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Table of Content

Introduction.2

Task 2c.3

Task 2d.4

Task 3a.6

Task 3b.8

Task 3c..9

Task 4a.10

Task 4b.12

Task 4c..14

Conclusion20

References.20

Appendix

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Introduction

Managing financial resources and decisions are designed to give students a broad

understanding of how the financial management of a business organization. Students will

learn how to evaluate different sources of finance, compare the ways in which they are

used and will learn how to use financial information to make decisions. There will be

consideration of decisions relating to pricing and investment, as well as budget. Finally,

they will learn techniques for the evaluation of financial operations.

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The decisions making of finance statement

Internal user:

Board of Directors: A board of director is a body of members elected or

appointed persons monitoring the activities of a company or organization.

Typical tasks of the Board include:

-Organization by establishing broad policies and objectives;

-Selection, appointment, support and review implementation of the CEO;

-Ensure the availability of sufficient financial resources;

-Approve the annual budget;

-Account for the stakeholders of the organizational activities.

-Set salaries and compensation

Board of Directors set corporate strategy and determine the policies of the

company, supervising the management of enterprises, evaluation of internal company,

control procedures, and monitor the quality of information provided to the neck

shareholders and financial markets and financial reporting in connection with financial

transactions.

Therefore, the Board of Directors of the company needs to keep up

with current financial situation of the company to assess whether the costs exceed the

current budget or have any problem with working for adjustment and implementation of

the current business strategy to achieve corporate objectives, mission and vision.

Management: Management plays important role in all business and

organizational activities in Company. They know all information about the companys

financial and directly using available resources efficiently and effectively. Management

sets planning, organizing, staffing, leading or directing, and controlling financial situation

with more details to effort for the purpose of accomplishing a goal. Here, the

management has responsibility to analyze, make manager controls the business

efficiently and solve all problems to develop company. Therefore, the management needs

the financial report to make business plan. To know exactly about the financial of

company, the financial statement is necessary for management because it provides more

comprehensive information of company. Managers require financial statements to make

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important business decisions that affect its continued operations. Financial analysis is

then performed on these statements to provide management with a more detailed

understanding of the figures. These statements are also used as part of management's

annual report to the stockholders.1

Shareholders: Share holder means any person, company, or other institution that

owns at least one share in a company. They are positive corporate image of company.

They bring high profit and invest money for company. Therefore, they need to know all

information about their benefits to make decision investing in Company. If KindDo

attracts many shareholders and make believe about company from shareholders, the

company has many profits to finance daily activities and its business.

Employee: Employees and their representative groups are interested in

information about the stability and profitability of their employers. They are also

interested in information which enables them to assess the ability of the enterprise to

provide remuneration, retirement benefits and employment opportunities. They join in

activities and missions in company when they receive the task from the manager.

Therefore, employees should be provided some information about the financial

situation of the company. Employees need to know to make the collective bargaining

agreement of their wages to their owners. When employees work in good condition with

reasonable salary, they can use all good ability to have good results in work.

External users:

Investors: The providers of risk capital and their advisers are concerned with the

risk inherent in, and return provided by, their investments. They need financial

information to help them determine whether they should buy, hold or sell. Shareholders

are also interested in information which enables them to assess the ability of the

enterprise to pay dividends. (Investors are owners of the co. It can be argued that they are

external stakeholders, but it's also hard to call your owners outsiders)

Customers: They are people who purchase companys products. They are

important part in business because they are the main profit of the company. The

successful of company depends on the number of customers and loyal customers.

Customers are the survival of company, so Company need to improve the quality of

1http://en.wikipedia.org/wiki/Financial_statement

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products and service to keep the loyal customers. Besides, customers need to know about

the financial information because it provides the business activities of Company and

affect to the decision purchase of Company products.

Suppliers: Suppliers are interested in the success and stability of the company so

they can ensure they will have a customer in the future. Suppliers have a long term

relationship with the firm. They play important role in provide raw material for the

company. Many suppliers ask for financial statements to determine their risk in working

with you. If you order supplies from them and you pay them for those supplies before

they ship to you that is usually not a problem. But if you expect them to ship products to

you before you pay (which means that they are extending credit to you) they want to be

sure that you are credit worthy and that you will be able to pay them for the products you

ordered. Therefore, Company needs to provide financial information help suppliers know

about the number of materials. From that, supplier is easy to provide the good materials

for Company to produce good products because the quality of products depends on the

quality of material.

Government: The government responsibility is that to make sure the company

has to follow the law, regulations, policy and principles in business. Company has

responsible to pay tax for government. The tax based on the profit of Company and the

salaries of company. From that the government can know the employees receive suitable

salaries or not and government will decide suitable tax for company

The financial situation (banks and other lending companies) use them to decide

whether to grant a company with new working capital or extend debt securities (such as a

bank term loan limit or bonds) to run business or make other things. When company want

to lend money, company must show that they run business well and can repay the loan in

right time. Besides, the lender wants to know the reasonability of company when

company lends it.

The impact of finance on the financial statements

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The management of the company's financial controls of the company through

financial statements because it gives details of all financial records for management.

Financial statement contains Income statement, balance sheet, cash flow statements, etc.

Financial statement is the best way to show about the financial situation of company.

Firstly, the impact of finance on the financial statements can show when

customers buy their products and the profits brings for company. When the company

buys products for customer, the income statement will reflect about the. For example,

when the company buys products for customers with price $10000, it means that the

company earns $10000 and it will calculate in the revenues of company. When company

buys many products for customer, it means that company can earn many profits for

company; it brings good effect for company because they increase the revenue of

company. Therefore when the revenues of company is good or bad, it also have affect

into the income statement and the financial statement of company.

Secondly, the company must show their expense in expense in the income

statement. Every activities of Kinh Do need to use money so the company will so it in

their financial statement. If the company spends much money, it will generate expense

and as a result of them, expense will affect gross profit. The more expense the company

spends, the less profit they receive.

Next, the company will pay tax for government. This action will show in tax in

Income statement and then, Profit after tax will be illustrated. It is because Profit after

tax is equal Profit before tax minus tax.

Then, when the company wants to expand their business, they need to sell issue or

borrow capitals from the banks to run their business. When they sell issue for

shareholders, it will increase interest because they need to spend money to issue new

shares to public. The company must pay more dividends to shareholders so it will affect

the income statement. Thus, the retained earning will reduce. On the other hand, the

action will increase their capital.

Furthermore, the company will purchase treasury shares. cash and cash equivalent on

balance sheet will decreased.

Besides when company borrows money from the banks or others, they will

pay the interests of money at the right time. When the company borrows money from the

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banks, the company will increase capital. Creditor in balance sheet will increase but

raise capital. Interest in income statement will increase. Therefore, profit ordinary

activities before taxation decreases.

Finally, all activities such as buy or sell will be record in financial statements and

its will be changed. For example: when company buys the raw material from the supplier

with $1000000, it means the assets of company decrease $1000000. It makes the change

in the income statements that means the purchase increase $ 1000000 and it also makes

the sell revenue increase in the balance sheets and the assets of company decrease $

1000000. Therefore, 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. Financial statements

should be understandable, relevant, reliable and comparable. Reported assets, liabilities,

equity, income and expenses are directly related to an organization's financial position.2

2 http://en.wikipedia.org/wiki/Financial_statement

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Analyzing the budgets and making appropriate decisions

1. Original Budget

A B C Total

Sales $200.000 250.000 300.000 750.000

Direct material $10.000 13.500 20.500 44.000

Direct labor $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

Sales(units) 2.000 1.750 1.300

Total cost $47.500 61.000 82.500 191.000

Profit $151.500 189.000 217.500 558.000

2. Per unit information

Selling price per unit = the sales ($)/ the sales (unit)

Direct material per unit = total direct material/ the sales (unit)

Direct labor per unit = total direct material/ the sales (unit)

Variable overhead per unit= total variable direct material/ the sale (unit)

A B C

Selling price per unit $100 142.86 230.77

Direct material per unit $5 7.71 15.77

Direct labor per unit $11.25 14.29 26.15

Variable over head per unit $5 7.71 15.77

Direct labor hour = direct labor/ direct labor rate

Direct labor hour per unit = direct labor hour / the sales (unit)

A B C

Direct labor rate $5/unit $5/unit $5/unit

Direct labor hours 4500 hours 5000 hours 6800 hours

Direct labor hour per unit 2.25 hours 2.86 hours 5.23 hours

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3. Estimated Demand for Sales Increases (30%)

A B C Total

Sales (units)(increased by 30% 2600 2275 1690 6565

Direct labor hours needed 5850 6500 8840 21190

Direct labor hours available 21190 hours

Surplus (deficit) = 18000h - 21173h = -3190 hours

Contribution per direct labor hour

Contribution margin= sales price variable cost (direct labor+ direct material+

variable overhead)

Contribution per DLH= contribution margin/ direct labor hours

A B C

Contribution margin ($) $157.500 198.000 225.000

Direct labor hours 4500 hours 5000 hours 6800 hours

Contribution per DLH $35 39.6 33.1

Rank 2 1 3

4. Allocation of Direct Labor Hours Available

Hour available: 18000

Hours to produce product = Sales units * Direct LH per unit

Hours to produce product B: 2275*2.86 = 6500 hours

Hours to produce product A: 2600*2.25 = 5850 hoursHours to produce product C: 18,000 12350= 5650 hours

A B C Total

Direct labor hours available 5850 hours 6500 hours 5650 hours 18000 hours

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5. Revised Budget for Sales Increase (30%)

A B C Total

Sales(units) 2600 2275 1080 5955

Sales $260000 325000 249265 834265

Direct material $13000 17550 17033 47583

Direct labor $29250 32500 28250 90000

Variable overhead $13000 17550 17033 47583

Fixed overhead 22500

Advertising cost 8000

Total fixed cost 30500

Profit 618599

The profit will increase if it compare with original budget 618599- 588000= 60599

6. Extra profit based on Extra 3.500 Direct Labour Hours

Extra 3500 hours (18000+3500=21500 hours)

Additional Sales units product C = (Sales units demanded - Sales units specified in

Revised Budget) = 1690 -1080 = 610 units

Increase in profit is $105511

C

Additional sales (units) 610

Additional sales ($) $140735

Additional direct material $9617

Additional direct labor $15950

Additional variable overhead $9617

Additional fixed overhead

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Increase in profit $105551

Calculate unit costs and make pricing decisions using relevant information given in the

scenario.

Calculate relevant cost

A/ Materials

$22,500 of materials would need to be purchased so it is relevant cost.

$14,000 of materials would need to be transferred from another contract so it is relevant

cost.

Stocks current disposable value is $5,000. This cost consider as opportunity cost so it is

relevant cost.

B/ Labor cost

The contract would involve labor cost of $100,000, of which $55,000 would be incurred

regardless of whether the contract was undertaken. Therefore, $45,000 is relevant cost.

C/ Salary, bonus

The production manager received a salary of $45,000 per year so $45,000 is irrelevant

cost. On successful completion of the contract he would receive a bonus of $7,250 so

$7,250 is relevant cost.

D/ Additional administrative expenses.

Additional administrative expenses incurred in undertaking the contract are estimated to

be $4,325. It is a relevant cost.

E/ Fixed overhead

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The company absorbs its fixed overheads at a rate of 12% per machine hour. The contract

require 4,000 machines hours. It is an irrelevant cost

Calculate the minimum contract price that would be acceptable to KIMCUONG LTD:

Material Purchase $22.500

From other project $14.000

Obsolete stock $5,000

Labor cost $45,000

Bonuses $7.250

Addition administrative expenses $4.325

Total $98,075

The total cost of the product was $ 98,075. It is the minimum contract price that would be

acceptable to KIMCUONG LTD. The company sold products over the higher minimum

cost to get profits. The company didnt accept the contract if the price is lower than

minimum cost.

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Calculate investment cost

Accounting rate of return (ARR)

Accounting rate of return, also known as the Average rate of return, orARRis a

financial ratio used in capital budgeting. The ratio does not take into account the concept

oftime value of money. ARR calculates the return, generated from net income of the

proposed capital investment. The ARR is a percentage return. Say, if ARR = 7%, then it

means that the project is expected to earn seven cents out of each dollar invested. If the

ARR is equal to or greater than the required rate of return, the project is acceptable. If it

is less than the desired rate, it should be rejected. When comparing investments, the

higher the ARR, the more attractive the investment. Over one-half of large firms

calculate ARR when appraising projects. 3

Accounting rate of return( ARR)= (Average profit/ Average value of investment) x 100%

Year A B

1 $210.000 125.000

2 $210.000 125.0003 $170.000 150.000

4 $165.000 215.000

5 $60.000 140.000

Total

profit

$815.000 755.000

Average

profit

$163.000 151.000

Machine A:

Depreciation A = (initial cost - residual value)/ 5 = (700000 - 60000)/5 = $128000

Total profit of machine A = (338+338+298+293+188) -700= $755,000

Average profit of machine A 000,163$5

60165170210210=

++++=

3http://en.wikipedia.org/wiki/Accounting_rate_of_return

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Machine B:

Depreciation B= (initial cost - residual value)/ 5= (700000 20000)/5 = $136000

Total profit of machine B = (261+261+286+351+276) 700= $735,000

Average profit of machine B 000,151$5

140215150125125=

++++=

Machine A

Initial cost 700.000

Residual value 60.000

Average value of investment 380.000

Average investment (in $000) 000,380$2

60700 =+

=

Machine B

Initial cost 700.000

Residual value 20.000


Average investment (in $000) 000,360$2

20700=

+=

Accounting rate of return( ARR)= (Average profit/ Avarage value of investment) x 100%

Rate of return of machine A

Average profit 163.000


Rate of return 42.9%

ARR= Average profit/ Avarage value of investment %9,42%100*380

163==

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Rate of return of machine B

Average profit 151.000


Rate of return 41.9%

ARR== Average profit/ Avarage value of investment %94.41100*360

151==

Because the ARR of machine A> the ARR of machine B so Company should be purchase

machine A

Net present value (NPV)

In finance, the net present value (NPV) ornet present worth (NPW)[1] of a time

series ofcash flows, both incoming and outgoing, is defined as the sum of the present

values (PVs) of the individual cash flows of the same entity. In the case when all future

cash flows are incoming (such as coupons and principal of a bond) and the only outflow

of cash is the purchase price, the NPV is simply the PV of future cash flows minus the

purchase price (which is its own PV). NPV is a central tool in discounted cash

flow (DCF) analysis, and is a standard method for using the time value of money toappraise long-term projects. Used forcapital budgeting, and widely

throughout economics, finance, and accounting, it measures the excess or shortfall of

cash flows, in present value terms, once financing charges are met.

The NPV of a sequence of cash flows takes as input the cash flows and a discount rate or

discount curve and outputs a price; the converse process in DCF analysis - taking a

sequence of cash flows and a price as input and inferring as output a discount rate (the

discount rate which would yield the given price as NPV) - is called theyield, and is more

widely used in bond trading.4

Net Present Value= Total Present value initial cost

Net present Value of machine A

4http://en.wikipedia.org/wiki/Net_present_value

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Year Cash flow

$

Present value factor

10%

Present value

$

0 (700.000) 1.000 (700,000)

1 338.000 0.909 307.2732 338.000 0.826 279.339

3 298.000 0.751 223.892

4 293.000 0.683 200.123

5 248.000 0.620 153.988

NPV 464.615

NPV= TPV- Initial cost= (307.273+279.339+223.892+200.123+153.988)-700= $464.615

Net present Value of machine B

Year Cash flow

$

Present value factor

10%

Present value

$

0 (700.000) 1.000 (700.000)

1 261.000 0.909 237.273

2 261.000 0.826 215.702

3 286.000 0.751 214.876

4 351.000 0.683 239.738

5 296.000 0.620 183.793

NPV 391.382

NPV= TPV- Initial cost= (237.273+215.702+214.876+239.738+183.793)-700= $391.382

Because the NPV of machine A> the NPV of machine B so Company should be purchase

machine A

Conclusion:

Based on the accounting rate of return and net present value for Machine A and Machine

B, we can see that Machine A bring more profitability than Machine B, therefore

KINHDO corporation should choose Machine A to have good effect in work and bring

more profitability for Company.

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The purpose of the financial statements

The purpose of a financial statement is to enable a business to establish the result

of its operations over a period of time and to determine its worth at a specific date.

Financial statements are often prepared by business people to assist them in evaluating

their financial condition.5

There are 4 basics financial statement:

Balance Sheet: The balance sheet basically gives an idea of the financing

structure of the company. The balance sheet's purpose is to show the assets of the

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company. Balance sheets are based on a fix point called a reporting period---a day, a

month, a quarter, a year. A quick glance at a balance sheet will show you what the

company owns and how much it owes. Balance sheets include assets (property, cash,

anything owned of value), liabilities (debt owed) and shareholder's equity.6

The balance sheet must follow the following formula:

Assets = Liabilities + Shareholders' Equity

With the help of this one can predict the funds that would be utilized in the future.

It would further reflect the capacity of the firm to raise additional capital.

Income statement: This type of financial statement keeps an account of the net

surplus or deficits. The net surplus or deficit is calculated by considering all the activities

in the last financial year. By having a detailed account of the past, one can forecast orassess the future performance of the company.7The income statement includes profit and

loss statement. Purpose of Income statements show the revenue earned during a reporting

period. Included in this report are the expenses and cost of creating the revenue. Once the

expenses and costs are removed from the total revenue, the bottom line of the report

reveals whether or not the company lost money or made money. The income statement

helps company evaluate the profits of company.

Thus, the income statement is required for each company, investors and creditors

to determine the past performance of the business financial forecast future performance,

and evaluate the ability to create the future cash flows through the income statement.

Cash flow statement: Cash flow statements track the inflow and outflow of cash.

They reveal whether or not cash was generated by the business. The data for a cash flow

statement comes from an income statement and the balance sheet. The cash flow

statement reveals net decreases or increases of cash for the reporting period. The purpose

of this financial statement is to keep an account of the different activities of the company.

It also provides information on the mode of generation of funds required for repayment.

The cash flow statement also helps to analyze the amount of cash that would be required

in order to meet the operating costs.

6http://www.ehow.com/about_5047231_purpose-financial-statements.html7http://finance.mapsofworld.com/financial-report/statement/purpose.html

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Retain earning: When companies make profits, they do not spend it, they keep it.

The amount is kept as retained earnings. The profit is reinvested for businesses to

maintain and expand operations. For businesses, retained earnings are a very important

source of finance. Retained earnings may affect the number of dividend-paying

stakeholders. If enterprises use retained earnings to grow and expand its activities, there

will be some money to pay for the stakeholders.

Like any company, KINHDO Corporation retains their earnings to invest in areas

where the company can create growth opportunities. Use retained earnings to expand the

market is much safer than other options. The company does not pay interest to others and

receive the total benefits from their projects. They are also independent of the strategy to

establish and control their capital without pressure from others (interest rate, time

expression).

The differences between the formats of financial statements (profit and loss

statement and balance sheet) for different types of business such as sole proprietor,

partnership and limited company.

Balance sheet: A financial statement that summarizes a company's assets,

liabilities and shareholders' equity at a specific point in time. These three balance sheet

segments give investors an idea as to what the company owns and owes, as well as the

amount invested by the shareholders.

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Profit and loss statement: A Profit and Loss Statement is a standard financial

document that summarizes a company's revenue and expenses for a specific period of

time, usually one quarter of a fiscal year and the entire fiscal year.8

There are many different between profit and loss statement and balance sheet for

different types of business such as sole proprietor, partnership and limited company

For sole traders, the financial statement for sole traders is simple; because the

report is just serving for the owner of the company. So, it may not have the balance sheet

and income statement. The report just needs to show the profit and loss account

compared to a public limited liability company which will have to prepare based on

international financial reporting standard (IFRS) and generally accepted accounting

principle (GAAP).

Example: Appendix1

For partnership, financial statements related to the interests and profits of those

who contributed to the company's capital. Objectives of financial statements are the

accounting balance sheet, profits, income, result and report the loss. When you create

financial statements, the income statement will usually be prepared first because of

income or net loss became part of the report which of the partners. The claim of capital

partners is to prepare the second because the ending balance of capital became part of the

balance sheet. This statement focuses on the analysis of capital and profits of the

company circulated inside the company.9

Example: Appendix2

For limited company, the financial statement must reflect the current, non-

current assets, liabilities, sales, profits, cost of income tax payable and earning per share.

The income statement shows a statement of changes in equity changes in share capital,

profits, earnings and capital reserve account in the profit and loss year. The company's

liability limit will normally be made within one year from the date the account last year's.

Balance sheet includes different categories such as share capital, retained earnings, other

income and capital reserves. With the limited company. Tax for a separate legal entity

and shall be reflected in the balance

Example: Appendix 3

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Analyze financial statements using appropriate ratios and comparisons, both

internal and external.

Calculate ratios for the year ended (showing your workings) for Kinh Do

Corporation

Current ratio

The current ratio is afinancial ratio that measures whether or not a firm has enough

resources to pay its debts over the next 12 months. It compares a firm's current assets to

itscurrent liabilities. It is expressed as follows:

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10

Calculation of the ratio is

2007 2008

Current assets 1.754.629 1.474.434Current liabilities 467.800 663.885

Current ratio 3.75 2.22

Based on above table, we can see that the current assets in 2008 are lower and the

current liabilities are higher 2007. In 2007, it means that for 1(VNDm) the

company in the short term it has 3.75 (VNDm) available in assets that can be

converted to cash in the short term. In 2008, it means that for 1(VNDm) the

company in the short term it has 2.2 (VNDm) available in assets that can be

converted to cash in the short term. Therefore, in 2007 the current ration is safer

than 2008. It means that in 2008 the business of KinhDo is not good because the

company may be affected by the economic crisis and the business plan of

company is not suitable. Therefore, I think the company should have suitable plan

to develop in next years. The company should pay some taxes and borrow money

from the bank to increase the assets of company. Besides, the company can sell

issue to increase the current assets of company.

Quick ratios

Quick ratios = Total Quick Assets/ Total Current Liabilities

Quick Assets = Total Current Assets (minus) Inventory

2007 2008

Total current Assets 1.754.629 1.474.434

Inventory 136.272 181.656

Quick Assets 1.618.357 1.292.778

Total current Liabilities 467.800 663.885Quick ratios 3.46 1.9

10http://en.wikipedia.org/wiki/Current_ratio

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5

In finance, the Acid-test orquick ratio orliquid ratio measures the ability of a

company to use its near cash or quick assets to extinguish or retire its current

liabilities immediately. Quick assets include thosecurrent assets that presumably can be

quickly converted to cash at close to theirbook values. A company with a Quick Ratio of

less than 1 can not currently pay back its current liabilities.11

Based on above table, the quick ratios in 2008 is slightly decrease than 2007, it

means that in 2008 the quick ratio is low, it may be the cash or account receivable

decrease and the company is hard to pay the current liabilities on time. In 2007 the quick

ratios is higher, therefore the company can pay the current liabilities on time.

Thus, the good solution of company is to increase the sales of products. It helpscompany increase your cash and the account receivable

Profitability Ratios:

Rate of profit to the company a success is to make a profit or return on investment

that it has achieved in business.

+ Gross margin

+ Roce

+ Net Profit Margin

+ Return on assets

+ Return on Equity

GrossProfitMargin =(grossprofit/sales) *100%

2007 2008

Gross profit 321.978

369.78

8

11http://en.wikipedia.org/wiki/Quick_ratio

23
http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Current_liabilityhttp://en.wikipedia.org/wiki/Current_liabilityhttp://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Book_valuehttp://en.wikipedia.org/wiki/Quick_ratiohttp://en.wikipedia.org/wiki/Quick_ratiohttp://en.wikipedia.org/wiki/Quick_ratiohttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Current_liabilityhttp://en.wikipedia.org/wiki/Current_liabilityhttp://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Book_value


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Sales

1.230.80

2 1.455.768

Gross profit Margin

26.1

%

25.4

%

From the result above, we can see that the total sales in 2008 are higher than in

2007. The total sales in 2008 increase that show the business of company is better. The

gross profit in 2008 is increase but the gross profit margin in 2008 is lower than in 2007.

It may be the company decreases the price of products to increase the numbers of sales.

The gross profit margin show about the how much profit every dollar of revenue a

company is earning. In 2007 the gross profit margin is higher it means that the company

can earn more profits on sale than in 2008. Therefore, the company should have plan to

increase the gross profit margin to get more effective in work and attract more investor to

invest in company.

ROCE

Capital employed includes 2007 2008

Non- current liabilities 125.713 172.041Total equity 2.453.494 2.075.923Minority interest 20.468 71.561

2.599.675 2.319.525

PBIT is measured as

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2007 2008

Interest expense 244.030 -27.749

Operating Profit 31.710 52.364

275.740 24.615

ROCE 10.6% 1.06%

ROCE ( return on capital employed) is used to prove the value the business gains from

its assets and liabilities. From the above table, we can see that in 2008 the Roce is lower

than in 2007. ROCE uses to evaluate about the profit of company. In 2008 the profit of

company is lower than in 2007. It may be the company use the capital of company is not

good in 2008, it make the ROCE is lower than 2007 therefore it also affect to the business

of company. Therefore the company should have solution to increase ROCE of KinhDo

such as decrease the cost, ect.

Profit Margin

A ratio of profitability calculated as net income divided by revenues, or net profits

divided by sales. It measures how much out of every dollar of sales a company keeps in

earnings.12Profit margin is very useful when comparing companies in similar industries.

A higher profit margin indicates a more profitable company that has better control

over its costs compared to its competitors.

Profit Margin = (Net Profit / Net Sales) x 100

2007 2008

PAT to the companys shareholders 224.127 85.316Net sales 1.230.82 1.455.758

12http://www.investopedia.com/terms/p/profitmargin.asp

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0

Profit Margin

18.2

%

5.86

%

From the above table, we can see that in 2008 the profit margin in 2007 is better than in2008 because the profit in 2007 is higher than in 2008 although the total sales in 2008 is

better than in 2007. Profit margin is an indicator of a company's pricing strategies and

how well it controls costs. In 2008 the profit margin decreases therefore it is not safer

than in 2007 because a low profit margin indicates a low margin of safety: higher risk

that a decline in sales will erase profits and result in a net loss, or a negative margin. Thus

the business operation of KinhDo is not good in 2008. The best solution of company is to

attract customer to buy their products and have good strategy business to make the work

effectively.

Return on Assets:

Return on assets is an indicator of how profitable a company is before leverage, and is

compared with companies in the same industry. Since the figure for total assets of the

company depends on the carrying value of the assets, some caution is required for

companies whose carrying value may not correspond to the actual market value.13

Return on Assets = (Net Profit / Total Assets) x 100An indicator of a company is how profitable relative to their total assets.

2007 2008Net Profit 224.12 86.416

13http://en.wikipedia.org/wiki/Return_on_assets

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7

Total Assets

3.067.47

5 2.983.410

Return on Assets

7.3

% 2.9%

Return on assets gives an indication of the capital intensity of the company, which will

depend on the industry; companies that require large initial investments will generally

have lower return on assets. From the above table, we can see that in 2008 the return on

asset is lower than in 2007 it means that in 2007 KinhDo uses asset to earn more profit

than in 2008. In 2008 the investment plan is not good to run their business because

Company uses the asset to earn lower profit than in 2007. Therefore the Company should

check their work to have suitable plan to get more profit than in 2008. KinhDo can

increase their asset by selling inventory and marketing their products.

The Return on Equity = (net income/ total equity)* 100%

2007 2008

Net income 224.127 85.316

Total equity

2.453.49

4

2.075.92

3

The Return on Equity 9.1%

4.1

%

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Return on equity (ROE) measures the rate of return on the ownership interest

(shareholders' equity) of the common stock owners. It measures a firm's efficiency at

generating profits from every unit of shareholders' equity (also known as net assets or

assets minus liabilities). ROE shows how well a company uses investment funds to

generate earnings growth. From the above table, we can see that the return on equity in

2007 is better than in 2008 it means that in 2007 Kinhdo uses the capitals from the

shareholder to earn more profits than in 2008. The return on equity shows about the

attract of shareholder in 2008 is lower than in 2007. It means that the business plans of

company is not good and the economic crisis in 2008 therefore KinhDo dont receive

more profits from shareholders. Thus, the Company should have suitable plans to

increase the number of sales to make more profits for equity. By this way Kinhdo can

attract more shareholders investing in their company

Inventory Turnover ratio: the Inventory turnover is a measure of the number of times

inventory is sold or used in a time period such as a year. Theequation for inventory

turnover equals the cost of goods sold divided by the average inventory.

Inventory Turnover Ratio = Net Sales / Inventory

It could also be calculated as:

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Inventory Turnover Ratio = Cost of Goods Sold / Inventory

2007 2008

Cost of goods sold 908.8251.085.98

0

Total Inventory 136.272

181.65

6

Inventory Turnover Ratio 6,7 times 6 times

From the above table, we can see that in 2008 the inventory turnover ratio is less than in

2008, it means that the ineffective inventory management because the inventory usually

zero rate of return and lost many cost to storage. It means that the sales are not good and

many customers arent satisfied with KinhDo products. In 2007, higher inventory

turnover ratios are considered a positive indicator of effective inventory management.

Therefore KinhDo should have plan to reduce the number of inventory by improve the

quality of products, reduce the price of inventory products and have good solution to

marketing their products.

Leverage ratios

Leverage ratio describes the amount of debt that companies use to finance investment in

assets:

Total debt ratio

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Long-term debt ratio

debt to equity

Long-term debt to equity

Total Debt Ratio

2008

Total liabilities 835.926

Total assets 2.983.410

Total debt ratio 28.02%

2007

Total liabilities 593.513

Total assets 3.067.475

Total debt ratio 19.35%

From the above figure, we can see that in 2008 the total debt ratio is more than in 2007. It

means that KinhDo has more debt in 2008 and it also has more affect into the business of

KinhDo. In 2008 the debt is more than therefore the company has the risk level and they

will hard to borrow money from others to open their business because higher portion of

company's assets are claimed by it creditors. If a company notices that interest rates have

fallen below the rate the company is currently paying on its debt, the company may

choose to pay off the high-rate debt with new, lower-rate debt. The best solution for

KinhDo is to pay some debts to reduce the number of interest to balance their work as

soon as.

Long-term Debt Ratio

2007 2008

Long term debt

112.41

0 156.029

Total assets

3.067.47

5

2.983.41

0Long-term Debt Ratio 3.6 5.2

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% %

From the above tables, we can see that in 2008 the long-term debt ratio is increase

therefore it is not good for the business of KinhDO. This means the potential risk the

company faces in terms of its debt-load is higher. The ratio provides a general measure of

the financial position of a company, including its ability to meet financial requirements

for outstanding loans. If a company notices that interest rates have fallen below the rate

the company is currently paying on its debt, the company may choose to pay off the high-

rate debt with new, lower-rate debt. The best solution for KinhDo is to pay some debts to

reduce the number of interest to balance their work as soon as.

Debt to Equity

The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion

ofshareholders' equityanddebtused to finance a company's assets.[1]Closely related

toleveraging, the ratio is also known as Risk, Gearing or Leverage. The two components

31
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are often taken from the firm'sbalance sheet or statement of financial position (so-

calledbook value), but the ratio may also be calculated using market values for both, if

the company's debt and equity arepublicly traded, or using a combination of book value

for debt and market value for equity financially.14

Debt to equity = (short-term debt/ total equity)*100%

2007 2008

Short-term debt 263.003 335.922

Total equity2.453.49

4 2.075.923

Debt to equity 10,7% 16,2%

Based on the figure, the debt on equity of 2008 is more than that of 2007; it is not safer

for company. It compares the resources provided by creditors with the resources provided

by the shareholders. A high rate means higher risk. This means that the financial situation

of the Kinh in 2008 of high-risk than in 2007. Overall, the proportion of high debt on

equity in 2008 shows that a company may not be able to generate enough cash to meet its

debt obligations. However, the debt ratio low on equity in 2008 also indicated that

companies are not taking advantage of the profit increase financial leverage can bring.

Investors often prefer low-debt ratio on equity because their interests are better protected

in the event of a decline in business. Thus, companies with debt on high equity may not

be able to attract more capital.

Therefore, KinhDo should issuance of common stock to reduce debt on equity by

maintaining debt levels consistent

Long-term Debt to Equity

2007 2008

Long term debt 112.410 156.029Total equity 2.453.49 2.075.923

14http://en.wikipedia.org/wiki/Debt-to-equity_ratio

32
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4

Long term debt to equity

4.5

%

7.5

%

The long term debt to equity ratio is simply similar to gearing, except that short term debtis excluded from the calculation. This is most simply interpreted as a measure of capital

structure, but is also used as a measure of financial strength. Base on the figure we can

see that the long term debt to Equity in 2008 is more than that in 2007, therefore the

company work not well than 2007. It makes company is not safer than 2007. Thus, the

company should ensure that long-term-debt-to-equity ratios are adequate by properly

managing operating cash and resorting to short-term financing activities, such as stock

issuance.

Analyze the financial performance and position of Kinh Do for the year ended and

compared to the previous year

INCOME STATEMENT 2007 2008 Percentage changes

Revenue 1.230.802 1.455.768 +18%

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COGS 908.825 1.085.960 +19.5%

Gross profit 321.987 369.788 +14.8%

Operating profit 244.030 27.749 -88.6%

Profit before tax 222.469 61.690 -72.2%

Tax 1.659 1.087 -34.8%

Profit after tax 224.127 60.603 -73%Minority interest 24.713

PAT to the companys

shareholder

224.127 85.316 -62%

Interest expense 31.710 52.364 +65%

BALANCE SHEET(VNDm)

Current Assets 1.754.629 1.474.434 -16%

Cash & equipment 530.438 206.808 -61%

Short term financial

investment

522.518 584.291 +11.8%

Provision for short term

investment

4.932 58.732 +1090%

Short term receivables 560.318 489.407 -12.7%

Inventory 136.272 181.656 +33.3%

Provision for inventory

devaluation

395 1.165 +195%

Other short term assets 5.082 12.271 +141%

Non-current assets 1.312.846 1.508.976 +14.4%

Long term receivables 30.911 31.059 +0.47 %

Fixed assets 480.860 749.092 +55.7%

Long term financial investment 797.351 673.385 -15.5%Provision for long term

investments

196.257 51.357 -3.79%

Other long term assets 3.725 55.440

TOTAL ASSETS 3.067.475 2.983.410 -2.7%

Current liability 467.800 663.885 +42%

Short term debt 263.003 335.922 +27.7 %

Non-current liabilities 125.713 172.041 +36.8%

Long term debt 112.410 156.029 +38.8%

Chartered capital 469.997 571.149 +21.5%

Capital surplus 1.725.694 1.721.014 -0.26%Retained earnings 181.798 147.004 -19.1%

Total equity 2.453.494 2.075.932 -15.4%

Monitory interest 20.468 71.561 +249%

TOTAL CAPITAL 3.067.475 2.983.410 -2.7 %

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From the above table about the financial statement, we can see that in 2008 the

business activities in 2008 are not good when compared in 2007. The profit, total asset

and total capital decrease but the debt increases, therefore it makes the company is not

safer than 2007. Although the revenue, total sales, costs of products sold increase in 2008

but the profit after tax decrease, it means that the prices of products decrease. Therefore,

the business of Kinhdo in 2008 is not better than in 2007.

In balance sheet the current assets of company decrease but the non-current assets

increase. The total sales in 2008 is more increase than in 2007 but the retained earnings is

lower, it means that the business of Kinhdo has problems, it may be Kinhdo reduce the

price of products to increase the total sales and decrease the number of the inventory.

Besides, the current liability, the non-current liability, the short and long term debts

increase but the total assets and the investment decrease. Therefore, the company uses the

assets of company to pay the tax and the banks.

Finally, the total equity decrease in 2008, it shows that Kinhdo cannot use the

capital from the equity and shareholders; therefore it has affect to the profits of equity.

Suggestion: The Company should have good business plans and pay some debts to

decrease the total debts to help KinhDo to stable business operation of Kinhdo.

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Conclusion:

The report aims to discuss three aspects that are the financial implications as a resource in

the business, making financial decisions based on financial information and financial

analysis of business performance business. First, it describes the information needs of

different decision makers and the financial impact of the financial statements. Next, it

analyzes budgets for decision making at reasonable prices as well as evaluating the

feasibility of a project using the techniques of investment evaluation. Finally, it explains

the purpose of financial statements and describes the differences between the formats of

financial statements for the business types.

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Reference:

MFRD book

http://www.investorwords.com/1957/financial_statement.html

http://en.wikipedia.org/wiki/Accounting_rate_of_return

http://en.wikipedia.org/wiki/Net_present_value

http://www.hbsmc.com/purpose-of-financial-statements/

http://www.ehow.com/about_5047231_purpose-financial-

statements.htmlhttp://finance.mapsofworld.com/financial-report/statement/purpose.html

http://management.about.com/cs/adminaccounting/g/profitandloss.htm

HNC & HND (2002).Managing Financial Resources. London

http://www.investopedia.com/terms/p/profitmargin.asp

Appendix 1: Sold trader

37
http://www.investorwords.com/1957/financial_statement.htmlhttp://en.wikipedia.org/wiki/Accounting_rate_of_returnhttp://en.wikipedia.org/wiki/Net_present_valuehttp://www.hbsmc.com/purpose-of-financial-statements/http://www.ehow.com/about_5047231_purpose-financial-statements.htmlhttp://www.ehow.com/about_5047231_purpose-financial-statements.htmlhttp://finance.mapsofworld.com/financial-report/statement/purpose.htmlhttp://management.about.com/cs/adminaccounting/g/profitandloss.htmhttp://www.investopedia.com/terms/p/profitmargin.asphttp://www.investorwords.com/1957/financial_statement.htmlhttp://en.wikipedia.org/wiki/Accounting_rate_of_returnhttp://en.wikipedia.org/wiki/Net_present_valuehttp://www.hbsmc.com/purpose-of-financial-statements/http://www.ehow.com/about_5047231_purpose-financial-statements.htmlhttp://www.ehow.com/about_5047231_purpose-financial-statements.htmlhttp://finance.mapsofworld.com/financial-report/statement/purpose.htmlhttp://management.about.com/cs/adminaccounting/g/profitandloss.htmhttp://www.investopedia.com/terms/p/profitmargin.asp


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http://www.svtuition.org/2010/01/proforma-of-profit-and-loss-account-and.html

39
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Appendix2: Partnership

Income statement for partnership

40
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http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-

businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-

company/partnership-example-of-income-statement-and-balance-sheet-part-1-of-3/

Balance sheet for partnership

http://business-plan.planmagic.com/online-business-plan/balance_sheet_forecast.htm

41
http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/partnership-example-of-income-statement-and-balance-sheet-part-1-of-3/http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/partnership-example-of-income-statement-and-balance-sheet-part-1-of-3/http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/partnership-example-of-income-statement-and-balance-sheet-part-1-of-3/http://business-plan.planmagic.com/online-business-plan/balance_sheet_forecast.htmhttp://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/partnership-example-of-income-statement-and-balance-sheet-part-1-of-3/http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/partnership-example-of-income-statement-and-balance-sheet-part-1-of-3/http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/partnership-example-of-income-statement-and-balance-sheet-part-1-of-3/http://business-plan.planmagic.com/online-business-plan/balance_sheet_forecast.htm


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Appendix 3: Limited Company

Income statement for Limited company

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http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-

businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-

company/private-limited-company-example-of-income-statement-and-balance-sheet/

Balance sheet for Limited company

Head Shoppe Company LimitedBalance Sheet

December 31, 1989

http://aics.acadiau.ca/case_studies/headshoppe.html
http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/private-limited-company-example-of-income-statement-and-balance-sheet/http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/private-limited-company-example-of-income-statement-and-balance-sheet/http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/private-limited-company-example-of-income-statement-and-balance-sheet/http://aics.acadiau.ca/case_studies/headshoppe.htmlhttp://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/private-limited-company-example-of-income-statement-and-balance-sheet/http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/private-limited-company-example-of-income-statement-and-balance-sheet/http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/private-limited-company-example-of-income-statement-and-balance-sheet/http://aics.acadiau.ca/case_studies/headshoppe.html

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