HCMC UNIVERSITY OF FOREIGN LANGUAGES AND INFORMATION TECHNOLOGY
DEPARTMEl\'T 01<' INTERNATIONAL BUSINESS ADMINISTRATION

e&YJa.~~

GRADUATION PAPER

TOPIC:

ANAL YZING THE FINANCIAL EFFECTIVENESS
OF FOOD COMPANY'S TRADING OPERATIONS
IN HO CHI MINH CITY (FOOCOSA)
(2002 - 2006)

Student Name's: LE Tffl KIM THU
Class: KD0306
Advisor: DR. TRAN DUYEN BINH


Ho chi Minh City - Vietnam
June 18, 2007
ADVISOR'S

COMMENT

Title: ANALYZING THE FINANCIAL EFFECTIVENESS OF FOOD COMPANY'S
TRADING OPERATIONS IN HO CHI MINH CITY (2002 - 2006)
Author: LE TH~ KIM THU
Advisor: Dr TRAN DUYEN f)~NH
Practicality
Analyzing the financial statements of businesses is one of any manager's skills. The

paper "Analyzing the Financial Effectiveness of Food Company's Trading Operations in
Ho Chi Minh City" takes the practical meaning in making financial analysis on a specific
company.
Content

,.

The paper consists of 3 chapters. The first chapter gives an overview of financial analysis.
The second chapter introduces the Food Company, and analyzes its financial statements
over the past 3 years. Especially, the author tried to give the credit rating to the company
based on standards offered by the First Securities Company. The credit rating is new in
our country. In the last chapter, the author made the SWOT analysis and then general
assessment on the financial performance of the company. She offered 4 groups of
suggestions to improve the productivity, profitability, asset management and human
resource management of the company. These sug~estions are feasible.
Presentation
The paper is presented in the bright and illustrative way. There are many tables, graphs
with titles and sources. The footnotes and references are made in international standards.
General

Assessment

The paper takes the practical meaning presented in a very good form. The arrangement is
systematic and suggestions are feasible.
Suggested Grade: Excellence
Advisor,

Dr TRAN DUYEN f)~NH



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ACKNOWLEDGEMENT

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First of all, I would like to express my gratitude to teachers, professors of Ho Chi

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Minh City University

of Foreign

Languages

and Information

Technology

for


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providing basic, precious knowledge

and giving valuable experience

in the school

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Special thanks to Dr. Tran Duyen Dinh, my advisors, for his enthusiastic
professional guidance, valuable advices and encouragement

and

throughout my research.

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In addition, I wish to express thanks to Vice Dean Tran Tuy Nga, who supplies us

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the help of Food Company

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(FOOCOSA),

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especially

Mr. Tran Xuan Thuyet, who gave us internal

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and provided with concerning materials.


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during the time I attended

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finished my university study.

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foreign countries into Vietnamese

There is an indirect and direct, large current of investments

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companies through types of markets. This creates

a lot of opportunities

as well as challenges to Vietnamese

companies because they

must not only try to improve their products to compete easily but also pay attention to
finance.

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plays an important

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surviving and development.

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creditors, they need to have basic knowledge of financial analysis to make suitable

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decisions and to obtain their own objectives. The company's

From managers in the internal company to investors, and

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on the performance

of financial

statements.

However,

success affects mostly
if a company's

are not publicly traded, the total market valuation


equity

can not be directly

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For that reason, this study involves analyzing and evaluating

financial

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management

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of the Food Company (FOOCOSA) in Ho Chi Minh City,

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The study begins the theory of financial analysis, then an introduction about such

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financial position, data from 2002 to 2006 at Food Company shown in Balance sheet,


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Income statement, and Statement of cash flows can be used.

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history, development,

organizational

structure

and its functions.

To analyze

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Moreover, we can understand more FOOCOSA'S
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ratios. The third part

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performance

and profitability

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mentions

recommendations


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personnel department,

especially the accounting department.

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(2002-2006) I have got during the limited time doing

the research, I hope that my suggestions would contribute positively to managers and

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CONTENTS

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CHAPTER

1: AN OVERVIEW

OF FINANCIAL

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1.1 Definitions

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of Financial Analysis

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II.1.2 Quick Ratio

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CHAPTER


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ANALYZING

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EVALUATING

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OF FOOD COMPANY IN HO CHI MINH CITY

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to Food Company of Ho Chi Minh City

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II. Analyzing the Financial Position of FOOCOSA through Financial

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Liabilities, Equity


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III.1.1 Liquidity Ratios

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II1.1.2 Productivity Ratios

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Cash Flow Statement

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1. Overview Assessment of FOOCOSA'S

3: RECOMMENDATIONS

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AND CONCLUSION

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CON CL USI 0 N

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APPE ND IXE S

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1. Research Paper Objectives
2. Scope of the Research
3. Research Method
4. Contents

Advisor: Dr Tran Duyen Dinh


Student: Le Thi Kim Thu


1. Research Paper Objectives
Finance is an area which consists of anything involving in money and markets.
In addition,
company's

finance

also involves

in human

factors

that contribute

to the

success in carrying out general objectives. Financial activities as well

as trading, accounting, human resource activities influence importantly in making
correctly

decisions

which reflect the company's

profit and development


in the

future. Without a stable source of finance, a company can't do anything.
At present, the most important maUer, for each enterprise as well as society, is
financial

and trading

effectiveness.

distribution company's

These

available resources

factors reflect

levels

of use and

to obtain goals: how to use the least

resources, with the highest benefits, but the minimum costs. Furthermore,
financial operation

effectiveness


have enough competitive

can help a company to live in the markets, to

capabilities,

reasons require an enterprise

the good

to raise living standards for labors. Those

to analyze,

to evaluate

carefully in order to upgrade the effectiveness

its strengths, weaknesses

of financial operations.

FOOCOSA is a company that produces rice, wheat flour, noodles, and some
other products

with a system of distribution

in Ho Chi Minh City and other

provinces. Nowadays, the increasing technological and scientific development puts

companies,

including FOOCOSA under a great pressure

with more competitors

such as China, Thailand. Moreover, FOOCOSA is a state-owned
is preparing

equitization

efficient management

company, which

process in some next years, so an improvement

of financial position are necessary assignments.

Financial analysis helps the company not only know effectiveness
operations

and

but also follow the company's

of trading

financial positions to stabilize and to


improve financial and trading situation, upgrade operating quality.

Advisor: Dr Tran Duyen Dinh

-1 -

Student: Le Thi Kim Thu


Therefore,

the main objective of this paper is to analyze financial operations

simply, understandably

and easy to approach and I think it is very necessary

the company

because

it is a basis to make a lot of important

development

tendency

effectiveness

in the


future.

It can

help

decisions

companies

for
and

to evaluate

of financial activities, find out strengths and causes of weaknesses.

Since then, with the knowledge

I have been taught in the university, I will give

some suggestions for financial management

improvement for the company to raise

trading activities, make sure financial sources to operate effectively,

can invest in


feasible plans which bring profit back the company, especially can attract foreign
and investors' capital- a very important and strong source of capital.
2. Scope of the Research
Finance is a very broad area requiring high levels of knowledge
clearly

and

exactly.

Moreover,

evaluating

trading

operation

to analyze

effectiveness

correctly basing on financial situation also acquires a lot of factors, especially the
time factor. However, because of limited time, I have practiced and contacted a
short time in the company, with my limit financial knowledge;
financial effectiveness

I just focus on

of trading activities of a company in about 5 recent years


from 2002 to 2006.
3. Research Method
The paper aims to use the company's
evaluate

financial statements to analyze and to

as well as to explain that effectiveness

clearly in five years. Basic

theories are taken from financial analysis, information
researches.

from Internet and other

The method used in the paper is comparative

analysis. Moreover,

this paper can use financial ratios and other techniques to analyze, to compare,
and to evaluate the company's financial situation.
4. Contents:
My paper includes three chapters as follow:

Advisor: Dr Tran Duyen Dinh

-2 -


Student: Le Thi Kim Thu


Analyzing
Financial Effectiveness of FOOCOSA
Introduction
_-._ .._ .. _._--._ .. _._---- .. _ .._ .. _--- .._ .._ .. _._---- .. _ .. _ .. _-----_ .. _ .. _ .. _-----_ .. _ .._ .. _-----_ .. _ .._ .. -._-.-_ .. _ .._ .. _-----_ .._ .. _ .._ .. _------ .. _ .. _ .._ .. _---._--.-

..

.:. Chapter
definition

I: An Overview

and related

information

of Financial

Analysis

of financial

- giving some basic

analysis

that support to the


research .
•:. Chapter 2: Analyzing,

and Evaluating

Financial Effectiveness

of Food

Company of Ho Chi Minh City
This chapter gives the information which helps the readers have an insight
of FOOCOSA'S

backgrounds,

business and financial activities and so on. After

that, the readers will know how to analyze a company's financial effectiveness .
•:. Chapter 3: General Assessment, SWOT Analysis and Recommendations.
The author
accounting

will suggest

department

some ideas

and concerning


to improve

department.

financial

We ended

activities

of

the research

report with the conclusion related to the whole of that mentioned.

.. _ .._._------_ .. _ .. _ .. _--------- .. _ .._ .. _. __
Advisor: Dr Tran Duyen Dinh

-._

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Student: Le Thi Kim Thu


1
AN OVERVIEW
OF FINANCIAL ANALYSIS
1. Definitions and Objectives of Financial Analysis
II. Financial Ratios as Major Tools of Financial Analysis
1. Evaluation of Liquidity Ratios
2. Evaluation of Productivity Ratios
3. Financial Leverage Ratios
4. Evaluation of Profitability Ratios
5. Du Pont Ratios

Advisor: Dr Tran Duyen Dinh

Student: Le Thi Kim Thu


Chapter
1: An Overview of Financial Analysis
.. _ .._._---_ .. _._------_ .. _ .. _----._ .. _ .. _-----_ ..- .._._---- .. _ .._._-----.- .. _ .. _ .. _----._ .. _ .. _---------

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I. DEFINITIONS AND OBJECTIVES OF FINANCIAL ANALYSIS
I.1 Definitions
Financial analysis is "the art of transforming data from financial statements into
information that is useful for informed decision making.,,1 Financial analysis refers
to "an assessment
business

of the viability, stability and profitability

or project.,,2 Financial

analysis includes
firms

of a business,


comparing

in the same

the firm's

financial

performance

with that of other

development

trends in the firm's position over time. The company with a careful

financial analysis can identify strengths, weaknesses,
improve its performance
financial

position

performance

industry,

sub -

since then it can take actions to


in time. It is a process of investigating,

of a company.

Financial

and evaluating

analysts

can evaluate

evaluating

the

the financial

and plan suitable strategies to improve the business operations and the

financial position of a company.
1.2 Objectives
Finance involves

everyone

of finance

III


most areas and everyone

to obtain their purposes.

is interested

different

aspect

attention

to finance with any reason; we can see that either the positive or the

negative

financial

condition also affects the operations

However,

in each

whoever

of the company and the

attitudes of investors or creditors.


1 Tran Van Chanh and Ngo Quang Huan, Quan Tri Tai chinh Doanh Nghiep (NXB DHQG: 2000),
page 27
2

._-

Wikipedia, Financial Analysis, ipedia.

_ _ _

_ _

_ _

_

_ _

org/wiki/FinanciaI

_ _

_ _

.. .. .. .. _-----_ .. .. .. _---.-_ .. .. .._-----_ .. - .. .._------ .. .. .. _----.- .. .. .. _----._ .. .. .. _._-._--.-

Advisor: Dr Tran Duyen Dinh

-4-


pays

Analysis

_ _ _

.. .. .. .. _-------------._

_ _

.. .. .._--_ .._---.-

Student: Le Thi Kim Thu


Chapter
1: _An Overview
of Financial Analysis
_
.._ .. _--- .. _ .. _ .. ------_ .. _ .. _ .. _ .. _-----_ .. _ .._ .. _-------._ .. _ .. _ .. _---.--

.._----._ .. .. _-----_ .. .. _-------._

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To managers:

The basic objective

of financial analysis is making decisions that include two

specific objectives:
- Analyzing the company's
evaluating the company's

financial situation to master data in financial reports and

performance.

The company can decide whether it continues

operating, buying materials or leasing equipments servicing for production or not.
-Basing on the results of financial

analysis,

analysts can compare,

predict and


make plans or investment decisions to improve the company's financial position. It is
also a tool to control management

>

operations.

To investors:

Through financial effectiveness
and development
most investors'

potentials

analysis, they know the company's

profitability

of the company in which they want to invest because

objectives are dividends each year and market value of the stocks.

They follow up the company's

operations through the financial analysis and decide

to invest into the company correctly.


>

To creditors:

They just focus on the company's
profitability

ability consisting

of payment

ability and

to face short-term debts. For long-term debts, lenders make sure the

company to pay the principal and interest. Besides, financial analysis also concerns
with others such as employees,

customers, suppliers, etc ... Employees

want to know

the company operates to increase profit, employment and retirement policies.
Sometimes,

employees

ask themselves

why the company never increases


the

salary while they obtain high profit. To customers, they want to know how well the
company can supply goods for them and how well it can carry out its obligations to
suppliers .

_ _ _
.. _ .. _ .._ .. _------ .. _ ..- .. _ .. _ .. _-----------_
Advisor: Dr Tran Duyen Dinh

.. _--- .. - .. .. .. .._-------._

_ _ _

.. .. .. .. _--------_

-5-

_ _

.. _ .._ .. _ .. _ .._._----------_._.-_
.. _ .. _ ..
Student: Le Thi Kim Thu

.. .. .._------------.--


Chapter
1: An Overview

of Financial Analysis
.. _ .. _._-------_._
.. _._------- .._ .._ .. _---._---_ .._ .. _ .._ .. _._----.--_._ .. _ .._----------._.

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To financial analysts

They can assess the firm's financial performance

basing on financial statements,

financial as well as non-financial indicators such as degree of profitability, solvency,
liquidity, stability, etc ...to serve their purpose or demand of the State.
1.3 Inputs of Financial Analysis
Financial statements are the primary information sources about a firm's financial
performance.


They provide much of the information

needed for a business at the

point in time as well as over some past period to make economic decisions. They are
the first part of financial reports showing the financial situation of the company and
are useful for managers to anticipate
company's
employed

future situations and plan actions that affect the

success. Financial statement

analysis comprises

by users of financial statement

financial statements.

all the techniques

so show important relationships

that

in the

Normally, this part includes three major financial statements:


Balance Sheet, Income Statement, and Statement of Cash Flow.
a. Balance Sheet
The Balance Sheet is a statement of a business's

financial position at a specific

point in time (such as the end of the month, quarter, year), including its assets,
liabilities and owner's equity. It is a picture that affects the source of internal funds
within the company and use of that fund after a period. Balance Sheet follows this
formula:
Total Assets

= Total

liabilities + Owner's Equity

On the left side, the total assets represent

the value of assets owned by the

company. The right side of Balance Sheet is the total liabilities and owner's equity of
the firm. These

accounts

indicate

how the firm's

resources


are financed.

The

difference of current assets and current liabilities is working capital.
In assets, accounts are arranged according to the level of their liquidity. So, the
current assets and short-term

Advisor: Dr Tran Duyen Dinh

assets stand before the fixed and long-term

-6-

assets.

Student: Le Thi Kim Thu


Moreover, the presentation of total liabilities is similar to one of total assets. Figure
1.1 presents a simplified format of the balance sheet for a company.
Figure 1.1: An Overview of Balance Sheet

Source: Accounting3
b. Income Statement
The Income Statement, also called the profit and loss statement, is a financial
statement that describes a company's financial situation over a certain period,
reflecting ways the owners make use of total assets and equity to make profits.


3

Robert N. Anthony, David F. Hawkins, and Kenneth A. Merchant, Accounting, (New York: 1999),

page 34

Advisor: Dr Tran Duyen Dinh

-7-

Student: Le Thi Kim Thu


.-----------------

--

The Income Statement includes two parts: the first part is the profit and loss
reports, which summarize the amount of revenues earned and expenses incurred by a
business over a period of time, usually a year. It is an important part used for
analyzing trading operations. The second part shows the company's responsibilities
to the state.
Figure 1.2: An Overview of Income Statement

Source: Accounting4
The bottom line of the income statement shows net income or net loss of the
business. Sometimes, the information on the income statement is regarded to be
more important than information on the balance sheet. This is because the income
statement reports operation results and investors usually examine the company's
profitability through it.

4

Robert N. Anthony, David F. Hawkins, and Kenneth A. Merchant, Accounting, (New York: 1999),

page 67

Advisor: Dr Tran Duyen Dinh

-8 -

Student: Le Thi Kim Thu


Chapter
of Financial
Analysis
_
_ _ I: An Overview
_ _ _
.. _ .. _ .._-------._ .. _ .._ .. _-----_ .._ .._ .. -._----.-_ .._ .._ .. _----.---_ .. _ .. _ .._--------_

.. ..-.-_ .. .. .. _----._ .. _._---- .. .. .. .. _---.-_ .. - .. _-------._

_ _

.. .. ..-------

c. Statement of Cash Flows
The Statement


of Cash Flows is the financial statement

and outflows of cash from operating

activities,

investing

that shows the inflows
activities

and financing

activities over a period of time. This statement is prepared from data collected for
the balance sheet or income statement. It indicates the sources of cash that the firm
has obtained and the uses of cash during its operation

Figure 1.3: Three Activities of the Statement of Cash Flows

I. Cash from operations
a. Net income
b. Plus: Depreciation expense
c. Plus: Amortization of prepaid expense,
goodwill, and other intangibles
d. Plus: Increase (decrease) in deferred
income taxes
e. Minus: Increase in accounts receivable,
inventories
Plus: Increase in payables
f. Plus: Loss (Gain) on disposal of assets


2. Cash from investing activities

3. Cash from financing activities
a. Borrowings or debt repayments

a. Purchase of non-current assets
b. Issuance or retirement of stock
b. Proceeds from asset disposals

c. Cash dividends
d. Conversion of bonds and stock

c. Loans made to another entity

Total Cash Flow

Source: AccountingS

~.
5

Robert

N. Anthony,

David

F. Hawkins,


and Kenneth

A. Merchant,

Accounting, (New York: 1999),

page 346

Advisor: Dr Tran Duyen Dinh

-9-

Student: Le Thi Kim Thu


Cash flows from operating activities arise from the business's
as purchases and sales of merchandises

such

or services, payment for wages, interest and

taxes that affect its net income, depreciation,
liabilities.

transactions

changes in current asset and current

The second cash flows are cash flows from investing activities,


which

affect the investments in the firm's fixed assets or business interests. These activities
can make the cash flows through the sales and purchases

of fixed assets such as

buildings and equipment. The third cash flows from financial activities, which arise
from transactions

affecting the equity and debts. Those transactions

include issuing

equity or debt securities, paying dividends and repaying debts, etc ...
The information

on this statement

will not be affected

estimates that influence the other two financial statements.

by the judgments

and

It just shows cash flows


of the company, except net income earned.
So, each

financial

statement

has its roles

and purposes

information about the company's financial performance
financial statements

should not be used separately

among them. Analyzing a company's

in providing

the

and position. However, three

because there are relationships

financial situation requires the sufficient use of

financial statements. They are also useful for some people to analyze and master the
financial status of the company.


Advisor: Dr Tran Duyen Dinh

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Student: Le Thi Kim Thu


Chapter
1:_ An
of Financial Analysis
_ _
_._---_ Overview
.._ .._ .. _----._ .._ .. _ .. ------_ .._ .. _ .. _ .._----._ .. _ .._ .. _._-_._----._

--_ .. .. .._----._ .. ..

II. FINANCIAL

_ _

_ _ _

_ _ _

.. .. .. ----_.- .. .. .. .. _._------_

.. .. .. .. _---_._-----_

_


.. - .. ..-

RATIOS AS MAJOR TOOLS OF FINANCIAL

ANALYSIS
There are some methods that can be used in evaluating the financial position and
health of a company

such as collection

of information,

horizontal

and vertical

analysis, and we should combine these ways to analyze more exactly.
Collection
relevant

of information

information,

means the way we collect and use of all available

such as using financial

statements


as important

source of

information, which is useful for our analysis.
Horizontal analysis, like comparing past and future performance
means that using historical figures and mathematical

of the company,

techniques

to evaluate

the

firm's financial position across historical period for the same firm.
Vertical analysis indicates that analyzing finance by comparing

among similar

firms in the same industry. My paper tends to use financial ratios as major tools of
financial analysis. Techniques

such as ratio analysis, percentage

and comparative

analysis to industry ratio make it possible to identify significant relationship

company's

financial data. These analysis techniques

seem to be effective

in the
for the

company to evaluate its financial position.
Financial ratio analysis is the calculations
the financial
They

also

statements,
help

and comparisons

identify some the company's

financial

analysts

compare

the


of ratios to explain

strengths and weaknesses.
financial

performance

with

competitors and the industry in which that company is operating.
There are some different types of financial ratios, which the company can choose
for analyzing and evaluating
financial ratio represents

the financial position of the company because

a different aspect of a company's

finance and operations.

Those are liquidity ratios, productivity ratios, financial leverage

ratios, profitability

ratios and Du Pont ratios.

Advisor: Dr Tran Duyen Dinh

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each

Student: Le Thi Kim Thu