GROUP INFORMATION

# Student’s name Student IDs Contribution

(Total =100%)
1 Đặng Quỳnh Anh 1804010003 20%
2 Bạch Thị Trà Hiên 1804010037 20%
3 Nguyễn Minh Ngọc 1804010076 20%
4 Nguyễn Thanh Tú 1804010091 20%
5 Nguyễn Thanh Trang 1804010105 20%

ASSIGNED COMPANY:
Dien Quang Lamp Joint Stock Company
Công ty Cổ phần Bóng đèn Điện Quang (DQC)
 TABLE OF CONTENT
I. Introduction ............................................................................................................................. 1
II. Financial analysis ................................................................................................................... 1
1. Profitability analysis ............................................................................................................... 1
2. Liquidity analysis ................................................................................................................... 2
2.1. Short-term liquidity risk . ......................................................................................... 2
2.2. Long-term solvency risk ......................................................................................... 3
3. Cash flows analysis ................................................................................................................. 4
4. Recommendations ................................................................................................................... 5
5. Conclusions ............................................................................................................................. 5
Appendix
PART 2: FINANCIAL ANALYSIS
I. Introduction
To have a deeper understanding of Dien Quang operating processes, our group collected,
calculated and analyzed its financial statements indicators during the 5 years from 2016 to 2020.
The analysis includes 4 main parts, which are related to Profitability, Liquidity, Solvency and Cash
flows. These parts support for investors to make decisions whether to invest in the company and
provide shareholders sufficient information about the business situation to forecast the potential of
profit generating ability.
II. Financial analysis
1. Profitability analysis

2016 2017 2018 2019 2020

Profit margin 19.75% 10.49% 7.91% 4.03% 2.36%

Asset turnover 0.67 0.66 0.68 0.49 0.65

ROA 13.22% 6.94% 5.42% 1.99% 1.53%

ROCE 18.20% 9.62% 8.09% 2.87% 1.93%

Capital structure leverage 1.38 1.40 1.56 1.64 1.54

Figure 1: Profitability ratios
From 2016 to 2020, Dien Quang experienced a declining trend in ROA which is attributed to
decreasing in profit margin over five years and reduction in asset turnover in 2019. The increase
in COGS/Sales in the period which resulted in reduction in gross margin. The possible reason can
be because of increasing inventory over the years, the business tends to purchase smaller quantities
that do not meet bulk discounts. Substantial increase in Selling and administration expenses/Sales
lead to decrease significantly in profit margin for ROA in 2019 because Dien Quang invested more
in human resources and also expanded selling points. Otherwise, the asset turnover ratio fluctuated
over five years except it dropped to 0.49 in 2019. It can be explained by the variable in change of
account receivable turnover, inventory turnover and fixed asset turnover in the period.
In addition, ROCE decreased dramatically from 2016 (18.20%) to 2020 (1.93%) which means that
the firm has used capital inefficiently. The reduction in ROCE was resulted by the decrease of
ROA and the slight growth in capital structure leverage. It can be because the company has relied

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on debt financing by borrowing long-term debt from 2018 to 2020 and buying back much shares
in 2019 and 2020.
2. Liquidity analysis
2.1 Short- term liquidity risk

2016 2017 2018 2019 2020

Current ratio 2.91 2.86 2.22 2.49 2.15

Quick ratio 2.15 2.04 1.41 1.24 1.14

Operating cash flow to current 60.54% -11.91% -2.38% 3.83% 10.97%

liabilities ratio
Figure 2: Liquidity ratios
In general, we observed declining trends in both current and quick ratios of Dien Quang Company
from 2016 to 2020, but the ratios were higher than the optimal level over 5 years. Especially, in
2018, the short-term account payable to suppliers which increased remarkably motivated the
notable rise of current liabilities, this was the main reason why there were material deteriorations
in 2018 for the ratios. Looking further at composition of current assets, it can be seen that the
amount of highly liquid assets which include cash, short-term investment, account receivables
accounted for a crucial proportion of current assets, while current liabilities mainly comprise pretty
large amounts of short-term account payables. It signals that short term obligations of the firm
were not urgent and it had sufficient liquid assets to settle short-term commitments. Therefore, this
company appeared to have low short-term liquidity risk during the period.
However, we observed that Dien Quang collected cash in a long period (around 4 to 5 months),
this can not only cause the potential of the likelihood of bad debts, but also depress the operating
cash flows. Besides, it should be well-noted that days inventory held were very high over the 5
years, which indicates weak ability to sell inventory to customers. If this situation continues, the
company may face problems of stock obsolescence, capital is tied up to inventory. Moreover, the
company stretched payables to suppliers within 1 to 3 months. As a result, the net days of working
capital financing needed was long during 5 years, which lasted more than 6 months each year, this
put pressure on Dien Quang to be more dependent on short-term borrowings from outside entities.
All of the above reasons caused extremely weak operating cash flow to current liabilities ratio in
this period, 4 out 5 below the benchmark of 40% for a financially healthy firm. Overall, although

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Dien Quang Company did not have to worry about liquidity during this period, the company should
pay much more attention on its ability to generate cash in the next few years in order to prevent
the potential liquidity risk.
2.2. Long-term solvency risk
2016 2017 2018 2019 2020
Liabilities to asset ratio 0.27 0.29 0.42 0.35 0.35
Liabilities to shareholders' equity
ratio 0.38 0.41 0.72 0.54 0.53
Long-term debt to Long-term
capital ratio 0.01% 0.24% 8.40% 6.38% 5.11%
Long-term debt to shareholders'
equity ratio 0.01% 0.24% 9.17% 6.82% 5.39%
Operating cash flows to total
liabilities ratio 0.55 -0.12 -0.02 0.03 0.10
Interest coverage ratio 206.66 140.61 22.69 8.48 5.78
Figure 3: Solvency ratios
Liabilities to assets and liabilities to shareholder’s equity had the same trend when going up from
2016 to 2018, following that becoming stable rate in 2019 and 2020. DQC expressed the increasing
long-term debt to long-term capital and long-term debt to equity in the first three years, especially
in 2018 and slightly going down in two years later. The possible reason for the significant growth
in 2018 was the dramatic increase of both long-term borrowings and interest expense. Besides,
due to the declining of earnings before taxes over five years, interest coverage ratio had gradually
gone down from 206.66 to 5.78, but still higher than minimum requirement of 2. Operating cash
flows to total liabilities in 2016 was relatively positive with 55%, well above the benchmark of
20% of a financially healthy firm. However, from 2017 to 2020, this ratio was extremely small,
even negative rate of -12% and -2% in 2017 and 2018. It means that the company’s ability to use
cash flow to settle long term obligations is weak. It can be seen that the company appeared to have
weak ability to cover long term obligations, so DQC has high long term solvency risk. pay much
more attention on its ability to generate cash in the next few years in order to prevent the potential
liquidity risk.

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3. Cash flows analysis

2016 2017 2018 2019 2020 Statement of cash flows

300
200
CFO + - - + +
100
0

Billions
CFI - + - + - 2016 2017 2018 2019 2020
-100
-200
CFF - - - - - -300

Net CF from Operating activities

Net + - - - - Net CF from Investing activities
cash Net CF from Financing activities

It can be clearly seen that, CFO dramatically declined and CFI slightly increased; however, CFF
remained unchanged in the period of 5 years. The line graphs indicate CFO hit the peak at VND254
billion in 2016, CFI reached the highest point of VND229 billion, in contrast, CFF hit the lowest
point at –VND226 billion in 2019. Besides, the change in net cash throughout 5 years experienced
a slump. The main reason for positive net cash is that main activities were remarkably effective.

In 2016, strong CFO, derived from mainly proceeds from customers, allowed the firm payments
for loans, purchase of debt instruments from other entities and acquisition of fixed assets.
However, the firm poorly recovered loans with only 7% expenditures on loans, so it needed to
look for external financing to repay principals and pay dividends. In 2017, the main activities did
not generate cash because the company mostly paid money for suppliers and did not collect money
from customers. The main sources of cash were from collections of loans, proceeds from disposal
of debt instruments, borrowings substantially on both short term and long term, the company used
it in order to invest large loans. In 2018, the company also did not gather money from clients and
paid expenditures to providers, resulting in a negative CFO. Besides, it sold a substantial amount
of investments and significant borrowings from outside entities to make repayment principals,
payments for loans, debt instruments, fixed assets, and pay dividends. After the CFO was negative
for 2 years, in 2019, CFO was improved because of collection from customers. Along with that,
the company successfully invested loans when achieving 5 times expenditures on loans, which
made CFI reach the peak. However, it still needed sources of cash from short term and long term

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debt to mainly repay principals. In 2020, strong CFO signals that main activities of the company
could generate cash because of sales of inventory to pay expenditures on loans and dividends for
shareholders. The company found external financing and proceeds of loans from investing
activities to repay principals and enormously buy fixed assets to expand business scale.
4. Recommendations
Based on the analysis of risks associated with potential issues and the ability to generate profits
that we have done above, our recommendation is not to invest in the Dien Quang Company. Firstly,
we can see from the analysis of the short term liquidity risk, DQC can use its highly liquid assets
to cover a portion of short term liabilities; however, because the cash flow from operations was
too weak, there can be some difficulties for the company to cover all the liabilities in the short
term. The second aspect that affects the decision was the high portion of long term debt, this made
the company face hardship to pay out long term obligations leading to the struggle to borrow more
and also confront high interest rates. Although the company had some interest earnings from
investment but that was not significant to offset the weakness of cash flow. It can be seen from the
analysis that DQC’s problem to cover liabilities comes highly from its weak operating cash flow.
Although the CFO did signal positive data; however, we can not conclude that the slight
improvement of cash flow in 2020 can make up for the liabilities the company borrowed for their
R&D in recent years. In terms of profitability, the analysis shows that the capability of generating
profitability from the company’s equity and assets is diminishing over years. Therefore, we can
conclude that the company also can not cover the liabilities by profitability it generated.
5. Conclusions
In this paper, we analyzed whether Dien Quang Company is stable, solvent, liquid or profitable
enough to warrant a monetary investment. To do so, we used different ratios based on data
collected from the company’s financial statements to assess the risks that it faced during 5 years
from 2016 to 2020. After doing some calculations, we found out that the company confronts
different obstacles when using cash flow from operating activities. Moreover, based on the
analysis, we gave out the decision of not making any investment in the company in the near future
due to its hardship to cover both short term and long term liabilities. The decision can be changed
if we have more information about any positive changes in any of the aspects related to its
operations.

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 APPENDIX
1. Consolidated financial statements for the year ended 31 December 2016
2. Consolidated financial statements for the year ended 31 December 2017
3. Consolidated financial statements for the year ended 31 December 2018
4. Consolidated financial statements for the year ended 31 December 2019
5. Consolidated financial statements for the year ended 31 December 2020
6. Excel spreadsheet