ANALYZING FINANCIAL RISK AT DANA SAILING HOTEL IN DANANG

Stemming from theoretical and practical requirements in the hotel business, the writer found it necessary to study the topic " Improving financial risks management processes in business

THE UNIVERSITY OF DANANG UNIVERSITY OF ECONOMICS

GRADUATION PAPER

Summary

Title: Analyzing financial risk at Dana Sailing Hotel in

Danang

Student’s name: Le Chi Thien Academic advisor: MSc Bui Phan Nha Khanh

Danang, 2020.

ANALYZING FINANCIAL RISK AT DANA

SAILING HOTEL IN DANANG

ABSTRACT

2

This paper investigates current financial risk analysis sitiuation at Dana Sailing hotel With the infomation on financial statement and personal observations as an intern, I find that the effects of financial risks on Dana Sailing hotel and the recomendation as well as solution for the business Furthermore, descriptive statistics, correlation matrix and regression analysis are used in this study I hope that the results of this paper will devote to previous empirical studies as a basis for comparison or may be used for later studies

Keywords: Finacial risk analysis.

1 Introduction

In any country, the tourism industry plays an essential role in promoting economic growth, supporting development of other industries, creating jobs for workers and paying taxes to the state budget Especially for developing countries like Vietnam, economic growth has led to a strong increase in tourism demand However, in the business process, under the impact of many factors, both objective and subjective, businesses encounter risks that are inevitable, especially in the hotel business We cannot eliminate risks,

we can only perceive risks and take measures to limit the losses caused by it

or accept it On the one hand, in a market economy, in order to achieve success and profit, managers must also accept certain risks Nontheless, if the risks are high, having negative effects, exceeding the limits and control will make the enterprises lose money, even push the enterprises to the brink

of bankruptcy Therefore, it is necessary for service enterprises to make decisions on analysing financial risk to minimize potential losses Specially, the context of economic current conditions latent factors causing instability

in the operation of enterprises as today The tourism industry in general and the hotel industry in particular are more susceptible to risks than others

3

because the specific characteristics of the industry are those 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 of economy, reputation, human resources, community

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 industries such as the currency business, precious metals business, insurance business, construction business In the field of hotel business so far, there are few studies that have a complete and systematic way to make evaluation comments, especially given the methods to identify and evaluate the losses of financial risks on this industry

Stemming from theoretical and practical requirements in the hotel business, the writer found 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 the hotel business and address some specific solutions

to enhance the effectiveness of analysing financial risk for Dana Sailing Hotels in general and hotel systems in Vietnam in particular

2 Methodology

2.1 Data

Based on the theory of analysing financial risk processes and research objectives, the author 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 and unravel the research goals set from the thesis

4

- Analyzing and synthesizing theory: Studying related Master thesis defended at the University of Economics and University of Danang on analysing financial risk processes in hotel business activities, scientific articles in journals, research articles, reference textbooks of domestic and foreign authors From which to select, synthesize and integrate each side, each information section to point out the system of theoretical basis for analysing financial 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 business operations 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 see management 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 to the hotel business industry that has been going on, where it comes from and what the risk may be

2.2 Variable Measurement

Each specific financial indicator helps paint the overall picture of the enterprise in terms of finance, enabling managers to make the right decisions in the context of increasingly fierce competition In this, i use Solvency ratios, indicators on financial leverage (capital structure), Group

of indicators on performance , Group of indicators about growth, Group of indicators about profitability, Group of indicators on assessing cash flow to caculate the figures to realize the financial risk latent in the business an

5

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

3 Results and Discussions

3.1 Summary of the company's business situation over the years

(Unit: dong)

Source: Calculated from financial statements of Dana Sailing Hotel

Table 2.1 Business situation of Dana Sailing Hotel over the years

The company's revenue increased sharply in 2018 to more than VND 789 million , more than 2 times higher than in 2017 to 2019, and continues to nearly double , reaching more than 1.2 billion

Revenue of 3 years, generally not sufficient to cover the costs incurred

by businesses should profit of 3 years were negative Specifically, the profit of 2017 is negative 418 million and this number over 2018 has decreased but not significantly However, there has been a breakthrough in

2019, the business has only lost more than 53 million Because the profit is negative, businesses do not have to pay taxes

The company's total assets decreased over the years, particularly

in 2017 total assets reached more than 4.8 billion VND In 2018, it

1 Turnover 329,050,806 789,786,000 1,205,419,304

2 Profit before tax (418,093,637) (419,541,177) (53,311,578)

3 Profit after tax (418,093,637) (419,541,177) (53,311,578)

4 Taxes payable to the State Budget 0 0 0

5 Total assets 4,854,540,177 1,932,341,500 1,381,451,942

6 Total equity 581,320,177 161,779,000 108,467,422

7 ROA -0.08612 -0.21712 -0.03859

8.ROE -0.80663 -2.59329 -0.49149

6

decreased by 251 % compared to 2017 to over VND 1.9 billion and

to 2019 reached more than VND 1.3 billion , down 139.8 % compared

to 2018 Equity over the years decreased , in 2017 reached 581 million, down to nearly 162 million in 2018 and more than 108 million in 2019 Therefore, both ROA and ROE are negative for all three years Specifically, two only of these respectively -0.80663 -0.08612 and in

2017, over 2018 plummeted and -2.59329 -0.21712 respectively By 2019, the future growth will be -0.03859 and -0.49149, respectively

Reasons for financial risk for the company : ROE during

2017-2018 decreased because of after-tax profit and sharp decline in equity In the period 2018-2019, this index increased again because of a sharp increase

in profit after tax and a slight decrease in equity This is similar to ROA

In summary, based on the table data above, we can briefly outline

the financial situation of Dana Sailing as follows: overall financial capability is not good, total assets over the years , However, business ability increases This is reflected in the increase in revenue over the years and a sharp increase in 2018 and 2019, but the profit is still negative, indicating that the business has not had a breakthrough business strategy and also incurred too many costs However, for newly established businesses, the above can still be considered as a desirable step forward

But to determine Dana S ailing steps for sustainable development,

we can not ignore the risk analysis to potential energy which is specific financial risks

Comment:

The management system of Dana Sailing mainly focuses on providing services , the components for business needs are organized and managed quite well, closely, ensuring customer requirements However, the business environment in the market as the current economy, one business is

7

still young , it should not extend too many services such as

a restaurant dining in the hotel

3.2 Analysing financial risk at Dana Sailing

3.2.1 Methods for detecting risks

Financial analysis

By analyzing asset balance sheets, business reports, and supporting documents, management believes that it is possible to identify any risk of

an organization's assets, liabilities, and Human Resources By combining these reports with financial forecasts and budget estimates, it is also possible to detect future risks The reason is that the organization's activities are ultimately tied to money or assets

Consult the managers in the hotel

The fourth way to identify organizational risks is through regular and systematic communication with other parts of the organization The communications include: Expand the interaction between managers and employees between departments, thereby gaining a full understanding of the activities as well as the possible losses from these activities

3.2.2 Control of risks

Avoid risk

One of the specific methods of risk control is to avoid the activities, people and assets that generate losses that may be caused by not acknowledging it in the first place or by eliminating the cause of the losses be admitted

 The first measure of risk avoidance is to actively avoid risk before it happens

 The second measure is eliminating the causes of risks

Planning to solve unexpected problems

8

Organize a planning team to gather skills, experience and opinions from many people Assessing the scope and impact of an incident means all things can happen under a bad situation Implement a contingency contingency plan to neutralize or contain every significant aspect of the crisis that may occur Communication is an important part of this plan

Insurance

Insurance for hotel items is purchased at Da Nang insurance company Insurance is an important part of a hotel's analysing financial risk processes program

3.2.3 Analyze financial risks through financial leverage

(Unit: dong)

Liabilities must pay 4,273,220,000 1,770,562,500 1,272,984,520 Asset 4,854,540,177 1,932,341,500 1,381,451,942 Debt ratio 88.03% 91.63% 92.15% Profit before tax (418,093,637) (419,541,177) (53,311,578)

ROE -0.80663 -2.59329 -0.49149

(Source: Calculation from financial statements)

Table 2.2 Effect of debt ratio on ROE From the table above, we can see that Dana Sailing has a very large proportion of debt in total assets, accounting for nearly 88.03 %

of total assets in 2017 and continues to increase in the following years, particularly in 2018 debt accounted for 91.63 % of total assets, by 2019, the debt ratio will increase to 92.15 %, an increase of 1.05 times compared

to the debt ratio in 2017 And also from the results in the table above, we

9

see that the use of debt has an impact on the rate of profit after tax profits

on equity ownership In 2017, the debt ratio was 88.03 %, the profitability ratio of after-tax profit on equity reached -8 0.66 % but by

2019 the debt ratio increased to 92.15 %, the profitability ratio of after-tax profit on total assets increased to -49.15 % This demonstrates that financial leverage has exerted its benefits in amplifying the profitability ratio of after-tax profit on total assets with a small change in debt usage But from 2017

to 2018, the increase in the debt ratio does not increase the profitability ratio

of after-tax profit to equity, but instead increase the profitability ratio of after-tax profit to equity reduced ownership The reason why the financial leverage does not promote its positive side is because the debt ratio is too large, accounting for over 4/5 of total assets, the pressure on debt cost of Dana Sailing is too great, despite the profit The number of businesses made

in 2018 increased compared to 2017 but the increase was too little, only increasing by 0.346% while in 2019 compared to 2018 increased by nearly

8 times However, due to the high cost of debt and other expenses, the profit that Dana Sailing made was not enough to offset it

The reason for the increase in debt ratio in this assets is that in 2018, Dana Sailing has brought in many other projects on services, whereby Dana Sailing needs a sizable amount of capital to implement these projects project on However, as it is known that borrowing activities are like a "double-edged sword", if the company does well in business, well controls the use of borrowed capital, and ensures profitability, the profit earned by the company is very high big; But if the loan does not work for the company, then facing many problems in which facing financial risks is natural and the business is in a difficult situation The year 2018 proved to increase the debt ratio but did not increase the profitability ratio of the after-tax profit to equity as the profit before after-tax of Dana Sailing increased this

10

year 2017 but ROE decreased At this time, with the change in profit before tax and financial leverage interest did not amplify the profitability ratio of after tax to equity but increased the risk for Dana Sailing This has made Dana Sailing difficult in its solvency, the seeds for financial risks to appear However, by 2019, Dana Sailing has effective business strategies to increase the profitability ratio of pre-tax profit to many times, so despite the debt ratio of Dana Sailing's total assets in 2019 have high, accounting for more than 2/3 of total assets but still make the profitability ratio of after-tax profit on equity increased To better determine the magnitude of the leverage, we analyze the following table

( Unit: dong)

EBT (418,093,637) (419,541,177) (53,311,578) Expenses Interest 103,558,356 18,794,904 0 Financial leverage 1.25 1.04 0

Table 2.3 Financial leverage of Dana Sailing for the period of 2017-2019

(Source: Calculation from financial statements)

By analyzing financial risks through financial leverage, we see that the influence of debt to the increase in profitability ratio of after-tax profit on equity is very large, Dana's financial leverage Sailing in the period

of 2017 to 2019 tended to decrease (without using financial leverage in 2019) but the nature of this decline on the one hand derives from the increase in revenue leading to the decrease in losses due to the The impact

of interest rates is great Through the above analysis, we can preliminarily evaluate that the financial leverage of enterprises in the past years has decreased and the actual level of financial risks is low