cooperate finance assignment

7/28/2019 Cooperate Finance Assignment

1/5

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


2/5

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


3/5

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


4/5

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.


5/5

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.

cooperate finance assignment

Documents