REPORTFINANCIAL STATEMENT FOR DIFFERENT

COMPANIES

TABLE OF CONTENTS

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__________16

4. THE IMPACT OF FINANCE ON FINANCIAL STATEMENTS_______18

5. ANALYZE FINANCIAL STATEMENTS_________________________19

REFERENCES_______________________________________________________28

INTRODUCTION

The results of a business’s 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

A B C Total

Sales (units) 2,000 1,750 1,300 5,050

Sales 200,000 250,000 300,000

750,00

0

Direct material 10,000 13,500 20,500 44,000

Direct labour 22,500 25,000 34,000 81,500

Variable overhead 10,000 13,500 20,500 44,000

Fixed overhead 6,000 9,000 7,500 22,500

Profit 151,500 189,000 217,500

558,00

0

The information per unit

2. The revised budget

After the sales are increased by 30%:

A B C Total

Sales (units) (increased by 30%) 2,600 2,275 1,690 6,565

Direct labour hours needed 5,850 6,500 8,840 21,190

Direct labour hours available 18,000

Surplus/(Deficit) (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

A B C

Contribution magin (total $) 157,500 198,000 225,000

Direct labour hours (total hours) 4,500 5,000 6,800

Contribution per DLH 35 40 33

Rank (2) (1) (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

A B C Total

Direct labour hours available 5,850 6,500 5,650 18,000

5. Work out the budgeted production and sales

6. Allocate the fixed overhead to the costs of the products

Total sales ($)

825,000

Total fixed OVH (Total fixed OVH + Advertising cost) 30,500

Fixed overhead per dollar in Sales

0.037

After analysis, the fixed overhead is allocated to the cost of the products:

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.

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

direct labour hours become available.

II. COSTING AND PRICING DECISIONS

1. Materials:

a) $22,500 of materials would need to be purchased. This is not yet

owned. It would have to be bought. Therefore, it is relevant to a decision.

b) These materials will be transferred from another contract and they

need to be replaced. Relevant cost is therefore at the replacement cost of $14,000.

c) For some obsolete stock, they had the cost that is fixed at $20,000.

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 (i) purchases 22,500

(ii) from other project 14,000

(iii) obsolete stock 20,000 5,000

b. Labour costs required 100,000

already committed 55,000 45,000

c. Bonus for production manager 7,250

d. Additional administrative expenses 4,325

Total 98,075

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 A B

1 210,000125,00

0

2 210,000125,00

0

3 170,000150,00

0

4 165,000215,00

0

5 60,000140,00

0

Total profit 815,000755,00

0

Iniatial cost 700,000700,00

0Residual value 60,000 20,000

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

Machine B

Average profits (5 years) 163,000 151,000

Value of investment initially 700,000 700,000Residual value 60,000 20,000Average value of investment (/2) 380,000 360,000

The accounting rates of return are:

A = B =

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 640,000 680,000

Aver. depreciation 128,000 136,000

Machine A

Machine B

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 Liabilities

Current AssetsLongterm liabilitiesCurrent liabilities

Fixed Assets Fixed Assets

And it can be shown:

Cost DepreciationNet Book

Value£ £ £

Fixed assetsCurrent assetsCreditors: amounts falling due in

less than one yearCapital 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 owner’s stake

a. Limited company

. 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 DepreciationNet Book

Value£ £ £

Fixed assets 24,000 13,000 11,000Current assets 14,000 14,000Creditors: amounts falling due in less

than one year(6,500

)(7,000)

7,00018,000

Creditors: amounts falling due in more than one year

(3,000)

15,000Capital and reserves 5,000Share capital 10,000Profit and loss account 15,000

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.

Cost DepreciationNet Book

Value£ £ £

Fixed assets 24,000 13,000 11,000Current assets 14,000 14,000Creditors: amounts falling due in less than

one year(6,500

)(7,000)

7,00018,000

Creditors: amounts falling due in more than one year

(3,000)

15,000Capital account 5,000

-Bi 2,000-Ty 3,000-Heo Sua 1,000

Profit and loss account 11,000

The main difference is in the partner’s 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 company’s 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 DepreciationNet Book

Value£ £ £

Fixed assets 24,000 13,000 11,000Current assets 14,000 14,000Creditors: amounts falling due in less

than one year(6,500

)(7,000)

7,00018,000

Creditors: amounts falling due in more than one year

(3,000)

15,000Capital 5,000Profit and loss account 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 VNDTurnover 3,992Operating profit 1,312Interest (997)Profit on ordinary activities before taxation 315Taxation on ordinary activities (114)Profit on ordinary activities after taxation 201Dividend (143)Retained profit for the year 58Earnings per share 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.

Million VND

Turnover 3,992

Operating profit 1,312

Interest (997)

Profit on ordinary activities before taxation 315

Taxation on ordinary activities (114)

Profit on ordinary activities after taxation 201

Retained profit for the year 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 owner’s 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, owner’s 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, owner’s 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.

Owner’s capital investment is the net capital after issuing every debts. On the

balance sheet, owner’s capital equal to total assets minus total debts. Therefore,

support that total debts doesn’t change, when owner’s 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

owner’s equity on the balance sheet.

5. ANALYZE FINANCIAL STATEMENTS

Income Statement (VNDm) Difference2007 % 2008 % $ %

Revenue 1,230,802 100% 1,455,768 100% 224,966 18%COGS 908,825 74% 1,085,980 75% 177,155 19%Gross Profit 321,978 26% 369,788 25% 47,810 15%Operating Profit 244,030 20% -27,749 -2% -271,779 -111%Profit before tax 222,469 18% -61,690 -4% -284,159 -128%Tax -1,659 0% -1,087 0% 572 -34%Profit after tax 224,127 18% -60,603 -4% -284,730 -127%Minority Interest 0% -24,713 -2% -24,713PAT to the Company's shareholders 224,127 18% -85,316 -6% -309,443 -138%Interest expenses 31,710 3% 52,364 4% 20,654 65%

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 1,754,629 57% 1,474,434 49%-

280,195 -16%

Cash & Equivalent 530,438 30% 206,808 14%-

323,630 -61% Short term financial investments 522,518 30% 584,291 40% 61,773 12% Provision for short term investments -4,932 0% -58,732 -4% -53,800 1091% Short term receivables 560,318 32% 489,407 33% -70,911 -13% Inventory 136,272 8% 181,656 12% 45,384 33% Provision for inventory devaluation -395 0% -1,165 0% -770 195% Other short term assets 5,082 0% 12,271 1% 7,189 141%

Non-Current Assets 1,312,846 43% 1,508,976 51% 196,130 15% Long term receivables 30,911 2% 31,059 2% 148 0% Fixed assets 480,860 37% 749,092 50% 268,232 56% Long term financial investments 797,351 61% 673,385 45%

-123,966 -16%

Provision for long term investments - -197,257 -15% -51,357 -3% 145,900 -74% Other long term assets 3,725 0% 55,440 4% 51,715 1388%TOTAL ASSESTS 3,067,475 100% 2,983,410 100% -84,065 -3%

Current liabilities 467,800 15% 663,885 22% 196,085 42% Short term debt 263,003 9% 335,922 11% 72,919 28%Non-current liabilities 125,713 4% 172,041 6% 46,328 37% Long term debt 112,410 4% 156,029 5% 43,619 39%

Total Equity 2,453,494 80% 2,075,923 70%-

377,571 -15% Chartered Capital 469,997 15% 571,149 19% 101,152 22% Capital surplus 1,725,694 56% 1,721,014 58% -4,680 0%

Retained earnings 181,798 6% -147,004 -5%-

328,802 -181%Minority Interest 20,468 1% 71,561 2% 51,093 250%TOTAL CAPITAL 3,067,475 100% 2,983,410 100% -84,065 -3%

According to above table, current assets decreased for 16% in 2008

compared to one in 2007, and it reduced the company’s 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 company’s 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 company’s 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 2008PBIT is measured as Operating Profit 244,030 -27,749 Interest expenses 31,710 52,364PBIT 275,740 24,615Sales 1,230,802 1,455,768Profit margin (PBIT/Sales) 22% 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 2008

Sales 1,230,8021,455,76

8

Capital employed includes:1,455,76

8 Non-current liabilities 125,713 172,041

Total Equity 2,453,4942,075,92

3 Minority Interest 20,468 71,561

Capital employed 2,599,6752,319,52

5Asset turnover (Sales/Capital employed) 0.47 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 ò ROCE

reduces so the business seems not to be good.

2007 2008 Non-current liabilities 125,713 172,041 Total Equity 2,453,494 2,075,923 Minority Interest 20,468 71,561Capital employed 2,599,675 2,319,525 Operating Profit 244,030 -27,749 Interest expenses 31,710 52,364PBIT 275,740 24,615ROCE (PBIT/Capital employed) 10.61% 1.06%

ROCE = Profit margin * Asset turnover

Profit margin Asset turnover ROCE

2007 22% 0.47 10.61%

2008 2% 0.63 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 2008Liabilities ratio - Total liabilities includes Current liabilities 467,800 663,885 Non-current liabilities 125,713 172,041Total equities 593,513 835,926Total assets 3,067,475 2,983,410Liabilities ratio (total equities/total assets) 19.35% 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 company’s

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 high-

geared (Whereas low gearing means a gearing ratio of less than 50%)1.

2007 2008Prior charge capital includes Long term debt 112,410 156,029Total capital includes Non-current liabilities 125,713 172,041

Total Equity 2,453,4942,075,92

3 Minority Interest 20,468 71,561

Total capital 2,599,6752,319,52

5Capital gearing ratio (prior charge capital/total capital) 4.32% 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.

1 Managing Financial Resources and Decisions book, page 132

There is a similar ratio to the gearing ratio is the debt/equity ratio

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

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

company’s interest costs can be considered within acceptable limits2.

2007 2008Profit before interest and tax Operating Profit 275,740 24,615Interest payable includes Minority Interest - (24,713) Interest expenses 31,710 52,364Total interest payable 31,710 27,651Interest cover ratio (profit before interest and tax/interest payable) 9 1 (times)

The figures of interest cover ratio in 2007 is very high, exceed 9 times

before the company’s 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 2008Current assets 1,754,629 1,474,43

2 Managing Financial Resources and Decisions book, page 133

4Current liabilities 467,800 663,885Current ratio (current assets/current liabilities) 3.75 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.

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 2008Current assets less stocks includes

Current assets 1,754,6291,474,43

4 Inventory 136,272 181,656

Current assets less stocks 1,618,3571,292,77

8Current liabilities 467,800 663,885Quick ratio 3.46 1.95

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)

2008$

(VNDm)

Inventory (1) 136,272 181,656

Cost of goods sales (2) 908,825 1,085,980

Stock turnover ratio ((1)/(2) * 365 days)

55 days 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 don’t 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 don’t 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