cooperate finance assignment
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7/28/2019 Cooperate Finance Assignment
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Name of Lecturer
Lim Chor Ghee
Name of Students
Ha Quang Minh
Tran Cong Ly
Ngo Nhat Duy
Ngo Ngoc MyLe Xuan Thanh Vy
Phan Ho Van My
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I. EXECUTIVE SUMMARY:
1. Coteccons:
Full name: Cotec Construction Joint Stock Company Coteccons
Establish and privatized: 2004
Business model: Civil and industrial construction Listed: Jan 1, 2010
CTD has the chartered capital of VND 317.5 billion, retained earnings of VND
219 billion and shareholders equity of VND 1,316 billion. The main business lines
of CTD include civil construction, designation consultant and construction project
management. In 2010, the Company reported VND 240 billion net income, and the
construction business is the key activities accounting for 99.8% net income and
revenue of that number. CTD is a strong company which has a high development
speed, stable development strategy and dominant position in construction industry.
Currently, the Company is expanding its business activities in the whole country of
Vietnam.
2. Ha Bnh Corporation:
Full name: Hoa Binh Construction & Real Estate Corporation
Establishment: 1987
Business model: Construction and Real estate.
Listed: Dec 27, 2006
Founded in 1987, Construction JSC (XD) and Real Estate Peace (Hoa Binh
Construction & Real Estate Corporation - HBC) activities in the field of Civil
Construction and industrial real estate business; production building materials
(building materials); interior and exterior. HBC mark and create a lot of sympathy
with our customers with outstanding projects such as hotels (KS) Riverside, Legend,Tan Son Nhat, Melinh Point Tower, Institute of Buddhism in Vietnam Vietnam ...
Strengths and also considered the competitive advantage of HBC was long
reputed team of experienced managers, financial situation works healthy.
Information about the business situation is quite transparent. Investment
opportunities can be found are: many large real estate projects of HBC are
implementing strong potential for future development, a wave of foreign direct
investment (FDI) is growing strongly. In addition, the demand for real estate (real
estate) increased
HBC began operations with the design and construction of a number of private
houses. In 1993, after successfully renovating part of the company headquarters
Supply Vessel Seamen's Club, HBC was invited to continue to design, constructionand renovation, bringing the building KS Riverside. Through the complex and large
scale this design capability, technical qualifications; experience in construction
management of HBC has made remarkable progress. Since then, HBC have the
opportunity to reach new customers, said many foreign investors and invited to
participate in the project HBC.
3. Construction industry outlook
a. Construction industry outlook in short term
Construction industry would likely encounter many difficulties in Quarter IV of
2011 and first half of 2012 because of some crucial following factors:
Gloomy real estate market: many real estate projects could be delayed becauseof highly increasing prices of material, Many apartment buildings, office towers and
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commercial centers have been encountering many difficulties in selling their
products because supply has exceeded demand. Above reasons make many
investors delay to start new project, therefore demand in construction industry
declines.
Construction material prices strongly volatiles: at the end of 2010 and beginning
of 2011, steel price increased by 10%, brick price increased by 15%, cement priceincreased by 5%, labor expense and interest rate strongly increased. These
difficulties made it hard for many construction companies.
Demand declines because investors delay or avoid taking risk in starting new
project.
b. Construction industry outlook in long term
In long term, construction industry has a bright prospect as demand for
construction works in Vietnam including infrastructure works, civil works and
industrials are still very large.
In coming ten years, the demand for infrastructure investment in Vietnam is very
large. According to the Government, capital needed for infrastructure investmentwould capture 10-11% of GDP from now to 2020. In detail, Vietnam would needs
around USD 70-80 billion for infrastructure investment in the next five years. The
Vietnamese Government really focuses on investment in building infrastructure in
long term. This policy would create a source of potential demand for construction
industry in coming years.
According to Vietnamese real estate market analysis of UN-HABITAT, there are
currently 70% Vietnamese households lacking suitable living facilities and Vietnam
lacks about 20 millions apartments. In the future, construction of urban areas,
housing areas would be accelerated to meet potential demand of people, creating an
additional source of demand for construction industry in coming years.
II. RESPONSES:
Response 1. As one of the main suppliers to the companies, what are the
challenges that you may face, and how would you manage the situation?
From the ratios that have been calculated, ignoring other ratios and information,
these are possible challenges that we found from the companies:
CHALLENGES SOLUTIONS
Hoa Binh
Corporation
(HBC)
- Challenges from the credit policies and
collection procedure:
+ Receivable turnover experienced a
downfall from 2009 to 2010. From 2009 to
2010, sales increased a little bit, but
receivable account was almost doubled.
This means the amount of cash put in the
credit sales increased much, which affected
the operation and investment because it
must take a time to collect the cash. The
receivable turnover in 2010 was lower thanthe industry, means that the receivable of
- If I have already
given the sale on
credit to the company,
I would want to
collect partly or all the
credit sales that I
made before I
continue trading with
HBC.
- If the company
delayed the paymentfor, I would call up a
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the company far exceeded that of other
companies in the same industry.
Consequently, it took more time for the
company from 2009 to 2010 to collect
receivable, the period in 2010 was higher
than the industry average.
- Ability to use the asset efficiently to
generate revenue was reduced, reflected by
the decrease in the total asset turnover,
even lower than the industry average in
2010. It took about 0.76 money units to
generate 1 money unit revenue, but the
number was increased to about 1.09 money
units to generate 1 money unit revenue,
showing the inefficient management on the
asset of the company.
- Low liquidity level, facing a downfall
from 2009 to 2010, showing that the
companys current asset was not readily
available to pay its current liabilities. The
quick ratio in 2010 was lower than the
industry and lower than 1, means that
without the inventories, the least liquid
assets; it was very hard for the company to
cover immediately the current liabilities
with other assets. The inventories of this
kind of industry are usually at low level of
liquidity for they are mainly the
constructions under progress.
- High debt: HBC seemed to have much
debt reflected from the high debt to total
asset ratio, which was over 50% in both
2009 and 2010. Even though there was an
increase in the times interest covered from
2009 to 2010, but it was not a positivesituation for HBC, because it indicated that
most of the operating income of the
company was used for financing debt, and
level to which the operating profit can drop
before meeting these obligations was very
low, which means that the company must
remain and increase the profit or else will
face a sure loss.
negotiation for:
+ Collecting payment
directly from the sale
of the inventories.
+ Charging the
interest if thecompany cross the
deadline on the
payment.
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Coteccons(CTD)
- Profit margin was just medium level,
decreased in 2010, means that theoretically
operating performance of CTD was
reduced1.
- Current Ratio and Quick Ratio arerelatively far from each other: reflects the
high level of inventories of the company,
which typically very low liquid as the
industry characteristics. So high current
ratio does not guarantee the companys
liquidity.
- From the ratios
calculated, it could be
acceptable for us to
continue supplying,
including on credit, to
CTD for they have agood position and
status.
Response 2: As a banker / lender to the companies, do you see that the financial
situation of the companies has improved or deteriorated from 2009 to 2010?
Explain.
For CTD, as lenders, we would say there has been an improvement on itsfinancial situation from 2009 to 2010. Although CTD suffered from the decrease in
profit margin from 11.62% to 7.27% and from the decline of return on asset (ROA)
and return on equity (ROE) during the year, that would lose investors confidence on
investment to CTD. However, CTD would be a good borrower for lenders as banks
to consider because CTD now could faster collect its receivables (within 57.3 days
in 2009 -> 56.77 days in 2010). CTD has also shown its better ability to pay interest
on its debt (12.58 times to 412.71 times). But CTD has got a small difficulty in its
liquidity when inventory makes a key role for debt payment. Thats actually not
such a very big problem since CTD knows how to manage its debt more effective
from receivables. Generally, financial situation of CTD has improved, or in other
words, CTD is the better candidate for bankers.
From financial ratios of HBC, unfortunately, it is not a wise decision for lenders
to invest in HBC. From 2009 to 2010, HBCs ability to handle receivables form
credit sales has significantly decreased as it takes longer to collect customers debts
(within 83.14 days up to 137.5 days). In addition, HBCs liquidity also has declined
when it could no longer manage its debt payment despite adding inventories (1.03 to
0.95). Most importantly, Hoa Binh has got a big debt (up to 63.77% in 2010). That
could possibly reduce Hoa Binhs ability to cover interest payment whenever it
suddenly suffers from a fall in operating profit. Therefore, Hoa Binh is not a great
deal to lend money at all because their financial situation has deteriorated.
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