency and repayment ability of borrowers Therefore, when doing financial analysis, banks are interested in customer's liquidity risk, analyzing criteria on liquidity, financial structure, efficient activity, and profitability and cash flows to assess the customer's risk in the future Therefore, the bank pays special attention to the financial indicators from the income statement and balance sheet

Banks often analyze 4 groups of financial ratios including:

* Group 1: Liquidity ratio

This is a group of indicators that banks and many other subjects are interested in such as investors, financial companies, employees, etc Analyzing the solvency of enterprises for old debts is very important important because it partly reflects the willingness to pay of the business

+ Content: This index is greater than or equal to 1, showing the normality in the financial activities of the enterprise, usually banks often appreciate when the enterprise has a coefficient of 2

A high ratio indicates a high payment potential relative to a payment obligation, but if it is too high, it may also mean that the business has overinvested in current assets, this part is not active, not profitable, will not be profitable affect corporate profits The fair value of the short-term solvency ratio depends on the type of business

+ The disadvantage of using the current ratio is that the above ratio can be skewed

by management's tricks because the ability of inventory to convert into cash is often very poor Therefore, to evaluate solvency more rigorously, quick ratio can be used

- Quick ratio

Quick ratio

=Cash & cash equivalents − Marketable securities − Account receivable

+ Meaning: The quick ratio measures the amount of current current assets relative

to the value of a business's current liabilities Current assets are short-term assets excluding inventory that can be quickly converted to cash with minimal impact on open market prices, while current liabilities are the company's liabilities or obligations due to

be paid to creditors within one year

+ Content: A result of 1 is considered the normal quick payout coefficient It indicates that the enterprise is fully equipped, correct and has enough assets to be able to liquidate immediately to pay short-term liabilities A business with a quick ratio less than

1 may not pay off its short-term debts in the short term, while a company with a quick ratio higher than 1 may immediately get rid of its debts Short-term For example, a quick ratio of 1.5 indicates that a company has $1.50 of current assets available to cover every

$1 of its current liabilities

+ While such numbers-based ratios provide insight into the viability and certain aspects of a business, they may not provide a complete picture of the overall health of a business enterprise It is important to consider other relevant measures to assess the true picture of a business's financial health

+ Content:

Cash ratio expressed in single digits, greater than or less than 1 When calculating this ratio, if the result is 1, the company has exactly the amount of short-term liabilities

in cash and cash equivalents to pay those debts

Less than 1: If a company's cash ratio is less than 1, it has more current liabilities than cash and cash equivalents It means that there is not enough cash available to pay short-term debt This may not be bad news if the company has conditions that distort its balance sheet, such as longer-than-usual credit terms with suppliers, efficiently managed inventory, and more results and very little credit is granted to customers

Greater than 1: If a company's cash ratio is greater than 1, it has more cash and cash equivalents than current liabilities In this situation, the company is able to cover all its short-term liabilities and still has cash left

While that sounds responsible, a higher cash ratio does not necessarily reflect a company's strong performance, especially if it is significantly greater than the industry norm High cash ratios may indicate that a company is inefficient in the utilization of

cash or not maximizing the potential benefit of low-cost loans: Instead of investing in profitable projects, it is letting money stagnate in a bank account It may also suggest that a company is worried about future profitability and is accumulating a protective capital cushion

* Group 2: Activity Ratio

Total asset turnover

Total asset turnover = Sales and other revenue

Average total asset

The efficiency of using total assets is a general measure of the operating capacity

of all assets in an enterprise, expressed through the relationship between total revenue and other income in the enterprise and the total existing assets of the enterprise This ratio is often considered to be better, showing that the business needs fewer assets to maintain the level of business activity that the enterprise sets

Receivables Turnover Ratio

Average Receivables

Meaning: The receivables turnover ratio helps to assess a company's ability to collect receivables or the effectiveness of its current credit facility This ratio also shows the number of times a company's receivables are converted to cash The receivables ratio can be calculated annually, quarterly or monthly

Content:

A high receivables turnover ratio shows the ability to effectively collect

receivables and debts from customers A high receivables turnover ratio can also be

a sign that a business is operating primarily on cash

The high receivables turnover ratio also shows that the company is cautious in granting credit to customers A prudent credit policy can be beneficial because it