REPORT

FINANCIAL STATEMENT FOR DIFFERENT COMPANIES

TABLE OF CONTENTS
TABLE OF CONTENTS...............................................................................................2 INTRODUCTION..........................................................................................................3 I.BUDGETING DECISIONS....................................................................................4 II.COSTING AND PRICING DECISIONS..............................................................6 I.INVESTMENT DECISIONS..................................................................................8 II.KDC......................................................................................................................10 1.THE PURPOSE OF THE MAIN FINANCIAL STATEMENTS....................10 2.THE DIFFERENCES BETWEEN THE FORMATS OF FINANCIAL STATEMENTS FOR DIFFERENT TYPES OF BUSINESS.............................11 3.THE INFORMATION NEEDS OF DIFFERENT DECISION .......................15 4.THE IMPACT OF FINANCE ON FINANCIAL STATEMENTS..................17 5.ANALYZE FINANCIAL STATEMENTS......................................................19 REFERENCES.............................................................................................................28

INTRODUCTION
The results of a businesss activities are presented in financial terms in the form of what are commonly called the accounts. Account means three statements: a balance sheet, a profit and loss account, and a cash flow statement. These statements are described and illustrated in which they are usually presented based on the information of Kinh Do Corporation and Kim Cuong LTD.

KIM CUONG LTD

I. BUDGETING DECISIONS
1. The original Budgets
Sales (units) Sales Direct material Direct labour Variable overhead Fixed overhead Profit The information per unit Selling price per unit Direct material per unit Direct labour per unit Variable overhead per unit Direct labour rate Direct labour hours (total hours) Direct LH per unit 2. The revised budget A 100 5 11 5 5 4,500 2.25 B 143 8 14 8 5 5,000 2.86 C 231 16 26 16 5 6,800 5.23 A 2,000 200,000 10,000 22,500 10,000 6,000 151,500 B 1,750 250,000 13,500 25,000 13,500 9,000 189,000 C 1,300 300,000 20,500 34,000 20,500 7,500 217,500 Total 5,050 750,00 0 44,000 81,500 44,000 22,500 558,00 0

After the sales are increased by 30%:

Sales (units) (increased by 30%) Direct labour hours needed Direct labour hours available Surplus/(Deficit) A 2,600 5,850 B 2,275 6,500 C 1,690 8,840 Total 6,565 21,190 18,000 (3,190)

Because direct labour hours available is less than direct labour hours needed, direct labour hours become a limiting factor. Therefore, we need to calculate contribution per direct labour hour.

3. Calculate the contribution earned by each product per unit of scarce resource

Contribution magin (total $) Direct labour hours (total hours) Contribution per DLH Rank

A 157,500 4,500 35 (2)

B 198,000 5,000 40 (1)

C 225,000 6,800 33 (3)

Based on the rank, we can see that product A and B bring higher profits than product C contributes per direct labour hours. Therefore, all the direct labour hours available will be used to produce the Sales units of product B first, then, produce A, alter meet the demand of market, Kim Cuong LTD will produce product C. 4. Allocation of Direct Labour Hours Available Direct labour hours available A 5,850 B 6,500 C 5,650 Total 18,000

5. Work out the budgeted production and sales Sales (units) Sales Direct material Direct labour Variable overhead Fixed overhead Advertising cost Profit 2,600 260,000 13,000 29,250 13,000 6,000 198,750 2,275 325,000 17,550 32,500 17,550 9,000 248,400 1,080 249,265 17,033 28,250 17,033 7,500 179,449 5,955 834,265 47,583 90,000 47,583 22,500 8,000 618,599

6. Allocate the fixed overhead to the costs of the products Total sales ($) Total fixed OVH (Total fixed OVH + Advertising cost) Fixed overhead per dollar in Sales 825,000 30,500 0.037

After analysis, the fixed overhead is allocated to the cost of the products: Sales (units) Sales Direct material Direct labour Variable overhead Fixed overhead Profit A 2,600 260,000 13,000 29,250 13,000 9,505 195,245 B 2,275 325,000 17,550 32,500 17,550 11,882 245,518 C 1,080 249,265 17,033 28,250 17,033 9,113 177,836 Total 5,955 834,265 47,583 90,000 47,583 30,500 618,599

7. The profit of an extra 3,500 direct labour hours

If an extra 3,500 direct labour hours become available, direct labour will be limited to 21,500 hours. The limited time higher than 21,190 hours demanded, therefore, direct labour hour will not become a limiting factor any more. As a result, the company can produce full the sales demand of products. The additional product will require more cost; however, fixed cost will not increase. Additional Sales (units) Additional Sales ($) Additional Direct material Additional Direct labour Additional Variable overhead Additional Fixed overhead Increase in Profit direct labour hours become available. 610 140,735 9,617 15,950 9,617 105,551

Therefore, the company can earn $105,551 additional profit if an extra 3,500

II.

COSTING AND PRICING DECISIONS

1. Materials: a) b) c) $22,500 of materials would need to be purchased. This is not yet These materials will be transferred from another contract and they For some obsolete stock, they had the cost that is fixed at $20,000. owned. It would have to be bought. Therefore, it is relevant to a decision. need to be replaced. Relevant cost is therefore at the replacement cost of $14,000. And in the future, they can be sold at $5,000. The relevant cost here is an opportunity cost of sales revenue forgone at $5,000. 2. Labour cost For labour cost, $55,000 in the total $100,000 is fixed even though the contract was undertaken. The relevant cost is therefore ($100,000 - $55,000) $45,000. 3. Salary The production manager is paid a salary of $45,000 per year (fixed cost). A bonus of $7,250 is relevant cost in the future of the contract is successful. 4. Administration expenses In the future, the relevant cost of administration expenses is $4,325. 5. Fix overhead The company absorbs its fixed overheads at a rate of 12% per machine hour. The variable cost is therefore 4,000 machine hours of 88% per machine hour. Costing and Pricing Decisions

a. Materials b. Labour costs

(i) purchases (ii) from other project (iii) obsolete stock required already committed

20,000 100,000 55,000

22,500 14,000 5,000 45,000 7,250 4,325 98,075

c. Bonus for production manager d. Additional administrative expenses Total

Based on relevant cost, the minimum price that the company should set up is $98,075.

KINH DO CORPORATION
I. INVESTMENT DECISIONS
To invest in a machine in order to increase its profitability, Kinh Do Corporation must make several assumptions. Furthermore, the company must estimate annual profit increases after the calculation of straight-line depreciation over the life of the machines. 1. Annual profit increases estimated Year 1 2 3 4 5 Total profit A 210,000 210,000 170,000 165,000 60,000 815,000 B 125,00 0 125,00 0 150,00 0 215,00 0 140,00 0 755,00 0 700,00 0 20,000

Iniatial cost Residual value

700,000 60,000

Firstly, if the manager just looks at the figures, it can be seen that the profit that machine B brings seems to be more stable than machine A and the residual value of machine B is much less than machine A ($20,000 compare with $60,000). Based on total profit that both of them bring after five years, it can be seen clearly that the total profit of machine A is higher that machine B ($815,000 compare with $715,000). It means that machine A generates cash flow quicker than machine B. However, in order to make right decisions, the managers must consider carefully based on many factors. ARR and NPV are two methods that can help the managers in making decisions. 2. Calculate the Accounting Rate of Return Machine A 163,000 Machine B 151,000

Average profits (5 years)

Value of investment initially Residual value Average value of investment (/2)

700,000 60,000 380,000

700,000 20,000 360,000

The accounting rates of return are: A=

163,000 = 43% 380,000

B=

151,000 = 42% 360,000

The accounting rate of return of machine A is higher than machine B. Therefore, machine B would be chosen.

3. Calculate the NPV with discounting arithmetic Total Depreciation Aver. depreciation Machine A Present value Year 1 2 3 4 5 NPV Machine B Present value Year 1 2 3 4 5 NPV Cash flow A (700,000) 261,000 261,000 286,000 351,000 296,000 factor (10%) 1.000 0.909 0.826 0.751 0.683 0.621 Present value (700,000) 237,273 215,702 214,876 239,738 183,793 391,382 Cash flow A (700,000) 338,000 338,000 298,000 293,000 248,000 factor (10%) 1.000 0.909 0.826 0.751 0.683 0.621 Present value (700,000) 307,273 279,339 223,892 200,123 153,988 464,615 640,000 128,000 680,000 136,000

Both investments are positive and they can be acceptable. That means the both machines will earn more than 10% in five years. However, the NPV of Machine

A is $ 464,615 and it is higher if compared with $ 391,382 of Machine B. Therefore, the company should choose Machine A to invest for its assembly line.

II.

KDC
1. THE PURPOSE OF THE MAIN FINANCIAL STATEMENTS
Financial statements of Kinh Do Corporation present the flow of money into, through and out of a business. Each statement has different purpose and provides the information about the financial situation of the company. There are three main financial statements: profit and loss statement, balance sheet and cash flow statement. a. Profit and loss statement

Profit and loss statement is also known as an income statement is to summarize the profit and loss during a period such as a month, a quarter or a whole year. This statement documents the revenues and expenses during the given time so that the managers of Kinh Do calculates the net profit. In the income statement, the ability of Kinh Do to make profits and manage costs is shown and from them, profitability of the company is summarized. By the way considering the activities in the pass, Kinh Do can analyze and forecast or assess the future performance of the company. Moreover, managers of Kinh Do can analysis the income statement in order to find out the areas of its business which need to be improved. Furthermore, based on the income statement, Kinh Do can plan strategies to generate revenues or control costs in order to earn more profits. Furthermore, analysts, investors, lenders, etc, can assess the financial health of the company throughout income statement. By considering with the data in the past, investors will decide to invest into the company or not. For the company, there are many information the managers must analysis to manage activities and generate more profits. It shows the revenue that the company has earned or which cost that the company has spent much, etc. b. Balance sheet

The balance sheet gives the financing structure of Kinh Do: assets, liabilities and capital at a given moment in time. The balance sheet shows the financial position of a company at the end of a period. Based on the balance sheet, reader can

identify the trends and the area of receivables and payables as well as assess current financial condition of the company at the period time. Normally, the statement helps any one analyzes and predicts the funds that would be utilized in the future. The balance sheet states the business event at a certain time. This is analyzed based on a comparison with the previous balance sheet and the reports of other activities. The balance sheet is very important for not only Kinh Do but also any organizations. This not only reflects the general and detailed the status of assets and capital but also a convincing demonstration if the company would like to submit to the bank or for business partners when they would like to coordinate with Kinh Do. c. Cash flow statement

The statement detailed the reasons why the amount of money changes in the accounting period. It reflects all changes in currency by three activities: trading, investment and finance. It lets the managers know how much money they have in the beginning and how many are left at the end of the period. Next, it describes how much money the company has earned and spent within a specific time period. In detailed, cash flow statement provides the information that which areas the company spends fund. Investors and analysts analysis the cash flow statement to assess how the company generates funds in order to decide to invest to the company or not. Furthermore, it can help the company draft budget for next year. For example, if Kinh Do does not have much money, it may need to spend more savings. Conversely, if the company's money is plentiful, it will have the opportunity to make several new investment projects. It also shows whether Kinh Do has the ability to convert accounts receivable into cash or not - and basically, that facilitates the ability to pay the company debts. Debt payment capacity is the ability to pay the bills.

2.

THE DIFFERENCES BETWEEN THE FORMATS OF

FINANCIAL STATEMENTS FOR DIFFERENT TYPES OF BUSINESS

2.1 The balance sheet The balance sheet reports on a company's assets, liabilities, and ownership equity at a given point in time. Based on the balance sheet, reader can know financial position of the company at that time; it is because balance sheet is prepared to show the financial position of a business at a given moment.

The basis form of the balance sheet is shown below. Assets Current Assets Fixed Assets Liabilities Longterm liabilities Current liabilities Fixed Assets

And it can be shown:

Cost Fixed assets Current assets Creditors: amounts falling due in less than one year Capital and reserves The net assets of the business are similar for all types of business in the top half of the given balance sheet. For Limited company, it must use the particular wording while the partnerships and sole proprietor can change. The bottom half of the balance sheet shows the owners stake a. Limited company Depreciatio n Net Book Value

. A limited company is one whose owners liability to pay back debts is limited to the amount that they put in. In a limited company, the line Capital and reserves must show share capital for shareholders and profit and loss account. The example is shown below.
Cost Fixed assets Current assets Creditors: amounts falling due in less than one year 24,000 14,000 (6,500 ) Depreciatio n 13,000 14,000 (7,000) 7,000 18,000 Creditors: amounts falling due in more than one year Capital and reserves Share capital Profit and loss account (3,000) 15,000 5,000 10,000 15,000 Net Book Value 11,000

In this kind of business, the main difference is just in capital and reserves. There are many owners in this kind of business, therefore, directors must show the capital and sub sequent profits earned in the balance sheet in order that any shareholders can know the profits that they receive. b. Partnership

To establish a partnership, two or more persons agree to engage in business in common with a view to profit. In here, partners agree together to share capital contribution and shares profits. In partnership, the balance sheet must show the agreed shares of capital contributions and shares of profits for any person into the company. Depreciatio n 13,000 14,000 (7,000) 7,000 18,000 Creditors: amounts falling due in more than one year Capital account -Bi -Ty -Heo Sua Profit and loss account (3,000) 15,000 5,000 2,000 3,000 1,000 11,000 Net Book Value 11,000

Cost Fixed assets Current assets Creditors: amounts falling due in less than one year 24,000 14,000 (6,500 )

The main difference is in the partners individual stakes in the business are represented by capital accounts. Therefore, the owned rates of each partner are different so the capital account are distributed to the companys capital are different. The balance sheet will be required to show these rates. c. Sole proprietor

A sole trader is a business that is owned by one person, who provides money to start up the business. For a sole proprietor, the profits or looses are often transferred into the capital account.

Cost Fixed assets Current assets Creditors: amounts falling due in less than one year 24,000 14,000 (6,500 )

Depreciatio n 13,000 14,000 (7,000)

Net Book Value 11,000

7,000 18,000 Creditors: amounts falling due in more than one year Capital Profit and loss account (3,000) 15,000 5,000 15,000

Every assets and capital of the company are owned by one person. The sole trader directly provides capital to run business and all the profits that it makes belong to him. Therefore, the balance sheet no needs to divide to too many parts. II.2 The profit and loss statement In Profit and Loss statement, the company's income, expenses, and profits over a period of time are reported. It shows managers and investors whether the company made or lost money during the period. In here, the profits of the company through sales, expenses will be presented in order to inform to managers and investors. The basis form of the profit and loss statement is shown below. $ Turnover Operating profit Interest Profit on ordinary activities before taxation Taxation on ordinary activities Profit on ordinary activities after taxation Dividend Retained profit for the year Earnings per share

a. Limited company Million VND 3,992

Turnover

Operating profit Interest Profit on ordinary activities before taxation Taxation on ordinary activities Profit on ordinary activities after taxation Dividend Retained profit for the year Earnings per share

1,312 (997) 315 (114) 201 (143) 58 0.015

In limited company, the company must pay dividend for shareholder and also show earnings per share. b. Partnership and Sole proprietor For partnership and sole proprietor, corporation tax is not payable. In the financial statement, the income tax of each person is not shown although they must pay it based on the share of the profits. Differ from the limited company, the financial statement of sole proprietor and partnership does have dividends. That is because the sole trade get all of the profits earned and for partnership, the partner, although get the share of their profits, this may be shown in the balance sheet. Turnover Operating profit Interest Profit on ordinary activities before taxation Taxation on ordinary activities Profit on ordinary activities after taxation Retained profit for the year Million VND 3,992 1,312 (997) 315 (114) 201 201

3.

THE INFORMATION NEEDS OF DIFFERENT DECISION

There are two kinds of users of the accounting information: internal users and external users. The internal users are people within the organization such as board of directors, managers and employees. The external users are people such as shareholders, lenders or government, etc. 1. Internal users

Internal users need to know financial statements in order to assess the performance of Kinh Do Corporation. Based on financial statements, they will analyze the information whether the company achieves objectives, earn enough profits or not. They also calculate the dividends that are needed to pay for shareholders. In addition, compared with the previous years, they will estimate the trend in order to plan the strategies for their future. Board of directors: Every organizations run business in order to get profit. Income statement shows profits and loss at the end of the year and based on it, board of director know the net income as well as the whole picture of business after a year. Furthermore, he can strategy to encourage sale or control costs so that its business could run better in the next year. In balance sheet, board of director can assess the current assets, current liability and owners equity in a given time in order to plan directly. Financial statements show the situation of the company as well as present any things which are relate to their profits. Therefore, the directors of a company must observe the financial statements in order to revise and implement their business objectives. Managers: After board of directors are managers in the company. Their duty is to analyze, control and report to their supervisors. Managers need to know the financial statements in order to manage the business activities. Before board of directors analyzes financial statement, managers must understand what happen in its business in order to provide solution. For example, if managers analyze balance sheet and identify that stock-in-trade is much, that means there are some problem in management stock and he must find out solution to sell them. Shareholders: Normally, shareholders care about profit which the company can earns in order to be paid dividend. Shareholders will base on financial statement to assess the profitability of the company in order to decide whether they should continue to invest or not. Furthermore, as the owners, they will plan a strategy to control the business of the company in order to ensure there investment resources. 2. External users

For external users, they really would like to know how well the performance of Kinh Do, the health of the financial position in order for them to make decision such as loan, investment, etc. Investors: Financial statements provide necessary information for them to research previous and present information in order to assess, evaluate risk possibility or opportunity of the company to make decision investment or not. Based on the data in financial statement, potential investors will analyze the trends, financial position

and profitability of the company. More detailed, they can colligate not only financial statement but also many resources to assess the management of the company before deciding to invest or not. For them, the most importance is that the ability to get back money that they have invest, profitability and the risks which affect their investment. Current revenue as well as the stability of revenue are what they care. Therefore, they focus on the profitability, financial condition of the company because they affect the ability to pay dividend and the ability to past bankruptcy. Creditors: Based on the information in financial statements, creditors can know the ability, the fresh financial situation of the company. It is very important for banks to make decision lend or not. Analyzing the past financial statements, creditors can assess the efficiency of investment projects. Income statement will shows them the ability to make profits. Relying on balance sheet, they can know the assets, capital account in order to ensure their investment. The ability to pay back debt of business is the important thing that creditors would like to know throughout analyzing financial statements. For suppliers, profitability is less important than the ability to provide cash in order to pay for short term debt of enterprise. Besides, banks provide long term debt to business. They care about the ability of the company to earn enough profit to pay interest in the whole time of debt. Thus, financial statements are the first thing to attract creditors should invest into the company or not. Tax office and government: The tax office needs to know the financial statements of the company in order to ascertain the propriety and accuracy of amount of taxes. For government, they can determine proper duties declared and performed by the companies. Furthermore, based on this they can assess, classify the company in order to make the punishment or not, etc.

4.

THE

IMPACT

OF

FINANCE

ON

FINANCIAL

STATEMENTS
There are many items such as sales, collection of money, owners capital equity, issue of shares, payment of dividend, purchase of treasury, expenses, cost, borrowings, payment of principal, etc have an impact on the financial statements. When the company transacts, each item will affect financial statement. The first finance transaction should be mentioned is sales. When sales are made, it increases revenue in Income statement and, associate cost of goods sold, it affect on the net profit. On the balance sheet, sales make the merchandised goods decrease and increase cash collected or an account receivable. Therefore, making

good sales would result in good impact on the sales, owners equity and the performance of a company. Secondly, the company tries to collect money or debt from customers or partners, etc. It is collection of money. When the company collects money, it decrease account receivables and increase cash. It is because the company collect money from their debtors and therefore, these item is converted into cash in the period paying bill, maybe from 30 to 60 days. It makes current assess on the balance sheet and capital in the income statement increases. Therefore, collection of money will raise the capital of the company to ensure the financial position of the company. Owners capital investment is the net capital after issuing every debts. On the balance sheet, owners capital equal to total assets minus total debts. Therefore, support that total debts doesnt change, when owners capital investment increases, it will increase total assets and increases chartered capital and total equity on balance sheet. The next finance action is issuing of shares. When the company issues new shares, it will increase interest (more detailed, interest payable) because they need to spend money to issue new shares to public and also, the company will pay more dividend to shareholders after a year so it will affect dividend on profit and loss statement. On the other hand, issuing new shares will generate capital on balance sheet because when investors buy its shares, they will increase the capital of the company. After a year, the company must pay dividend annually to their shareholders. The action will make retained profit for the year decreases on the income statement. Not only pay dividend to shareholders, the company also must purchase treasury shares. It will decreases cash and cash equivalent on balance sheet. Moreover, it belongs to asset so it will increase indirectly assets of the company. Borrowing in business is the way to raise their capital and it becomes common action in any businesses. On the balance sheet, it will increase the figure in creditors such as bank loan and result of increasing in creditors. On the income statement, it will increase interest payable and therefore increase interest. From that, profit ordinary activities before taxation decreases. On the income statement, payment of interest will contribute to decrease profit. There are many interests that the company must pay such as payable on bank overdrafts or payable on debenture stock. On the balance sheet, it will increase creditors so it will decrease net assets of the company. Finally, increase in capital from retained earnings and reserves will increase owners equity on the balance sheet.

5.

ANALYZE FINANCIAL STATEMENTS

Difference $ % 224,966 18% 177,155 19% 47,810 15% -271,779 -111% -284,159 -128% 572 -34% -284,730 -127% -24,713 -309,443 20,654 -138% 65%

Income Statement (VNDm) Revenue COGS Gross Profit Operating Profit Profit before tax Tax Profit after tax Minority Interest PAT to the shareholders Interest expenses 2007 1,230,802 908,825 321,978 244,030 222,469 -1,659 224,127 Company's 224,127 31,710 18% 3% -85,316 52,364 -6% 4% % 100% 74% 26% 20% 18% 0% 18% 0% 2008 1,455,768 1,085,980 369,788 -27,749 -61,690 -1,087 -60,603 -24,713 % 100% 75% 25% -2% -4% 0% -4% -2%

It can be seen from the table that the revenue of Kinh Do increased slowly, just 18% in 2008 compared with the same period in 2007. However, cost of goods sold also went up but faster than revenue. These things made the company earn less profits in 2008 than 2007 (25% and 26% respectively). The result came from the business activities. It is strongly affected by appraisement policies, market or the effectiveness of produce. Administrative expenses, selling expense and others went up rapidly from 77,948 million VND in 2007 to 397,537 million VND in 2008. However, it is because the company planned to buy stake in Vinabico Confectionery or in Tribeco, Nutifood. It affected profit before tax by decreasing suddently 128% compared with the figure in 2007. As a result, profit after tax also faced with a strong decrease for 127% in 2008 compared to one in last year. Therefore, it was difficult for Kinh DO to pay profit to its shareholders because it loss 85,316 million VND. Balance Sheet (VNDm) Current Assets Cash & Equivalent Short term financial investments Provision for short term investments Short term receivables Inventory Provision for inventory devaluation Other short term assets Non-Current Assets 1,754,629 530,438 522,518 -4,932 560,318 136,272 -395 5,082 1,312,846 57% 30% 30% 0% 32% 8% 0% 0% 43% 1,474,434 206,808 584,291 -58,732 489,407 181,656 -1,165 12,271 1,508,976 49% 14% 40% -4% 33% 12% 0% 1% 51% 280,195 323,630 61,773 -16% -61% 12%

-53,800 1091% -70,911 -13% 45,384 33% -770 7,189 196,130 195% 141% 15%

Long term receivables Fixed assets Long term financial investments Provision for long term investments Other long term assets TOTAL ASSESTS Current liabilities Short term debt Non-current liabilities Long term debt Total Equity Chartered Capital Capital surplus Retained earnings Minority Interest TOTAL CAPITAL

30,911 480,860 797,351 -197,257 3,725 3,067,475 467,800 263,003 125,713 112,410 2,453,494 469,997 1,725,694 181,798 20,468 3,067,475

2% 37% 61% -15% 0% 100% 15% 9% 4% 4% 80% 15% 56% 6% 1% 100%

31,059 749,092 673,385

2% 50% 45%

148 268,232 123,966

0% 56% -16%

-51,357 -3% 55,440 4% 2,983,410 100% 663,885 335,922 172,041 156,029 2,075,923 571,149 1,721,014 22% 11% 6% 5% 70% 19% 58%

145,900 -74% 51,715 1388% -84,065 -3% 196,085 72,919 46,328 43,619 377,571 101,152 -4,680 328,802 51,093 -84,065 42% 28% 37% 39% -15% 22% 0% -181% 250% -3%

-147,004 -5% 71,561 2% 2,983,410 100%

According to above table, current assets decreased for 16% in 2008 compared to one in 2007, and it reduced the companys financial sources to convert their all current assets into cash for funding their daily operational activities. On the other hand, non-current assets in 2008 was higher than 2007. It can be explained that at that time, Kinh Do spend much money to buy stake of other business. It also showed at fixed assets and provision for long term investments. There was a decrease in total assets in 2008, so total capital also decreased. All current liabilities, short-term debt, non-current liabilities, and long-term debt increased much with 42%; 28%; 37%; and 39%, respectively. Kinh Do borrowed much in order to invest cause of increase in debts. In conclusion, although total capital of Kinh Do decreased, it just because the company spent much for investment. The bad financial situation will disappear when the company gets profits from what it invests. 4.1 Calculate ratios for the year ended and analyze the financial performance and position of Kinh Do The financial statements provide information in order to give an overview about the companys operation and financial position. Not only look at the information in the financial statements, a more sophisticated approach than this has been developed. This is ratio analysis, which involves comparing one figure against another to produce a ratio, and assessing whether the ratio indicates a weakness or strength in the companys affairs. Through ratio analysis, the stakeholders can

interpret trends in the performance year on year and the operation business of company. External comparison is the comparison with similar businesses and averages for the business sector within which the company operates. And the internal comparison is the comparison with previous periods and forecasts or budgeted results. Internal comparison is the comparison with previous periods and forecasts or budgeted results. a. Profitability and return on capital Profit margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Therefore, from the result, the profit margin trend is not good. 2007 PBIT is measured as Operating Profit Interest expenses PBIT Sales Profit margin (PBIT/Sales) 244,030 31,710 275,740 1,230,802 22% 2008 -27,749 52,364 24,615 1,455,768 2%

Based on the two figures above, we can see that there is a big decrease of profit from 2007 to 2008 (22% decreases to 2%). It leads to a loss in 2008. Asset turnover: It indicates how well the assets of Kinh Do are used for making sale. The number increases that mean the assets of Kinh Do can make more sale than previous year.

2007 Sales Capital employed includes: Non-current liabilities Total Equity Minority Interest Capital employed Asset turnover (Sales/Capital employed) 1,230,802

125,713 2,453,494 20,468 2,599,675 0.47

2008 1,455,76 8 1,455,76 8 172,041 2,075,92 3 71,561 2,319,52 5 0.63

(times)

Return on capital employed (ROCE):It shows how much a business is gaining for its assets, or how much it is losing for its liabilities. The number ROCE reduces so the business seems not to be good. Non-current liabilities Total Equity Minority Interest Capital employed Operating Profit Interest expenses PBIT ROCE (PBIT/Capital employed) 2007 125,713 2,453,494 20,468 2,599,675 244,030 31,710 275,740 10.61% 2008 172,041 2,075,923 71,561 2,319,525 -27,749 52,364 24,615 1.06%

ROCE = Profit margin * Asset turnover Profit margin 2007 2008 22% 2% Asset turnover 0.47 0.63 ROCE 10.61% 1.06%

There was a decrease rapidly on profit before interest and taxation in 2008 if compare with the datum in 2007. It made the profit margin decrease sharply from 22% in 2007 to 2% in 2008. Even though the company made sale increased in 2008, the rate just went up 18% while the rates of PBIT went down more than 128%. Furthermore, asset turnover increased a little because the company made sales as well as control capital employed better. Both profit margin and asset turnover affect ROCE. However, the rate tend to decreased sharply, from 10.61% in 2007 to 1.06% in 2008. The profit margin has fallen too much although the asset turnover increases a little, it has less than compensated for this.

b. Borrowing Liabilities ratio indicates how many percent of liabilities over the total asset. The higher the liabilities ratio is, the more creditor of the business and therefore the ability of funding itself are low. The company should regard as a safe limit, it is a helpful benchmark. 2007 Liabilities ratio - Total liabilities includes Current liabilities Non-current liabilities Total equities 467,800 125,713 593,513 2008 663,885 172,041 835,926

Total assets Liabilities ratio (total equities/total assets)

3,067,475 19.35%

2,983,410 28.02%

The figure of liabilities ratio is low. The financial situation of the company is very safe. However, the ratio has increased from 19.35% to 28.02%. Therefore, the company should pay attention to control their debts and try to raise their assets carefully. Capital gearing ratio a measure of the proportion of a companys capital that is prior charge capital. There is no absolute limit to what a gearing ratio ought to be. But a company with a gearing ratio of more than 50% is said to be highgeared (Whereas low gearing means a gearing ratio of less than 50%)1. 2007 Prior charge capital includes Long term debt Total capital includes Non-current liabilities Total Equity Minority Interest Total capital Capital gearing ratio (prior charge capital/total capital) 112,410 125,713 2,453,494 20,468 2,599,675 4.32% 2008 156,029 172,041 2,075,92 3 71,561 2,319,52 5 6.73%

The gearing capital ratio of Kinh Do is very low, mainly because of the small amount of prior charge capital. The company is low geared and it is easy in the future when it wants to borrow.

There is a similar ratio to the gearing ratio is the debt/equity ratio 2007 Total Equity includes Total Equity include Minority Interest Total equity Prior charge capital Debt/equity ratio 2,453,494 20,468 2,473,962 112,410 4.54% 2008 2,075,923 71,561 2,147,484 156,029 7.27%

Managing Financial Resources and Decisions book, page 132

The interest cover ratio shows whether a company is earning enough profits before interest and tax to pay its interest costs comfortably. An interest cover of two times or less would be low, and should really exceed three times before the companys interest costs can be considered within acceptable limits2. 2007 Profit before interest and tax Operating Profit Interest payable includes Minority Interest Interest expenses Total interest payable Interest cover ratio (profit before interest and tax/interest payable) 275,740 31,710 31,710 9 2008 24,615 (24,713) 52,364 27,651 1 (times)

The figures of interest cover ratio in 2007 is very high, exceed 9 times before the companys interest cost. It is because in the year 2007, the company earned much profit compared with interest payable and it earned enough profits to pay its interest costs comfortably. However, in 2008, although interest payable of Kinh Do decreased, the company would meet difficult to generate enough profits before interest and tax to pay interest. Therefore, the company must try to improve their sales in order to get higher profits. c. Liquidity and Working Capital Ratios Current ratio: The ability of a business to meet short-term obligations. Based on the calculated result, the ability of Kinh Do to pay off its current liabilities decreases. 2007 Current assets Current liabilities Current ratio (current assets/current liabilities) 1,754,629 467,800 3.75 2008 1,474,43 4 663,885 2.22

Based on the figures, the company, in 2007 was able to convert all their current assets into cash quicker than its figures in 2008. The financial situation of Kinh Do in 2008 seem to be worse than 2008, current assets reduced while current liabilities rose. These numbers made the quick ratio on Kinh Do in 2008 decreased.

Managing Financial Resources and Decisions book, page 133

Quick ratio:

The ability of a company to pay off its short-term

obligations from current assets, excluding inventories. Based on the calculated result, the ability of Kinh Do to pay off its current liabilities decreases. 2007 Current assets less stocks includes Current assets Inventory Current assets less stocks Current liabilities Quick ratio 1,754,629 136,272 1,618,357 467,800 3.46 1,474,43 4 181,656 1,292,77 8 663,885 1.95 2008

Both the figures show that the company has very high creditors (less stock and quick turnover). However, the trend decreased from 3.46 in 2007 to 1.95 in 2008, mainly because of current liabilities and inventory. From this, it seems that the liquidity is not improving. Therefore, the company should pay attention to solve these problems. Efficiency ratios: * Stock turnover ratio: 2007 $ (VNDm) Inventory (1) Cost of goods sales (2) Stock turnover ratio ((1)/(2) * 365 days) 136,272 908,825 55 days 2008 $ (VNDm) 181,656 1,085,980 61 days

The ratio increases from 55 days in 2007 to 61 days in 2008. It is a signal that the product of Kinh Do is consumed slowly. The company had no improvement to manage or control well its liquidity to convert their inventory into cash quickly. Therefore, the products of Kinh Do seemed to be consumed quickly.

4.2 Summarize When we look at the financial statement, it shows that the financial position of Kinh Do decreased. However, there are many good signals for the future of the company.

Firstly, the sales of Kinh Do increased, it means that Kinh Do has stable number of customers. Furthermore, asset turnover in 2008 was also higher than 2007. That mean the assets of Kinh Do can make more sale than previous year. The next is borrowing. We can see that the figure of liabilities ratio is low. If we explain it positively, it is because Kinh Do borrowed much to invest much projects. Moreover, the financial statements dont show the potential opportunities in investment. It is guessed that in the period public these financial statements, the company was planning to expand its market. The costs which were shown in the financial statement is high cause the profit became low but maybe next period, this number may increase rapidly. In addition, financial statements dont show the cost which contribute to make revenue such as depreciation, management cost or advertising cost. In conclusion, the financial position of Kinh Do is safe and investors could be comfortable to invest to Kinh Do.

CONCLUSION
The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. Hopefully, the discussion in this report will be useful to understand more about financial statements.

REFERENCES
Managing Financial Resources and Decisions book, page 132 Managing Financial Resources and Decisions book, page 133 http://en.wikipedia.org/wiki/Financial_statement