ANALYSIS FINANCIAL STATEMENT NAM THANH MEDICAL EQUIPMENT SCIENCE TECHNOLOGY CO , LTD1

Structure of Balance Sheet Example Current Assets - Cash and cash equivalents - Trade and other receivables - Current tax liabilities - Current portion of loans payable - Other financial

Signed hereby, certify hereby that this is my own research The content and the figures presented in the thesis reflected a fair and true situation of the internship organization.

Author Chu Thi Huong Giang

First of all, I would like to express my deep gratitude to my supervisor, Mrs Pham Phuong Oanh for her precious advices and close instructions that guide me through this study.

I also want to send my thanks to Ms Pham Nga, Accountant of Nam Thanh Medical Equipment and Science Technology Limited Company, and staff of Accounting Department for their support during my internship Thanks to them, I had chance to access all necessary documents and financial statements and opportunity to work with the Company.

Ultimately, I owe my sincere thanks to my family and friends Their continuous assistance and encouragement helped me a lot during time of internship and attempt to finish this study.

The thesis is aimed at studying situation and solutions to enhance the financialcapacity in Nam Thanh Medical Equipment and Science Technology LimitedCompany (NTMED) from 2012 to 2014 By analyzing the data collected from thebalance sheets and income statements of NTMED from 2012 and 2014, the resultrevealed that the company gained some achievements in enhancing its financialcapacity However, there were still shortcomings including unreasonable assets andcapital structure, poor asset management and low liquidity From that, someproposals were given to NTMED including adjusting reasonable financial structureand have effective funded policy, enhancing business efficiency by increasingrevenue and reducing costs Furthermore, State and government also should somesuggestions such as completing legal document to create equity businessenvironment, making administrative regulatory reform, and decreasing procedureswhich cause difficulties for enterprises…

TABLE OF CONTENTS

DECLARATION i

ACKNOWLEDGEMENTS ii

ABSTRACT iii

TABLE OF CONTENTS iv

LIST OF TABLES vi

INTRODUCTION 1

CHAPTER 1: LITERATURE REVIEW 3

1.1 Overview about financial capacity and financial analysis 3

1.1.1 Financial capacity 3

1.1.2 Financial statement analysis 3

1.1.3 Financial statements 4

1.2 Criteria in financial analysis to evaluate financial capacity 8

1.2.1 Overview of financial situation of the company 8

1.2.2 Financial ratios analysis 11

1.3 Factors affecting on financial analysis 21

1.3.1 The quality of information using on financial analysis 21

1.3.2 The level of analyst 22

1.3.3 The system of average ratios 22

CHAPTER 2 ANALYSIS FINANCIAL STATEMENT NAM THANH MEDICAL EQUIPMENT & SCIENCE TECHNOLOGY CO., LTD 23

2.1 Introduction about NTMED CO ,LTD 23

2.1.1 General information 23

2.1.2 Organizational structure: 24

2.2 Financial Statements of NTMED CO ,LTD Analysis 25

2.2.1 Overview about financial situation of company 25

2.2.2 Analysis financial situation of the company through calculating following ratios: 36 2.3 Evaluation about financial capacity of the company through financial analysis: 42 2.3.1 Advantages 42 CHAPTER 3: SOLUTIONS AND RECOMMENDATIONS TO ENHANCE FINANCIAL CAPACITY OF NTMED COMPANY THROUGH

FINANCIAL ANALYSIS 45 3.1 Development orientation of the NTMED company in the future 45 3.1.1 The context of Vietnam economy and healthcare industry in the next years 45 3.1.2 Development orientation of the NTMED 45 3.2 Solutions and recommendations for enhancing financial capacity of NTMED 46 3.2.1 Solutions for enhancing financial capacity of NTMED 46 3.2.2Recommendations to implement solutions for enhancing financial capacity of NTMED effectively 49 CONCLUSION 51 REFERENCE 52

LIST OF TABLES

INTRODUCTION Rationale

Nowadays, along with the renewal of the market economy, the increasingly fierce competition between economic sectors has caused the difficulties and challenges for businesses In this context, in order to assert their position, every business should understand their financial position and the results of production and business activities To achieve that, businesses must always concern about their own financial situation as it related directly

to the business activities of.

Assessing regularly the financial situation helps businesses and the managers to see the status of financial activities, the results of production and business activities of enterprises in the period Therefrom, they can assess potential production and business efficiency as well as the risks and future prospects of the business They can find out effective solutions, accurate decisions in order to improve quality of economic management and the efficiency of production and business of enterprises.

Nam Thanh Medical Equipment and Science Technology Limited Company is one of the leading enterprises in providing medical machinery and equipment in Vietnam However, in the context of the economy in trouble, along with most other businesses, Nam Thanh Medical Equipment and Science Technology Limited Company is also facing many challenges in its operations Lower global growth and the process of integration with the increasingly fierce competition in recent years have caused the consumption

of the company's products to be more difficult, which are accompanied by a series of shortcomings in financial capacity Therefore, the company needs to assess accurately its current financial situation and find out appropriate solutions to improve the company's financial capacity in the next years.

Being awarded of this practical requirements and combining with the internship report in Nam Thanh Medical Equipment and Science Technology

Limited Company, I chose the topic: “Financial statement analysis and solutions to enhance financial capacity of Nam Thanh Medical Equipment and Science Technology Limited Company” to study

CHAPTER 1: LITERATURE REVIEW 1.1 Overview about financial capacity and financial analysis

1.1.1 Financial capacity

According to “Corporate Finance” (2nd Ed.) by Jonathan Berk (2011):

The financial capacity of each company is the financial resources of thecompany itself, the ability to generate cash, organize cash flows reasonably andensure the solvency reflected in capital scale, the quality of assets and profitability enough to ensure and maintain business operations

Criterion for evaluating the financial capacity of the business inclusive:

- The quantitative factors are scale and structure of capital sources; quality andstructure of asset; the ability to pay short-term debt; profitability…

- The qualitative factors are the exploitation and management and use ofcapital resources which is reflected in organization and management level, scientificand technological level, human resources management

1.1.2 Financial statement analysis

Economists give the definition of financial statement analysis as follows:Financial statement analysis is the process of reviewing and evaluating acompany's financial situations, thereby gaining an understanding of the financialhealth of the company and enabling to have more effective decision making

The purpose of financial statement analysis is to examine both past and currentfinancial data so that a company's performance and financial position can beevaluated as well as the future and potential risks can be estimated Financialstatement analysis can yield valuable information about trends and relationships, thequality of a company's earnings, and the strengths and weaknesses of its financialposition

Financial statement analysis begins with establishing the objective(s) of theanalysis For example, whether the analysis undertaken is to provide a basis forgranting credit or making an investment? After the objective of the analysis isestablished, the data is accumulated from the financial statements and from other

sources The results of the analysis are summarized and interpreted Conclusionsare reached and a report is made to the person(s) for whom the analysis wasundertaken.

Another definition of financial statement analysis is that an evaluative method

of determining the past, current and projected performance of a company Severaltechniques are commonly used as part of financial statement analysis includinghorizontal analysis, which compares two or more years of financial data in bothdollar and percentage form; vertical analysis, where each category of accounts onthe balance sheet is shown as a percentage of the total account; and ratio analysis,which calculates statistical relationships between data

There are a number of users of financial statement analysis They are:

- Creditors Anyone who has lent funds to a company is interested in its ability

to pay back the debt, and so will focus on various cash flow measures

- Investors Both current and prospective investors examine financial

statements to learn about a company's ability to continue issuing dividends, or togenerate cash flow, or to continue growing at its historical rate

- Management The company controller prepares an ongoing analysis of the

company's financial results, particularly in relation to a number of operationalmetrics that are not seen by outside entities

- Regulatory authorities If a company is publicly held, its financial statements

are examined by the Securities and Exchange Commission (if the company files inthe United States) to see if its statements conform to the various accountingstandards and the rules of the SEC

1.1.3 Financial statements

1.1.3.1 Balance Sheet

 Definition of a balance sheet:

A balance sheet is a financial statement that summarizes a company's assets,liabilities and its shareholders' equity at a specific point in time

A balance sheet must follow the below formula:

Assets = Liabilities + Shareholders' Equity

 Structure and Content of a balance sheet

Table 1.1 Structure of Balance Sheet Example

Current Assets

- Cash and cash equivalents

- Trade and other receivables

- Current tax liabilities

- Current portion of loans payable

- Other financial liabilities

- Liabilities held for sale

Non-Current Assets:

- Property, plant, and equipment

- Intangible assets

- Goodwill Non-Current Liabilities:- Loans payable

- Deferred tax liabilities

- Other non-current liabilitiesOwner’s Equity:

- Capital stock

- Additional paid-in capital

- Retained earnings

 Drawback of a balance sheet:

Balance Sheet has some limitations:

 Firstly, balance sheets do not show true value of assets Historical cost iscriticized for its inaccuracy since it may not reflect current market valuation

 Secondly, some of the current assets are valued on an estimated basis, so thebalance sheet is not in a position to reflect the true financial position of thebusiness

Finally, the balance sheet cannot reflect those assets which cannot beexpressed in monetary terms, such as skill, intelligence, honesty, and loyalty ofworkers

1.1.3.2 The Income Statement

 Definition of an income statement:

According to “Corporate Finance” (2nd Ed.) by Jonathan Berk (2011):

The income statement presents the results of a business for a stated period oftime The statement begins with revenues, from which expenses are subtracted toarrive at a profit or loss The income statement is an essential part of the financialstatements that an organization releases

 Structure and Content of an income statement

There are some major components of typical income statement:

- Revenue is the amount earned by the company in exchange of goods it

supplied and services it provided

- Cost of goods sold is the cost of goods sold and services provided It

includes all such costs that can be traced or assigned to goods sold or servicesprovided

- Gross profit (= revenue – cost of sales) is the profit earned on the goods and

services of the company before any selling, general and administrative expenses andfinance costs are accounted for

- Operating expenses mainly include selling and distribution expenses and

general and administrative expenses

- Operating profit (equivalent to earnings before interest and taxes (EBIT) =

gross profit – operating expenses) is the profit after cost of sales and all operatingexpenses have been charged to revenue It is before any adjustment for interest orinvestment income and interest expense and taxes

- Income from continuing operations (= EBIT – taxes) represents the net

income (i.e after-tax income) earned from business components that the companyintends to own in the future It excludes any income earned during the year frombusiness components that are treated as discontinued operations

- Income from discontinued operations is the after-tax income of business

components which the company has disposed-off during the year or has classified

as held-for-sale at the year-end

- Net income (= income from continued operations + after-tax income from discontinued operations) is a company’s total net income including income from

both continued operations and discontinued operations It represents the incomeearned during the year after accounting for all expenses

- Distribution of income is a consolidated income statement providing a

statement of how the income is distributed between parent and minorityshareholders

- Earnings per share (EPS) = (net income – preferred

dividends)/weighted-average number of common shares is a critical part of income statement forcompanies that are required to calculate and present their EPS (mainly companieslisted on a stock exchange)

 Drawback of an income statement

Income Statement has some limitations as below:

Firstly, income statements include judgments and estimates, which mean thatitems that might be relevant but cannot be reliably measured are not reported andthat some reported figures have a subjective component

Secondly, with respect to accounting methods, one of the limitations of theincome statement is that income is reported based on accounting rules and oftendoes not reflect cash changing hands

Finally, income statements can also be limited by fraud, such as earningsmanagement, which occurs when managers use judgment in financial reporting tointentionally alter financial reports to show an artificial increase (or decrease) ofrevenues, profits, or earnings per share figures

1.1.3.3 The Statement of Cash flows

Definition of a statement of cash flows:

According to “Corporate Finance” (2nd Ed.) By Jonathan Berk (2011):

The statement of cash flows is part of the financial statements issued by a

business, and describes the cash flows into and out of the business Its particularfocus is on the types of activities that create and use cash Though the statement ofcash flows is generally considered less critical than the income statement andbalance sheet, it can be used to discern trends in business performance that are notreadily apparent in the rest of the financial statements

Structure and Content of a statement of cash flows:

Cash flows in the statement are divided into the following three areas:

- Operating activities These constitute the revenue-generating activities of a

business Examples of operating activities are cash received and disbursed forproduct sales, royalties, commissions, fines, lawsuits, supplier and lender invoices,and payroll

- Investing activities These constitute payments made to acquire long-term

assets, as well as cash received from their sale Examples of investing activities arethe purchase of fixed assets and the purchase or sale of securities issued by otherentities

- Financing activities These constitute activities that will alter the equity or

borrowings of a business Examples are the sale of company shares, the repurchase

of shares, and dividend payments

1.2 Criteria in financial analysis to evaluate financial capacity

1.2.1 Overview of financial situation of the company

1.2.1.1 Evaluation of situation of assets

Analysis of overall financial situation over the balance sheet can show thechanges in the items of assets and capital resources of the company through thebusiness cycle Special purpose of analyzing volatility and use of capital sources are

to review and assess the change of the accounts on balance sheet

Firstly, we present the form of the balance sheet (from assets to capital) andcompare the data of each item of Balance Sheet between periods in order tocalculate the increase or decrease of those items according to the followingprinciples: If assets increased and the capital reduced: shown on column of usingcapital If assets reduced and capital increased: shown on the column of capital.Amount of capital and amount of using capital must be balanced.

Finally, making arrangements indicators of capital and use of capital undercertain sequences depending on analysis objectives and presenting them on thetable

This table shows how much assets and capital increase or decrease in thebusiness cycle and what indicators mainly influenced the increase or decrease ofcapital and the use of capital Therefore, we can find out the solutions to raisecapital and improve the efficiency of using capital in companies

1.2.1.2 Evaluation of situation of capital resources

If companies want to carry out business activities, they need to have assetsincluding fixed assets and long-term investments, current assets and short-terminvestments In order to form two types of assets, there are two financing capitalresources, including long-term capital, and short-term capital

The short-term capital is capital that businesses use for a period of less thanone year for production and business activities, including short-term liabilities,short–term payables and other short-term liabilities

The long-term capital is used for long–term business operations, includingowner’s equity, loans in the middle and long–term The long–term capital was firstinvested for fixed assets, the balance of long-term capital and short-term capital areinvested for shaping the current assets

To assess the ability of paying short-term liabilities, analysts are concernedabout the net working capital indicator This indicator is also an important andnecessary factor for assessing the balanced financial condition of a business It isdefined as the difference between total current assets and total current liabilities

Net Working Capital = Current Assets - Current Liabilities

The ability to meet its payment obligations, to expand its business scale and totake the favorable opportunity of the enterprise mainly depends on both workingcapital and net working capital Therefore, the development of enterprise is alsoreflected through the growth of net working capital

Safety level of current assets depends on the level of working capital.Analyzing the situation of ensuring capital sources for operations, we only need tocalculate and compare items of the capital sources and assets

Long-term capital sources < Fixed assets or Current assets < short-term capital sources

This means that the net working capital is smaller than zero Therefore, term capital source is not enough for investment in fixed assets; enterprises haveinvested one part of short–term capital source in fixed assets Meanwhile, thecurrent assets do not meet the demand of short–term liabilities payment, thepayment balance of the company is imbalanced, they have to use part of fixed assetsfor paying short-term In such cases, the solution of business is to increase short-term capital source legally or reduce long – term investment or to conduct both oftwo solutions

long-Long-term capital > Fixed assets or Current assets > short term funds

This means that long-term capital source surplus after investing in fixed assets.This part is invested in current assets Simultaneously, Current assets are muchmore than short – term capital source, so the solvency of the business is well

Net working capital = 0

This means that long-term capital financing for fixed assets and current assetsare sufficient enough for businesses to pay short-term liabilities This financialsituation is good for the company The net working capital demand is short-termcapital source which need to finance for one part of current assets, such as inventoryand receivables

1.2.1.3 Evaluation of business operation

Income statement is a report on the income, expenses and profits of theenterprise for a certain period Therefore, the general characteristics of the incomestatement are to provide data about revenues, expenses and profits of the business in

a period From content in income statement, we can see the situation of revenue inthe period, specially the net sales, the situation of cost (including cost of goods sold,cost of sales, selling cost or general and administrative cost ), the situation ofincome in the period (including operational income, financial income andextraordinary income )

1.2.2 Financial ratios analysis

the company If a company is weighted down with a current debt, its cash flow willsuffer.

 Quick (or Acid – Test) Ratio

The acid test ratio measures the liquidity of a company by showing its ability

to pay off its current liabilities with quick assets

 Cash ratio

The cash ratio is a liquidity ratio that measures a firm's ability to pay off itscurrent liabilities with only cash and cash equivalents

Cash ratio = =

Cash + Cash Equivalent

Total Current liabilities

A ratio of 1 means that the company has the same amount of cash andequivalents as it has current debt In other words, in order to pay off its current debt,the company would have to use all of its cash and equivalents A ratio above 1means that all the current liabilities can be paid with cash and equivalents A ratiobelow 1 means that the company needs more than just its cash reserves to pay off itscurrent debt

As with most liquidity ratios, a higher cash coverage ratio means that thecompany is more liquid and can more easily fund its debt Creditors are particularlyinterested in this ratio because they want to make sure their loans will be repaid.Any ratio above 1 is considered to be a good liquidity measure.

1.2.2.2 Asset and Debt Structure ratios (Solvency or Leverage ratios):

These ratios show how heavily the company is in debt and the ability ofbusiness to survive over a long period of time

 Debt – to – owner’s equity ratio

The debt to equity ratio is a financial, liquidity ratio that compares acompany's total debt to total equity The debt to equity ratio shows the percentage

of company financing that comes from creditors and investors A higher debt toequity ratio indicates that more creditor financing (bank loans) is used than investorfinancing (shareholders)

Debt to Equity Ratio

=

Total Liabilities Total Equity

A lower debt to equity ratio usually implies a more financially stable business.Companies with a higher debt to equity ratio are considered more risky to creditorsand investors than companies with a lower ratio Unlike equity financing, debt must

be repaid to the lender Since debt financing also requires debt servicing or regularinterest payments, debt can be a far more expensive form of financing than equityfinancing Companies leveraging large amounts of debt might not be able to makethe payments

Creditors view a higher debt to equity ratio as risky because it shows that theinvestors haven't funded the operations as much as creditors have In other words,investors don't have as much skin in the game as the creditors do This could meanthat investors don't want to fund the business operations because the company isn'tperforming well Lack of performance might also be the reason why the company isseeking out extra debt financing

 Debt ratio

Debt ratio is a solvency ratio that measures a firm's total liabilities as apercentage of its total assets In other words, this shows how many assets thecompany must sell in order to pay off all of its liabilities.

Debt Ratio = Total Liabilities

Total Assets

This ratio measures the financial leverage of a company Companies withhigher levels of liabilities compared with assets are considered highly leveraged andmore risky for lenders

This helps investors and creditors analysis the overall debt burden on thecompany as well as the firm's ability to pay off the debt in future, uncertaineconomic times

A lower debt ratio usually implies a more stable business with the potential oflongevity because a company with lower ratio also has lower overall debt Eachindustry has its own benchmarks for debt, but 0.5 is reasonable ratio A debt ratio of0.5 is often considered to be less risky This means that the company has twice asmany assets as liabilities A ratio of 1 means that total liabilities equals total assets

In other words, the company would have to sell off all of its assets in order to payoff its liabilities Obviously, this is a highly leverage firm Once its assets are soldoff, the business no longer can operate

 Equity ratio

The equity ratio is an investment leverage or solvency ratio that measures theamount of assets that are financed by owners' investments by comparing the totalequity in the company to the total assets

Equity Ratio = Total Equity

Total Assets

In general, higher equity ratios are typically favorable for companies This isusually the case for several reasons Higher investment levels by shareholdersshows potential shareholders that the company is worth investing in since so many

investors are willing to finance the company A higher ratio also shows potential

creditors that the company is more sustainable and less risky to lend future loans

1.2.2.3 Asset Management ratios (Efficiency or turnover ratios):

These ratios measure how productively the firm is using its assets

 The Inventory turnover

The inventory turnover ratio is an efficiency ratio that shows how effectively

inventory is managed by comparing cost of goods sold with average inventory for a

period This measures how many times average inventory is "turned" or sold during

Inventory turnover is a measure of how efficiently a company can control its

merchandise, so it is important to have a high turn This shows the company does

not overspend by buying too much inventory and wastes resources by storing

non-salable inventory It also shows that the company can effectively sell the inventory

it buys This measurement also shows investors how liquid a company's inventory

is Inventory is one of the biggest assets a retailer reports on its balance sheet If this

inventory can't be sold, it is worthless to the company This measurement shows

how easily a company can turn its inventory into cash Creditors are particularly

interested in this because inventory is often put up as collateral for loans Banks

want to know that this inventory will be easy to sell

Day’s Sale in Inventory = Ending Inventory ×365 Cost of Good

Sold

The days sales in inventory calculation measures the number of days it will

take a company to sell its entire inventory This is an important to creditors and

investors for three main reasons It measures value, liquidity, and cash flows Both

investors and creditors want to know how valuable a company's inventory is Older,

more obsolete inventory is always worth less than current, fresh inventory The

day’s sales in inventory show how fast the company is moving its inventory Inother words, it shows how fresh the inventory is This calculation also shows theliquidity of inventory Shorter day’s inventory outstanding means the company canconvert its inventory into cash sooner In other words, the inventory is extremelyliquid.

 Receivables Turnover and Days’ Sales in Receivables

An efficiency ratio or activity ratio measures how many times a business canturn its accounts receivable into cash during a period In other words, the accountsreceivable turnover ratio measures how many times a business can collect itsaverage accounts receivable during the year

Account Receivable Turnover =

Net Credit Sales

Average Accounts Receivable

Since the receivables turnover ratio measures a business' ability to efficientlycollect its receivables, it only makes sense that a higher ratio would be morefavorable Higher ratios mean that companies are collecting their receivables morefrequently throughout the year Higher efficiency is favorable from a cash flowstandpoint as well If a company can collect cash from customers sooner, it will beable to use that cash to pay bills and other obligations sooner

Accounts receivable turnover also is an indication of the quality of credit salesand receivables A company with a higher ratio shows that credit sales are morelikely to be collected than a company with a lower ratio Since accounts receivableare often posted as collateral for loans, quality of receivables is important

Day’s Sales Outstanding =

Account Receivable

×365

Net Credit Sales

The days sales outstanding calculation measures the number of days it takes acompany to collect cash from its credit sales This calculation shows the liquidityand efficiency of a company's collections department.

 Assets Turnover

The asset turnover ratio is an efficiency ratio that measures a company's ability

to generate sales from its assets by comparing net sales with average total assets Inother words, this ratio shows how efficiently a company can use its assets togenerate sales

Assets Turnover Ratio =

Net Sales Average of Total Assets

.The total asset turnover ratio calculates net sales as a percentage of assets toshow how many sales are generated from each dollar of company assets Forinstance, a ratio of 5 means that each dollar of assets generates 50 cents of sales.This ratio measures how efficiently a firm uses its assets to generate sales, so ahigher ratio is always more favorable Higher turnover ratios mean the company isusing its assets more efficiently Lower ratios mean that the company isn't using itsassets efficiently and most likely have management or production problems

Profit Margin Ratio =

Net Income Net Sales

Creditors and investors use this ratio to measure how effectively a companycan convert sales into net income Investors want to make sure profits are highenough to distribute dividends while creditors want to make sure the company hasenough profits to pay back its loans In other words, outside users want to know thatthe company is running efficiently An extremely low profit margin would indicatethe expenses are too high and the management needs to budget and cut expenses.

 Basic earning power (BEP)

Return on capital employed or ROCE is a profitability ratio that measures howefficiently a company can generate profits from its capital employed by comparingnet operating profit to capital employed In other words, return on capital employedshows investors how many dollars in profits each dollar of capital employedgenerates

Return on Capital Employed (ROCE)

a company

 Return on Assets (ROA)

The return on assets ratio is a profitability ratio that measures the net incomeproduced by total assets during a period by comparing net income to the averagetotal assets In other words, the return on assets ratio or ROA measures howefficiently a company can manage its assets to produce profits during a period

Return on Assets Ratio = Net Income

Average of Total Assets

The return on assets ratio measures how effectively a company can turn areturn on its investment in assets In other words, ROA shows how efficiently a

company can covert the money used to purchase assets into net income or profits Itonly makes sense that a higher ratio is more favorable to investors because it showsthat the company is more effectively managing its assets to produce greater amounts

of net income A positive ROA ratio usually indicates an upward profit trend aswell ROA is most useful for comparing companies in the same industry as differentindustries use assets differently For instance, construction companies use large,expensive equipment while software companies use computers and servers

 Return on Equity (ROE)

The return on equity ratio measures the ability of a firm to generate profitsfrom its shareholders investments in the company In other words, the return onequity ratio shows how much profit each dollar of common stockholders' equitygenerates

Return on Equity Ratio = Net Income

Shareholder’s Equity

So a return on 1 means that every dollar of common stockholders' equitygenerates 1 dollar of net income This is an important measurement for potentialinvestors because they want to see how efficiently a company will use their money

to generate net income ROE is also an indicator of how effective management is atusing equity financing to fund operations and grow the company Investors want tosee a high return on equity ratio because this indicates that the company is using itsinvestors' funds effectively Higher ratios are almost always better than lower ratios,but have to be compared to other companies' ratios in the industry

1.2.2.5 Market value ratios:

A set of ratios that relate the firm’s stock price to its earnings and book valueper share

 Price – Earnings ratio

The price earnings ratio, often called the P/E ratio, calculates the market value

of a stock relative to its earnings by comparing the market price per share by theearnings per share In other words, the price earnings ratio shows what the market iswilling to pay for a stock based on its current earnings

Price Earnings Ratio =

Market Value Price per Share Earnings per Share

The price to earnings ratio indicates the expected price of a share based on itsearnings As a company's earnings per share being to rise, so does their marketvalue per share A company with a high P/E ratio usually indicated positive futureperformance and investors are willing to pay more for this company's shares Acompany with a lower ratio, on the other hand, is usually an indication of poorcurrent and future performance This could prove to be a poor investment Ingeneral a higher ratio means that investors anticipate higher performance andgrowth in the future It also means that companies with losses have poor PE ratios

 Market – to – Book Ratio

The ratio of a stock’s market price to its book value

P/B Ratio = Market Price per Share

Book Value per Share

This ratio gives another indication of how investors regard the company.Companies with relatively high rates of return on equity generally sell at highermultiples of book value than those with low return

 Earnings per share Ratio

Earnings Per Share =

DuPont Analysis

The DuPont analysis is used to analyze a company's ability to increase itsreturn on equity In other words, this model breaks down the return on equity ratio

to explain how companies can increase their return for investors

The DuPont analysis looks at three main components of the ROE ratio

Return on Equity = Profit Margin x Total Asset Turnover x Financial Leverage

= Net Income Net Sales x Average Total Assets Net Sales x Average Total Equity AverageTotal Assets

1.3 Factors affecting on financial analysis

1.3.1 The quality of information using on financial analysis

This is the most important factor deciding the quality of financial statementanalysis When information is inaccurate and inconsistent, the results of financial

analysis provide only a formality and were not meaningful So, the information used

in the financial analysis is the foundation of financial analysis

From internal and external information directly reflected financial andoperational activities, the analyst can see the financial situation of enterprises in thepast and the present and predict the development trend in the future

Economic situation is constantly fluctuating and impact on the businessconditions of the enterprise Moreover, according to the most basic financialprinciple: A dollar today is worth more than a dollar tomorrow Therefore,timeliness and prediction are essential characteristics make the suitability of theinformation Information which is lack of consistent and accurate is no longerreliable, and this effect on the quality of financial analysis

1.3.2 The level of analyst

Obtaining relevant and precise information but collecting and processinginformation is not simple It depends very much on the level of analysts Aftercollected information, the analysts have to calculate the indicators, create the tables.The concern for the analyst is to arrange, create the links between the targets, thencombine with information in the conditions and the particular circumstances of thebusiness in order to show the financial situation of enterprises and find out thestrengths and weaknesses as well as the causes of weakness In other words, analyst

is making the numbers more meaningful and useful Primary importance and thecomplexity of financial statement analysis require higher qualifications for analysts

1.3.3 The system of average ratios

Financial analysis will become adequate and more meaningful with theexistence of the system of the average targets This is the important basis whenconducting analysis The financial ratios of a business are high or low, good or badwhen they were compared with the corresponding rate of other businesses whichhave similar features and business conditions Through the system of averageindicators, financial managers may know their business position in order to assessthe financial situation and business efficiency

CHAPTER 2 ANALYSIS FINANCIAL STATEMENT NAM THANH MEDICAL EQUIPMENT & SCIENCE TECHNOLOGY CO., LTD

2.1 Introduction about NTMED CO ,LTD

2.1.1 General information

1 Name of the company

- Name: Công ty TNHH Thiết bị y tế và vật tư khoa học kỹ thuật Nam Thành

- Transaction name: NAM THANH MEDICAL EQUIPMENT & SCIENCETECHNOLOGY CO., LTD

- Short name: NTMED CO , LTD

- Total chartered capital: 4.800.000.000 VND