FPT financial statement analysis of FPT corporation

By 2015, almost alltypes of short-term assets will increase, of which financial investments willincrease sharply with 83.23% including term deposits and other short-terminvestments, but

UNIVERSITY OF ECONOMICS – THE UNIVERSITY OF DANANG

THE FACULTY OF FINANCE

GROUP ASSIGNMENT Subject: FINANCIAL ANALYSIS

Topic: Financial statement analysis of FPT Corporation

Lecturer: Tran Thi Nga Presented by: Nguyen Cong Nu Quynh Anh

Tran Thuy Linh Thai Tran Thuy Tien

Da Nang, 4/2018

I OVERVIEW 6

1 The urgency of the topic 6

2 Objective of the topic 6

3 Objects and scope of the topic 6

3.1 Research object 6

3.2 Scope of research 6

4 Methods 6

II INTRODUCTION OF FPT 6

1 Structure of ownership 6

2 Normal production and business cycle 7

3 Operating industry and principal activities 7

III INDUSTRY ANALYSIS 7

1 Macro environment: 7

1.1 Legal factor 7

1.2 Economic factor 8

1.3 Social factor 9

1.4 Techonology factor 9

1.5 Demographic factor 9

1.6 Global factor 10

2 Industry – level analysis 10

2.1 Rivalry among existing firms 10

2.2 Threat of new entrants 11

2.3 Threat of substitute products 11

2.4 Bargaining power of buyers 11

2.5 Bargaining power of supplier 11

IV FINANCIAL STRUCTURE ANALYSIS 12

1 Assets structure analysis 12

2 Source of fund analysis 13

2.1 Financial autonomy 13

2.2 Funding stability 14

3 Financial balance analysis 14

3.1 Long-term financial balance 14

3.2 Short-term financial balance 14

V OPERATIONAL EFFICIENCY ANALYSIS 15

1 Asset use efficiency 15

2 Fixed asset turnover 15

3 Working capital turnover 16

4 Disaggregating working capital turnover 16

5 Return on Sales (ROS) 17

6 Return on Assets (ROA) 17

7 Disaggregating ROA 18

8 Return on assets variation 18

9 ROE 18

10 Impact factors to ROE 19

10.1 ROS, Assets turnover 19

10.2 Self-fund ratio 19

10.3 Debt to equity ratio 20

10.4 Interest coverage ratio (ICR) 20

11 Indicator from cash flow 21

11.1 Cash flow margin 21

11.2 Cash flow from operations to net income = CFO/(Net income) 21

11.3 Cash flow return on assets = CFO/(Total assets) 21

VI THE RISK ANALYSIS: 22

1 Business risk analysis 22

2 Financial risk analysis 22

3 Insolvency risk: 23

3.1 Current ratio: 23

3.2 Quick ratio or acid – test ratio: 23

3.3 Cash ratio: 24

3.4 Cash flow ratio: 24

3.5 Interest coverage ratio: 24

3.6 Inventory turnover: 25

3.7 Receivables turnover: 25

3.8 Altman Z-score: 26

VIII SUMMARISE AND CONCLUSION 27

1 Consultant and business manager 27

2 Suppliers and lenders 28

3 Investors 28

THE TABLE OF PICTURE Picture 1: Vietnam's economic growth 27

Picture 2: Gross dometic product 27

Picture 3: CPI of VietNam 28

Picture 4: Exchange rate 28

Picture 5: Revenues and expenditures of the state budget 29

Picture 6: Population Structure of Vietnam 29

Picture 7: Population growth rate 30

Picture 8: the level of R&D expenditure 30

Picture 9: Industry segment 31

Picture 10: phone retail market share 31

Picture 11: Telecom market share 32

LIST OF TABLES

Table 1: The difference in proportion of assets through 3 years 34

Table 2: The proportion of assets in total assets 34

Table 3: The proportion of liabilities and equity in total resources 35

Table 4: The proportion of short-term/ long-term resources in total resources 35

Table 5 35

Table 6 36

Table 7 36

Table 8: Calculate DOL 42

Table 9: Variance of DOL 42

Table 10: Calculate DFL 43

Table 11: Variance of DFL 43

Table 12: Calculate Current ratio 43

Table 13: Variance of Current Ratio 44

Table 14: Calculate Quick ratio 44

Table 15: Variance of Quick ratio 45

Table 16: Calculate Cash ratio 45

Table 17: Variance of Cash ratio 46

Table 18: Calculate Cash flow ratio 46

Table 19: Variance of Cash flow ratio 46

Table 20: Calculate Interest coverage ratio 47

Table 21: Variance of Interest coverage ratio 47

Table 22: Calculate Inventory turnover 47

Table 23: Variance of Inventory turnover 48

Table 24: Calculate Accounts receivable turnover 48

Table 25: Variance of Accounts receivable turnover 48

I OVERVIEW

1 The urgency of the topic

In today's market economy, any business that invests in or produces, also expectsthe capital they spend will bring the highest return In addition to the availableadvantages, the financial strength of the enterprise is the basis for a series of policies

to bring business to success Therefore, financial analysis is the best estimate of whathas been done, what is expected to happen, on that basis, propose measures to takefull advantage of the strengths and overcome the weakness

From that, providing information support to managers selected basis, decide theoptimal scheme for the operation of the business On the other hand, the financialsituation is also a concern of many subjects other than business owners, such asadministrators, investors, financiers; Each object is interested in corporate finance ondifferent angles to serve their field of management and investment Because of this,analyzing corporate financial situation is an indispensable part of corporate financemanagement, it has practical significance and is a long-term strategy

2 Objective of the topic

Throughout the research process, the topic focused on clarifying the followingobjectives:

- Revise the basis of the analysis of the financial situation of the business

- Analyzing, clarifying the actual situation of financial situation at FPTCorporation From that point of view, there are still problems in the financial analysis

at the Group and the causes of such problems

- Make predictions about the operational status as well as the company'sprospects for the future

3 Objects and scope of the topic

the first time by Hanoi Department of Planning and Investment dated 13 May 2002and its amendments

According to the amended Business Registration Certificate dated 19 December

2008, the Company changed its name from the Corporation for Financing andPromoting Technology to FPT Corporation

According to the latest amended Business Registration Certificate dated 26 June

2015, the Company’s total charter capital is VND 3,975,316,400,000

Since December 2006, the Company’s shares have been listed on Ho Chi MinhCity Stock Exchange

The number of employees of the Company as at 30 June 2016 was 208 (31December 2015: 179)

2 Normal production and business cycle

The Company’s normal production and business cycle is carried out for a time period of 12 months or less

3 Operating industry and principal activities

The principal activities of the Company are to provide information technology andtelecommunication products and services The main products and services providedare system integration; software production and development; IT services; ERPservices; IT product manufacturing and distribution; mobile phone distribution;software solution services; telecommunication and internet services; warranty andmaintenance of telecommunication and IT equipment and other telecommunicationservices

III INDUSTRY ANALYSIS

- The change in national information technology development strategy alongwith government funding for e-chemistry and technology programs can lead to asignificant reduction in the number of custumers

- The government's policy on training and utilizing human resources inincreasing scale and quality also has a significant impact on the company'sdevelopment plan.

- The Government adopts preferential tax policy to promote the developmentand application of information technology in Vietnam Details: 50% reduction ofpersonal income tax on salaries and wages of high technology individuals working inthe field of information technology For new investment projects in the field ofinformation technology that require special investment incentives provided by thegovernment, the tax rate of 10%

 Rating: Good (+) The legal politics of the country help production and business for FPT

1.2 Economic factor

Vietnam is a developing country with a market economy High growth rate andstability in recent years In addition, the economy is forecasted by experts to maintain7-8% growth in coming years In line with GDP growth, consumer trends have alsoincreased (Refer to Appendix 1 - Picture 1)

Contributing to the national economic growth largely came from the servicesector (73.7% in 2015) and industry (38.8% in 2015) (Refer to Appendix 1 - Picture2)

The inflation rate is relatively low, rising from 1-2% per year The pressure oninflation mainly comes from the public service price increase along with the petrol.(Refer to Appendix 1 - Picture 3)

Although the mobilizing interest rate remained stable and the lending interestrate was adjusted downward according to the policy issued by the State Bank ofVietnam on July 10, the capital of many commercial banks in Vietnam is alwaysstressful Thus, in parallel with the race to raise deposit rates, most banks alsoadjusted to raise lending rates or limit lending by barriers

Nominal rates continue to maintain a stable trend Inflation is relatively low,with the supply of foreign currencies plentiful because of the increase in both directand indirect foreign investment Together with the continued devaluation of the USdollar against other strong currencies, the pressure on the VND exchange rate inVietnam has significantly reduced (Refer to Appendix 1 - Picture 4)

State budget deficit over 100 trillion VND per year This fiscal policystimulates the economy (Refer to Appendix 1 - Picture 5)

The unemployment rate reached 4.5% (2012) ranked 40th globally

 Rating: Good (+) The economy together with the expanding serviceindustry market creates great opportunities for FPT businesses to increase their sales

Demand for commodities increases, making the market more open, however, thepressure from the devaluation of the USD made products from abroad morecompetitive than domestic products.

1.3 Social factor

Vietnam is the third most populous country in Southeast Asia with a youngpopulation (Refer to Appendix 1 - Picture 6)

The average life expectancy of the whole country in 2017 is 73,5 years

The population growth rate tends to decrease (Refer to Appendix 1 - Picture 7)Labor productivity in Vietnam is still low compared to many countries in theregion By purchasing power parity in 2011, Vietnam’s labor productivity in 2016reached $9894, equivalent to 7% of Singapore; 17,6% of Malaysia; 36,5% ofThailand; 42,3% of Indonesia; 56,7% of Philippines and equal to 87,4% of Laos’slabor productivity It is noteworthy that the difference in labor productivity betweenVietnam and other counties continues to increase

Health is improving Vietnam’s current health sector is being financed bymany international organizations for ODA and NGO funds By 2010 the Ministry ofHealth is administering 62 ODA projects and more than 100 NGO projects withmore 1 billion USD, projects are distributed throughout region

 Rating: Bad(-) Although the ability to learn and technology integration ofVietnamese people is very high, but the tendency to change the requirements ofenterprises operating in this industry must always change to catch up with the coin.This makes it difficult to improve the technology of FPT enterprises In addition, therate of population growth gradually decreases in the future

1.4 Techonology factor

With the rapid development of the information technology industry today lead

to the product life cycle is relatively short, requiring manufacturers to constantlyresearch and develop to meet the needs of consumers

According to World Bank report, the level of R&D expenditure for Vietnameseenterprises is lower than that of Cambodia and the top lowest in the Southeast Asianregion Accordingly, business spend only 1,6% of their annual revenue on R&D.(Refer to Appendix 1 - Picture 8)

 Rating: Bad(-) The poor condition of the R & D system has led to thedevelopment of businesses that are still limited, rigid and wasteful resources

1.5 Demographic factor

 Total population: 93,7 million people ( 2017)

 Sex ratio: 97.3 males per 100 females

 People living in urban areas: 32,9 million people (accounting for 35,1% ofthe national population)

Vietnam has 54 ethnic groups, most of them are Kinh people, accounting fornearly 86%, concentrated in deltas and coastal plains The remaining 53 ethnicgroups are ethnic minorities, accounting for about 14% of the total population of thecountry, most of which are concentrated in mountainous and highland areas

Languages: Vietnamese is a popular language, and English is graduallybecoming a secondary language

Vietnamese education is now trying to integrate with countries in SoutheastAsia and in the world There are five levels of education in Vietnam: primary, lowersecondary, upper secondary, tertiary and postgraduate

 Rating: good (+) The large population with high level and ability tointegrate create a dynamic environment for FPT

 Rating: bad (-) diversified penetration of international brands makes FPT'smarket share narrow Besides, the high competitiveness from the Chinese products atsuper cheap prices put pressure on FPT

2 Industry – level analysis

2.1 Rivalry among existing firms

The demand of customers increasing in information technology such asinternet, computer, mobile, software leading to the industry need to be expandedand enhanced to meet the needs of the market As a result, the size of the sector isexpanding and growing, leading to a reduction in competition among enterprises inthe industry (Refer to Appendix 1 - Picture 9)

The high concentration of information technology makes the industry morecompetitive However, FPT still holds a large market share

In the mobile phone market, FPT ranked second after mobile world with 10%market share The reason is that the number of mobile retail stores in the world istwice as high as that of FPT (Refer to Appendix 1 - Picture 10)

In the telecoms sector, FPT growth from a 6% share of the market in 2014increased to 25% by 2015 and gradually narrowed the gap with the remaining

FPT is a relatively strong information technology company in Vietnam, with alarge amount of investment in backing and policy support to develop from the state,

so it is not an easy option to withdraw from the industry

2.2 Threat of new entrants

FPT has the advantage of having access to resources FPT was selected byMicrosoft as the first strategic partner in Asia to provide high quality solutions tolocal and regional businesses in Asia

FPT is the official distribution channel and the authorized service provider oftwo leading mobile brands, Samsung and Motorola However, mobile distribution is

a volatile business area, even small fluctuations can put pressure on the business

To reduce the pressure from potential competitors, FPT has adopted adifferentiated product strategy, pioneering the Internet television service, andwireless internet FPT is the only provider of this service in Vietnam

2.3 Threat of substitute products

Alternative product is one of the important factors affecting the consumption ofFPT products Development techniques will create more likely to appear alternativeproducts However, this information technology is taking a very important position

so it is difficult to replace them Therefore the pressure from alternative products toFPT is not great

But some areas such as digital television, or the media also play an importantrole in providing information that makes information technology such as FPT socautious

2.4 Bargaining power of buyers

In the network economy, especially through the Internet, transaction andconversions costs are down Information mismatches between customers andsuppliers, between different sectors are minimized, and it is approached faster, moredetailed and more objective Customers have more choices that create the power ofcustomer negotiation Therefore, the pressure of customers on FPT is very big,forcing FPT to diversify its products and reduce the price of its products so that it cancompete with other suppliers

2.5 Bargaining power of supplier

As the Vietnamese market has not developed yet, the suppliers of raw materialsfor FPT have not much and dispersed, especially with many materials imported fromabroad Therefore, FPT has difficulties in producing

Suppliers offer a wide range of products, quality and price Therefore, if FPTwould like to have high quality products , they spent high cost In addition, each rawmaterial has to be imported from different suppliers so the cost to spend is quite large

to have enough raw material for production

In cases where it is difficult to convert the supplier to continue production, thetransition period costs more

These have created disadvantages and difficulties for FPT for suppliers

IV FINANCIAL STRUCTURE ANALYSIS

1 Assets structure analysis

According to the data analysis (Appendix 2 – Table 1), we see that the total assetsize increases gradually over the years with a relatively stable level, about 14%.Specifically, in 2015, total assets are 26,045,588,544,428, an increase of 14.95%compared to that of 2014 and 2016 of 29,833,261,814,151, an increase of 14.54%against 2015 This increase shows that FPT is constantly expanding its investment inassets However, by 2016, the company has made minor adjustments to this item,which explains why we have to look at specific assets

- In terms of short-term assets, FPT invested more than 2,000 billion VND peryear, 2016 is expected to invest more in 2015 with 2.1% By 2015, almost alltypes of short-term assets will increase, of which financial investments willincrease sharply with 83.23% (including term deposits and other short-terminvestments), but cash and cash equivalents decreased by 17.33% (bank depositsand cash equivalents decreased), which may be due to expansion of someactivities in the foreign sector by 2015 In 2016, cash and cash equivalentsincreased sharply (67.75%) as FPT focused on cash to expand its operations, butinventories and other assets fell to around 1% in turn, 13.56% and 37.11%, thisdoes not prove that enterprises have problems in management, FPT has adjustedits goods according to their business situation in accordance with the field,business season of the company you

- Long-term assets of the company also increase each year, but this change issmaller than in 2016 Accounts receivable remained relatively stable thanks tothe rational management of the company, fixed assets increased sharply By

2015, FPT will begin to implement its expansion plans, requiring more of theseassets By 2016, this activity will continue but with a smaller investment base for

2015 The increase in assets is noteworthy for manufacturing and retailbusinesses, but FPT has reduced its its long-term investment in 2015 with10.08% (withdrawing investment in other units, increasing long-term investmentreserve)

Considering the proportion of assets in total assets (Appendix 2 – Table 2), we cansee that the proportion of these assets has remained relatively stable over the years.Short-term assets have a high proportion over the years, in 2015 slightly reducedbecause enterprises use it to invest in long-term assets, the business is expanding itsbusiness Non-business assets such as short-term and long-term financial investmentincreased but accounted for a small proportion This shows that besides the uncle inthe production business, enterprises are also interested in investing outside to bringmaximum profits for businesses The density of each type of asset is managed anddistributed appropriately for retail and wholesale enterprises such as FPT Largeamounts of cash, inventory, receivables and fixed assets (more than 14%) FPTresearches, develops and manufactures products that require large amounts of fixedassets In addition, wholesalers and retailers are required to stock up their inventoriesand cash to meet the needs of rapid exchange of large amounts of customer debt thatattracts the participation of customers who have low capital.

2 Source of fund analysis

According to Table 3 in Appendix 2, corporate capital increases each year due tothe increase of both equity and debt, total resources is 22,658,343,950,733 in 2014,achieved 26,045,588,544,428 in 2015 and increased with 14.54% in 2016 Debt ratiomust increase slightly each year while equity decreases (about 1% per year) Thisfluctuation is due to the adjustment of the goodwill arising from the business merger,the investment transaction, the increase in the ownership ratio, increase of liabilities…However, the debt accounted for a large proportion over the three years, averagingabout 60% of total resources

2.1 Financial autonomy

From 2014 to 2016, capital size of enterprise is expanded, capital is mostlyfinanced by debt and tends to increase over the years This shows that the enterprise isincreasingly borrowing to expand production and business The business is dependent

on externalities and the level of financial independence of the business is low but inorder to consider clearly, we need continue to analysis debt/equity ratio

Debt ratio is a solvency ratio that measures a firm’s total liabilities as apercentage of its total assets In a sense, the debt ratio shows a company’s ability topay off its liabilities with its assets In other words, this shows FPT need average of

60 dong assets must sell in order to pay off all of its liabilities This ratio measures thefinancial leverage of FPT was use optimal That means company had quite high levels

of liabilities compared with assets are considered highly leveraged and more risky forlenders

Self-Fund Ratio is a term that indicates the enterprise’s ability to finance

planned investments from its own resources With percentage of ratio was around

40%, it is quite nice for FPT, they didn’t have enough money to investment but they

had enough of the self-fund sources which could help them a lot in case of the

blockage or non-availability of the funding and finances

If we consider debt/ equity ratio, this ratio is reasonable when FPT using debt

and equity to operations, it was maintained around 1.5 FPT had a higher debt to

equity ratio indicates that more creditor financing (bank loans) is used than investor

financing (shareholders) With the actual situation of the company, we can see they

consider the proper estimate of the self-financing patterns so that there may not be any

problem afterwards

2.2 Funding stability

Accoringding to Table 4 in Appendix 2, the proportion of short-term capital

increased gradually over the years shows that the company's self-control tendency is

gradually reduced The company is borrowing more to finance its assets

3 Financial balance analysis

3.1 Long-term financial balance

NWC=Long term resources−Non−current assets

NWC 3,739,200,965,743 3,991,454,812,006 4,476,257,267,886

Net working capital has positive and increased over the years from 2014 to

2016 showed that long-term financial balance of company is good and safe because

regular funding> long-term assets Regular corporate funding is not only enough to

finance long-term assets but also partly for short-term assets The business operation

of the business is not interrupted and the ability to pay high (Refer to Appendix 2 –

Table 5)

3.2 Short-term financial balance

Net working requirement=Inventories+Short term account receivables∧ohther currentassets−short term liabilities (excluding interest bearingliabilities)

In 2014 and 2015, the value of Net fund < 0 => The net working capitalrequirement of company bigger than net working capital So, company has to borrowmoney in the short-term to meet the needs of fundin The financial inblance in theshort-term in this case

In 2016, the value of Net fun > 0 => The net working capital meets the capitalneeds in the short-term The excess can be used to investment in the high liquidsecuriries in order to increase the efficiency of employed capital The short termfinancial balance is well (Refer to Appendix 2 – Table 6 & 7)

V.OPERATIONAL EFFICIENCY ANALYSIS

1 Asset use efficiency

Assets turnover = Totalsales∧revenues Average total assets

2014 2015 2016 (2015)- (2014) (2016)- (2015) Asset use

The asset use efficiency also represents the capacity of business management Howmany dong of net sales and revenue can be generated using one dong of investedassets The higher the asset turnover ratio, the better the company is performing ForFPT, we can be seen the average asset turnover is 1.56 loops, which means that 1.56dong of net sales and revenue can be generated using 1 dong of invested assets Theratio has been quite low Over the years, the difference level between assets turnover

in 2015 and 2014 is smaller than that between in 2016 and 2015 This proves that theassets of Fpt corporation are slow to move because it has a large amount of inventoryand work in progress, besides that the number of working in progress have risenduring three years

2 Fixed asset turnover

Fixed assets use efficiency 6.2202 5.6518 4.8485 5.57

How many dong of net sales can be generated using one dong of invested fixedassets The higher ratio, the better the asset, and the higher the efficiency of thebusiness Fpt generated 1 dong of net sales from 5.57 dong of invested fixed asset.The data shows the effective used of fixed assets in their operation However, the ratiothere was a slight decrease in ratios, dropped from 6.2202 (2014) to 5.6518 (2015)and 4.8485 (2016) This can be explained by high amount of fixed asset increases

every year (FPT continuous expansion of production, researching technology so theyhave a high percentage of invested intangible assets)

3 Working capital turnover

It is synonymous with days of working capital turnover is very high, FPT neededmore than 160 days and nearly 200 days it takes for a company to convert its workingcapital into net sales From 2014 to 2016, Corporation had to bear the working capitalwastage This number shows that net sales wastage has quadrupled between 2015 and

2016 (from 465,942,017,616 up to 1,861,309,918,449)

4 Disaggregating working capital turnover

Delta H working capital = H working capital of subject - H working capital of base yearDelta H working capital = Delta net sales + Delta working capital(*)

With Delta net sales = Net sales of subject year WC of base year - Net sales of base year WC of base year

Delta working capital = Average Net sales

¿assets¿ - Average Net sales

¿assets¿

Delta H working capital -0.0574 -0.1939

Delta working capital -0.41294 -0.2820

The table shows that Working capital turnover ratio decreased over three years, thatmeans Delta H working capital was less than 0 (-0.0564 in 2015 and -0.1939 in 2016),

the decline was increasing if we compared 2015 with 2016, it may be becauseworking capital was used inefficiently From formula (*), we can be seen, Delta Hworking capital is under influence of Delta net sales and Delta working capital, so wewill consider net sales and average working capital annual carefully

Firstly compare 2015 with 2014, Net sales climbed with 0.3558, working capitaluse efficiency with 0.3558 (1) Average working capital decrease 0.41294 so workingcapital use inefficiency with 0.41294 (2) To combine (1) and (2), Working capitalturnover fallen with 0.0574 times Secondly, we examine the data of 2016, Delta netsales is 0.0881 and Delta working capital is -0.2820, so Delta H working capital is -0.1939 Similar above case, changes of two factors lead to decrease of Workingcapital turnover (0.1939 times)

5 Return on Sales (ROS)

ROS = Totalsales∧revenues Profit beforetax *100%

ROS is a financial ratio that calculates how efficiently a company is at generatingprofits from its revenue Investors and creditors are interested in this efficiency ratiobecause it shows the percentage of money that the company actually makes on itsrevenues during a period In 2015, the ratio had a small decrease but it was back tohigher percentage (at 7.5012%) in 2016 (higher than 2014) The ROS ratio of FPTwere maintained a quite stable rate, more than 7% It shows how well FPTcorporation is producing its core products or services and how well the managementteams are running it.s In 2015, the cost of expanding overseas markets lead to adecrease in ROS, and in 2016 the cost would be reduced with a better managementplan, the basic extension was completed

6 Return on Assets (ROA)

ROA = Average total assets Profit before tax *100%

ROA 12.2262% 11.7081% 10.7873%

Return on assets (ROA) is an indicator of how profitable a company is relative toits total assets ROA gives a manager, investor, or analyst an idea as to how efficient acompany's management is at using its assets to generate earnings The data of tablegives the information about return on assets of FPT corporation Over the year theratio is quite high in the same industry, more than 10% We can be seen that 100 dong

of invested assets to generated 12.2262 dong of profit before tax in 2014, 11.7081dong in 2015 and 2016 with 10.7873 dong of earnings That means, FPT’s assetefficiency is quite good The factor went down slightly during a period but may be

there isn’t a decline of the company’s asset management because FPT’s total assetrisen by invested fixed asset, increase of inventory, … (data from balance sheet ofFPT can be shown these)

7 Disaggregating ROA

ROA = Net sales∧revenues EBT X Net sales∧revenues

Average total assets = ROS x AT

In order to make an examination of ROA fluctuation, we will concentrate ROS and

AT during a period (according to Dupont system) In 2015, ROA dropped with0.5181%, using of Assets isn’t effective than 2014 This change is cultivated by 2factors: ROS of FPT go down slightly with 0.0177%, that means Company declinedability of control their costs; Assets turnover fall 0.07 times, explain product of assetsdidn’t improve Similar 2015, ROA continued to decline in 2016 but their costsgradually improve (ROS is 7.5012%), they focus on increasing sales whileincrementally increasing expenses, or it can focus on decreasing expenses whilemaintaining or increasing revenue Assets turnover only reach a lower point of 1.4381times

8 Return on assets variation

RE = Profit before tax+interest expense Average total assets ∗100 %

2015 Next to 2016, variance is 2 dong for 100 dong of invested assets That meansinterest and tax influence the return on assets of FPT From balance sheet, interestexpenses risen about 100 million annual, Income tax expense – deferred in 2016 isbetter than 2 years (it was positive when 2014 and 2015 were negative)

9 ROE

ROE = Average shareholder equity Profit after tax ∗100 %

ROE 27.4980% 25.0830% 23.8155%

Return on equity measures a corporation's profitability by revealing how muchprofit a company generates with the money shareholders have invested In otherwords, the return on equity ratio shows how much profit 100 dong of commonstockholders’ equity generates ROE ratio of FPT reduced from 2014 to 2016, about2% annual but it still had a larger percentage, more than 20% With the high return onequity, it shows that the efficiency the FPT’s operations are making use of thosefunds Specifically, in 2014, 100 dong of common stockholders’ equity generates27.4980 dong of net income; 2015 with 25.0830 dong and 2016 created 23.8155dong We can see a high return on equity ratio of FPT, this indicates that the company

is using its investors’ funds effectively Higher ratios are almost always better thanlower ratios, when we compared to other companies’ ratios in the industry, this ratio

is quite good

10 Impact factors to ROE

10.1.ROS, Assets turnover

ROE = ROS * Assets turnover * Total average assets Totalaverage equity * (1-T)

10.2.Self-fund ratio

ROE = Profit before tax∗(1−T )

Total average assets *self −fund ratio1

Profit after tax/ total assets 10.3365% 10.0119% 9.2188%

Self-fund ratio is the procedure in which the company or an individual spendshis own money for the completion of ongoing projects in case of unavailability offunding sources Over the years, Total assets and owner’s equity increased, but level

of change was different so self-fund ratio is highest in 2015 and reduced slightly in

2016 the value is less than 1, the investments will need funds from an external sourcebut FPT company control ratio efficiently (maintained an average of around 0.387),they have enough of the self-financing sources which could help them a lot in case ofthe blockage or non-availability of the funding and finances Self-fund ratio isnegative if we compare them with ROE, that lead to a complete change of direction ofROE and ratio But it wasn’t exact in 2016, 1/ self-fund ratio risen about 0.078(internal financial potential of the company declined slightly) while profit after tax/total assets reduced 0.7930%, so ROE continued decreased at 23.8155%

10.3.Debt to equity ratio

ROE= [debt to equity ratio*(RE-r) + RE] * (1-T)

of FPT company is higher than interest rare (RE > r) and ROE > RE(1-T) over thethree years, that means financial leverage of PFT were positive FPT control theirresources is good and use leverage is effective With this analysis, FPT can continueborrow money in order to receive effect of financial leverage

10.4.Interest coverage ratio (ICR)

ROE = (1 - ICR1 ) * (1 – T) * RE * (1+debt/equity)

money to invested foreign markets, research new software This index works in thesame direction as ROE, that means a decrease of ICR lead to a slope of ROE In 2015,Delta of ROE was – 2.4150% while delta of ICR was -3.9384 and in 2016 these ratioswere -1.2675% and -2.8069, that said being FPT added their debt, interest expensesrisen too, they improve benefit of leverage for their operations Clearly, a smallreduce of ICR, a small change of ROE this indicates that the company is using itsinvestors’ funds less effectively.

11 Indicator from cash flow

11.1.Cash flow margin

is just as important as profit to a business firm Potential investors will be payingattention to this metric to gauge the profitability and financial standing of yourbusiness compared to your competitors From 2014 and 2015, net sales increasedsignificantly but Cash flow from operations of FPT was small, so CF margin wentdown slightly, about 0.5% Then, in 2016, this situation has improved and ratioincreased quickly at 10.9069% (It is three times higher than in 2015), that’s anindication that they are getting better and better at converting earnings from sales intoactual cash flow (Cash flow reached a peak of over 4000 billion)

11.2.Cash flow from operations to net income = CFO/(Net income)

CFO 1,151,039,821,400 1,155,885,029,814 4,311,658,493,292Net income 2,459,224,202,037 2,851,148,827,721 3,013,898,666,241

Similar cash flow margin ratio, Cash flow from operations to net income ratioexpresses the relationship between cash generated from net income Between 2014and 2016, net income went up slightly when CFO risen high amount in 2016, so theratio fluctuated impression The decrease of ratio in 2015 isn’t important because FPTimproved situation very rapidly The reason may be FPT spend money to research anddevelop their products, and then they could adjust operations of them (i.e in 2015,FPT continues to travel abroad by receiving NFSI license, providing

telecommunication services in Myanmar FPT is the only foreign company licensed todate in the country)

11.3.Cash flow return on assets = CFO/(Total assets)

of cash ROA, (Delta = -1.2459%) FPT has researched products and services so theyinvested a lot of money for assets while earning from CFO isn’t not too much Next to

2016, CFO increased quickly (because of a lot of reasons) and average total assetsrisen amount equal 2015, so ratio was very higher A high percentage of cash return

on assets is especially necessary in FPT corporation - an asset-heavy environment(such as any manufacturing industry), where the cash is needed to maintain, update,and invest in additional assets

VI.THE RISK ANALYSIS:

1 Business risk analysis

The degree of operating leverage:

DOL = % change in operating profit = Total CM

% change in sales Total CM - TFC

The operating leverage ratio over the years have increased, respectively 2.68, 2.69,2.87 through 2014,2015 and 2016, which means that 1% of change in revenue will ledthe EBIT fluctuate 2.68%, 2.69%, 2.87% We can be seen from the table above that in

2016, DOL is highest This shows that the level of company's risk has increasedcompared with the past 2 years Increasing the DOL means increasing the businessrisk that the company incurs Besides, fixed costs of FPT through 3 years also riseshows that the company invests more in long - term assets and ability to leave theindustry lower

2 Financial risk analysis

DFL = Profit before tax + interest expense

Profit before tax

The degree of financial leverage (DFL) measures the sentivity of a company’s ROE

to fluctuations in its operating income, as a result of changes in its capital structure Itcan be seen that this ratio of FPT increased through the years This is because thecompany's interest expense rised at a higher level than pre-tax-and-interest profit Butoverall, the degree of financial leverage of company in all 3 years was more than 1,which means that FPT has the ability to borrow to expand its business

as it is still over 1, short-term assets are still able to afford short-term debt

The trend of reducing the current ratio of enterprises shows two things, thegood point is that this shows that enterprises do not invest too much in current assetsand the number of current assets which do not generate this revenue will decrease =>Enterprise uses capital more efficiently But, on the other hand, if this trend continuesdecreasing in the next years, it is alarming as it makes shorten solvency and increasesthe financial risk

3.2 Quick ratio or acid – test ratio:

Quick ratio= Current assets−Inventories−Other current assets

term assets that can be used immediately by FPT are insufficient to cover term debt Enterprises should consider minimizing inventory to avoid the risk ofpaying short-term debt resulting in a reduction in the company's reputation.

short-To see the liquidity problems of the company, we compare two current ratioand quick liquidity FPT has current ratio which is not so low but its acid - test ratio isquite low This is due to the high value of inventories and illiquid short-term assets ofthe company accounting for a high proportion in current assets

Based on the data from the table above, we see that the cash ratio of FPTfluctuates over the years In 2014, this ratio was 0,33 times, which means that 1 dong

of short - term debt of company is guaranteed by 0,33 dong cash and cash equivalents

In 2015, this ratio reduced to 0,24 times The reason is that short-term debt increased

by 13.35% while cash and cash equivalents decreased by 20.97%

But in 2016, cash ratio of company increased to 0,35 times Because FPT haschanged holding policy which kept more cash, and then make cash and cashequivalents rised to 40,39% while non-current liabilities only increased 14,13%

Compared to the minimum cash ratio standard, we can see that over the past 3years, this ratio of FPT is quite low, indicating that the company makes use of theopportunity to make profit by cash, not let cash idle However, if financial capacity isnot ensured, the company can't meet the payment demand when it arises and will facepressure on payment risk

3.4 Cash flow ratio:

Cash flow ratio= Net cash flow operations

Current liabilities

Based on the table above, we see that the cash flow ratio changes over theyears In 2014, this ratio was 0,089 times and in 2015, it reduced slightly to 0,077times But in 2016, it increased sharply to 0,247 times The reason of this rise was due

to the net cash flow from operating activities increased dramatically (73,19%) whileshort - term debt rised only 14,12%

This ratio over the years was less than 1, which indicates that the company didnot always have sufficient funds to cover the debt and and cater to their business FPTshould have solutions to solve timely.

3.5 Interest coverage ratio:

Interest coverage ratio= Profit before tax+interest expense

Interest expense

Interest coverage ratio reflects the ability of the company in paying interests onloans from profitability of business operations This ratio shows the relationshipbetween the company's interest expenses and profit before tax and interest, whichhelps to assess whether the company is able to pay interest Interest expense is a costthat a business must pass if they do not want to fall into the risk of bankrupcty In

2014, this ratio of the company was 15,79 This means that FPT generated a pretaxprofit which is 15,79 times the interest expense Thus, the ability to pay interest of thecompany was quite good, because every 1 dong of interest expense, the company had15,79 dong of profit from business activities which can be used to pay But over theyears, the ratio decreased This decline was due to the fact that the interest expenseincreased higher than the company's pre-tax-and-interest profits (11,86 in 2015 and9,06 in 2016)

However, this ratio was still greater than 1, indicating that FPT's ability to payinterest and principal is fairly safe

Inventory turnover shows that how many turnovers inventories turn in a givenperiod to generate revenue Inventory turnover period indicate how many days thecompany's inventories have been spent and measure the liquidity of inventories It can

be seen that inventory turnover of FPT has slightly fluctuated over the years In 2014,the inventory turnover of company was 6,7, which means that in this year, inventoriesturned 6,7 times to generate revenue for the business By 2015, the number of roundsdropped to 6,19 The reason is that the cost of goods sold of company increased at ahigher level than the average inventories But by 2016, this number increased softly to6,33 rounds However, the inventory turnover as well as inventory turnover period ofFPT was at relatively high In fact, FPT has main business in information and