Financial analysis and solution to improve financial situation the case of bk investment joint stock company

: 04 92 00 11 01 – Fax : 04 92 00 11 43 Academic Year 2012/2013 Internship report submitted in order to obtain the Master’s Degree in “International Business / Affaires Internationales

UNIVERSITÉ NICE SOPHIA ANTIPOLIS

Institut d'Administration des Entreprises

Campus Saint-Jean d’Angély

24, Avenue des Diables Bleus – 06357 NICE cedex 4 Tél : 04 92 00 11 01 – Fax : 04 92 00 11 43

Academic Year 2012/2013

Internship report submitted in order to obtain the

Master’s Degree in

“International Business / Affaires Internationales”

Major: “Affaires et Management International”

FINANCIAL ANALYSIS AND SOLUTION TO IMPROVE FINANCIAL SITUATION: THE CASE OF BK INVESTMENT JOINT STOCK COMPANY

Internship carried out at:

A very special thanks goes to Ms Thuy Trang, Chief Executive Officer, without her help I could not finish my report She provided me with direction, information and played a role as a mentor,

a supervisor She introduced me to many departments to build a relationship in the Company Besides, I received assistance from the office staffs, so I would like to thank all of employees in

BK Investment JSC

I would also like to thank my family members for the support they provided me during the time

of my internship Without their love, encouragement and assistance, I would not have finished this thesis

In conclusion, I recognize that this thesis would not have been possible without the assistance of friends, teachers of Thang Long University and the International Cooperation and Relation Department

Abstract

The thesis applies financial analysis tools to assess the financial performance of BK Investment JSC The goal is achieved through the implementation of different financial analysis tools and techniques, mainly financial ratio analysis Furthermore, comparisons are made between the past and current period The ratio analysis showed that the Company had problems with the absolute liquidity Profitability of the Company was poor The activity ratios that define the company’s market strategies were not good figures It was connected with the low returns on assets and the inadequate profit margins In conclusion, the thesis provides useful recommendations and makes

a small contribution in financial situation improvement of BK Investment JSC

Keywords: financial analysis, ratio analysis, liquidity ratio, profitability ratio, activity ratio,

solutions

1.2 Company's sector of activity

1.3 Products and services

1.4 Market

1.5 Financial standing of the Company

Chapter 2: Company structure diagram

2.1 Organizational chart

2.2 Functions of company’s departments

2.3 Board of directors and management

Chapter 3: Mission

3.1 Tasks assigned to intern position

3.2 Goal to be reached

3.3 Theoretical knowledge applied to the Company

Chapter 4: Financial analysis and solutions proposed

4.1 Analysis of financial statements

4.1.1 Balance sheet analysis

4.1.2 Income statement analysis

4.1.3 Cash flow analysis

4.1.4 Generalized analysis of the financial situation

4.3 Solutions to improve the financial situation

4.3.1 Basis of the solutions proposed

4.3.2 Purpose of the solutions

4.3.3 Description of the specific solutions

4.3.4 Financial situation after the solutions implemented

Introduction

The current financial crisis and difficult market circumstance almost impacted directly in many companies in the world What companies should do to exist and growth in the fierce competitive environment In fact, a successful company need produces valuable products and services, capital resource and human resource In order to improve these factors, the enterprise has to understand obviously its financial situation Financial index can reflect correctly about abilities of an enterprise This provide useful information to managers do decision making I realized the importance of this thesis topic I would like to apply to analyses the specific case of BK Investment JSC

This research begin with company introduction Chapter 1 presents an overview of company as history, sector activity, main product and service and the market The company organization and structure was present in chapter 2 It is in chapter 3 that method of analyzing, goal of the research need to be achieved Financial analysis was provided in chapter 4 Chapter 4 also discusses more detail about strength, weakness, resource limitation of BK Investment Company by analyzing balance sheet, income statement and financial ratio The development in chapter 4 is to raise solutions to improve financial situation Conclusion and recommendation are draws in chapter 5

Chapter 1: Introduction of BK Investment Joint Stock Company

• History

Company name: BK Investment Joint Stock Company

Head office: 6th floor, Sun Red River building, 23 Phan Chu Trinh Str., Hoan Kiem District, Hanoi

Trading office: 8th floor, No 19, TTC building, Duy Tan Str., Cau Giay District, Hanoi

Website: www.bkinvest.com.vn

Form of ownership: BK Investment JSC was established under the Vietnam’s Enterprise Law Business registration No 0103007015 was provided by Hanoi Department of Planning and Investment on 14 March 2005

From 2005 to 2008, BK Investment JSC operated in two major fields: investment and financial consultancy The investment operation includes stock investment, venture capital and real estate The diversity of the investment activity has created potential finance, ability

to attract capital investment, strategic relationship, business partners and potential customers

By the end 2008, the Company researched into Vietnam’s logistic market and realized the weaknesses and disadvantages of the local logistic companies There was a big difference between the Vietnam’s companies and the foreign ones The advantage of logistic field in Vietnam is that it is still a service inside the country The demand on logistic services is over ability of the local suppliers In this period, BK Investment JSC decided to expand business to the logistic field and developed its infrastructure to support for logistic business The first project was a logistic center – ICD Tien Son local port The strength of Company at that time was just experience and knowledge about logistic field of its chairman, Mr Le Tien Nam Shortly after going into operation, ICD Tien Son has cooperated with dozens of business partners of the same field such as: Nissin Logistics Co.; Seeds CP-VN; Yusen Logistics Solution, Panalpina World Transport, K Logistics VN-line and also with some big customers such as: Samsung, Canon, Ikea

The Company is aiming to build a One Stop logistic Market, creating advantages of this type

In the current trend of development, ICD Tien Son intends also to develop a complete logistics supermarket with participation of many partners and business entities The Roads Agreement between Vietnam and China has been agreed This allows Chinese transportation partners run deeply into ICD Tien Son freight forwarding Further more, Vietnam’s government will build a new railway from Lim district to Pha Lai district This is a big change for railway transportation service At present, many FDI companies have invested into Tien Son Industrial zone, Yen Phong industrial zone and Que Vo industrial zone Therefore, IDC Tien Son has big opportunities to develop transportation services, warehousing and container yard

• Company’s sector of activity

At present, the Company provides the following activities:

- Logistic services;

- Investment consultancy;

- Brokerage and trading promotion;

- Brokerage and real estate business;

- Construction of civil works, transportation projects, irrigational works, industrial projects and infrastructure;

- Trading and providing services associated with housing, urban area, industrial area and office building;

- Providing rental service of housing, office, yard, plant, passenger transportation on fixed routes;

- Construction of public projects, civil engineering works;

- Installation of electrical systems, industrial equipment, providing wholesale machinery, spares parts;

- Providing rental service of machine, equipment construction, office equipment, industrial machine

• Product and services

Warehousing service and making good service in the warehouse (covering 43.7% to total revenue) consist of:

- Rental stock by m2 at price of the class A standard;

- Receiving, storing and preserving goods;

- Order received, delivery;

- Controlling goods in the warehouse by unit and product serial;

- Exporting and importing goods;

- Providing facilities and infrastructure as distribution center, retail and distribution

directly to customers;

- Stock-taking to verify the quantities and condition of goods held in inventory;

- Making sure that the difference between number of physical goods and statistic figure in system less than 2%;

- Other added value services: packing, labeling, quality control

Transportation service (covering 40% to the total revenue)

The advantage of transportation services is that BK Investment Company has a logistics hub located at ICD Tien Son Others logistic companies often have hub located near the sea port This new model utilizes depot for both way full container load (Haiphong port to Hanoi and back) The Company may save about 30% to 40% transportation cost

The import-export container shipping services include:

- Oversize cargo and overweight cargo;

- Collection of exported goods from factories to focusing points;

- Distribution service from the main warehouse to the retail shop system;

- Transportation service carries container shells to the destination port for international carriers

Custom declaration service (occupying 7.7% to the total revenue)

The advantage of this service is that the Customs Department is located near the ICD Tien Son The staffs of the IDC Tien Son are professional of foreign trade, customs and trade, and also are knowledgeable about import-export procedures and regulations Further more, the Company has good relationship with the Customs Department Therefore, the

Company always provides customs declaration and clearance of import and export goods quickly and most reliably to its clients

Yards container rental services

These services cover:

- Yards container for rent;

- Container lifting service;

- Maintaining, repairing, upgrading, washing service for carriers owned containers;

- Service of management, running, controlling containers in global scope by a modern management system which is applied since January of 2010;

- Security system service for container yards with a system of cameras and guards

Company is researching into the trading, and the rental container service to adapt to the demand of carriers This is added value service that container owners desire to optimize

by raising cost whenever their containers arrive in the land

Services of canteen, kitchen and others

These services are provided for customers who rent the warehouse of BK Investment Company

Conclusion:

With this kind of package logistics services towards customers, the Company is following the goal to become a strong center of the distribution of materials and production of industrial consumer goods for the domestic market with the advantage of having a destination port, a warehouse system and standards for convenient transportation of trucks and containers

The Company has provided customers with all the outsourcing services that help production companies saving investment capital for warehouse system and operational logistics Storage systems, information technology systems and infrastructure security are always its priority to achieve perfection and best standards for customers in the inventory management

• Market

The combination of different types of transportation services, warehousing and yards brought

to Company on the advantage of cost, time and utilities Not only logistic companies, transportation companies, import and export companies use the combined services, but also multinational shipping companies such as Maersk, CMA CGM, Evergreen, APL, Hapag Lloyd, MOL, NYK, Hanjin and many other FDI firm have also chosen these services We can divide customer network into three groups

Table 1:The foreign logistics customers (third party) with global brands

Table 3: List of customers who are the foreign suppliers or logistics contractors of foreign manufacturers with global brands

• Financial standing of the Company

Table 4: General result of business operation

Unit: 1000 VND

Chapter 2: Company structure diagram

• Organization chart 1

General Assembly

Board of management

General Director

Board of control

Share holders

Purchasing dept

IT Dept

Mechanical plant, Machine plant

The organizational structure of BK Investment Company is based on the following:

- The characteristic of the business type: The main sections are logistic services and supply chain management services The operating system relates to warehousing, transportation, delivery and distribution Therefore, the splitting into departments and management levels with responsibilities and authorities is the best way to perform management function in the Company

- A large number of young enthusiastic and experienced employees in logistics field

- High requirements of the management system: the modules, components in the chart above must adapt to the requirement of tight relationship, constituting a perfect management system

Total number of employees is 136 persons Number of staffs in each department is as follows:

- Finance and Accounting Dep.: 08 persons;

- Human Resource and Administration Dep.: 07 persons;

- Information Technology Dep.: 02 persons;

- Sales, Marketing and Business Development Dep.: 08 persons;

- Purchasing Dep.: 01 person;

- Logistics Dep.: 47 persons;

- Warehouse Dep.: 29 persons;

- Customer service Dep.: 13 persons;

- Custom declaration Dep.: 03 persons;

- Container yard Dep.: 06 persons;

- Mechanical plant Dep.: 03 persons;

- Kitchen and canteen Dep.: 09 persons

• Functions of Company’s departments

Functions of the Sales and Marketing Department

Sales persons are responsible for:

- Attracting and retaining customers Many moving parts are tied to this but the objective “number one” is to attract and retain customers That said sales activities need to be coordinated to meet customer demand with appropriate supply;

- Increasing the sales volume, considering a particular period of time It is to find appropriate persons, agencies to carry out the sales activities;

- Helping the Marketing Department in meeting the sales volume fore casted by them The Sales Department gives motivation to the sales persons by appropriate means and provides appropriate training to them in carrying out the sales activities;

- Analyzing market demands Sales person study the consumer's psychology, research into market fluctuation, prepare sales budget, explore new markets

Marketing persons are responsible for:

- focusing on customers;

- monitoring the competition;

- finding and directing outside vendors;

- creating new ideas;

- communicating internally;

- managing budget;

- setting strategy, planning the Attack and Execute

Functions of the Purchasing Department

- Purchasing is once looked upon primarily as a service function As such, the key responsibility of the Purchasing Department is to procure all necessary materials needed for daily operation of the Company It is responsible for those needs, forging long-term relationships with suppliers, or understanding the needs of the end customers Purchasers have to focus primarily on a narrow set of activities to serve, the needs of the internal interlaces, such as production, marketing, operations, procuring something from outside the organization and others Purchasing is focused

on getting the right products or services in the right place, at the right time, in the right quantity, of the right quality, and from the right supplier at the right price The role of purchasing in a supply chain is an integration of business processes from end users through original suppliers that provide products, services, and information that add value to customers

Functions of the Finance and Accounting Department

The essential functions and tasks of a virtual finance and accounting department should

- Accounts Payable: Maintaining durable relationship with vendors, making sure that everyone gets paid on time is the vital role of this department The accounting department’s functions also include keeping an eye on opportunities to save money For example, it is determining if there are discounts or incentives available for paying certain vendors quicker At the very least, the Department should be scheduled to assure that the least amount of money has to go out per payment, no late payment charges

- Accounts Receivable and Revenue Tracking: Another key task of the Finance and

Accounting Department is to account for and track receivables, including outstanding invoices and any required collection actions Accounts receivable is responsible for creating and tracking invoices The responsibility here includes assuring that customers pay those invoices on time

- Payroll: Payroll is a critical function of the Department It includes making sure that

all employees are paid accurately and timely In addition, proper tax is assessed and tax payments are on time to centre and local government agencies

- Reporting and Financial Statements: The first reason a firm collects data properly in

its accounting software is to prepare financial reports that can be used for budgeting, forecasting and other decision making processes In addition, these and other reports are needed for communication to investors, banks and other professionals that play an important role in the growth of the firm’s business

- Financial Control: Financial control includes reconciling, dividing the responsibilities

and following the GAAP standards of accounting principles, all of which are implemented with view toward compliance, fraud and theft prevention The task of the controller is to ensure that procedures are set up properly to manage that process without errors

Functions of the Human Resource and Administration Department (HRAD)

- HRAD involves the planning for the future and finding out how many employees will

be needed in the future by the business and what types of skills should they possess It depends on the number of people leaving job, the project growth in sales of business, technology change, productivities of the workers

- HRAD is involved in designing job analysis and job description for the prospective vacancies It is also involved in determining the wages and salaries for different positions in the organization One of the most important tasks of HRAD is to recruit the best people for the organization This is of crucial importance as the success of the company depends on quality of and the workforce

- Once the employees have been recruited, the Department has to review their performance on a regular basis through proper performance appraisals The Department is also constantly keeping a watch over the employees of the Company In order to improve the efficiency level of skill, the employees they have go undergo regular trainings and development program

- Other duties of HRAD are to ensure employee welfare and motivation, labor management relationship, implementing organization policy vis-à-vis, dismissal and redundancy

Function of the Information Technology Department

- The Information Technology Department develops and maintains an internal network

of over 100 desktop workstations, digital office equipment, networking equipment, operating systems and server Its main responsibilities include managing the organization’s hardware, software and communication, providing a source of guidance for technology issue for staff and associated organizations, maintaining information security and availability, providing a corporate perspective on information technology initiatives, supplying the guidance and infrastructure to deliver the meaningful information

Operation of ICD Tien Son

In 2012, ICD Tien Son was chosen as a consolidation point within the Ha Noi area for cargo vehicles from China There were 18 tractors added to the total of 33 tractors and 55 trailers Early, in 2013, ICD Tien Son extended 1.5 ha and 14,000 m2 of the warehouse of European A standard, taking up a total area of 45,000 m2 warehouse The company's vehicle fleet is the first Vietnamese one to receive G license of direct trucking to Nanning

Customer service

- The purpose of the logistic system is to serve customers better than competitors do and at the same time to make profit The Customer service is a chain of sales activities and meeting customer requirements that begins with receiving the orders and ends with the delivery of the products to customers, and in some cases, continues with equipment maintenance services The role of the customer service is to provide time and place utilities in the transfer of goods and services between manufacturers and customers In another word, a product has no value until it is in the hand of a customer With 24/7 services, BK Investment JSC satisfies clients sophisticated demand for local services from door to door delivery, warehouse, trucking, to distribution, consolidation …

Logistics Center, Warehouse, Distribution and Consolidation

- BK Logistics Center has 45,000 m2 of European A class warehouse including normal, temperature, bonded and CFS warehouse This is the largest warehouse in the North of Vietnam with the best quality in the country (it owns a super flat floor for VNA operation up to 16.5 m high) Upon client request the Company provides different services from dry lease per m2 to warehouse management, distribution and consolidation with its own trucks

- In the next 5 year, the Company plans to expand its warehouse up to 200,000 m2, to build in a railway connect with the national railway network which will keep the No 1 position in the North of Vietnam and the best choice for professional logistics businesses

Container yard

- Container yard occupies the largest area in the Inland Container Deport (ICD) It is stacking area where the export containers are aggregated prior to dispatch to the port, import containers are stored waiting customs clearance performed and where empties await onward movement

- With 40,000 m2 of container yard and 2 container reach stackers, it provides off-dock service for 11 shipping lines including 5 biggest in the world Using Tien Son depot,

clients can save up to 20 % inland trucking fee for import and export by economizing

250 km of moving empty boxes

Inland Clearance Depot and customs broker service

- The advantage of Tien Son ICD Customs Sub department is that it is located next to the ICD Tien Son It is branch of Hanoi Customs Department Therefore, that customs sub-department has the same function as other customs departments locating near sea ports and border areas

- With the B/L (-or truck way bill-) final destination to ICD Tien Son, clients can finish import customs formalities and receive import cargo at the depot instead of going to the port and border It is very convenient and saving for clients in Hanoi and the surrounding areas The bonded warehouse will store cargo in case importers are not ready for duty payment

- Exporters can also finish all export formalities at Tien Son depot or use the CFS warehouse for consolidation

- Not only serving import-export to the North of Vietnam, the depot functions as a transit hub for ASEAN and China trade ICD Tien Son was chosen by Ministry of Transport as final destination for Chinese, Thailand trucks to Hanoi area

- Clients can finish all kind of customs formalities for import, export, transit at ICD Tien Son, saving cost and time at the port and the border

Transportation service

- With 33 trucks and 55 container trailers the Company provides full domestic inland trucking service from port to factory and back for large multinational corporation s such as Samsung, Canon, Foxconn

- Having close partnership with many ocean carriers and using their own trucks,

customs brokers, as well as utilizing their depots for both way full container load (Haiphong port to Hanoi and back ), the Company has got strong advantages against other forwarders in term of cost, service quality and quantity