ANALYSIS OF GIA NGUYEN DECORATIVE MATERIAL JSC’S

Fundamental analysis andfinancial ratio analysis must form the basis of all investment decisions, becausewithout knowing the true financial position of a company you are purelyspeculatin

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Table 1.1: List of Board of Directors

Table 1.2: List of Founder Members

Table 2.1: Main financial data of Gia Nguyen JSC from 2010 - 2013

Chart 2.1: Changes (%) in short-term debt, current assets and current ratio Table 2.2: Solvency ratios of Gia Nguyen JSC from 2010 - 2014

Table 2.3: Activity ratios of Gia Nguyen JSC from 2010 to 2013

Chart 2.2: GPM and OPM of the firm in four years

Chart 2.3: ROE, ROA and Profit Margin ratios

Finance picture of a firm is a concern of not only owners itself but alsoinvestors, creditors, Government and employees Through financial statement,income statement, cash flow statement, it can be seen real condition of the companyafter a business cycle They can thereafter make decision to enhance its finance.Financial analysis is an important task and by financial ratios we can take afinancial figure and looking at it relative to another financial figure Financial ratiosare tools to help with the interpretation of results and to allow for comparison toprevious years, other companies and the industry sector Fundamental analysis andfinancial ratio analysis must form the basis of all investment decisions, becausewithout knowing the true financial position of a company you are purelyspeculating Empirical and tested evidence suggests that fundamental and ratioanalysis is a powerful ally in the hands of an active and savvy investor There are somany ratios that measure a company’s liquidity, solvency, profitability and activity.Understanding these ratios will go a long way to providing you with an idea of how

a company is performing in relation to key measures of business success Therefore,

after an internship at Gia Nguyen Decorative Material JSC, I decided to choose the

topic: “Analysis of Gia Nguyen Decorative Material JSC’s financial ratios”

My goal is based on financial statement and real situation analysis through

ratios to evaluate business effectiveness and to set forth recommendations for the

company

In my report:

Chapter I: Overview of Gia Nguyen JSC

Chapter II: Analysis of Gia Nguyen Decorative Material JSC’s financial ratios

Chapter III: Recommendations and Solutions

CHAPTER I: OVERVIEW OF GIA NGUYEN JSC

1 Overview of the company

1.1. Name of the company

- Name of company in Vietnamese: Công ty Cổ phần Vật liệu Hoàn thiện GiaNguyen

- Name of company in English: Gia Nguyen Decorative Material Joint StockCompany

- Gia nguyen jsc, in accordance with corporate law, is a legal entity,independently economic accounting, has its own account at bank and right

to use company seal under provision of government’s regulations

- Main office: 408, Van Nam Building, No.26 Lang Street, Dong Da, Ha Noi

- Phone: (+84) 4 3 783 44 96

- Fax: (+84) 4 3 783 44 95

- Website: http://gianguyenjsc.com.vn/

1.2. Charter Capital and Equity Structure of Shareholders

- Charter Capital: 2,000,000,000 VND (2 billion VND)

- Par value: 10,000 VND

- Number of shares: 200,000 shares

Table 1.1: List of Board of Directors

Nguyen Ngoc Minh Director - Lawyer.

Nguyen Ngoc Chien CEO - Bachelor of Business

Administration.

- 10 years in decorative material.

1.3. Establishment and main business line

Gia Nguyen Decorative Material Joint Stock Company was established in 2009,aiming to provide high-grade, intelligent and environmentally friendly decorativematerials to Vietnam market along with satisfy modern demand Today, it has twohead office in Ha Noi and Ho Chi Minh City

Its main business line is supplying decorative services like raised floor,antistatic vinyl tile, vinyl tile, vinyl sheet, TOLI and suminoe

Table 1.2: List of Founder Members

No Name of Shareholders Type of shares Number of shares Value of shares

1 Nguyen Ngoc Chien Common 190,000 1,900,000,000

1.4. Administrative machinery

- Director: is the top manager of all operations, directly supervises divisions

- CEO: help director to supervise business and technical operations, save andimprove capital efficiency, enhance work quality, ensure labour safety, seek newpartners and plan projects in business contracts

- Vice director: acting as an advisor for director about organizing managerial system,business activities, recruiting new employees, awarding, using and controllingcompany seal

1.5. Current situation of operating activities of Gia Nguyen JSC

With professional, dynamic managers and engineer, Gia Nguyen has recentlygained some first achievements Gia Nguyen has made continuous effort to becomeone of the most important partners in providing and executing for main-contractorssuch as Obayashi, Toda, Shimizu, Nakano, Nimatsu, Taisei, Vinata, TSI… Thecompany was also granted distribution certificate by JECC, XIANGLI – Chineseleading manufacturer on raised floor; LONSEAL Corporation – Japanese companyproviding vinyl sheet and carpet; TOLI Corporation – Vinyl flooring and carpetmaker from Japan; SUMINOE Corporation – high-class carpet manufacturer;NICHIAS – Japanese Raised Floor maker; LG, Hankuk – Vinyl manufacturer inKorea We are also the first to provide Calcium Silicate raised floor into Vietnammarket

Gia Nguyen has executed not only in number of big industrial project such asHonda, Yamaha, Canon, Yazaky, Tokyo, Tokyo stye, Kyocera, Hitachi Cable,Nitan… but also in some national vital project such as National Assembly House,Noi Bai Air Traffic Control Tower, Tan Son Nhat Air Traffic Control Tower,Ministry of Public Security headquarter, Keangnam Landmark Tower, in which thecompany are all highly appreciated by general contractors

2. The core value of Gia Nguyen Decorative Material Joint Stock Company

2.1. Mission

- Undertaking the main business line the firm registered

- Providing high-grade, intelligent and environmentally friendly decorative materials

to Vietnam market along with satisfy modern demand

- Serveing customers in the best way, bringing benefits for partners, andcontributeing benefits to the community, enhancing the spiritual and material lifefor staffs

- Building long-term relationships with partners, creating employees’ sustainableloyalty and commitment with works

- In market mechanism, effectiveness is one of the most important goals of thecompany It has to undertake its political missions It has to create jobs for workers,usually enhance professional skill, and improve efficiency and workers’ income

2.2. Vision

- Building stronger and stronger brand of company

- Continuously looking for and bringing new decorative materials into Vietnamesemarket

- Becoming one of the most important partners in providing and executing for contractors

main Gia Nguyen is not only “a company” but also is a “solid partner” of maincontractors in projects

2.3. Goals and objectives

- Creating and protecting the reputation and trading in accordance with the provisions

of current laws in Vietnam

- Always trying to ensure to provide goods and services with high quality forpartners

- Always be responsible for Vietnamese environment and society

3. Business performance in recent years

Financial Statements (Attachment) include:

CHAPTER II: ANALYSIS OF GIA NGUYEN DECORATIVE

MATERIAL JSC’S FINANCIAL RATIOS

1. General evaluation

Gia Nguyen Decorative Material JSC is a private firm, so its equity mainlycomes from shareholders Since main business is decorative material, workingcapital takes a large proportion in its capital structure

Table 2.1: Main financial data of Gia Nguyen JSC from 2010 – 2013

In financial statement, it can be seen that in 4 year, share capital is unchanged at

2 bilions VND; changes in owner’s equity come from retained earnings

In assets structure, current assets take large proportion, in 2013; they make up

to 96.64% of total assets

Owner’s equity is small, liability is large makes company depends on debt Itsliabilities are all short-term debts tend to rise In 2010, they make up to 74,80% but

The firm gains profit and return on investment is higher and higher

2. Methodology: base on 4 ratios

When it comes to financial analysis, these ratios are commonly used:

• Current ratio = Current Assets

Current Liabilities

2.2. Solvency ratios

If liquidity ratios show ability to pay off short term debt, solvency ratiosconcentrate on the long-term health of a business, particularly the effect of thecapital and finance structure on the business They tell stability and ability of thefirm to control finance itself as well as ability to use debt

• Quick ratio =

Cash + Marketable securities +

receivablesCurrent Liabilities

• Receivables turnover = Sales

Averages Receivables

• Inventories turnover = COGS

Average Inventories

• Assets Turnover = COGS

Average Total Assets

• Fixed Assets Turnover = COGS

Average Fixed Assets

Therefore, analysts examine profit in relations with revenue and total capitalmobilized in business

• Net profit margin NPM = Net profit

Revenue

• Gross profit margin GPM = Gross profit

Revenue

• Return on Assets ROA =

Net income + Interest expense x (1-tax

rate)Average total assets

• Return on Equity ROE = Net income

Average total equity

• Profit margin = Net income

2013, it reaches 18,886,874,349VND, means that this figure rises by 3.3 timeswhile current assets rise only by 2.8 times Receivables take small proportion whichhelps the capital not to be stagnant but it affects ability to expand the market share.The percentage of cash and equivalents is low in spite of being increased to improvethe liquidity of the firm

Chart 2.1: Changes (%) in short-term debt, current assets and current ratio

Quick ratio is too low compare to current ratio The reason is the relativeamount of inventories is too large in current assets High quantity of inventoriescould result from investing in current assets to extend its manufacturing as well as

low rate of product consumption In addition, quick ratio have tendency to goingdown In 2010, quick ratio is 0.46 but it drop by 66% to 0.16 in 2013 It can be

explained by the decrease of trade receivables It also means that changes in

company’s strategy in credit and finance lower the ability to make payment forfirm’s debts It is too risky if company has to pay all of them in the same period GiaNguyen JSC is a small business with low liquidity, so its financial risk is quite high

a financial instability Company should have resolutions to raise owner’s equity, andthen it can ensure capital for all manufacturing and business operations on its owninitiative and lower financial risk, stabilize company’s finance It also helps the firmoperate more effectively in strong competitive market Small proportion of owner’sequity leads to dependence on customers and partner as well

D/A also tend to increase and it is high D/A = 90% means that there are 90VND in 100VND assets are financed by creditors This ratio indicates the liability

of the firm to creditors Generally, creditors prefer moderate rate because the lowerthis ratio is, the higher debts are ensured under the circumstance of financial issue

By contrast, this ratio is too high proves that the owners want profit to quickly risebut it bring about insolvency In 2010, this figure is 75% but in 2013, it increase to90% This can be a disadvantage in gaining trust from creditors Therefore, board ofdirectors should attach special importance to credit policies and investing in assets

Financial leverage (FL) ratio shows the relationship between debt and owner’sequity; is an indicator of the company’s leverage used to finance the firm This ratioalso helps to evaluate effect of borrowing to ROE FL ratio is large and tends toincrease means that the firm has taken more and more on substantial debt merely toremain its business In 2010, FL ratio is 3.97 but in 2013, it increase by 2.5 times

which is too high because the return on borrowed capital exceeds the cost of thatcapital This can puts the firm in jeopardy because the additional debt ratchets upinterest costs and the deteriorating financial position

Interest coverage ratio is used to determine how easily a company can payinterest on outstanding debt The lower the ratio, the more the company is burdened

by debt expense Interest expense is going down while EBIT quickly rises In 2010and 2011, interest coverage ratio below 1 indicates the company is not generatingsufficient revenues to satisfy interest expenses In 2013, it is over 1 but its ability tomeet interest expenses may be questionable However, this increase is considered as

Receivables turnover depends on buying-on-credit policy of the firm This ratio

is higher and higher proves that capital is more and more effective and less tied up.Sales increase dramatically while receivables are not stable Because most of itscustomers are trustworthy, company has no provision for doutful debts It alsousually does business with old partners who make immediate payment However,company should care about this because if receivables turnover is too high, it willweaken its competitive advantage leads to lower revenue

The higher inventories turnover is, the better business is evaluated becauseshorter time the goods are in warehouse makes quicker material rotation, lowercapital demand for inventories compare to other firms in this industry with the samerevenue, so lower financial risk However, if inventories turnover is too low, it

cannot meet the demand and the next period contractions As can be seen in Table2.3, inventory turnover declines annually, in 2011 it is 3.49 but in 2013 this number

is 2.79 These figures indicate the irrationality between production and selling plansmakes inventory increase Nevertheless, this result is quite normal for constructivecompanies but board of director still should reconsider their business operations Asset turnover ratio is an efficiency ratio tells how successfully the firm isusing its assets to generate revenue In 4 years, total asset turnover ratio is instable.Asset turnovers are small figures, which proves that the company is not using itsassets optimally It cannot generate more sales with fewer assets Meanwhile, fixedassets turnover ratio tends to rise because fixed assets declines

3.4. Profitability ratios

There is no deduction so NPM = 100%

GPM of the firm declines gradually by more than 2 times in four years In 2010,

it is 12.54% and in 2013, it is 6.13% proves that goods quality improvement and

selling policies of the firm do not have high effectiveness, and then reduce

profitability On the other hand, compare to NPM, GPM is much lower due to high

cost of goods sold In 2013, in every 100 VND of revenue, there are 6.13 VND of

profit Revenue from sale rises rapidly while net profit decreases, company shouldhave suitable manufacturing and selling strategies to improve its income

OPM is too low in comparison with NPM resulting from high financialexpense The firm is capital tied up makes its financial income much smaller thanits financial expenses Another reason is high cost of management It increases bymore than 2 times in the past 4 years