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
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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
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