Tài liệu The impact of globalization on vietnamese company’s financial performance a case study of lang son cement company (lcc)

The Impact of Globalization on Vietnamese company’s financial performance: A Case Study of Lang Son Cement Company (LCC) BY TA THI PHUONG THU E0700062 Graduation Project Submitted to the Department of Business Studies, HELP University College, in Partial Fulfillment of the Requirements for the Degree of Bachelor of Business (Accounting) Hons APRIL 2011 i Declaration of Originality and Word Count DECLARATION I here by declare that this graduation project is based on my original work except for quotations and citation which have been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other courses/degrees at HELP University College or other institutions. The word Count is 10,007 words. TA THI PHUONG THU 28 March, 2011 ii Acknowledgement This project would not have been made possible without the assistance, support and encouragement of many people. I wish to take this opportunity to thank all the people who have helped me during the time of completing the dissertation. Firstly, I would like to express my deep gratitude to my supervisor Dr. Dao Thi Thu Giang at the Foreign Trade University (FTU) of Viet Nam . SHe has kindly helped me and supported me all the way through. For that, I am very grateful. I also would like to express my thank to Ms. Sumathi at Help University College, who initiated the project and give so much instruction and support. TA THI PHUONG THU iii Abstract THE IMPACT OF GLOBALIZATION ON VIETNAMESE COMPANY’S FINANCIAL PERFORMANCE: A CASE STUDY OF LANG SON CEMENT COMPANY (LCC) BY TA THI PHUONG THU March 2011 Supervisor: Dr. Dao Thi Thu Giang Globalization is not new trend in the world but is still new in Vietnam. Vietnam is one of the developing countries, so the impact of globalization on Vietnam‟s economy has many things to discuss. The objective of the research is to assess the understanding of globalization trend and its effect on Vietnamese company‟s financial activities. Besides, the research also wants to show the role of the financial analysis in its investment strategies and good financial planning of the board of management. In this research, Lang Son Cement Company is taken as a typical case study that goes through my study. iv TABLE OF CONTENT Declaration of Originality and Word Count………………………………………...ii DECLARATION……………………………………………………………………ii Acknowledgement…………………………………………………………………...iii Abtract……………………………………………………………………………….iv TABLE CONTENT………………………………………………………………….v LIST OF FIGURES AND TABLES………………………………………………vii LIST OF ABBREVIATIONS……………………………………………………..viii CHAPTER 1: INTRODUCTION………………………………………………….1 1.1 Introduction…………………………………………………………….........2 1.2 Need for research…………………………………………………………....3 1.3 Elements of the research……………………………………………………3 1.4 Scope of research……………………………………………………………3 1.5 Assumptions…………………………………………………………………4 1.6 Plan of presentation…………………………………………………………4 CHAPTER 2: LITERATURE REVIEW…………………………………………..5 2.1 A general look at financial statement………………………………………6 2.2 The general approach applied in analysis of financial statement………..7 2.3 The nature of globalization………………………………………………..17 2.4 The impact of globalization on the financial performance of Vietnamese’s company; a typical example is LCC’s financial performance…..18 CHAPTER III: RESEARCH METHODOLOGY……………………………….20 3.1 Research objective…………………………………………………………21 3.2 Research strategy…………………………………………………………..21 3.3 Research hypothesis………………………………………………………..21 3.4 Research methodology……………………………………………………..26 3.5 Data sources and sampling………………………………………………...26 3.6 Limitation of research..................................................................................27 CHAPTER IV: ANALYSIS……………………………………………………….28 4.1 Results Analysis…………………………………………………………….29 4.2 Discussion…………………………………………………………………...34 v CHAPTER 5: CONCLUSION…………………………………………………….36 5.1 Implication of research…………………………………………………….36 5.2 Conclusion………………………………………………………………….36 Bibliography………………………………………………………………………..38 Appendices………………………………………………………………………….39 vi LIST OF FIGURES AND TABLES Figure 1. The Du Pont system of financial analysis model ......................................... 26 Table 1 : The liquidity ratio .......................................................................................... 31 Table 2 : Asset – Management ratios ........................................................................... 33 Table 3 : Financial – leverage ratios ............................................................................ 35 Table 4 : Profitability ratios .......................................................................................... 36 vii LIST OF ABBREVIATIONS LCC Lang Son Cement Company WTO World Trade Organization BEP Breakeven point viii CHAPTER I: INTRODUCTION 1.1 Introduction 1.2 Need for Research 1.3 Elements of the Research 1.4 Scope of Research 1.5 Assumptions 1.6 Plan of Presentation 1 1.1 – Introduction To begin my task, I will talk about the meaning of globalization. Globalization is considered as “a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. This process has effects on the environment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world.”1 Globalization has a strong effect on the Vietnamese company‟s financial performance. As you can see, companies should prepare their annual financial statements in order to measure the benefit rate after each financial year. Reviewing and assessing financial information bring about an understanding of a company‟s strengths and weaknesses, how its annual plan has been carried out and what investment effect level its plan implementation results in. This activity will make an impact on its investment strategies and good financial planning. As can be seen, the financial statement of a company is based on financial facts but can be influenced by its management and may cause misstatements or fraud in them. Therefore, the purpose of this paper is to revise and reanalyze the 2007 and 2008 financial statements of Lang Son Cement Company (LCC) in order to assess and make a comparison of financial activities between 2007 and 2008. From this analysis of financial statements, suggestions and proposals about investment, financial statements can be submitted to LCC to have an improvement of financial statement preparation. 1 http://www.globalization101.org/What_is_Globalization.html 2 1.2 Need for research Today, the competitive world of business is so high; the analysis of a financial statement takes an important role in business activities of a company. Because any company also need an improvement of financial statement preparation to attract the investments from other investors or cooperation from other companies. Moreover, the business results are also reviewed and assessed to show the positive and negative aspects in financial situation. This research‟s purpose is to provide the better information to managers that can help them to understand the overall the positive indirect impact of globalization on Vietnamese‟s financial statement in general and impact on the financial situation of Lang Son Cement Company (LCC) in particular. 1.3 Elements of the research 1.3.1 Research question How can globalization affect on the Vietnamese company in general and LCC in particular? How financial statements of LCC have been prepared? And does investment results in benefit? 1.4 Scope of research The scope of this thesis is to reanalyze and to identify frauds and misstatements which are normally caused in financial statement preparation in a company. In the context of economic globalization and crisis in the past few years, companies in Vietnam meet multiple challenges; they prove their business activities to be productive and beneficial, survive in global crisis. LCC also suffers these influences 3 and still survive. The question of whether or not a financial support from the government has been provided or LCC has saved itself needs to be investigated. 1.5 Assumptions Globalization is the great trend of economy in all over the world. It takes an important role in the economy development in almost countries in the world. In my task, I will give the details of financial statement analysis and the impact of globalization on financial activities in Vietnam in general and in LCC in particular. 1.6 Plan of presentation My research is organized in five chapters. In chapter II, the literature will be reviewed on the general look at financial statement, the general approach applied in analysis of financial statements, the nature of globalization, and the impact of globalization on the financial statement of Vietnamese‟s company; a typical example is LCC‟s financial statement. Then, in chapter III, I present methodology that shows the description of my research data, hypothesis, variables‟ measurement and limitations. Next, in chapter IV, I analyze results of the statistical estimation, and a discussion. Finally, in chapter V, I summarize my findings and the study implications for future research. 4 CHAPTER II: LITERATURE REVIEW 2.1 A general look at financial statements 2.2 The general approach applied in analysis of financial statements 2.3 The nature of globalization 2.4 The impact of globalization on the financial performance of Vietnamese‟s company; a typical example is LCC‟s financial performance 5 2.1 A general look at financial statement Financial statement is one of the most important things in running business because it shows the last business results in each company. In traditional view, “financial statements are summaries of monetary data about an enterprise. The most common financial statements include the balance sheet, the income statement, the statement of changes of financial position and the statement of retained earnings. These statements are used by management, labor, investors, creditors and government regulatory agencies, primarily. Financial statements may be drawn up for private individuals, non-profit organizations, retailers, wholesalers, manufacturers and service industries. The nature of the enterprise involved dramatically affects the kind of data available in the financial statements. The purposes of the user dramatically affect the data he or she will seek.”2 In new economy, financial statement can be considered as “Financial statements can organize accounting data to facilitate decision-making by management and by investors. The way financial data is presented for such decisions may be quite different from the way data is presented to fulfill legal requirements that satisfy tax authorities and other regulators. Thus, companies have increasingly produced more than one financial statement, each intended for a different audience. The "pro forma" financial statements which emerged from the bull market of the 1990s are the most notable example of an investor-directed statement.”3 2 3 http://www.benbest.com/business/finance.html http://www.benbest.com/business/newecon.html 6 2.2 The general approach applied in analysis of financial statements The general approach applied in analysis of financial statements will be used in this thesis, presented as follow: 2.2.1 Ratio analysis: is a financial technique that involves dividing various financial statement numbers into another Ratios are computed by dividing one number or data on the financial statements into another. And the results of these calculations are percentages. Ratio analyses permit the manager of the company to determine business trends and compare its ratios to average ratio of similar businesses in the same industry. Ratios are important devices because “they standardize balance sheet and income statement.”4 2.2.1.1. Trend or time series analysis: uses ratios to evaluate a firm‟s performance over time. It concerns the analysis of data collected over time weekly values, monthly values, quarterly values, yearly values, and so on. The intention is usually to differentiate whether there is some patterns in the values collected to date, with the intention of short term forecasting (to use as the basis of business decisions).5 We will write: Yt = response of interest at time t Standard analysis of business time series involves smoothing trend assessment, assessment of accounting for seasonality, and assessment of exploiting serial correlation. 2.2.1.2. Cross – section analysis uses ratios to compare different companies at the same point in time. 4 5 http://media.wiley.com/product_data/excerpt/03/EHEP0000/EHEP000003.pdf Resources from http://www.public.iastate.edu/~alicia/stat328/Time%20Series.pdf 7 It can be defined as “A type of analysis an investor, analyst or portfolio manager may conduct on a company in relation to that company's industry or industry peers. The analysis compares one company against the industry it operates within, or directly against certain competitors within the same industry, in an attempt to discover the best of the breed.”6 2.2.1.3. Industry – comparative analysis is used to compare a firm‟s ratios against average ratios for other companies in the same industry. Industry – comparative analysis can be considered as “Just as important as trend analysis is industry analysis. It's very important, particularly in today's economic climate, to know what your industry is doing as compared to your company. For example, if your industries ratios are much different than your firms, you want to examine why and perhaps take action.”7 2.2.2 Types of financial ratios There are many types of ratios which can be calculated from financial statement data; however, it can be grouped in five main categories such as liquidity ratios, asset – management ratio, financial – leverage ratio, profitability ratio, and market – value ratio. They will be illustrated in the following paragraphs. 2.2.2.1. Liquidity ratios: a. Liquidity refers to how quickly a firm can turn its assets into cash. Liquidity ratios indicate the ability to meet short – term obligations to creditors as they mature or come due. Any firm must have responsibility to pay financial obligations when needed. If they cannot pay financial requirement, they will be 6 7 http://www.investopedia.com/terms/c/cross_sectional_analysis.asp http://bizfinance.about.com/od/financialratios/qt/comparative_rat.htm 8 bankrupted. Almost firms want to convert assets into cash with little or no loss in value b. The net working capital of a firm is its current assets minus current liabilities Year 2007: The net working capital: 29,886,328.339 - 25,430,762.984 = 4,455,565.35(VND) Year 2008: The net working capital: 31,664,296.641 – 28,248,834.480 = 3,415,462.16(VND) c. The current ratio is a measure of a company‟s ability to pay off its short – term debt as it comes due. The current ratio is one of the best known measures of the financial strength. It can be calculated as: Current ratio = current assets / current liabilities Year 2007: current ratio: 29,886,328.339 / 25,430,762.984 = 1,175.2 (VND) Year 2008: current ratio: 31,664,296.641 / 28,248,834.480 = 1.1209 (VND) d. The quick ratio, or acid – test ratio is compared by dividing the sum of cash, marketable securities, and accounts receivable by the current liabilities. Quick ratio = cash  accounts receivable current liability Year 2007: quick ratio: 1,601,463 .994  8,914 ,593 .378  0.4135 times 25,430 ,762 .984 Year 2008: quick ratio: 10 ,247 ,015 .817  9,344 ,893 .111  0.69 times 28,248 ,834 .380 e. The average payment period is compared by dividing the year – end accounts payable amount by the firms average cost of goods sold per day Average payment period = accounts payable accounts payable = cost of good sold / 365 cost of good sold per day 9 Year 2007: average payment period: 1,473 ,716 .283  8.5 per day 62 ,919 ,268 .784 / 365 Year 2008: average payment period: 1,331,773 .417  4.5 per day 107 ,009 ,544 .692 / 365 2.2.2.2 Asset – management ratios: indicate the extent to which assets are used to support sales. These are sometimes referred to as activity or utilization ratios, and each ratio in this category relates financial performance on the income statement with items on the balance sheet. a. The total – assets – turnover ratio is compared by dividing net sales by the company‟s total assets Total assets turnover = Net sales total assets Year 2007: total assets turnover: 73,174 ,292 .234  0.7 times 103 ,163 ,794 .804 Year 2008: total assets turnover: 131,739 ,728 .786 = 1.28 times 102 ,443 ,873 .955 b. The fixed – assets – turnover ratio is compared by dividing net sales by the fixed assets and indicates the extent to which long – term assets are being used to produce sales Fixed assets turnover = net sales fixed assets Year 2007: fixed assets turnover: 73,174 ,292 .234 = 1.05 times 69 ,368 ,913 .712 Year 2008: fixed assets turnover: 131,739 ,728 .786 = 1.95 times 67 ,433 ,202 .612 c. The average collection period is calculated by taking the year – end accounts receivable divided by the average net sales per day 10 This indicates the average number of days that sales are outstanding. In other words, it reports the number of days it takes, on average, to collect credit sales. The average collection period measures the days of financing that a company extends to its customers. Obviously, a shorter average collection period is usually preferred to a longer one. d. The receivable turnover is computed by dividing annual sales, preferably credit sales, by the year – end accounts receivable Average collection period = accountreceivable  (account receivable/net sales per net sales / 365 day) Year 2007: average collection period: 8,914 ,593 .738 = 44.5 days 73,174 ,292 .234 / 365 Year 2008: average collection period: 9,344 ,893 .111 = 26 days 131,739 ,728 .786 / 365 - The inventory turnover is computed by dividing the cost of goods sold by the year – end inventory Inventory turnover = cost of goods sold inventory Year 2007: inventory turnover: 62 ,919 ,268 .784 = 5.1 times 12 ,327 ,852 .537 Year 2008: inventory turnover: 107 ,009 ,544 .692 = 9 times 11,851,894 .879 Here we are looking for to determine how efficiently the amount of inventory is being managed. With inventory management, it is careful to have an adequate amount to avoid running out of products while avoiding the accumulation of too many products that may require extra financing. The turnover ratio shows whether 11 the inventory is out of line in relation to the volume of sales when compared against industry rules or when tracked over time for a detailed company. 2.2.2.3. Financial – leverage ratios a. Financial – leverage ratios indicate the extent to which borrowed or debt fund are used to finance assets Total debt to total assets = total debt total assets Year 2007: total debt to total assets: 61,188 ,525 .231 = 0.593 = 59.3 % 103 ,163 ,794 .804 Year 2008: total debt to total assets: 55,318 ,735 .097 = 0.54 = 54 % 102 ,433 .873 .955 These ratios are also a good way to assess the ability of the firm to meet its debt payment obligations. The total-debt-to-total-assets ratio is computed by dividing the total debt or total liabilities of the business by its total assets. This ratio shows the portion of the total assets financed by all creditors and debtors. b. The total – debt – to – equity ratio shows a firm‟s total debt in relation to the total dollar amount owners have invested in the firm c. The equity – multiplier – ratio provides another way of looking at the firm‟s debt burden Equity multiplier = total assets total equity Year 2007: equity multiple: 103 ,163 ,794 .804 = 2.45 41,971,686 .745 Year 2008: equity multiple: 102 ,433 ,873 .955 = 2.17 47 ,153 ,655 .605 12