Analyzing financial risk at dana sailing hotel

1.General description...1 2.Significance of the Topic...1 3.Aim of the Topic...3 4.Research Objects and Area:...4 5.Data and Research Methods...5 6.Meaning in scientific and practical te

THE UNIVESITY OF DANANG - UNIVERSITY OF ECONOMICS

FALCUTY OF FINANCE

GRADUATION PAPER

Title: Analyzing financial risk at Dana Sailing

Hotel in Danang

Academic advisor : MSc Bui Phan Nha Khanh

THE UNIVESITY OF DANANG - UNIVERSITY OF ECONOMICS

FALCUTY OF FINANCE -    -

GRADUATION PAPER

Title: Analyzing financial risk at Dana Sailing

Hotel in Danang

Being a graduation paper submitted in partial fulfillment of

the requirements for the degree of

Bachelor of Finance and Banking

in Danang University of Economics

Specilization: : Cooporate Finance Academic advisor : MSc Bui Phan Nha Khanh

imparting knowledge, experience as well as the orientation for me throughout the process and the completion of the thesis promptly

I also would like to express my deep gratitude to the Department of Corporate Finance for creating favorable and enthusiastic conditions to help me to complete the thesis protection documents and all the devoted teachers working in the school who have dedicatedly conveyed valuable knowledge, helped me in the learning and research process over a four-year period I have received support, aid as well as care and encouragement from school and individuals The graduation thesis is completed based

on the reference such as learning experience from related research results, books, specialized papers of many authors inside and outside the University.

Finally, I would like to express my thanks to my family and friends for their support and creation of this study

Despite many efforts, the flaws still inevitably appear in this thesis Therefore, may all teachers yield to evaluate this topic gently Once again I would like to sincerely thank!

unpredictable Thus, the process of analysing financial risks is always of the greatest importance in the entire process of risk management

The question that this dissertation explores is what mentioned industry should implement to overcome the hindrances without facing the worst outcome What are the successes and limitations of analysing financial risks in the business, in order to prevent the detrimental effects and build a firmly financial risk preventation system? In order to explore these questions, while the chapter 2 of this work focused on identifying method

to method some of the financial risks that the hotel industry has encountered, studying the analysing financial risk process of Dana Sailing hotel, evaluation and the handling of risks of the board This dissertation, then, offers some practical solutions to improve the content of analysing financial risk processes for hotels in the period and so on These solutions will also be possible solutions to improve the content of financial risk for Dana Sailing Hotel

Therefore, by studying this, not only readers may find valuable subjects to help their business overcome this ugly period but also the author, myself can enrich my relevant knowledge to help mine Dana Sailing Hotel Lastly, the management of the operating enterprise, the full preparation of the business in all aspects including the analysing financial risk process and strategy will help the enterprise not be in passive position and more likely to take advantage of development opportunities after the recession

TABLE OF CONTENTS

REASSURING WORDS i

ACKNOWLEDGEMENT ii

ABSTRACT iii

TABLE OF CONTENTS iv

LIST OF FIGURES vi

1.General description 1

2.Significance of the Topic 1

3.Aim of the Topic 3

4.Research Objects and Area: 4

5.Data and Research Methods 5

6.Meaning in scientific and practical terms of the Research 6

7.Planned Research Structure 7

8.Overall research situation 7

CHAPTER 1: REVIEW OF LITERATURE ABOUT FINANCIAL RISK ANALYSIS IN BUSINESS OPERATIONS 10

1.1Overview of financial risk analysis of financial risk in business operations: 10

1.2Hotel business operations: 32

1.3Conclusion on Chapter 1 33

CHAPTER 2: APPRAISE THE CURRENT STATE ON ANALYSING FINANCIAL RISK PROCESSES IN BUSINESS OPERATIONS OF DANA SAILING HOTEL 35

2.1Overall about hotel industry: 35

2.2Company Introduction: 37

2.3Business Context of Dana Sailing Hotel in 2017-2019: 42

2.4Financial risk in hotel business operations (Dana Sailing hotel): 47

2.5Current financial risk analysis at Dana Sailing: 51

2.6Analysing financial risk at Dana Sailing 59

2.7Conclusion on Chapter 2 71

CHAPTER 3: SUGGESTIONS AND SOLUTIONS TO IMPROVING FINANCIAL RISKS MANAGEMENT PROCESSES IN BUSINESS OPERATIONS OF DANA SAILING HOTEL 74

3.1Solutions for financial risk analysis at Dana Sailing hotel 75

3.2Suggestions in financial risks analysis in business operations of Dana Sailing hotel:77

3.3Some recommendations to improve the possibility of financial risk control for

government 83

3.4Summary of chapter 3 84

CONCLUSION 86

REFERENCES 87

APPENDICES 90

LIST OF FIGURES Table 1.1: Policy on financial risk management in enterprie 34

Table 1.2: The matrix 43

Table 2.3: Organization structure of the Dana Sailing Hotel 55

Table 2.4: Dana Sailing hotel risks statistics from 2017 – 2019 70

Table 2.5: Exchange rate USD / VND ( 17-18) BSC, Bloomberg 72

Table 2.6: Change of USD exchange rate compare with Asian’s currencies (January 2017 - January 2018) (BSC, Bloomberg) 73

Table 2.7: Comparison chart of inflation in Vietnam and some ASEAN countries (GeneralStatistics Office, CEIC, BMI) 74Table 3.8: Above shows a standard procedure for risk management 86

CHAPTER 1

CHAPTER 2

1 General description

According to the integration and development roadmap of the economy, onNovember 7, 2006, Vietnam officially joined the World Trade Organization Asmembers of the WTO, businesses will receive very good opportunities but at the sametime face many great challenges in a competition that require businesses themselves

to find their own appropriate direction to be strong enough to overcome anyadversities

To successfully implement the process of industrialization, and by 2025, Vietnam'stourism sector still plays a pivotal role in the road to gain prosperity in Vietnam, and away to show the international who we are Tourism is an integrated economic sector,and a particular type of economy The special feature is expressed in the followingaspects: it is integrated, interdisciplinary (between tourism, transportation,agriculture, natural resources, and environment, culture, sports ); highly social one(attract all sectors of society to participate); The industry is eco-friendly, clean andbrings a significant-high economic efficiency Tourism developments will benefit thecountry in terms of both economics and political, cultural and community However,because of its namely factors, the tourism industry is also particularly sensitive tochanges and fluctuations in the economics, political and social situation in the countryand abroad Business activities in the tourism industry, especially in the field ofaccomodations such as hotels, resorts, businesses will face a lot of risks, bothobjective and subjective

2 Significance of the Topic

In any country, the tourism industry plays an essential role in promoting economicgrowth, supporting development of other industries, creating jobs for workers andpaying taxes to the state budget Especially for developing countries like Vietnam,economic growth has led to a strong increase in tourism demand However, in thebusiness process, under the impact of many factors, both objective and subjective,

businesses encounter risks that are inevitable, especially in the hotel business Wecannot eliminate risks, we can only perceive risks and take measures to limit thelosses caused by it or accept it On the one hand, in a market economy, in order toachieve success and profit, managers must also accept certain risks Nontheless, if therisks are high, having negative effects, exceeding the limits and control will make theenterprises lose money, even push the enterprises to the brink of bankruptcy.Therefore, it is necessary for service enterprises to make decisions on analysingfinancial risk to minimize potential losses Specially, the context of economic currentconditions latent factors causing instability in the operation of enterprises as today.The tourism industry in general and the hotel industry in particular are moresusceptible to risks than others because the specific characteristics of the industry arethose affected by other industries, other calendars, and other sources With each other,any changes in a sector can cause a certain loss in hotel business activities in terms ofeconomy, reputation, human resources, community

Currently, Corona pandemic has caused much damage to the economy in general aswell as tourism and hotel business in particular Thousands of hotels have to shutdown because of lacking capital to remain operational Yet, identifying the hotelindustry's risks is equivalent to solving a multi-system problem, with many complexvariables, the results of the risk forecast for the hotel industry are too few sometimesinaccurate, identifying risks, measuring and determining their losses to providepreventive and remedial methods is essential for businesses to ensure stabledevelopment in the time of crisis

There are quite a lot of documents at home and abroad addressing risks; however,these documents only address risk issues in general and for a number of industriessuch as the currency business, precious metals business, insurance business,construction business In the field of hotel business so far, there are few studies thathave a complete and systematic way to make evaluation comments, especially giventhe methods to identify and evaluate the losses of financial risks on this industry

Stemming from theoretical and practical requirements in the hotel business, the writerfound it necessary to study the topic " Improving financial risks management processes in business operations of Dana Sailing Hotel under Tran Gia Khanh Co.ltd" to contribute to further improvement of the theoretical system in thehotel business and address some specific solutions to enhance the effectiveness ofanalysing financial risk for Dana Sailing Hotels in general and hotel systems inVietnam in particular.

3 Aim of the Topic

On the basis of some fundamental business risk issues and combined with the crisis situation today, the topic has the following main objectives:

- Types of risks and causes of risks that we often faced in hotel business

- Evaluate the status of analysing financial risk in business operations of Dana SailingHotel

- Study the model of analysing financial risk in business operations of Dana SailingHotel, thereby drawing advantages and disadvantages in the work to complete themodel

- Proposing solutions to prevent, avoid, eliminate or minimize financial losses thatfinancial risks may cause

From the above goals, we have the following research questions:

• Which basic research criteria should be used to evaluate the effectiveness ofanalysing financial risk in business operations of Dana Sailing Hotel?

• What are the successes and limitations of analysing financial risk in the business ofDana Sailing Hotel?

• What does Dana Sailing Hotel need to do and implement solutions to improve theanalysing financial risk processes of Dana Sailing Hotel?

Meaning: The research results will help Dana Sailing hotel become more aware ofthe risks of financial risks, understand the benefits of analysing financial riskprocesses to choose the appropriate solution for their business

4 Research Objects and Area:

 Research object:

The study of theoretical and practical issues of analysing financial risk processes inbusiness operation and the overall financial risks that are likely to affect the DanaSailing Hotel

 Research area:

- Research content: focus on researching analysing financial risk processes in

business activities at Dana Sailing hotel

- Research space: topic research on general data of Dana Sailing hotel and

current situation of analysing financial risk processes in business activities atDana Sailing hotel

- Research period: surveying the analysing financial risk activities in business

activities at Dana Sailing hotel within 3 years: 2017-2019 Research datas closest

to the research period of the thesis, from that, addressing the most practicalsolution to analysing financial risk processes in business activities at Dana Sailinghotel

5 Data and Research Methods

Based on the theory of analysing financial risk processes and research objectives, theauthor is determined to use dialectical materialism combined with popular methods in

Economic research such as collecting and analyzing methods, summarizing,comparing and comparing data, etc Based on firm data and documents to analyze,evaluate, from which to draw conclusions, draw experience from practice, solve andunravel the research goals set from the thesis.

- Analyzing and synthesizing theory: Studying related Master thesis defended

at the University of Economics and University of Danang on analysingfinancial risk processes in hotel business activities, scientific articles injournals, research articles, reference textbooks of domestic and foreignauthors From which to select, synthesize and integrate each side, eachinformation section to point out the system of theoretical basis for analysingfinancial risk processes in hotel business service

- Statistical method: Collecting, summarizing, presenting and calculating data

related to the current situation of analysing financial risk processes in businessoperations at Dana Sailing Hotel 2017-2019

- Survey the current situation method include:

 Survey internal factors of the Dana Sailing Hotel: by relying on

quarterly reports, secondary data sources, documents, official letters,issued and amended decisions Analyze old and new regulations to seemanagement reforms

 Surveying external factors the of the Dana Sailing Hotel: Based on

information from media such as television, newspapers, local events

to capture the phenomena, outstanding events, breaking news related tothe hotel business industry that has been going on, where it comes fromand what the risk may be

6 Meaning in scientific and practical terms of the Research

 Scientific significance:

The thesis contributes to systematize the theory of financial risk, analysing financialrisk processes, especially analysing financial risk processes in the business operations

of the hotel From there, give specific criterias in evaluating the effectiveness ofimproving analysing financial risk processes in the business operations at the DanaSailing Hotel in chapter 2.

 Practical significance:

The thesis clearly analyzes the current situation of analysing financial risk processes

in business operations at Dana Sailing Hotel 2017-2019 Draw out the advantages anddisadvantages as well as the control techniques that have been and haven't been used,the consistency or not between the management objectives and the way management

is conducted In general, with the analysis of necessary data, the thesis has an overallview of the business situation at Dana Sailing Hotel 2017-2019 and a detailed view ofthe management of financial risk in business activities of the hotel At the same time,inheriting the recommendations and solutions of the previous dissertations, and refer

to the advantages of other hotels in reality From there, propose ideas, appropriateimplementation methods to improve the efficiency of analysing financial riskprocesses in business operations at the Dana Sailing Hotel, in order to increasecorporate value, improve the competitiveness for the business in the near future

7 Planned Research Structure

PLANNED RESEARCH STRUCTURE

1 General description

2 Significance of the Topic

3 Aim of the Topic

4 Research Objects and Area

5 Data and Research Methods

6 Meaning in scientific and practical terms of the Research

7 Planned Research Structure

8 Overall research situation

CHAPTER 1: Review of literature about financial risks management

processes in business operations

CHAPTER 2: Appraise the Current state on financial risks management

processes in business operations of Dana Sailing Hotel

CHAPTER 3: Suggestions and Solutions to Improving financial risks

management processes in business operations of Dana Sailing Hotel

CONCLUSION

8 Overall research situation

Managing financial risk in general and in hotel business activities in particular isalways a top priority for hotel business activities In the current context, when thecountry's economy is becoming difficult because of the Corona pandemic, requiringprofessionalism, safety and sustainability to be the top priority, a series of hotels havenot taken it into consideration The main focus is on analysing financial riskprocesses, which reduces operational efficiency and sometimes leads to bankruptcy.Because of this, there have been a lot of hard work as well as astute analyzes by manyauthors who have mentioned this issue, not only by the current situation but also ingeneral for all economic situation of the year However, each research product has itsown strengths and shortcomings In general, the research works are only local, onlyresearch and analysis within the scope of the study of each separate segment in areas

other than hotel business It is worth noting that the concept of "risks" is sometimesinconsistent For example, Nguyen Thi Lien Huong (2016) asserted: "Risk isunexpected uncertainty, causing damage and can be measured", this is an old concept,different from the current concept In addition, sometimes the author has not clearlydifferentiated between risk management measures and risk financing measures.In thein-depth study of each stage of credit risk management in business activities, theauthor hastily analyzed the main topic without forgetting the other but equallyimportant aspects In particular, Dao Thi Bich Phuong (2015), going into the process

of analysing financial risk processes in business, without skipping the overview ofanalysing financial risk processes, from which the purpose

This important business approach, as well as no overview of the relationship andimportance of analysing financial risk processes for business Another common point

in the research projects is that it is not yet emphasized the functions and tasks of riskmanagement, because of that, the content is incomplete, mainly focusing onpreventive measures At the stage of appraisal and supervision of business activities,very little mention of derivative financial measures and other financial risk controloperations For example, Tran Thi Ha Thanh (2016), or Vu Ngoc Thao Linh (2015)helped readers to understand the purpose, principles, steps to fully implement all fourstages of the risk management process However, this is a topic with a very widewriting range, so the research of the authors is somewhat scattered, not intensiveabout a fixed stage, not highly applicable Besides, there are many insightful articlesthat have given many solutions for the current analysing financial risk processes Like

Le Van Chi and Hoang Trung Lai (2015) when discussing the factors affecting thefinancial risk of hotels, they used the regression estimation method to drawconclusions about the influence of individuals factors on financial risk The author'sarticle has suggested a new direction for analysing financial risk processes Inaddition, on daotao-vhttdl, the article "Necessity of Hotel Risk Management" on June

3, 2018, also presented a lot of solutions to prevent risks for hotel business

Inheriting the right rationale of the previous dissertations, summarizing and learningrelated articles, and supplementing and completing shortcomings including: accurateconception of risk and purpose of risk management, as well as the purpose, how tochoose the analysing financial risk processes method in business activities, clarify theevaluation criteria to make appropriate recommendations in the context of the crisisbecause of the epidemic that have been around The writer presents the thesis:

"IMPROVING FINANCIAL RISKS MANAGEMENT PROCESSES IN

BUSINESS OPERATIONS OF DANA SAILING HOTEL UNDER TRAN GIA KHANH CO.LTD"

CHAPTER 1: REVIEW OF LITERATURE ABOUT

FINANCIAL RISK ANALYSIS IN BUSINESS OPERATIONS.2.1 Overview of financial risk analysis of financial risk in business operations:

2.1.1 Risk:

2.1.1.1 Definition:

In economics, schools define risks in many different ways such as the negative one inthe Oxford dictionary: "Risk is the possibility of facing danger or pain, damage "Otherwise, according to the neutral school, "risk is measurable uncertainty" and in itsview, risk is always double-sided, risk can cause damage but it can also bringopportunities if we actively research to conduct risk management For me, Risk is the

term describing the possibility of unintended events causing losses in any form Tosome extent, we can identify and measure the possibility of such risks to takemeasures to prevent and limit the losses when risks occur However, there are risksthough the possibility is almost not, when it happens, it will cause serious losses Thepublic debt crisis in Europe is the most vivid evidence of the aftermath of the globaleconomic crisis (2007-2009) that originated in the US real estate loan market Therisk from derivative trading activities on underlying assets is the subordinated realestate loan contracts that have been warned However, according to experts, thelikelihood of risk is very low, so for the profit of financial institutions despite all

In this dissertation, I choose the point of view that considering risk as the possibility

of an adverse event affecting the resources of enterprises causing current and future losses Most noticeable about the risk of an enterprise is the possibility of

financial losses such as income or invested capital

Risks occur in the presence of uncertain situations, the main cause of which may beinflation, interest rate fluctuations, exchange rates, and commodity prices due to thefact that the market is in the wrong place, either due to an underestimation in thesituation, or the inappropriate investment decision It may also be due to changingpolitical, social, business environment factors

If we consider risks in the likelihood of frequent occurrence, we can measure the riskbased on the ratio of certainty to occur and certainty that does not occur

- Risks due to natural environment

- Risks due to cultural environment

- Risks due to social environment

- Risks due to the political environment

- Risks due to the legal environment

- Risks due to economic environment

- Risks due to the operational environment of the organization

- Risks due to human perception

Classified by impact environment:

- Internal environment

- External environment

2.1.2 Financial risk in business:

2.1.2.1 Definition:

Due to the nature of business is the service business, the business object is material as

a room, so the hotel also face a lot of risks

Besides, for small hotels like Dana Sailing with just one owner, an immense amount

of capital can not be seen like in any other big hotels, the financial risks in businessoperations are large and can cause severe losses Renting rooms is the activity thatgenerates the largest revenue for the hotel, which is also the largest proportion of thetotal asset value Room rental activities face a lot of financial risks, including thatcustomers can not pay, delay payment Or the rise of short-term debt, the suddenincrease in interest rates is also a kind of financial risk Management and preventionfor it are extremely difficult It can happen anywhere, anytime If not identified,measured and handled promptly, it entails many other risks Besides, the more yourbusiness scope is expanded, especially to the international scope, the higher the risk.The overall consequence of all risks is negatively affecting the finances of the hotel.Financial risks are a true measure of the money flow in the enterprise and thepossibility of financial loss

In terms of risk, financial risk plays a particularly important role However, in reality,there exist many different concepts about the financial risks of enterprises.

Research by Steven Li (2003) states that: Risk is related to the uncertainty of factorssuch as interest rates, exchange rates, stock prices, and commodity prices calledfinancial risks Meanwhile, Cao Defan (2005) divides financial risks by scope In abroad sense, financial risk involves all factors reflected in the financial position of anenterprise In a narrow sense, financial risk refers to its inability to pay its financialliabilities when they are due A number of other authors, including domestic andforeign authors such as Prof Luu Thi Huong and Prof Vu Duy Hao (2006), Prof.Nguyen Dinh Kiem and Prof Bach Duc Hien (2008), Prof Vu Duy Hao and Prof.Dam Van Hue (2009), Li Zhea, Liu Ke, Wang Kaibi, Shen Xiaoliu (2012) all agreethat financial risks are related to the use of capital financing methods in enterprises[1,2, 3] According to Eichhorn (2004) and Ann-Katrin Napp (2011), financial riskscan take two different forms Financial risks due to objective factors depend onchanges in financial markets such as interest rates, exchange rates, commodity prices.Financial risks are subjective (internal) factors, in which the financial situation of theenterprise is the source of risks [4, 5] As such, this view covers both internal andexternal risks but does not specify how the "financial situation" is called risk.According to the author, in order to have a sound and scientific concept of financialrisk, one must first understand financial concepts The commonly used financialconcept is: Finance is a method of creating - mobilizing and allocating - usingfinancial resources to prepare the solvency-responsive entities an effective way of theneeds of entities in existence and development, in socio-economic activities " [6]

From the above viewpoints, in the opinion of the author, financial risks are thosearising due to fluctuations of the external environment and risks arising from theselection and implementation of financial decisions In the enterprise itself, it affectsthe profitability and solvency of the enterprise, which will lead to the bankruptcy ofthe company at worst Thus, the concept of financial risk is a "dynamic" concept, that

is, there are many different levels Only one of the risks (interest rates, exchangerates, price fluctuations, commercial credit, and financial leverage), or a set of risksthat occur, will affect the profitability of the business, and if it is big enough, it willlead to loss of business liquidity It may be only temporary loss of liquidity butsometimes prolonged, and severe liquidity will lead to bankruptcy.

2.1.2.2 Types of financial risks to business:

At present, there is no agreement on the classification of financial risks both at homeand abroad According to Standard & Poor, financial risks include Accounting risk(Accounting), financial management risk (Financial Governance), cash flow risk(Cashflow Adequacy), capital structure risk (Capital Structure), Liquidity risk(Liquidity / Shorterm Factor) Karen (2005) considers the financial risk to includemarket risk, credit risk and liquidity risk [7] While other authors do not provideclassification because of uniform financial risk as a risk debt risks In the country,author Nguyen Van Kieu said that financial risks include exchange rate risk, interestrate, price fluctuation, commercial credit; Prof Nguyen Ngoc Trang examinesfinancial risks from the perspective of financial exhaustion, that is, financial riskincluding exchange rate risk, interest rate risk and price fluctuation risk According tothe author's understanding, as presented in the concept, liquidity risk will be amanifestation of other risks Therefore, I did not classify liquidity risk in the samegroup as interest rate risk, exchange rate, price volatility, trade credit and did notrepay the debt but placed the liquidity risk at a higher level, only after bankruptcyrisk

Therefore, through an overview of the views of previous authors, financial

risks include:

 By origin:

There are two types, financial risks due to external factors (objective - external) andrisks due to endogenous factors (subjective - internal) Financial risk due toexogenous factors is an abnormal state causing losses in the financial activities ofenterprises due to changes in variables such as inflation and commodity prices, creditinterest rates, exchange rates foreign exchange Financial risk due to endogenousfactors is an abnormal state caused in the financial activities of enterprises related to

subjective factors such as capital structure, operational capacity, profitability, According to this classification, some of the following risks are deeply studied in thisthesis.

 Exchange rate risk: is the risk arising when the payment is made in a

foreign currency whose exchange rate fluctuates causing loss to one ofthe parties participating in the payment, causing a decrease in theexpected value of the parties (Glaum, 2000, p.357; Armeanu & Bälu,

2007, p.55) Financial risks include the decline in future revenue due to adecrease in the exchange rate of the local currency against foreigncurrencies and affecting the competitiveness of enterprises (Nassauer &Pausenberger, 2000, p.271) [4]

 Interest rate risk: is the type of risk caused by interest rate fluctuations.

This type of risk arises in the credit relationship of enterprises withcredit institutions High-interest rates will increase the interest expense

of the debt; therefore, it will reduce the income of the business and inmany cases can lead to financial exhaustion A loan agreement with afixed interest rate also leads to interest rate risk When market interestrates decline, these contracts still incur high-interest rates (Dhanini et al.,

2007, p 75) Therefore, it can be summarized that the more debts acompany uses, especially the use of many short-term debts at differentinterest rates, are more affected by interest rate risk (Dhanini et al., 2007,p.72) [4]

 Price fluctuation risk: For businesses that have purchase and sale of

goods under fixed-price contracts for a long time, the risk of pricefluctuation of goods may be a big risk Especially in the case of aneconomy with a high inflation rate, commodity prices change daily(Stroeder, 2008, p.219) Price fluctuations can tend to increase ordecrease, thereby reducing (sometimes increasing) the profits ofenterprises (Eckbo, 2008, p.544) For most manufacturing enterprises,output products are usually contracted under orders before production,

when prices fluctuate, raw materials increase, but the selling price ofproducts has been fixed in advance, the risk of loss is huge; at the sametime put pressure on corporate liquidity [8]

The risk of price volatility also creates a serious impact on businesses interms of input material prices change When raw materials increase toofast while selling prices cannot rise or increase more slowly than theincrease of raw materials, businesses will be at risk of loss, unable torecover capital

 Commercial credit risk: is the risk arising in the sale and purchase

relationship subject to each other's goods and services, but thebeneficiary of the credit fails to use the credit capital and cannot repaydebts to credit providers

The concept of commercial credit risk is different from bank credit risk.Subjects participating in commercial credit are enterprises and borrowersbeing goods or services; meanwhile, participants in bank credit willconsist of one party being an enterprise and one side being banks or othercredit institutions and the borrower here is money Another point incommercial credit and bank credit is the interest rate payable in theborrowing relationship The beneficiary in the normal commercial credit

is not required to pay interest within a certain period specified in thecontract, only when the beneficiary enterprise fails to pay the amountexceeding the specified number of days, it will be subject to a penaltyinterest rate However, in bank credit, the loan must pay interest as amandatory condition

 Financial leverage risk: This is the risk arising from businesses using

debt capital to finance production and business activities

In the enterprise, financial leverage is very popular To meet the capitalneeds for production and business or the need to expand investment, inaddition to equity, businesses can access loans such as issuing bonds or

borrowing from banks When the business is favorable, the use offinancial leverage amplifies the profit on equity (ROE) many times.However, if in a certain period, the business fails to achieve the expectedprofit level, even if the business suffers losses, the interest expense andprincipal debt become a burden Vietnam's real estate businesses over thepast period are typical for financial leverage risk as many businesses have

a loan structure of up to 70-80% of total capital

 Cash flow risk:

Cash flow risks are increasingly popular in the current economic crisis.Cash flows into the business (revenue stream) and cash flow out of thebusiness (cash flows) take place on a continuous basis In fact, at certaintimes that can happen, the amount of money coming into the business(the revenue) is less than the amount of money coming out of thebusiness (the number of expenses) due At that time, an imbalance ofcash flow occurred This imbalance poses a great risk to businessactivities Due to lack of money, the purchase of raw materials, materials,fuel serving production and business may be stopped, leading to stopproduction and business; Wages of workers and loans (if any) are notpaid on time, greatly affecting the reputation of the business

 According to the scope of impact: According to this classification, people

divide risks into two types: systematic risk and unsystematic risk

- Systemic risk: is the risk affecting all or most businesses regardless of the

financial status or management level of the business Therefore, this risk cannot

be mitigated by diversification In fact, the terms "systemic risk" and diversifying risk" can be used interchangeably Financial risks of this groupinclude exchange rate risk, interest rate risk, and price fluctuation risk

"non Non"non systematic risks: are risks affecting only one or several enterprises.

Financial risks of this group include financial leverage risk, commercial creditrisk, investment risk outside the industry These risks can be mitigated bydiversification For example, businesses choose the appropriate capital structure

to avoid the interest burden, while taking advantage of the tax shield Therefore,there is no common capital structure for all businesses, even enterprises in thesame industry do not have the same capital structure due to the influence of size,characteristics, management level, and potential financial availability of thebusiness.

2.1.2.3 The typical financial indicators of the business

risk:

Each specific financial indicator helps paint the overall picture of the enterprise interms of finance, enabling managers to make the right decisions in the context ofincreasingly fierce competition Here are the typical financial ratios:

Solvency ratios:

 Short term payment ratio

- Formula: Short-term assets / Short-term liabilities

- Meaning: Assess the ability to pay debts due within 1 year with assets capable

of converting into money within the next 1 year

- Evaluate:

▪ Only 1 time: safety

▪ Under 1 time: Enterprises may be using short-term loans to financelong-term assets, resulting in negative net assets

 Quick ratio

- Formula: (current assets - inventories) / current liabilities

- Meaning: To assess the readiness to pay term debt higher than the term payables

short Evaluate :

▪ Over 0.5 times: safe

 Interest payment ability

(Based on profit)

- Formula: EBT and interest (EBIT) / interest payment

- Meaning: To assess the level of profit before paying loan interest to ensureannual interest payment

- Evaluate :

▪ The minimum safety level is 2 times

▪ Overall than 1: The business has a loss

 Ability to repay a loan

(Based on cash flows)

- Formula: (Net cash flow from operating activities + income tax + Interest expense) / Interest payment

- Meaning: To evaluate the ability to pay the loan interest in cash, not fromaccounting profit

- Evaluate :

▪ The minimum safety level is 2 times

▪ Less than 1: Enterprise has a loss

 Solvency of loan interests

- Formula: (Earnings before interest and taxes + Depreciation + Interest payment) / (Principal tar payment + Interest payment)

- Meaning: [FONT = & amp] The ratio is greater than 1, the company is fullyable to pay interest If less than 1, it proves that the company has borrowed toomuch for its ability, or the business is so poor that the profit is not enough topay interest [/ FONT] The ratio of ability to pay interest only indicates theability to repay the interest of the loan, not the ability to pay both principal andinterest

- Evaluate :

▪ The minimum safety level: 1 time

Group of indicators on financial leverage (capital structure):

 Self-financing coefficient

- Formula: Equity / total capital

- Meaning: To assess the level of financial autonomy of the Enterprise and theability to offset losses by equity

- Evaluate :

▪ Generally speaking, high coefficients are usually safe

- Minimum :

▪ + 15% for loans with collaterals

▪ - 20% for unsecured loans

 Financial leverage ratio

- Formula: Average total assets / Average equity

- Meaning: to show the relationship between borrowed capital and equity,showing the financial autonomy of enterprises It also allows assessing thepositive or negative effects of borrowing on ROE

- Evaluate :

▪ The bank wants a low rate

 Coefficient of fixed assets

- Formula: Fixed assets / equity

- Meaning: To assess the stability of investing in fixed assets

- Evaluate: In general, small coefficients indicate safety

 Long-term adaptation coefficient

- Formula: Long-term assets / (equity + Long-term debt)

- Meaning: To assess the ability of businesses to cover long-term assets with

long-term stable capital sources

- Evaluate: this factor may not exceed 1

 Ratio of debt to assets

- Formula: Debt to assets ratio = (Total debt / Total assets) x 100%

- Meaning: This ratio indicates how much of a company's assets come fromborrowing Through this know the financial autonomy of the business Thisratio is too small, indicating that businesses borrow less This may imply thatthe enterprise has high financial autonomy But it can also imply that

businesses do not yet know how to exploit financial leverage, that is, they donot know how to mobilize capital by means of borrowing On the contrary, thisratio is too high, implying that the enterprises do not have the financial capacitybut mainly borrow to get business capital This also implies a higher level ofcorporate risk.

- When using this ratio to evaluate, it is necessary to compare the ratio of aparticular enterprise to the industry average

Group of indicators on performance

 Total assets turnover

- Formula: Net revenue / Average total assets

- Meaning: Shows how many times the total assets are converted into sales in a

year

- Evaluate: High coefficient reflects the high asset efficiency

 Frozen capital turnover

- The formula: Average net revenue / total short-term assets

- Meaning: to show how many short-term assets are converted into sales

- Evaluate: The high coefficient reflects the efficiency of using current assets

 Inventory cycle

- Formula: (average inventory x 360) / Cost of goods sold

- Meaning: To indicate the effectiveness of the business in managing inventories

- Assess the accountability of inventories

- Evaluate: The assessment depends on the business industry and the operatingcycle of the business

 Period of average payment

- Formula: (average trade receivables x 360) / Net revenue

- Meaning: Indicate the average number of days required to convert tradereceivables into cash Demonstrate ability to collect debt from customers andcommercial credit policies of the business

- Evaluate :

▪ The coefficient is as small as possible

▪ Need to link with business lines

 Time of debt payment

- Formula: (average trade payables x 360) / Cost of goods sold

- Meaning: Indicate the time from purchase of goods and materials until payment

of money

- Evaluate: Need to align with purchasing policies and business relationships

with suppliers

Group of indicators about growth

 Revenue growth rate

- The formula: (current gross revenue / total previous revenue) - 1

- Evaluate: This ratio should be positive, as high as possible

 Business profit growth rate

- Formula: (profit from operating activities in the current period / profit from operating activities of the previous period) - 1

- Evaluate: This ratio should be positive, the higher the better

Group of indicators about profitability

 Gross profit margin

- Formula: (gross profit from sales / Net sales)

- Meaning: To show the efficiency level when using the inputs in a businessprocess of the enterprise

- Evaluate: This target is as high as possible

 Return on assets (ROA)

- Formula: Average profit after tax / total assets

- Meaning: Measure the results of using assets of a business to make a profit

- Evaluate: The higher the coefficient the better

 Return on equity (ROE)

- Formula: Average profit after tax / Equity

- Meaning: Reflecting the business performance of the enterprise from the equitysource

- Evaluate: the higher the coefficient of the stretcher the better

Group of indicators on assessing cash flow

 Cash flow from operating activities on gross revenue

- Formula: Cash flows from business activities / total revenue

- Meaning: To assess the possibility of collecting cash from sales

 Cash flow from operating activities on equity

- Formula: Cash flows from business activities / Equity

- Meaning: To evaluate the ability to make money from equity

Analyze financial risks through sensitivity to interest rates, exchange rate fluctuations and commodity prices

- Interest rate sensitivity: when inflation increases, loan interest rates increase

suddenly, changes in costs, expected business calculations are reversed, it isdifficult to predict the current economic situation and near future The greaterthe amount of money borrowed by businesses, the higher the pressure on loaninterest costs is, the higher the risk of facing risks If the business uses debtwith floating interest rates, changes in the short-term interest rate will changethe cost of the business In addition, fluctuations in interest rates will alsochange the cash flow received by the enterprise's investments Therefore, thehigher the sensitivity of an enterprise to the interest rate, the greater thefinancial risk for the business

- Sensitivity to commodity price fluctuations: when goods have price

fluctuations, costs will fluctuate, thereby affecting the financial efficiency of

the business In addition, when price fluctuations cause the enterprise's priceexpectations to be distorted, the output price when signing contracts does notcorrespond to the increase in input prices Therefore, the higher the financialrisk, the greater is the firm's sensitivity to price volatility

- Exchange rate sensitivity: when the enterprise has trade receivables that

fluctuate when the exchange rate fluctuates, this puts the enterprise at risk offinancial risk When the exchange rate fluctuates in an unfavorable direction, itwill increase costs and reduce the turnover of enterprises, leading to a decrease

in the efficiency of capital use of enterprises, leading to higher financial risks

of enterprises In case the enterprise does not have income in foreign currencies

or foreign investment , but merely domestic business, it also faces exchangerate risk when the exchange rate changes Because when the exchange ratechanges, it has no direct effect on the source of income or expenses of thebusiness but increases the competitive pressure for businesses when newbusinesses enter the industry This affects the profitability of the business, that

is, businesses are in financial risk

2.1.2.4 Financial risks analysis in business operations

To determine the level of risk of the business, we need to answer the questions: how high is the company using leverage? Is there any sensitivity to fake rates, interest rates, commodity prices? To answer the above questions, we will analyze financial risks through the following contents:

Financial leverage

Financial leverage is a term used to describe the combination of liabilities and equity

in operating the financial policy of the business Financial leverage will be very large

in businesses with a higher proportion of liabilities than the equity In contrast,

financial leverage will be lower when the proportion of liabilities is less than theproportion of equity.

Financial leverage is both a tool to promote profit after tax on an equity, and a tool tocurb that increase This success or failure depends on the wisdom or stupidity whenchoosing the financial structure The ability to increase profits is the desire of theowners, in which financial leverage is a tool preferred by managers Because theinterest paid is constant when the output is changed, the financial leverage will bevery large for businesses with high debt ratios and vice versa, the financial leveragewill be very small in businesses with low debt ratios Businesses without debt willnot have financial leverage.Thus, financial leverage focuses on the debt ratio Whenfinancial leverage is high, only a small change of profit before tax and interest willmake a big change in the ratio of profit after tax to equity, the ratio of profit after tax

to equity Property will be sensitive to profit before tax and interest In essence,financial leverage reflects the change in the ratio of profit after tax to equity before thechange of profit before tax and interest Thus, the magnitude of financial leverage isconsidered to be the change in the ratio of after-tax profit to equity arising from thechange of profit before tax and interest

To evaluate the effect of financial leverage on equity profit margin (or EPS), one usesfinancial leverage determined by the following formula:

Financial leverage (DFL) = (Rate of change of profit ratio after-rent ́ to equity) / (Rate of change of profit before tax and interest)

Where,

- The rate of change of the ratio of after-tax profit ́on equity = The difference

between the ratio of after-tax profit to owner's equity in the periodical analysis / the ratio of after-tax profit to equity origin

- Change of after-tax profit and loan interest = The difference between profit

after tax and loan interest for the periodical analysis of principal / profit after tax and interest

Just like using business leverage, using financial leverage is like using a edged sword" If the total assets are not able to generate a profit rate large enough tooffset the interest expenses payable, the ratio of profit after tax to equity will bereduced Because the profits made by equity must be used to offset the shortage ofinterest payments Therefore, the income of an equity will remain very little compared

"double-to the money they should receive; In other words, when the use of debt is not able "double-togenerate a profit rate large enough to cover interest expenses, it will affect the rate ofreturn, and the business is facing risks finance In addition, when an enterprise raisesits debt ratio (large financial leverage), the fixed cash flow to pay for the loan interestincreases, which reduces profit and affects the ability of the enterprise to pay is anenterprise that is facing financial risks

The ratio of profit after tax to equity is high, financial leverage helps amplify thatbenefit many times and vice versa, financial leverage poses a financial risk to thebusiness Thus, financial leverage is one of the basis for determining the level offinancial risk of an enterprise

And yet, in the case that the ratio of profit after tax to equity is high, but there is asudden increase in a certain period of time, whether this is the business operation ofthe business is effective Or is there a potential underlying financial risk increase forthe business? We continue to analyze financial risk through ROE variability

ROE variability

One of the causes of financial risk is the use of debt to supplement business capitaland the indicator to determine financial leverage that will amplify profit or risk isROE - the profitability of equity This indicator reflects most clearly the businessability of the business This index is a measure to assess how much profit an initialinvestment generates, but when the ROE has sudden fluctuations, besides earning ahigh return, the possibility of instability of profits earned or businesses face financialrisks are also very large, but when faced with high risks, the "health" of businessesalso decline.

Formula: ROE = (Profit after tax) / (Average equity)

Thus, through ROE we determine the level of financial risk of the business Thehigher the ROE variability of the firm, the higher the ROE fluctuates in a large margincompared to the average ROE value, while the firm has a fixed outflow of cash forinterest expenses, the instability of the cash inflow From the profitability of equitymakes the cash flow balance of the business more difficult, affecting the solvency ofthe business, making the financial risk level of the business higher Thus, we can seethat the financial risk of an enterprise depends on the variation of profitability onequity

In addition, the relationship between the variability of ROE and the variation of ROAalso represents the level of financial risk of the business

Variance ROE = (Standard deviation ROE) / (Average ROE)

Return on assets is a measure of investment performance and is independent of capitalstructure decisions If an enterprise does not use debt, then ROE is equal to ROA, butwhen an enterprise uses debt, the ROE variability will be different from the ROA'svariability The greater the difference between the ROE and ROA variability, thegreater the financial risk

An insolvency enterprise not only reflects its own financial situation, but also creates

a chain reaction of the economy's insolvency Solvency is one of the important factors

to evaluate the "health" of businesses, businesses with high solvency, showing good

"health", easily attracting investors and increasing reputation of the business in thebusiness environment But when businesses have trouble paying, the initialassessment of investors is that businesses are having instability, the prestige of thebusiness declines Therefore, by analyzing the solvency of an enterprise, one can seehow the specific level of risk is the financial risk of that enterprise To analyze thesolvency of the business, we use some of the following criteria:

- Current solvency:

Current solvency = (Total current assets) / (Short-term debt)

This ratio reflects the ability to convert assets into cash to cover short-term liabilities,showing an average of 1 short-term debt guaranteed by how many short-term assets.Usually, this ratio is low, showing a poor ability to pay debts and also a warning sign

of financial difficulties that may be encountered in debt repayment But when thecurrent ratio is high, it does not reflect the good business situation, but shows that thecurrent assets of the enterprise are inefficient use, affecting profitability, causingfinancial risks for Business

- Fast solvency

Fast solvency = (Short-term assets - Inventories) / (Short-term liabilities)

This is a stricter target than the current payment target of the business This indicatormeasures the solvency of the enterprise to pay invoices immediately If this ratio isgreater than 1, it means that when creditors claim money, businesses still can use theirliquid assets to pay without liquidating inventories

- Ability to pay interest

Interest payment ability = (Profit before tax + Interest expense) / (Interest

payable)

Bank loan interest is an obligation that the borrower commits to pay The source ofdebt repayment is the business outcome of the loan Coefficient indicates the average

of 1 loan interest arising in the period guaranteed by how many dong profit The moretimes the profit before tax and interest are greater than the interest rate, the higher thelikelihood of paying interest expenses If the interest rate solvency ratio is low, itshows that the ability to pay loan interests is poor and the financial risk is high

2.1.2.5 Consequences of financial risks

Financial risk, once happening, often directly affects revenues and costs, therebyaffecting the company's net profit For example, fluctuations in exchange rates makesales and costs incompatible when importing foreign goods for domestic sales or viceversa; or change the value of an enterprise when its assets abroad are converted intothe local currency Lower interest rates reduce the cost of interest paid, but alsoreduce the income from investment activities In the event that the value of therevenue decreased faster than the accrued interest expense, the business was clearly at

a loss When a financial risk occurs, it has as much harm to both businesses and theeconomy as other types of risk

 For businesses: when an enterprise is exposed to financial risks, firstly, the

enterprise incurs losses on its capital, leading to a series of difficulties that

it faces such as:

 Impact on the company's net profit: Impact on financial resilience

and reinvestment of businesses

If an enterprise wants to develop sustainably, its production and business processmust take place continuously and must be higher than the previous year The capitalsource for re-investing in production and business is the depreciation fund, retainedearnings from previous years When financial risks increase uncontrollably, thecapital for reinvestment is reduced Therefore, the ability to reinvest is eliminated,businesses will not be able to operate continuously, the business scale is narrowed Ifthat happens over a long period of time, the business may "disappear" in the market

For businesses that are carrying out investment projects, financial risks may cause theinvestment project to stop even "lying in wait forever" due to the sudden increase intotal investment, rising interest rates, blocked borrowing

 Impact on the competitiveness of enterprises:

It is very clear that a business that suffers a great deal from the rising financial riskswill reduce its competitiveness Take for example exchange rate risk for illustration If

an enterprise is affected by exchange rate risks that lead to foreign exchange losses, itwill have to find a way to raise the selling price of its products to cover the losses.When the local currency appreciates, purely domestic business is still affected by theexchange rate due to the appearance of foreign enterprises with domestic branchesimporting goods from abroad for domestic consumption Thus, the prices of similargoods abroad are now relatively cheap compared to domestic goods Therefore, theprice of products of enterprises will not be attractive compared to competitors, thecompetitiveness of enterprises will be reduced

 Impact on the balance of cash flow and solvency of the business:

Cash flows into the business (revenue stream) and cash flow out of the business (cashflows) take place on a continuous basis In fact, at certain times, the amount of moneycoming into the enterprise may be smaller than the amount of money coming out ofthe business At that time, an imbalance of cash flow occurred This imbalance poses

a great risk to business activities Cash flow imbalances are divided into temporaryimbalances and long-term imbalances Temporary imbalance of cash flow can beovercome by many methods and the consequences are usually not great Long-termimbalances occur due to important reasons such as: the cost of the enterprise is toolarge; working capital is too little; bad debts increased; The revenue has not beenenough to cover recurrent expenses, etc., making the business insolvent When thetemporary imbalance changes into a long-term imbalance, the business will gobankrupt

 Impact on business value:

The biggest goal of the business is to maximize value If financial risks occur withseriousness, it will cause losses to enterprises and reduce profits Investors willunderestimate the value of stocks in the market and obviously, the value of businesses

will decline In the case of risks from financial leverage, businesses can not only takeadvantage of the tax shield to increase value but also fall into financial exhaustion,even bankruptcy.

 For the economy: the enterprise is a "cell" and the economy is a "living

body", every business in the economy develops "healthy", the economy is

also "healthy" according to and created prerequisite for the development of

culture, society, But when an enterprise faces risks without a solution

that leads to bankruptcy, not only does a business suffer, but it also results

in losses Harm to the economy

2.2 Hotel business operations:

2.2.1.1 Concept of hotel business operations:

Are business activities based on the provision of accommodation, catering and othercomplementary services to customers so as to meet their own needs at touristdestinations with interest

2.2.1.2 Features of hotel business operations

- Hotel business products do not have a specific physical form The

manufacturing process is also the consumption process, there is no finishedproduct in stock, the product is not in stock, cannot be stored Producers ofproducts and services only store elements as pre products and services, notservices This feature shows that the elasticity of the supply of hotel productsand services is small, so if the price tool is used to regulate the amount of supply

of services on the market, it can not work as quickly as the other goods

- Hotel business activities are both seasonal and dependent on natural conditions

and economic development in each period This feature requires the creation ofcost norms, prices and the determination of the price of hotel products andservices to ensure appropriate suitability in each period

- Hotel service business is a special type of business activity, its nature in both

business production and serving the hotel customers The nature of the work inthe hotel service business is very complex, requiring professional skills,

showing the attitude towards customers of the hotel and the level of culture andcivilization.

- Hotel business requires a large direct labor force: hotel products primarily

service or service-oriented and this service cannot be mechanized but only byhotel staff

Given the specific characteristics of the hotel industry, in the cost of room servicebusiness, the direct costs such as material costs, direct labor costs are usually notmuch, and the general production costs incurred very large, especially the cost ofdepreciation of fixed assets Therefore, in order to manage costs effectively,accountants usually determine the cost norms for each type of room for each day andnight of rent and the cost norms for other associated service activities

2.2.1.3 Categorize hotel business operations

Hotel business activities include:

- Accommodation business: is an activity outside the physical manufacturing

sector, providing services to rent rooms and other additional services for guestsduring the temporary stay at tourist destinations for the purpose of staying.profitable

- Catering business: business is a business in the field of physical production,

providing catering services for guests during their stay in the hotel to create autility package for guests

2.3 Conclusion on Chapter 1

Starting from the above theoretical grounds, we realize that the hotel businessactivities, as well as the business activities of enterprises in the same field or outside,are full of risks To manage such risks, there is no one common rule The sensibilityand in-depth expertise will help hotel managers or accountants to properly assess

risks and select appropriate manage methods to ensure the management's strategiesand policies with appropriate profitability and risk ratio.

Not only comes from the hotel, but the financial risks in hotel business activities alsostem from many subjective and objective reasons These causes are increasingly rich,varied and unpredictable Therefore, the management of financial risks is always ofthe greatest importance in the entire process of risk management For each hotel,depending on the size of the hotel, the control is applied differently Based on theabove theoretical grounds, understand the importance of analysing financial riskprocesses in business activities, and the author has systematized the theoretical basisfor risk management and analysing financial risk processes of hotel businessoperations The author also developed a specific system of rules, in order to evaluatethe results of this work at the hotel From there, we will deeply analyze the situation

of analysing financial risk processes in the business operations of Dana Sailing hotel,

in order to make recommendations to help the hotel to improve its financial riskmanagement in business activities Therefore, it can stand firm and develop in thelong run

The theoretical issues above will continue to be collated, compared with the actualsituation and analysing financial risk processes in Dana Sailing Hotel, and will bepresented in Chapter II of the thesis