Due Dilligence - VCU

7/30/2019 Due Dilligence - VCU

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3/25/20

Researcher & Educator

Due Diligence

In Vietnamese PracticeProfessional Auditors - PA

AFA Researcher & Educator

Information

First Name: Long

Family Name: Phan

Occupation: Auditor, Finance & Banking Consultant

Firm: National Auditing Group

Position: Deputy General Director and Partner

Main Qualification: Master of Business (Monash Uni,Aus), CMA, CPA

Cell: 0906816226 e-mail: [email protected]

Slide 2

Agenda

What you have learnt?

Due diligence in Vietnamese practice

Firm valuation issues

Industry analysis

Case studies

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What you have learnt?

In business, due diligence refers to

investigating all areas of anorganization before agreeing to animportant transaction or merger.

The term "due diligence" first cameinto common use as a result of theUnited States' Securities Act of 1933.

Slide 4

Some DD aspects

Due diligence can be:The examination of a potential target for merger,

acquisition, privatization, or similar corporatefinance transaction normally by a buyer (acquirer).

A reasonable investigation focusing on materialfuture matters.

An investigation on the current practices ofprocess and policies.

An examination aiming to make an acquisitiondecision via the principles of valuation and

shareholder value analysis.Slide 5

Questions asked

An examination being achieved by askingcertain key questions:

How do webuy?

How do westructure theacquisition? How much

do we pay?

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We need information

Key Early Issues and Alarms

Ownership and Capital Structure

Directors and GovernanceManagement

Products and Services

Research & Development and Technology

Markets and Customers

Competition

Marketing, Selling, and Distribution

Slide 7

We need information (contd)

Pricing

Advertising

Public and Investor Relations

Manufacturing

Purchasing and Outsourcing

Human Resources and Employees

Employee Compensation and Benefits

Retirement Plans and ESOPs

Culture of the Business

Legal and Regulatory Affairs

Government Business, Lobbying, and PoliticsSlide 8


Asset valuation key issues:

Cash and Cash Management

Accounting: General Questions

Accounting: Policies

Accounts and Notes Receivable

Taxes

Inventory

Fixed and Other Assets

Liabilities

Cost of Sales and Gross Profit

Selling and General and Administrative Expenses

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Asset valuation key issues (contd):

Income Recognition and Backlog

Intracompany Transactions Real Estate

Investment Questions and Issues

Off-Balance Sheet Items

Assets and Liabilities Excluded

Financial Ratios and Trends

Slide 10

DD in Vietnamese Practice

Mainly focus on Legal and Financial DueDiligence

Legal DD done by Lawyers

Financial DD done by Auditors

Financial DD is to answer the questionHow much will we pay?

Net asset method

Discounted Cash Flow (DCF)

Slide 11

DD in Vietnamese Practice (Contd)

Main players in Vietnamese DD servicesmarket

Big4

Second tier audit firm Legal firms

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DD in Vietnamese Practice (Contd)

Documents request list for Financial DD

Documents request list for Legal DD

Luvina DD Report

Bigbang DD Report

Slide 13

Key issues in asset valuation in VN

Net asset value = Real assets - Real Liabilities

Real assets

Virtual assets

Real liabilities

Contingent liabilities

Slide 14


Real assets

Cash and cash equivalents

Receivables

Inventories Investments

Fixed assets

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Real assets (contd)

Cash and cash equivalents Cash count

Bank confirmation

Forex translation

Slide 16


Real assets (contd)

Receivables

Validity of account receivables

Aging analysis and provision for bad anddoubtful debts

Assessment of recoverable

Slide 17


Real assets (contd)

Inventories

Cost vs. Net realizable value (NRV)

Provision for devalued inventories Investments

Fair value of investments

Listed equity

OTC

Long-term investments

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Real assets (contd)

Fixed assets Net book value = Cost Accumulated depreciation Actual situation

Actual capacity

Market or fair value o FA

Slide 19


Real liabilities

Account payables

Short and long-term loans

A/P and loans: confirmations

Tax payables: Tax DD

Employee payables: Human Resource DD

Slide 20

Sample adjustmentsUnit: VND

Amo un t No te s

97,132,348,964

1 Write off the bad debts which were provisioned as doubtful debts at

31 December 2010

-

2 Write off the bad debts which were not provisioned as at 31

December 2010

(1,309,056,022)

3 P ro vis io n f or do ub tfu l d eb ts as at 31 De ce mb er 2010 (2,211,949,185)

4 Write off prepayment to suppl iers which can not be recovered (1,251,759,968)

5 Write off the receivable amount from Boramtek (Contract No. 01-

1996) and can not be c laimed back and PIT

(1,459,815,910)

6 Eliminate the overstated amount in other receivable and payble to

employee

-

7 Reclassification of golf membership fee from other receivables to

long termprepaid expense

-

8 Pro vis io n for de va lu ed in ve nt ory a s a t 31 De ce mb er 2010 (317 ,343 ,2 00 )

9 Wri te o ff a dv an ce t o emp lo ye es w hic h ca n no t be rec ov ered (214 ,394 ,0 82 )

10 Write off depos it which can not be recovered (855,078,334)

11 Provision for severance allowance (1,806,820,982)

12 Record the foreign exchange rate difference to profit and loss

account in 2010

-

(9,426,217,682)

87,706,131,282

Items

Bookednet ass et value (endof December 2010)

Total amount

Adjustednet asset value (endof December 2010)

Bigbang DD report Slide 21


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Case study - RIC

Read 3 recent years RICs financialstatements

Comments on factors that can affect netreal asset value of the firm

15 minutes for reading

15 minutes for discussion

Slide 22

Short Group Presentation Homework

Find 3 recent years audited financial statements ofKMR (Cong ty Co phan Mirea - HOSE)

Investigate relevant information of KMR

Comments on factors that can affect net realasset value of the firm

Group presentation:

2 group will do presentation

10 minutes for each groups presentation

10 minutes for discussion among class

Slide 23

Virtual Assets

Firm value do not only include net real assetsbut also virtual assets that results from:

Value of human resource includingmanagement

R&D

Brandname

Distribution channel

Others

These virtual assets were not recorded in thebalance sheet of the firm.

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Contingent liabilities

Potential penalties

Warranty obligations

Guaranties

Legal disputes

Potential tax obligations

Business commitments

Contingent liabilities were not recorded in thebalance sheet of the firm

Slide 25


Determine forecasted free cash flow of thefirm

Normally, at least 5 years in the future

Using WACC as discounted rate

WACC depends on risk of the firm

Slide 26


WACC = E/(D+E) x Re + D/(D+E) x Rd

In which:

E: Market value of equity

D: Market value of debts Re: Cost of equity determined by equity

investors desire using CAPM model

Rd: Cost of Debts determined by loaninterest, firm ratings

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Phn tch Ngnh (5-Forces Model)

Mt doanh nghip b hn ch vi c im ngnhkinh doanh m doanh nghip ang hot ng

Xc nh ngnh kinh doanh Ngnh kinh doanh rng

Ngnh kinh doanh hp

Xc nh theo vng a l (V d: cn thp min bcv min nam, Bt ng sn H Ni, TP.HCM)

Slide 28



Xc nh ngnh kinh doanh Ngnh kinh doanh rng (Ngnh vin thng)

Ngnh kinh doanh hp (Ngnh dch v internet)


Slide 29



Xc nh ngnh kinh doanh Ngnh kinh doanh rng (Ngnh vin thng)

Ngnh kinh doanh hp (Ngnh dch v internet)


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Phn tch ngnh: S cn thit

Vn vay90%

Vn ch 10%

Cu trc vn Cu trc vn ny tt

hay khng tt?Cng ty kim ton

Viettel

Vinaconex

Vietcombank

Slide 31

Slide 32

Phn tch ngnh: Chu k ngnh

Doanh thu

Li nhun

Khi ng Tng trng Bo ho Suy thoi

Kimton

Vinthngdi ng

Hngkhng

$

Thi gian

Phn tch ngnh: Cnh tranh - M hnh 5F

Mc cnhtranh gia ccdoanh nghip

Quyn mphn ca

khch hng

Se doca ith mi

T sutsinh li

Se doca snphm thay

th

Quyn mphn canh cung

cp

M hnh 5 nhn tcnh tranh caMichael E. Porter

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M hnh 5 nhn t cnh tranh

Nhn t 1: Mc cnh tranh gia cc doanhnghip trong cng ngnh

T l tng trng ngnh (Ph thuc vo chu k ngnh) Mc tp trung trong ngnh: 4 doanh nghip dn u

chim 60% th phn th c coi l mc tp trung cao

Kh nng to khc bit (Differentiation)

Chi ph chuyn nh cung cp

Kh nng tn dng li th v quy m

Chi ph thoi lui (Exit barriers)

Slide 34

M hnh 5 nhn t cnh tranh (Tip)

Nhn t 2: Se do ca i th mi Kh nng tn dng li th v quy m

Kh nng gia nhp vo h thng phn phi

Cc ro cn php l

Nhn t 3: Se do ca sn phm thay th So snh gia gi v kh nng p ng nhu cu (V d: hng

khng v ng st, GSM v 3G, )

Kh nng chuyn i sang s dng sn phm thay th cakhch hng

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M hnh 5 nhn t cnh tranh (Tip)

Nhn t 4: Quyn m phn ca khch hng Mc nhy cm v gi ca khch hng Chi ph chuyn sang nh cung cp mi ca khch hng Kh nng to khc bit ho (iPhone) s lng khch hng

Khi lng trung bnh mua bi mt khch hng

Nhn t 5: Quyn m phn ca nh cung cp Mc nhy cm v gi ca khch hng Chi ph chuyn sang nh cung cp mi ca khch hng Kh nng to khc bit ho (iPhone) s lng nh cung cp Khi lng trung bnh bn bi mt nh cung cp

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Phn tch ngnh: V th trong ngnh

Viettel?

Th phn tng i so vi i th cnhtranh gn nht

Tc tng

trngca

ngnh

Researcher & Educator

www.kiemtoan.com.vn