Luận văn phân tích tài chính doanh nghiệp bằng tiếng anh theo format của trường học viện tài chính

Luận văn phân tích tài chính doanh nghiệp bằng tiếng anh theo format của trường học viện tài chính. Good luck

GLOSSARY OF TERMS

BEP Break-Even Point

CATA Current Assets to Assets

EBIT Earnings Before Interest and Tax

EPS Earnings Per Share

NWC Net Working Capital

Per Percentage

OCF Operating Cash Flow

ROA Return on Assets

ROE Return on Equity

ROS Return on Sales

USD United States Dollar

VND Vietnamese Dong

LIST OF TABLES

Table 2.2: Structure of Liabilities and Equity in

Table 2.3: Analysis of Dai Dong Tien’s NWC 46

Table 2.4: Dai Dong Tien’s solvency ratios 47

Table 2.5: Structure of Dai Dong Tien's assets in

Table 2.6: Dai Dong Tien’s asset utilization

Table 2.7: Dai Dong Tien’s liquidity ratios 56

Table 2.8: Source of cash and use of cash of Dai

Table 2.9: Analysis of Dai Dong Tien’s cash flow 60

Table 2.10: Dai Dong Tien’s cash flow ratios 63

Table 2.11: Dai Dong Tien’s Income Statement in

Table 2.12: Dai Dong Tien's profitability ratios 67

LIST OF CHARTS

PREFACE Research problem

Mining is one of the most important industries to every country It suppliesthe consistent material source for a nation’s needs Available naturalresources help a country decrease its dependence on the material import,thus lead to the industrial growth, especially in developing countries likeVietnam Practically, mining industry requires a long-term investmentalong with many potential risks Before investing in machinery andequipment for manufacture, every single project related to mining has toget through the geological investigation and survey to evaluate the quantityand content of the mine It is followed by the variety of procedures related

to the exploded areas, which is very risky due to either the possible changes

in policies or environmental issues Also, the higher level of exact forecastthat geological evaluation creates, the higher costs are made, leading to thehigh proportion of cost in the product price and low profitability.Additionally, the lack of local authority’s mining management, as well asillegal actions of mining entities have been arising without the strict rulesand punishment have been making a negative impact on the nationalenvironment, especially the natural resources, while the quality ofinvestment projects are not guaranteed

For any industrial organization, it is imperative to enhance its effectiveoperation and prevent the environmental pollution As many otherVietnamese company supplying mining and transport services, Dai DongTien’s turnover has experienced a fluctuated period However, in this eroticeconomic climate, Dai Dong Tien still remains the leading position in the

local area, and its financial performance plays an important role in thatsuccess During the time being a student I was able to build up myknowledge and understanding of the preparation and interpretation offinancial statements, management reporting and performance management.The topic “Evaluation of Dai Dong Tien’s financial performance” relates to

my chosen career, as a future financial manager, I am required to analyzeinformation from a variety of sources and use this to make effectivefinancial decisions The research report has enabled me to further develop

my graduate level skills including research, analysis and interpretation ofdata, using the information gathered to effectively contextualize italongside the economic climate and overall business strategy and draweffective conclusions from this

Purpose

Analyzing and evaluating the financial statements in order to find out thestrength and the shortcomings of Dai Dong Tien’s financial performanceand position, thus provide some useful suggestions for their future

Scope of research

Case study

In this work, I focus on evaluating the financial performance and position

of Dai Dong Tien Limited Liability Company

a Statistical methods

• Data collection

For completing the financial analysis, financial statements from the years

2014 to 2016 were used This includes balance sheets, profit and lossstatements and cash-flow statements from each year obtained from thecompany's annual reports and additional data from its official website Allother information used in this thesis was gained from the literaturechronicled at the end and from knowledge acquired during my years ofstudy

• Absolute indicators, which indicate the difference in the magnitude

of two relative structures;

• Relative indicators, which indicate the same value of two differentrelative magnitude ratios in different periods of time

• Analysis of structural deviation trends comparing the base of actual andcomparative data;

• Analysis of the actual constituent parts’ ratio deviation scale ascompared with the base situation;

• Defining the compound indicator rate if the change rate of an indicator

is known

The information gathered was then used to calculate the financial ratios ofDai Dong Tien The results realized are mentioned in the part “2.3.Assessment of the company’s financial performance” with elaborations onhow they could be used to improve deficient areas which in the long runwould enhance the financial stability of the company as well as augmentingthe output of the firm

Thesis structure

The work includes four parts

 Preface

 Chapter 1: Theories of firms’ financial performance evaluation

This part will focus on theoretical knowledge of financial analysis This

is comprised of explanations of the analytical methods used in theevaluation of company’s financial structure

 Chapter 2: Evaluation of Dai Dong Tien’s financial performance inrecent time

This part includes an introduction to the company and its currentposition in the industry It will also specialize on the practical part inwhich the outcome of the financial analysis will be followed byexplanations and elaborations where necessary

 Chapter 3: Solutions for improving Dai Dong Tien’s financialperformance

The final part of the analysis will be concerned with suggestions ofapplicable recommendations for the betterment of the firm It will focus

on practical solutions that can be implemented internally in the shortestpossible time to improve the financial condition of the company

CHAPTER 1: THEORIES OF FIRMS’ FINANCIAL PERFORMANCE EVALUATION

1.1 Corporate finance and financial management

1.1.1 Corporate finance and financial decisions

a What is corporate finance?

Corporate finance consists of the financial activities related to running acorporation In another way, corporate finance, is the study of ways to solvethese three problems:

- Choosing long-term investments to proceed

Should a proposed investment be made? That is, which major ofbusiness will you concern and which kind of buildings, facility, etc willyou need?

- The way the company pays for it

Where will you get the long-term financing to pay for your investment?Will you bring in other owners or will you borrow the money? orcombination of both ways?

- How to manage the firm’s daily financial activities

What’s your decisions when collecting from customers and payingsuppliers?

- When the business is successful, how will you share in the rewards.These are just some of the questions a corporate financial officer attempts

to answer on a consistent basis But all things considered, the primary goal

of corporate finance is to figure out how to maximize a company's value bymaking good decisions about investment, financing and dividends In otherwords, how should businesses allocate scarce resources to minimizeexpenses and maximize revenues?

b Financial management decisions

Corresponding to basic problems of corporate finance, financialmanagement decisions relates to four processes below:

of maximizing corporate value

The investment decision process goes through four administrative steps:

Step 1: Idea generation: generating good project ideas from a number of

sources including senior management, functional divisions, employees, orsources outside the company

Step 2: Analyzing project proposals to determine its expected profitability Step 3: Create the firm-wide capital budget Firms must prioritize

profitable projects according to the timing of the project's cash flows,available company resources, and the company's overall strategic plan

Step 4: Monitoring decisions and conducting a post-audit An analyst

should compare the actual results to the projected results, and projectmanagers should explain why projections did or did not match actualperformance Because the capital budgeting process is only as good as theestimates of the inputs into the model used to forecast cash flows, a post-audit should be used to identify systematic errors in the forecasting processand improve company operations

Financing decision

A firm’s financing decision is the specific mixture of long-term debt andequity that the firm uses to finance its operations The financial managerhas two concerns in this area Firstly, how much should the firm borrow?That is, what mixture of debt and equity is best? The chosen mixture willaffect both the risk and the value of the firm Secondly, what are the leastexpensive sources of funds for the firm?

Because of these and other financing considerations, each investmentdecision must be made assuming a WACC, which includes each of thedifferent sources of capital and is based on the long run target weights Acompany creates value by producing a return on assets that is higher thanthe required rate of return on the capital needed to fund those assets

Working capital management

Working capital management is a managerial accounting strategy focusing

on maintaining efficient levels of both components of workingcapital, current assets and current liabilities, in respect to each other.Working capital management ensures a company has sufficient cash flow inorder to meet its short-term debt obligations and operating expenses

Implementing an effective working capital management system is anexcellent way for many companies to improve their earnings The two mainaspects of working capital management are ratio analysis and management

A few key performance ratios of a working capital management system arethe working capital ratio, inventory turnover and the collection ratio Ratioanalysis will lead management to identify areas of focus such as inventorymanagement, cash management, accounts receivable and payablemanagement

Dividend decision

Dividend decision refers to the policy which the management formulates inregard to earnings for distribution as dividends among shareholders.Dividend decision determines the division of earnings between payments toshareholders and retained earnings The dividend decision, in corporatefinance, is a decision made by the directors of a company about the amountand timing of any cash payments made to the company’s stockholders Thedividend decision is an important part of the present corporate world

The dividend decision is an important one for the firm as it may influenceits capital structure and stock price In addition, the dividend decision maydetermine the amount of taxation that stockholders pay

1.1.2 Financial management

1.1.2.1 Definition

The financial management should be regarded as a component of thecompany’s general management From this perspective, the financialmanagement can be defined as an under-system of the company’s generalmanagement

It can be stated that the financial management has at least the followingtasks:

- To evaluate the effort, from the financial point of view, of all the actionsthat are about to be made in a given administration period;

- To provide, at the right moment, in the structure and the qualityconditions claimed by necessities, the capital, at the lowest possible cost;

- To follow how the capital is used;

- To influence the decision factors in each performance center in order toinsure an efficient usage of all funds attracted in the circuit;

- To insure and maintain the financial balance according to the company’sneeds;

- To try to obtain the anticipated financial result and to distribute it ondestinations

In large corporations, the owners (the stockholders) are usually not directlyinvolved in making business decisions, particularly on a day-to-day basis.Instead, the corporation employs managers to represent the owners’interests and make decisions on their behalf In a large corporation, thefinancial manager would be in charge of answering the three questions weraised in the preceding section The financial management function is

usually associated with a top officer of the firm, such as a vice president offinance or some other chief financial officer (CFO) The vice president offinance coordinates the activities of the treasurer and the controller Thecontroller’s office handles cost and financial accounting, tax payments, andmanagement information systems The treasurer’s office is responsible formanaging the firm’s cash and credit, its financial planning, and its capitalexpenditures These treasury activities are all related to the three generalquestions raised earlier.

Broadly speaking, the basic purpose of the financial management’s actionshas to be company’s survival and implicitly its situation’s consolidation,demonstrated by getting some worthy market performances For thisreason, its role is to build a frame where the necessary connections betweenthree fundamental variables are about to be established, namely: thecompany’s objectives, the company’s market value, the means andinstruments used for measuring the company’s financial and generalperformances

1.1.2.2 Factors impact financial management

The routine in financial management activities may be cumbersome forsome corporate leaders, but these work streams help companies runefficient businesses Functions such as record keeping, financial reportingand fundraising help a firm ease its route to financial success Factorsaffecting financial management include government regulations, the state

of the economy, securities exchanges and borrowing costs

Financial Regulations

Company principals establish a working rapport with regulators to create acompliant, effective business environment Senior executives understandthat adverse legislation can cripple productivity, a prelude to financiallosses later on down the road Consequently, top leadership sets upcorporate compliance departments to monitor regulatory developments andindicate how they may affect financial activities For example, newOccupational Safety and Health Administration rules concerning workplacesafety could increase personnel charges in corporate income statements.Aside from compliance managers, internal auditors help companies findways to handle the binomial question of generating profits while complyingwith the law.

Corporate Solvency

Solvency is a broad term referring to a borrower's ability to repay a loanand steps the creditor takes to maintain a strong balance sheet Investorspay attention to solvency metrics to determine whether a firm is a good bet

or an unfortunate wager Corporate-solvency discussions are hardly asideshow for financial management professionals They contribute theirintellectual knowledge to these talks, helping corporate leadership findways to operate without piling on too much debt Financial managers alsowork in tandem with fixed-asset accountants to increase corporate assets,such as equipment, land and machinery

Securities Markets

Securities markets and businesses enjoy a mutually beneficial relationship.Healthy conditions in financial exchanges positively affect corporate

financial strategies Well-run, profitable firms move market trends, asinvestors view corporate profits as a sign the economy is on an upwardtrajectory Financial exchanges, such as the Tokyo Stock Exchange,Chicago Mercantile Exchange and New York Stock Exchange, enablepublicly traded companies to implement their financial strategies, mostnotably by raising cash and purchasing long-term investments.

Business Lending

Business lending, or corporate credit, is a vibrant factor in the financialmanagement equation It gives organizations the opportunity to operate inthe short term and think confidently about long-term expansion tactics Allorganizations, including charities, borrow to rein in the occasional cashshortfall resulting from delays in customer payments or donor remittances.Finding the right mix of debt and equity is part of a company's formula forsuccess Failure to adequately think about what debt level is appropriate forthe firm may cause corporate income to drop Corporate credit refers tofinancial instruments such as loans, overdrafts arrangements, credit linesand bonds

1.1.2.3 The role of financial management

The role of financial management:

The financial management offers solutions for three major decisions of thecompany: the investment decision, the financing decision, and the dividenddecision The financial management’s task is to analyze the effects of eachdecision and to find an optimal element to contribute to reaching thecompany’s objective

The roles of financial management in operating of company:

- Mobilizing capital for the operation of the company: Ensuring the

operation of company is carried out normally and continuously dependsgreatly on the organization of mobilizing capital of the firm Therefore,properly funded policies not only help enterprises reduce financial risk, butalso a great impact to the performance objectives to maximize businessvalue

- Using funds effectively and improve the business efficiency: Managers

want to use the capital saving and high efficiency, they have to choose theoptimal investment projects on the basis of considerations, comparisonbetween the profitability ratio, the cost of raising capital and the risk level

of the investment project

- Monitoring the firm’s operation: Through the consideration of the

situation of daily cash collection and expenditure and especially throughthe analysis and evaluation of the financial situation of enterprises and theimplementation of financial ratios, financial manager can timely andcomprehensive control of the operation of the company Thereby, indicatingthe existence and the untapped potential to make appropriate decisions andadjust activities to achieve the objectives of enterprise

In conclusion, the final goal of financial management is to maximize theshareholder’ wealth or in other words, to maximize the market value ofshares

1.2 Firms’ financial performance evaluation

1.2.1 Definition and purpose of financial performance evaluation

Performance evaluation is regarded as a useful step in attaining a evaluation method and consequently the improvement of accountabilitypower Some scholars have considered performance evaluation as a part ofthe great and emerging movement of accountability They believe thatperformance evaluation is one of the best methods employing anaccountability approach Performance evaluation is itself in the need ofsome indexes through which to evaluate corporate performance

self-Performance evaluation indices are in fact an action guide from what it is towards what it should be Evaluating the performance of firms and

factories can act as a guideline that paves the way for future decisions,concerning investment, development, and, most importantly, control andsupervision

Purpose of this process is to understand and value a company, thus makesuitable recommendations and suggest sustainable and lasting solutions toaddress any shortcomings found The main task is to assess and analyze theeconomic and financial standing of the company and find the factors thathave contributed to or retarded the growth of the chosen firm Suchsolutions and recommendations will go a long way to improve the presentsituation and make the company more viable and profitable in future

1.2.2 Financial performance evaluation

Financial Statements used in Financial Analysis

Data for the process of financial analysis is obtained from a range ofsources internally generated by the company These statements can be

prepared periodically, generally annually, but could also be done quarterly

or for biannual accounting periods The most basic and compact financialdocument available to the general public is the annual report

The annual report includes the balance sheet, profit and loss statement,cash-flow statement and statement of changes in equity In Europe andmost of the world, these financial statements are prepared internally by theInternational Financial Reporting Standards (IFRS) Also included arenotes on the financial statements for explanations of the figures Theinformation displayed in annual reports is usually limited to what isprescribed by law Any extra information is most often used by only theinternal users of financial analysis

The Balance Sheet

The balance sheet is a simple summarization of a firm’s assets, liabilitiesand equity, accordingly, at the end of every accounting period It is the mostbasic of financial statements, therefore, the most important The accountingequation is the basis of this financial report:

 Assets = Liabilities + Equity

The left-hand side of this equation (assets) denotes the economic resourcescontrolled by the company This includes buildings, machinery, cash, bankaccounts, etc that are owned by the company Assets could be divided intotwo parts; fixed and current assets, to give more detail

The right-hand side denotes sources of funding for the assets It is alsodivided into two parts The liabilities relate to claims of creditors on assets

of the company Equity is the total of contributed funds to the company

from the owners and accumulated profits which are also known as retainedearnings

The disadvantage with the balance sheet as representation of a company’sfinances is that it does not reflect in detail the true nature of a company’sstructure It also only considers accounting or book values of assets whichmight be different from current market value Apart from that, assets likeemployees cannot be represented by figures in the balance sheet withregards to their work experience and qualifications

The Income Statement

The Income Statement is also referred to as the “Profit and LossStatement” It simply reflects financial performance of a company betweenconsecutive accounting periods or balance sheets It shows a list ofrevenues, expenses, losses or profits over that time period, from operatingand non-operating activities The difference between revenues and costs isthe economic result, which is a loss when negative and a profit or gainwhen positive

The income statement provides more detail on the company’s activities byshowing how much was spent doing what (expenditure) and revenueaccrued from those activities This is important in helping decide companytax and dividend policy and also helps users to know how much an activitycontributes to the economic result

The Cash-Flow Statement

The statement of cash flows shows the sums of money coming in and goingout at any point in time of a company’s life This statement is necessarybecause under accrual accounting, net income does not always equal net

cash flow except over the life of a company, therefore, reporting of cashinflows and outflows is a must to determine how much money is actuallypassing through the company

An analysis of this statement will tell the user about the about the viability

of the firm in the term This has to do with its ability to meet term liabilities like paying bills, short-term debts, etc i.e its liquidity Also,there is a breakdown of company activities into operating, financing andinvesting activities

short-Statement of Equity

The statement of Equity shows how a firm acquires its funds in a specificperiod and how it employs them It reports changes in the differentaccounts that make up equity It is a total of registered capital, capitalcontributions, reserve funds and retained earnings

The Annual Report

This (annual) report is required by law and is prepared every year to informthe general public about the current financial situation of the company Itconsists of the balance sheet, income statement, cash-flow statement andstatement of Equity, as well as additional information from the managersand other top-ranking officials like the chairman of the board of directors inthe company

Tools of Financial Statement Analysis

Financial statement analysis involves the identification of the followingitems for a company's financial statements over a series of reportingperiods:

 Trends Create trend lines for key items in the financial statements over

multiple time periods, to see how the company is performing Typicaltrend lines are for revenues, the gross margin, net profits, cash, accountsreceivable, and debt

 Proportion analysis An array of ratios are available for discerning the

relationship between the size of various accounts in the financialstatements For example, you can calculate a company's quick ratio toestimate its ability to pay its immediate liabilities, or its debt to equityratio to see if it has taken on too much debt These analyses arefrequently between the revenues and expenses listed on the incomestatement and the assets, liabilities, and equity accounts listed on thebalance sheet

Financial statement analysis is an exceptionally powerful tool for a variety

of users of financial statements, each having different objectives in learningabout the financial circumstances of the entity

1.2.2.1 Capital structure and financing policy

Assessment of financing ability of the company

Firstly, consider the volatility of the total capital, of each type of capitalboth in absolute terms and relative horizontal technical analysis through.Secondly, determine the proportion of each type of capital in total capitalthrough longitudinal analysis technique, with comparisons between thebeginning and the end of the proportion of each type of accounts to showthe reasonableness of the structure of capital and its impact to the businessactivities of the company

Capital Structure

Capital structure is represented by the capital structure ratio, the financialindex system is very important for business managers, creditors andinvestors

• Debt to capital ratio

Debts to capital ratio =

Liabilities Total assets

Debt to capital ratio reflects the percentage of debt liabilities in anenterprise's capital structure To get an accurate assessment of thereasonableness of the financing policy of the business, we need to considerthe debt to other factors such as production and business characteristics aswell as different periods of the business

• Equity to capital ratio

Equity ratio =

This factor indicates the contribution of equity in total capital Thiscoefficient is also known as the coefficient of self-financing

In business, there should be flexible coordination between loans and equity

to take advantage of external capital while ensuring financial security forbusinesses

• Debt to equity ratio (D/E ratio)

Debt/Equity Ratio is a debt ratio used to measure a company's financialleverage, calculated by dividing a company’s total liabilities by its equity.The D/E ratio indicates how much debt a company is using to finance itsassets relative to the amount of value represented in shareholders’ equity.

• Interest coverage ratio

According to Richard Loth from Investopedia, the interest coverage ratio isused to determine how easily a company can pay interest expenses onoutstanding debt The ratio is calculated by dividing a company's earningsbefore interest and taxes (EBIT) by the company's interest expenses for thesame period The lower the ratio, the more the company is burdened bydebt expense

Model of sources of financing

The relationship between the balance of assets and capital represents thevalue of assets and capital structure of enterprises in production andbusiness activities, shown at the fair between mobilized capital and theusage of them in investment reserves

In particular, net working capital (NWC) is a stable long-term fund tofinance all or part of the short-term assets in business operations of thebusiness and is determined as follows:

NWC = short-term assets– short-term liabilities

Assessment of the state's funding is the evaluation the possibility offunding an overview of the financial business, was conducted through theanalysis of capital movement through the accounting balance sheet as well

as through the coefficients of the capital structure

Assessing whether businesses can ensure the principle of financialequilibrium or not Considering the stability of the firm’s operation and thesafety of firm solvency can be in 3 cases:

• NWC > 0: Company has a save financing policy, but they have a high

• NWC < 0: Company uses their short-term capital to purchase thelong-term assets They have a dangerous financing policy and highfinancial risk However, they have a lower of capital cost

• NWC = 0: Company has a best financing policy They ensure theprinciple of financial equilibrium

1.2.2.2 Assets structure and asset utilization efficiency

1.2.2.2.1 Assets structure

Assets structure expressed through the coefficient of asset structure,reflecting the investment in the assets of business, including: short-termassets and long-term assets

• Short-term assets ratio

• Long – term assets ratio

• Long – term assets ratio =

Long-term assets Total assets

The ratio of investments in long-term assets also presents the level oftechnology, technical facilities, machinery and equipment of enterprises.This ratio illustrates the production capacity of the enterprise Thisindicator depends largely on the characteristics of each business enterprise.

1.2.2.2.2 Asset utilization efficiency

By assessing a company's use of credit, inventory, and assets, efficiencyratios can help small business owners and managers conduct businessbetter These ratios can show how quickly the company is collecting moneyfor its credit sales or how many times inventory turns over in a given timeperiod This information can help management decide whether thecompany's credit terms are appropriate and whether its purchasing effortsare handled in an efficient manner The following are some of the mainindicators of efficiency:

This ratio reflects the productivity of the firm’s asset utilization generally Italso depends on the business characteristics, strategies and assetmanagement in the enterprise A high rate proves that the firm is keeping

up the effective asset utilization and highly likely to expand the investment

to achieve a higher productivity In contrast, a low rate proves theineffective asset utilization which might be a sign showing the firm’sproblems in using its assets

The fixed-asset turnover ratio is, in general, used by analysts to measure operating performance It is a ratio of net sales to fixed assets This ratio specifically measures how able a company is to generate net sales from fixed-asset investments, namely property, plant and equipment (PP&E), net

of depreciation In a general sense, a higher fixed-asset turnover ratio indicates that a company has more effectively utilized investment in fixed assets to generate revenue

This shows how efficiently the company is managing its production,warehousing, and distribution of product, considering its volume of sales.Higher ratios—over six or seven times per year—are generally thought to

be better, although extremely high inventory turnover may indicate anarrow selection and possibly lost sales A low inventory turnover rate, onthe other hand, means that the company is paying to keep a large inventory,and may be overstocking or carrying obsolete items

This ratio calculates the number of days, on average, that elapse between

finished goods production and sale of product

This shows the portion of assets tied up in inventory Generally, a lowerratio is considered better

gives a measure of how quickly credit sales are turned into cash.Alternatively, the reciprocal of this ratio indicates the portion of a year'scredit sales that are outstanding at a particular point in time.

Collection period measures the average number of days the company'sreceivables are outstanding, between the date of credit sale and collection

of cash

1.2.2.3 Liquidity.

There are current liabilities and non-current liabilities Current liabilities are obligations the firm must pay within a year, such as payments owing to suppliers Non-current liabilities, meanwhile, represent what the company owes in a year or more time Typically, non-current liabilities represent bank and bondholder debt

Current ratio measures the ability of an entity to pay its near-term

obligations "Current" usually is defined as within one year Though theideal current ratio depends to some extent on the type of business, a generalrule of thumb is that it should be at least 2:1 A lower current ratio meansthat the company may not be able to pay its bills on time, while a higherratio means that the company has money in cash or safe investments thatcould be put to better use in the business

This ratio measures the portion of a company's assets held in cash ormarketable securities Although a high ratio may indicate some degree ofsafety from a creditor's viewpoint, excess amounts of cash may be viewed

as inefficient

This provides a stricter definition of the company's ability to makepayments on current obligations Ideally, this ratio should be 1:1 If it ishigher, the company may keep too much cash on hand or have a poorcollection program for accounts receivable If it is lower, it may indicatethat the company relies too heavily on inventory to meet its obligations

The cash ratio is an indicator of a company's liquidity that further refinesboth the current ratio and the quick ratio by measuring the amount of cash,

cash equivalents in current assets to cover current liabilities

1.2.2.4 Cash flow analysis

The monetary capital (including cash, bank deposits, money transfers) isthe type property has the highest liquidity, liquidity fast decisions ofenterprises However, the monetary capital itself only when the investment

is lucrative and used for certain purposes, more because of the higherliquidity so inherently by the money also is vulnerable to losses, fraud Toassess the mobilization and use of capital in the money side of the business,

we need to analyze cash flow reports and analyze the source of money andperformance using the money of the business

Analysts use the information in the reported cash flow statement to answerthe following question:

 How strong is the company’s internal cash flow generation?

 Is the cash flow from operations positive or negative? If it’s negative,

is it because the company is growing or its operation is unprofitable?

Or it’s having difficulty managing its working capital properly?

 Does the company have the ability to meet its short-term financialobligation?

Analysis of the company’s sources of cash and uses of cash

This analysis enables an overview of the evolution of capital sources anduse of funds in relation to the proceeds of the business capital in a period:

"Where does the company get the capital?" "How can we use cash, is itreasonable or not?" Therefore, we can be orient the mobilization and use

of capital in the next period, as well as considering the movement of cashflows of the business in a period

Principles of the analysis:

 The "Uses of cash" column reflects the assets increasing or capitalreduction

 The "Sources of cash" column reflects the capital increase orassets reduction

Net cash flow

Net cash flow= Cash inflow – cash outflow

To assess the net cash flow of the enterprise, we need to:

- First, compare this period with the previous period to evaluatetrends in the flow of cash.

- Determine the impact of inflow on expenditure in each activity'snet cash flow for the entire enterprise to find the reason for the business'snet cash flow situation

Cash flow ratios

Operating cash flow relates to cash flows that a company accrues fromoperations to its current debt It measures how liquidity a firm is in theshort run since it relates to current debt and cash flows from operations

If the OCF Ratio for a company is less than 1.0, the company is notgenerating enough cash to pay off its short-term debt which is a serioussituation It is possible that the firm may not be able to continue to operate

The Cash Flow Margin ratio is an important ratio as it expresses therelationship between cash generated from operations and sales Thecompany needs cash to pay dividends, suppliers, service debt, and invest innew capital assets, so cash is just as important as profit to a business firm.This ratio measures the ability of a firm to translate sales into cash

1.2.2.5 Profitability ratios

Gross Margin

You'll recall from our earlier discussion of the income statement that grossprofit is simply the difference between a company's sales of goods orservices and how much it must pay to provide those goods or services

Gross margin is simply the amount of each dollar of sales that a companykeeps in the form of gross profit, and it is usually stated in percentageterms The higher the gross margin, the more of a premium a companycharges for its goods or services Keep in mind that companies in differentindustries may have vastly different gross margins.

Gross Margin = (Gross Profit) / (Sales)

Operating Margin

Operating margin captures how much a company makes or loses from itsprimary business per dollar of sales It is a much more complete andaccurate indicator of a company's performance than gross margin, since itaccounts for not only the cost of sales but also the other importantcomponents of operating income we discussed in Lesson 301, such asmarketing and other overhead expenses

Operating Margin = (Operating Income or Loss) / Sales

Net Margin

Net margin considers how much of the company's revenue it keeps whenall expenses or other forms of income have been considered, regardless oftheir nature While net margin is important to take note of, net income oftencontains quite a bit of "noise," both good and bad, which does not reallyhave much to do with a company's core business

Net Margin = (Net Income or Loss) / Sales

Return on Assets (ROA)

Return on assets measures a company's ability to turn assets into profit.(This may sound similar to the total assets turnover ratio discussed earlier,

but total assets turnover measures how effectively a company's assetsgenerate revenue.)

A company's after tax interest expense is easy to determine First,determine its tax rate by dividing its income tax expense by its pretaxincome Then plug that figure into the following formula:

After tax Interest Expense = (1 - Tax Rate) x (Interest Expense)

Return on assets is generally stated in percentage terms, and higher isbetter, all else equal

Return on Equity (ROE)

Return on equity is a straightforward ratio that measures a company's return

on its investment by the company Like all of the profitability ratios we'vediscussed, it is usually stated in percentage terms, and higher is better

Return on Sales (ROS)

ROS is a ratio widely used to evaluate a company's operational efficiency ROS is also known as a firm's "operating profit margin" It is calculated using this formula:

This measure is helpful to management, providing insight into how much profit is being produced per dollar of sales As with many ratios, it is best tocompare a company's ROS over time to look for trends, and compare it to other companies in the industry An increasing ROS indicates the company

is growing more efficient, while a decreasing ROS could signal looming financial troubles

Basic Earning Power (BEP)

The purpose of BEP is to determine how effectively a firm uses its assets togenerate income The BEP ratio is simply EBIT divided by total assets Thehigher the BEP ratio, the more effective a company is at generating income from its assets

1.2.2.6 Interaction between financial ratios (DuPoint analysis)

Profitability is resulted from a variety of approaches and decisions made bythe enterprise’s board of management In order to see the impact of therelation of cost management, capital management and resourcemanagement skills to the owner’s profitability, a system of coefficients wasbuilt to analyze their influence to the return on equity (ROE)

Factors impact return on assets (ROA)

(1) = Return on Sales x Total Asset Turnover

Based on this relation, we can see how ROS and Asset Turnover impactReturn on Assets (ROA) From this, the corporate managers will proposeappropriate solutions to increase ROA

Factors impact Return on Equity (ROE)

=

Combining equation (1), we have the following equation:

There are three main elements affecting ROE:

Return on Sales (ROS) reflects the corporate sales and cost management

These factors are believed undoubtedly to help corporate managers

determine and find measurements in order to increase the return on equity (ROE) ratio

CHAPTER 2: EVALUATION OF DAI DONG TIEN’S FINANCIAL PERFORMANCE IN RECENT TIME

2.1 Overview of Dai Dong Tien Limited Liability Company

2.1.1 The basic information about Dai Dong Tien Limited Liability Company

Profile

Firm: Dai Dong Tien Limited Liability Company

As known as: DAI DONG TIEN Co.,Ltd

Headquarters: Van Khe commune, Van Chan district, Yen Bai province.Representative office: No.190, Ly Thuong Kiet street, Yen Bai city, Yen Baiprovince

- According to License No.1602000227 issued by Yen Bai Authority forPlanning and Investment on January 25th, 2007, Dai Dong Tien Co.,Ltd waslegally certified its existence and development

- On May 25th, 2007, Dai Dong Tien Co Ltd was issued the License ofusing industrial blasting materials No.1084/GP-BCN for grenade service inblasting to break stones in project construction of the province

- On July 12th, 2010, People’s Committee of Yen Bai Province issued theLicense of Investment No 16121000039 for the company’s project at DongKhe stone-pit, nearby Km183 – Highway No.32, which is 20km away fromNghia Lo town, 60km away from Yen Bai city and 183km from Hanoicapital

Business majors

• Civil technical project construction.

• Construction material exploitation, manufacture and business.

• Transportation.

Grenade Blasting Service

Department Manager Team Material Department

Accounting and Finance Department Transportation Team

Industrial Machine Operation Team

Vice Director Technical Mining

Engineer

• Premises leveling.

Chart 2.1: Dai Dong Tien’s management network

2.1.2 The business characteristics of Dai Dong Tien

Market share

Dai Dong Tien Co Ltd is an enterprise providing multi-industrial services,

in which construction material supply and transportation in Yen Baiprovince area being two of the most important majors, taking up to over90% turnover of the company (analyzed data in 2015)

Stones supply and approach of transportation to the construction project:Stones are exploded and processed at 9,7-hectare Dong Khe mine, DongKhe commune, Van Chan district, Yen Bai province, which is nearHighroad No.32 and 54 kilometers away from Au Lau three-way

crossroads, 60 kilometers away from Yen Bai city The process is followed

by the transportation by road through Highway No.37, Highway No.32 orother types of highways to the construction projects in town which aresuitable to the local traffic situation

In case of huge needs of transportation, the company usually makeconnection and collaboration with other peers inside and outside Yen Baiprovince

Competitiveness:

As indicated above, the two most important majors of Dai Dong Tien Coltcurrently are construction material supply and transportation Besides,grenade blasting service is also a significant highlight during thecompany’s operation On May 25th, 2007, Dai Dong Tien Co.Ltd wasissued the License of using industrial blasting materials No.1084/GP-BCNfor grenade service in blasting to break stones in project construction of theprovince The company became the very first private enterprise to be giventhe local Authority’s legal permission to form this growing service, usingindustrial blasting materials for construction projects in Yen Bai province.With almost 9-year experience ever since the foundation, the company hasbeen an imperative piece of unquestionably well-qualified constructionprojects in the local area

Dong Tien’s line of industrial properties are highly estimated with theirsynchronous and modern with excellent movement, thus meets therequirements of the general technological advance among the experts,partners and the public.

Human Resource

Dai Dong Tien never fails to impress their partners by their constant efforts

to improve the service quality and boost the investment into materialfacilities and technology advance, as well as to enhance the managementcapacity and professional skills for employees so that they can sharpentheir creativity and activeness

Since the very beginning, the company has been acclaimed for itsprofessional board of directors with over 10-year experiences in industrialfield and numerous technologically advanced and enthusiasm engineers

2.1.3 Overview of financial performance of Dai Dong Tien

2.2 Evaluating Dai Dong Tien’s financial performance

2.2.1 Capital structure and financing policy

Dai Dong Tien’s capital showed on balance sheet expresses liabilities andequity capital used for business operation Analyzing financing policymeans finding out whether using funds is reasonable, effective andconsistent with the company's situation or not