analyzing financial statement of vinamilk group

Vinamilk (Vietnam Dairy Products JSC) is the largest dairy company in Vietnam. Based on the UNDP 2007 Top 200 largest firms in Vietnam report, it is also the 15th largest company in Vietnam and the most valuable public company listed in Vietnam. In 2010, it is the first company in Vietnam to be included in the Forbes Asias 200 Best Under A Billion list that highlights 200 topperforming small and midsized companies with annual revenue under US1 billion.

Analyzing financial statement of Vinamilk Group 2

Principles of Accounting ( Đại học Đà Nẵng) Analyzing financial statement of Vinamilk Group 2

Principles of Accounting ( Đại học Đà Nẵng)

DA NANG UNIVERSITY

DA NANG UNIVERSITY OF ECONOMICS

ACCOUNTING FACULTY

FINANCIAL STATEMENT ANALYSIS:

VIETNAM DAIRY PRODUCTS JSC

Lecturer : Associate Professor Đoàn Ngọc Phi Anh

GROUP 2:

Lê Th ị Thuý Hằng: 42K18.2-CLC

Ph ạm Hà Lan Chi: 42K18.2-CLC

H ồ Thị Thuý Hà: 42K18.2-CLC Hoàng Thị Yến Nhi: KT42K18CT2.1-CLC

Da Nang, 04/2019

MỤC LỤC

I General information: 1

II Assets structure: 1

III Resource structure: 3

1 Financial autonomy: 3

2 Fund stability: 4

3 Financial balance: 5

IV The factors affecting the efficiency of using current assets: 6

V Operational efficiency: 7

1 Analysis of asset use efficiency: 7

2 Inventories turnover: 7

3 Customer accounts receivable turnover 8

4 Account payable turnover 9

5 Return on sales (ROS) 10

6 Return on assets (ROA) 10

7 Return on equity (ROE) 11

8 DuPont Analysis and factors affect ROE: 11

VI Analyzing financial risks and business risks in 3 financing options: 13

VII Analyze insolvency risk of enterprises: 13

1 Short-term liquidity risk: 13

2 Long-term solvency risk: 15

VIII Change depreciation method: 16

IX Evaluate the performance of enterprises through EVA: 17

X Conclusion: 19

I General information:

Vinamilk (Vietnam Dairy Products JSC) is the largest dairy company in Vietnam Based on the UNDP 2007 Top 200 largest firms in Vietnam report, it is also the 15th largest company in Vietnam and the most valuable public company listed in Vietnam In

2010, it is the first company in Vietnam to be included in the Forbes Asia's 200 Best Under A Billion list that highlights 200 top-performing small- and mid-sized companies with annual revenue under US$1 billion

The company was established in 1976 as the state-owned Southern Coffee-Dairy Company, to nationalize and take over the operations of three previously private dairy factories in South Vietnam: Thống Nhất (belonging to a Chinese company), Trường Thọ (formerly owned by Friesland Foods, best known for its production of condensed milk that was widely distributed across the South) and Dielac (Nestlé) It was renamed United Enterprises of Milk Coffee Cookies and Candies in 1978 It became the Vietnam Dairy Company, formally established in 1993 In 2003, following its IPO to the Ho Chi Minh Stock Exchange, the company legally changed its name to Vietnam Dairy Products Joint Stock Company (Vinamilk) The principal activities of the Vinamilk are to produce and distribute condensed milk, powdered milk, fresh milk, soya milk, yogurts, ice-cream, cheese, fruit juice, coffee and other products derived from milk

II Assets structure:

Contributed 18% share capital of APIS JSC as to expand and broaden goods supply chain of Vinamilk

Opened a respresentative office in Thailand

 2017: Cu Chi Raw Milk Center was went under operation

Invested in sugar industry by acquiring 65% share capital of Vietnam Sugar JSC (formerly known as Khanh Hoa Sugar JSC) and 25% share capital of Asia Coconut Processing JSC

results, the Company always maintained a high level of cash and managed this cash flow

in an effective and safe way The risk management policy was set up to ensure that term deposits were always at optimal levels of safety and flexibility in order to meet the Company's capital needs at all times

debts were incurred during the year The Company maintained a good policy on receivables management The amount of accounts receivable in 2017 increases nearly double compared to the previous year That because since mid-November 2017, the Company has changed its credit policy for domestic customers, in which the credit period was increased to support sales better This change led to an increase in receivables from customers

2017 compared to the previous year Because in 2017, The "Just in time" procurement strategy has been applied together with the optimization of inventory management and warehouse planning at the subordinate units that have brought about remarkable results in the Company’s inventory control, compared to the previous year

III Resource structure:

in the future However, the downside is that the company does not take advantage of financial leverage and loses the opportunity to save the tax from the use of debt

Healthy financial structure brings significant advantages for the Company in implementing M&A deals on a large scale

Debt ratios tend to increase over the years because in recent years, there are more big competitors such as TH True Milk, Nutifood and dozens of liquid milk brands imported from abroad This competitive pressure forces Vinamilk to increase its investment even further in order to keep its market dominance Vinamilk has very good cash flow generated from stable business operations, with high profit growth This is a platform for flexible implementation of business strategies, putting pressure on all competitors Market forces show that only foreign competitors are competitors that can threaten Vinamilk's position

Accompanying it is expanding exports to potential markets Vinamilk has factories overseas such as the US (owning 100% Driftwood factory in California state), Cambodia (owning 100% Angkormilk factory in Phnom Penh capital), and New Zealand (owning 22.8%) with 1 subsidiary in Poland The company's products have been exported to 43 countries around the world such as the US, Japan, Australia, Thailand, Myanmar, Bangladesh, countries in the Middle East region

2 Fund stability:

2015 2016 2017 (1) Current liabilites 5,563,657,738,579 6,233,534,218,272 9,111,522,890,254

(2) Non-current

liabilites

87,099,730,000 95,736,043,500 101,693,846,468

(3) Owner’s equity 20,357,790,425,048 21,793,934,083,022 23,296,356,600,948 (4) Permanent capital

= (2)+(3)

20,444,890,155,048 21,889,670,126,522 23,398,050,447,416

implemented a bonus share issuance policy for existing shareholders at the ratio of 5: 1, meaning each shareholder owns 5 shares will receive 1 additional issue share

There was a sharp increase in short-term account payables from 2015, 2016 to

2017 because of a sudden increase in other payables from 574,093,150,299 (2016) to 3,023,434,643,866 (2017) The reason is in 2017, Vinamilk pays a proportion of the

profit as a dividend to shareholders and in 2016, they didn’t This makes net working

capital required significantly increase, so net fund is improved

Company has sufficient capital to finance current assets Positive net funds

represent a safe financial balance because businesses do not have to borrow to offset the

shortage of net working capital needs so they do not meet difficulties in short-term

payment

IV The factors affecting the efficiency of using current assets:

Figures 2015 2016 2017 % changes

2016/2015 2017/2016 Average

Average current assets all increased over 3 years, specific in 2016 increased

10.53% compared to 2015, although still increases but in 2017 compared to in 2016

(9.46%) less than in 2016 compared to 2015

Net sales also increased each year, specific in 2016, it increased by 15.55%

compared to 2015, although it still increased but in 2017 compared to 2016 (8.44%) less

than in 2016 compared to 2015

Current assets use efficiency in 2017 was 2.58 and 2016 was 2.61 to show each

short-term asset of the company in turn generated 2.58 and 2.61 dong of revenue

We can see that Average day of current asset turnover in 2017 has decreased

compared to 2016 because the change of net sales percentage is less than the percentage

of Current Assets But overall, still larger than Average day of current asset turnover the

industry average

V Operational efficiency:

1 Analysis of asset use efficiency:

Figures 2015 2016 2017 % change

2016/2015 2017/2016 Average

demand and technological progress, offers many products with featured and benefits meet the customer's diverse need For foreign market, the presence in 43 countries and territories also brings a significant revenue

suggests that efficiency of assets use of company as well However, have a slight decrease compared to 2016

The market share: 5 main categories liquid milk, Powdered milk, Eating Yogurt, Drinking Yogurt and condensed milk all increased their market share compared to 2015 Specifically: milk increased 1.5% to 54.5%, eating yogurt increased 0.4% to 84.7% and drinking yogurt increases abruptly 1.9% to 33.9%

Total asset turn over of the industry average 1.27, this suggests that efficiency of assets use of company as well

2 Inventories turnover:

Targets 2015 2016 2017 Difference

2016/2015 2017/2016 Cost of

3 Customer accounts receivable turnover

Targets 2015.00 2016.00 2017.00 Difference

2016/2015 2017/2016 Net sales

37,913,499,514,763

43,809,126,381,210

47,506,683,942,486 15.55% 7.78%

The reason is that the growth rate of revenue (7.78%) is lower than the growth rate

of the average customer accounts receivable from customers (97.23%) in 2017 compared

to 2016 Since mid-November 2017, the company debt policy changes for domestic customers Accordingly, customer payment time is increased to support better sales This change has increased the customer accounts receivable and reduced the customer accounts receivable turnover The company considers this policy change to have a positive impact on the company and its receivables policies are effectively managed, creating a certain competitive advantage in the domestic market

4 Account payable turnover

22.470.518.366.089

22.522.706.121.326

24.244.098.117.020

The beginning

account payable

1.647.920.447.124 2.118.962.866.700 2.568.934.375.909

The endning

account payable

2.118.962.866.700 2.568.934.375.909 3.608.952.910.564

The average

account payable

1.883.441.656.912 2.343.948.621.305 3.088.943.643.237

Account payable

Account payable turnover decreases over 3 years

 The company is appropriating the seller's capital

The account receivables turnover is quite good and larger than the account

payables turnover

 The company is appropriating the capital of sellers rather than being appropriated

by customers This means that the company's short-term solvency is good, earning

customers' money before having to pay suppliers The company is able to secure money

for production and payment for sellers

5 Return on sales (ROS)

% change

16 Profit

before

tax

9,245,534,638,5

33

11,066,936,634,

605

12,496,851,735,

6 Return on assets (ROA)

Figures 2015 2016 2017 % change

2016/2015 2017/2016 Profit

before

tax

9,245,534,638,533

11,066,936,634,605

12,496,851,735,222 19.70% 12.92%

Average

total

assets

25,245,581,143,456

27,065,876,119,211

30,316,388,841,232 7.21% 12.01%

ROA 36.62% 40.89% 41.22% 4.27% 0.33%

Vinamilk's return on assets increased gradually over the years in the period of 2015-2017, every 100 dong of assets, 41.26 dong profits will be generated in 2017 Despite a positive change, the rate of increase has decreased over the years from 4.27%

to 0.33% The reason for this decline is that the growth rate of pre-tax profit is significantly lower than the average growth rate of total assets

Since ROA is affected by interest, so that comparisons are more accurate, we make RE comparisons

The table below shows the economic return on assets (RE):

11,066,936,634,605

12,496,851,735,222

Loan interest

expenses

13,936,351,072

29,633,689,355

12,869,222,222

EBIT

9,259,470,989,605

11,096,570,323,960

12,509,720,957,444

Average total

assets

25,245,581,143,456

27,065,876,119,211

30,316,388,841,232

6 Profit after

tax

7.677.375.711.774

9.245.370.494.638

10.545.161.872.454 20,42% 14,06%

Average

shareholder

equity

19.903.327.166.750

21.075.862.254.035

22.545.145.341.985 5,89% 6,97%

ROE 38,57% 43,87% 46,77% 5,29% 2,91%

ROE increased sharply over the years, from 38.57% in 2015 to 43.87% in 2016 and continued in 2017 to 46.77% Therefore, it can be seen that enterprises have efficiently used their capital and the resources brought to shareholders are increasing The financial performance of the business also increased

8 DuPont Analysis and factors affect ROE:

ROE is nearly twice as high as the industry average, in which the business performance of the company is nearly twice as high as that of the industry due to a significant increase in ROS compared to the industry

ROS is 26% is a huge profit / Sales ratio shows that the company is doing well and tends to dominate the market

Asset turnover of 1.6 is a little higher than the industry average; it is effective to use the company's assets in production and business activities In which inventories turnover approximates the industry average, the ability to manage goods is relatively good while the company's debt recovery rate is slightly lower than the industry average because the company is changing its selling policy Therefore, asset turnover increased due to fixed asset turnover likely higher than the industry average

The debt ratio of the company is double that of the industry average, showing that the company is using less debt instruments to finance its assets This has the positive side

of the ability to financial autonomy and the ability to borrow a high debt of the company,

however, the downside is that the company does not take advantage of financial leverage and lose the opportunity tax from the use of debt

With RE is 41.26% compared to loan interest rate that is less than 10%, the company should use more debt to amplify ROE

Conclusion:

In order to increase ROE efficiency, the company often focuses on increasing the efficiency of asset use to generate revenue (asset turnover) and ROS Asset turnover decreased slightly but this ratio is still higher than the average industry However, thanks

to the cost control, ROS increased sharply compared with to the industry which helped ROE rise dramatically

The company maintains the use of leverage at a safe level, hardly use loan capital From focuses on to high safety, the company pushed the tax burdens rise

VI Analyzing financial risks and business risks in 3 financing options:

In case of RE <i, the use of debt instruments will not be effective for the company

so in case of RE = 4.6%, option 1 will be the optimal option

Business risk is not affected by the capital structure, so the company's business risk in all three options is the same

VII Analyze insolvency risk of enterprises:

1 Short-term liquidity risk:

Figures 2015 2016 2017

Current assets 15,822,463,925,273 17,801,341,382,408 19,002,943,395,528

Current liabilities 6,004,316,835,213 6,233,534,218,272 9,111,522,890,254