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ADVANCE FINANCIAL MANAGEMENTThaco's financial and business activities in the period from 2017 to 2019 LECTURER: Nguyễn Thúy Anh Class: Anh 01 - CTTT QTKDQT - K Group TB Member Phạm Việt Hùng: 1810280011 Phạm Nam Long: 1810280014 Đỗ Thế Tuấn Bình: 1816280028 Nguyễn Trần Hoàng: 1811280044 Nguyễn Đức L...

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ADVANCE FINANCIAL MANAGEMENT Thaco's financial and business activities in the period from 2017 to 2019 LECTURER: Nguyễn Thúy Anh Class: Anh 01 - CTTT QTKDQT - K57 Group TB Member Phạm Việt Hùng: 1810280011 Phạm Nam Long: 1810280014 Đỗ Thế Tuấn Bình: 1816280028 Nguyễn Trần Hoàng: 1811280044 Nguyễn Đức Long: 1811280056

INDEX I.

Introduction.....………………………….………………….…...…….…..2

II.

Internal Environment Analysis..…………....…………………………...4

III.

Financial Analysis……………..……….………………….……………..7

IV.

Recommendation…….…………………..………………...…………....28

V.

References………………………..…...…………………………………31

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I.

Introduction: 1. Introduction: Truong Hai Auto Corporation (THACO) was founded on 29/04/1997 by Tran

Ba Duong majoring in Mechanical and Automotive. THACO also invests in Agriculture, Construction investment, Logistics, and Trade & Service. THACO is the leading and largest enterprise in Vietnam in the field of Automobile production and assembly, with a value chain from product research and development (R&D), production of spare parts, and assembling to transporting and distribution, retail. THACO’s products contain a full range of products: trucks, buses, passenger cars, special-use vehicles and full segments from mid-end to high-end with sales and market share always leading the Vietnamese market for many years

2. Overview: - With Agriculture investment, THACO has established the THADI company which operates in the agricultural sector with 5 main businesses: fruit trees, cereals, forestry, livestock, and agricultural materials. - With Construction investment, THACO invests in the construction of traffic works in the PPP form and socialization, construction of industrial zones, investment in new urban development, and complex projects. - In the field of Logistics, THACO’s logistics activities include Port Services, Shipping, Trucking, Warehouse meeting the needs of businesses in Chu Lai New Urban Area, and Central Region - Central Highlands. - In the field of Trade - Services: THACO develops various types of business such as wedding convention center, supermarket, food business, entertainment, and provides car rental, security, cleaning, maid services, tree care,... - THACO implements the business philosophy of creating value for customers and society, creating conditions for human resources to develop in line with the group’s unlimited development strategy. - As a leading enterprise in the field of manufacturing, assembling, and distributing cars in Vietnam, THACO has determined that its target is to

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maintain this position while expanding the market in the ASEAN region, enhancing international cooperation to select the right technology, increase the localization rate, join the global value chain, create a foundation for development into a multidisciplinary industrial corporation, improve competitiveness to reach the position of goods to be on the top of the area.

3. Industry Analysis: THACO’s goal is to become a multidisciplinary industrial group of Vietnam with ASEAN regional stature, in which automobile production and businesses are the keys. ● Evaluation of investment opportunities -

Vehicle sales growth has slowed down in the 2017 - present period.

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The State has introduced many policies to support the automobile industry but has not yet obtained outstanding results.

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Infrastructure does not meet the demand for cars. The low localization rate leads to high prices.

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Vietnam benefits very little in the supply and production chains of regional automakers. Oversupply.

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It is forecasted that the car supply in 2020 will continue to be abundant.

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Fierce competition from imported cars.

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The demand for assembled cars declined significantly. ● Long-term (>5 years): LOOKING POSITIVE

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The stable macro environment supports growth in car demand.

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A potential market with a large population and a low vehicle-to-population ratio.

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The trend of moving car production from the Americas and Europe to Asia.

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Participate more deeply in the automotive supply chain in ASEAN and Asia.

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Government determination in the development of the automobile industry.

II.

Internal Environment Analysis: 1. Corporate Governance

● Corporate Governance Analysis: The Board of Director executes the right to administrate the company through regular meetings of the permanent members, in form of written Resolutions. The Board of Director provides direct supervisions to theManaging Directors, including but not limited to the following activities: - Executing the plans and targets set by the General Meeting of Shareholders and the Board of Director. - Executing the Resolutions issued by the General Meeting of Shareholders and the Board of Directors – in terms of progresses and methods. - Actively and frequently evaluate the execution of business strategies and economic statistics and provide feedback and directions where necessary. - Monitoring the implementation of corporate laws, company policies and other regulations. The Board of Director of THACO is not divided into subcommittees, however, each member are assigned to specific fields of operations, including: -

One member representing the capital contribution of the family.

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One member in charge of the foreign relationships and business in foreign countries.

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One member in charge of the agriculture field, representing the capital contribution of the company at HAGL Agrico.

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Two members in charge of finance and risk management.

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One member in charge of accounting activities.

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One member in charge of training and development. 4

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Three members in charge of supervising the main businesses of the company.

● The Board of Directors: -

Mr.Trần Bá Dương: Chairman of the Board.

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Mr. Nguyễn Hùng Minh: Vice Chairman of the board

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Mr. Phạm Văn Tài: CEO of THACO.

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Mr. Cheah Kim Teck: CEO of JC&C

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Mr. Stephen Patrick Gore: CFO ofJC&C

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Mr. Lee Yong Bum: Head of FDI Investment department at Techcombank

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Mr. Đỗ Xuân Diện: Chairman of the Board of THADI.

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Mrs. Nguyễn Thiện Mỹ

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Mr. Nguyễn Phúc Thịnh

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Mr,Nguyễn Quang Bảo

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Mrs. Viên Diệu Hoa

2. Position Assessment: Using BCG’s Matrix ● BCG’s Matrix: -

Stars: Products in high growth market with high market share:

THACO’s star products are the production and distribution of automobiles. Until 2/2020, THACO is the leading company in Vietnam with 34.1% market share, with a total of 5.684 automobiles sold, an increase of 12% compared to the previous year.

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Question marks: Products in high growth markets with low market share.

Entering the agriculture business, THACO has acquired a 35% stake in Hoang AnhGia Lai Agrico (HNG). Later, the Group established THADI Corporation which specializes in producing, processing and trading fruit trees, cereals, livestocks, forestry and agricultural materials. Both companies were not listed among the biggest agriculture companies in Vietnam, although the agriculture field is developing fast. -

Dogs: Products with low growth or market share.

Commerce plays a supporting role for THACO's main production and business fields. They are now developing business complexes which include commercial centers, convention centers, offices, hotels, supermarkets, food courts, entertainment centers and cinemas via the partnerships with experienced and competent partners.

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Commerce is not a fast-developing field and THACO’s new ideas are yet to be in the position to compete with other commerce corporations in Vietnam. -

Cash cows: Products in low growth markets with high market share.

THACO does not have any product in this type. ● Position assessment: THACO is currently the biggest and fastest growing automobile corporation in Vietnamese’s market.

III.

Financial Analysis:

1. Financial Analysis: -

After analyzing the internal structure of the Thaco car manufacturing company, in this part, we are going to discuss the financial operations of the company, in other words, conduct financial analysis of Thaco in 3 years so far. Our financial analysis is always correlated to the organization's financial goals. 1.1. Ratio analysis-Time series and Peer analysis 1.1.1: Liquidity Analysis: -

To analyze the ability to pay their debts, the liquidity analysis is an effective tool. Liquidity analysis consists of the cash ratio, quick ratio and current ratio.

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The cash ratio is used to determine whether the organization can pay the current liabilities using readily available assets, which is cash. It is computed by dividing the amount of cash and its equivalent into its current liabilities.

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The quick ratio, in other words, the acid test ratio, measures the ability to pay its current liabilities by the liquidation of short-term assets, therefore characterize the company’s position. The ratio is computed by dividing current assets without inventories with current liabilities.

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Lastly, the current ratio, which compares the current assets with the current liabilities of an organization.

Table 1.1: Liquidity Ratio Analysis

Ratios

2017

2018

2019

Cash ratio

0.014

0.015

0.025

Quick ratio

0.34

0.53

0.37

Current ratio

1.21

1.22

1.022

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According to the data, the cash ratio in 2019 was nearly twice higher than both the year 2017, 2018, which means that Thaco’s ability to use cash to pay their liabilities in 2019 was better. However, the quick ratio in 2019 was30%lower than that of 2018. This ís due to the fact that although Thaco had a10% increase in current assets (54689802 million dong in 2019 vs 49668342 million dong in 2018), the increase in the number of inventories from 2018 to 2019 was faster at the rate of 24,48% (34770542 million dong in 2019 vs 27933055 million dong in 2018). Especially,the current liabilities in 2019 was 53520207 million dong, 31,23% higher than that of 2018 (40781960 million dong). The faster increasing pace in current liabilities and inventories than current assets was the culprit of the reduction of the ability to liquid already available assets to pay off their debts. The current ratio, though there was a slight improvement from 2017 to 2018, the ratio had a significant downfall in 2019, due to the faster pace in current liabilities than current assets. The reason behind the 30% increase in current liabilities was that the company focused on increasing financial leverage based on debt funding, mostly because of their opening of new car manufacturing facilities and the cooperation with some international car brands. Overall, although the company’s capability to convert their assets into

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cash to pay off their liabilities worsened somewhat, the current assets of the company are high enough to cover the debts. 1.1.2: Efficiency analysis -

About efficiency analysis, this measures how effective the business operates from year to year by the use of the capital, assets and resources to generate profit, revenue. Thaco’s main industry is manufacturing automobiles and its parts, however, they invest some funds for the real estate, service and agriculture products industry. In this case, we use the data from the joint financial statements, so we have to combine the revenues from all industries with each other, and so does the expenses and cost of goods sold. There are 4 categories for efficiency analysis, including inventory turnover ratio, accounts receivable turnover ratio, asset turnover ratio and accounts payable turnover ratio.

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Inventory turnover ratio is measured by dividing the cost of goods sold with average inventory per year. This interprets the number of times an enterprise sells out of its stock of goods within a given period of time.

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Accounts receivable turnover ratio is measured by dividing net credit sales (sales- sales return and allowances) with average accounts receivable (sum of starting and ending accounts receivable, usually quarterly or annually, divided by 2), evaluates the efficiency of revenue collection and how many times the firm have to collect its receivables at a given period of time, mostly yearly.

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Asset turnover is measured by dividing the organization’s net sales with its average total assets (sum of ending and beginning total assets divided by 2). This ratio demonstrates how efficient the firm uses its total assets to produce revenue.

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Accounts payable turnover ratio is calculated by dividing the net credit purchases (cost of goods sold + ending inventory –

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beginning inventory) with average accounts payable (sum of starting and ending accounts payable divided by 2). This ratio represents the average number of times a company pays off its creditors during an accounting period. The higher the ratio, the longer the firm can hold its cash. Table 1.2: Efficiency Ratio Analysis

Year

Inventory

Accounts

turnover

receivable turnover

2017

1.5

17.25

0.87

5.61

2018

1.71

15.09

0.87

4.67

2019

1.49

12.16

0.62

2.95

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Assets turnover

Accounts payable turnover

According to the data, there was a significant increase in the inventory turnover from 2017 to 2018. However, the ratio returned to nearly the same figure as 2017 the following year, due to the fact that Thaco suffered loss on revenue in 2019. About the accounts receivable turnover in a year, the figure had a prolific downfall of 12.5% from 2017 to 2018 and 19.4%from 2018 to 2019, which means the firm had lower time to collect their receivables in a year. In terms of the assets turnover, though the figure stayed the same in both 2017 and 2018, there is a dramatic decrease in the year of 2019. This was due to the reduction of sales and revenue in that year although total assets went up.

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Accounts payable turnover ratio plummeted from 5,61% in 2017 to 2.95% in 2019, which means that Thaco was taking longer to pay off their debts. That is because they are raising the capital structure based on debt funding, so the firm struggled in making a good amount of profit. In the nutshell, the efficiency of their financing operation is this automobile manufacturing firm worsened, due to struggle in the sales of their automobiles and the accelerating number of liabilities in the year of 2019. Thaco, and so did the automobile industry at that time, had a hard time because of the increasing competition after the abolition of tax for domestically and ASEAN manufactured cars. 1.1.3: Leverage ratios -

The next part of the ratio analysis of this company is the leverage analysis. It is about how effectively the company establishes its capital structure. The leverage ratio category is important because companies rely on a mixture of equity and debt to finance their operations, and knowing the amount of debt held by a company is useful in evaluating whether it can pay off its debts as they come due. It consists of 2 types, debt ratio and interest coverage ratio.

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The debt ratio consists of 2 types: debt to total assets and debt to total equity ratio. This is to measure how much debt generated within their assets and equity. The higher the value, the more aggressive the firm raises debt. Be careful, if the company cannot control their own liabilities and cannot cover it by generating revenue, the company will easily go bankrupt.

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The interest coverage ratio is computed by dividing their earnings, usually EBIT, with the interest expense in a year. This measures how many times a company can cover its current interest payment with its available earnings. When a company's interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable. The higher the ratio, the better the company can cover the interest expenses.

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Table 1.3: Leverage Ratio Analysis

Year

Debt to Total Assets

Debt to Total Equity

Interest Coverage Ratio

2017

56.06%

127.58%

10.95 times

2018

58.36%

140.15%

11.01 times

2019

63.20%

171.76%

4.72 times

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According to the data, the firm had generated more debt than equity in its capital structure, which means that Thaco is a debt-structured firm. This was easy to explain, because in recent years, Thaco generated debts by the localization process of international car brands (Mazda, Peugeot, Kia...) and the construction of some car manufacturing factories, especially the complex in Chu Lai. In terms of the interest coverage ratio, it had the downward trend, because the firm’s revenue from selling automobiles went down. Though the firm’s ICR reduced to 4.72 times, Thaco’s total assets are high enough to keep the company from struggling to pay interest payments. In general, the firm’s leverage distribution is more of debt than equity, which means the company has to control the liabilities and generate more profit to better the financial operations of the firm. As we have learnt from the financial management course, the company’s capital structure is debt-based, and its weight is higher than that of equity. 1.1.4: Profitability Ratios -

Profitability Ratio is commonly used to measure the firm's ability to generate profit through the use of balance sheet’s total assets, 12

operating costs, stockholders’ equity and the income statement (revenue, expense and profit).It shows how well a company utilizes its assets to produce profit and value to shareholders. There are 2 types of profitability ratios: margin (net profit, gross profit, EBITDA) and return (return on assets and return on equity). The higher the ratios, the better the firm is operating Table 1.4: Profitability Ratio Analysis

Year

Gross Profit Margin

EBITDA Margin

Net Profit Margin

RoA

RoE

2017

18.46%

15.10%

10.07%

8.09%

18.41%

2018

19.86%

15.59%

10.61%

8.11%

19.49%

2019

17.46%

16.42%

9.50%

4.51%

12.26%

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From the year 2017 to 2018, Thaco had a slight increase in total assets and revenue, so the profitability ratio had an upward trend. On the contrary, from 2018 to 2019, there was a downfall on all figur...