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Financial statements Regulatory Framework & Interpretation
A report on Vinamilk Corporation
Prepared for: Ms. Kim Oanh Vu
Unit 10: Financial Accounting and Reporting
Banking Academy, Hanoi
BTEC HND in Business (Finance)
Word number: 3,323
Prepared by
Ph m Thúy H ng – Cow – F04Bạ ằ
Registration No. ITPF04-055
Submission Date: 9th January 2013
Cow-F04B-FR A2 Page 1
Financial statements Regulatory Framework & Interpretation
Table of ContentsEXECUTIVE SUMMARY.....................................................................................................................................3
INTRODUCTION...................................................................................................................................................4
I. THE REGULATORY FRAME WORK FOR FINANCIAL REPORTING.......................................5
1.1 The different users of financial statement and their needs.................................................5
1.2 Assessment of the implications for users...............................................................................6
1.2.1 Liquidity ratio...................................................................................................................................6
1.2.2 Debt and gearing ratio...........................................................................................................6
1.2.3 Efficiency ratio.......................................................................................................................... 7
1.2.4 Shareholders investment ratio..........................................................................................7
1.3 Legal and regulatory influences on financial statements................................................7
1.3.1 Companies Act 1985...............................................................................................................7
1.3.2 Partnership Act 1890.............................................................................................................8
1.3.3 International European Directives...................................................................................8
1.3.4 International Accounting standard..................................................................................9
1.3.5 UK Accounting standard....................................................................................................10
2 INTERPRETATION OF FINANCIAL STATEMENTS...................................................................12
2.1 Accounting ratios calculation...................................................................................................12
2.1.1 Profitability..............................................................................................................................12
2.1.2 Liquidity.................................................................................................................................... 13
2.1.3 Debt/gearing ratio................................................................................................................14
2.1.4 Efficiency ratio........................................................................................................................15
2.1.5 Investment ratio....................................................................................................................15
2.2 A report on incorporating & interpreting accounting ratios with suitable
comparisons................................................................................................................................................... 17
CONCLUSION......................................................................................................................................................23
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Financial statements Regulatory Framework & Interpretation
REFERENCES...................................................................................................................................................... 24
APPENDIX............................................................................................................................................................ 26
EXECUTIVE SUMMARY
This report is prepared for the Director of Finance of Vinamilk Corporation. . Vinamilk
is the leading Dairy & Beverage Company and also one of the 5 largest companies in term
of market capital listed in Vietnam. The brand “Vinamilk”, with its extensive market share
and position, has gone into consumers’ mind. Vinamilk’s quality products are designed to
offer the community a “healthy and beautiful life”.
This report provides the regulatory framework for financial reporting as well as interpretation
of financial statement. Methods of analysis include horizontal and ratios.
The report finds the prospects of Vinamilk in its current position are quite positive. Some
weaknesses expressed through some specific ratios will be mentioned. Some
recommendations could be:
- Increase sales
- Improve asset turnover
- Increase dividend yield
- Decrease current ratio
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Financial statements Regulatory Framework & Interpretation
INTRODUCTION
This report aims to discuss about the regulatory framework for financial reporting and
the interpretation of financial statements. In more particular, several following issues
will be addressed:
- The different users of financial statements and their needs
- The legal and regulatory influences on financial statements
- The implication of users
- How regulations are dealt with by accounting and reporting standards
- Accounting ratios calculating
- Report incorporating and interpreting accounting ratios, including suitable
comparisons.
Not only provide the theory related to financial terms, this paper also provides relevant
analysis and explanation in each area. Doing this report, some information sources were used
Such as: Internet and books, some lectures, journal articles, and business magazines were
also use to utilize data related to the topic in the scenario.
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I. THE REGULATORY FRAME WORK FOR FINANCIAL REPORTING
1.1 The different users of financial statement and their needs
Employees: Vinamilk’s employees needs information in financial reporting to
assess company’s profitability and its consequence on their future remuneration
and job security (Accouting-Simplified, n.d.). They require information on the
ability of Vinamilk to meet wage demands and avoid redundancies. These
information are, for example: profitability, revenue, liability and so on which can be
shown in income statement.
Government: Vietnam’s government need Vinamilk’s financial reports to assess
tax, prepare for various statistic on productivity, commerce, etc. and the various
returns required by law. They might require such information as the detail sales,
activity, profits, investments, stocks, dividend paid, the proportion of profits
absorbed by taxation and so on. Those information are shown in Vinamilk’s income
statement and balance sheet.
Suppliers: Vinamilk has build relationship with some suppliers like: Fonterra
(SEA), Tetra Pak Indochina, Perstima Binh Duong and so on. Suppliers need to know
about the current status of the company through: profit, liability, sales, cash and so
on to assess their power over Vnamilk and Vinamilk’s ability to pay for the
materials supplied. Those information can be shown in income statement, cash flow
statement and balance sheet.
Shareholders: Vinamilk’s shareholders needs the financial report of the company
for analyzing the viability and profitability of company’s investment and
determining their decision in the future. They mainly requirement information
about the profit Vinamilk gain and the dividend for them. They expect to receive a
dividend payments as their shares of the profits. They are interested in the profit
and loss statement.
Lenders: They always concern about the capacity of Vinamilk to pay its liabilities as
they fall due for payment. Therefore, they of course require information on
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Financial statements Regulatory Framework & Interpretation
Vinamilk’s ability to meet its financial obligations through the information about
company’s liability, cash, profit which can be shown in income statement.
Customers: Vinamilk has a large market share which account for 39% of the
country. Vinamilk’s customers need the financial information from the company
because it effects to their credibility to the company and their buying decisions.
Customers might care mainly about Vinamilk’s profit which can be shown in profit
and loss statement
General public: they care about Vinamilk’s financial statement to interpret and
observe how they fair in performance. They obtain indicaes from it which is sued to
advise their investing public. Those can be profit, liability, cash and so on which can
be shown in Vinamilk’s income statement, balance sheet and cash flow statement.
I.2 Assessment of the implications for users
1.2.1 Liquidity ratio
Liquidity ratio measures company’s capacity to meet short-term financial
commitments as they become due. This ratio includes three more ratios which
are: current ratio, quick ratio and cash ratio. Based on the analysis about needs of
different users above, it seems that the users have the most concern about this
ratio are lenders and suppliers. For example, Fonterra (SEA) is a milk supplier of
Vinamilk, during the process of supplying milk for Vinamilk, the accountant of
Fonterra needs to track the liquidity ratio of Vinamilk to make sure that Vinamilk
can afford the expense of milk they supply under the contract. Regards to
lenders, when Vinamilk borrow money from banks, Agribank for example, the
bank will care about liquidity ratio to see if Vinamilk can pay off the debts.
1.2.2 Debt and gearing ratio
Debt and gearing ratio is quite similar, they refers to the relationship between
the various long-term form of financing and equity share capital. The users that
are interested in these ratios are lenders and stockholders. The debt capital of
Vinamilk can be debentures, loan stock, preference share capital and so on. While
equity capital consists of ordinary share capital, share premium and so on. Take
gearing ratio in particular, Agribank, who lends Vinamilk a long-term loan, will
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Financial statements Regulatory Framework & Interpretation
care about gearing ratio. If the ratio is over than 50%, it means that Vinamilk is
likely to have difficulties in the future when it wants to borrow more from the
bank. Or with shareholders, the more highly geared the company, the greater the
percentage change in profit available for ordinary shareholders for any given
percentage change in profit before interest and tax.
1.2.3 Efficiency ratio
This ratio is used to measure how well Vinamilk can manage income and
expenses. It includes three more ratios, receivable payment period, inventory
turnover period and payable turnover. There could be variety of users care about
this ratio. Take inventory turnover ratio for example, it measure how well
Vinamilk is turning their inventory into sales. Milk suppliers would care about
this because if this ratio is high, it means that the demand for the product being
sold is low, that can make Vinamilk decrease the amount of milk purchase.
1.2.4 Shareholders investment ratio
This ratio is helpful for investors at large and shareholders in particular. They
use this ratio to assess their investment in the company. This ratio includes some
other ones like: P/E, dividend yield, dividend cover ratio and so on. Take
dividend yield ratio as an example, it would help shareholder to measure
percentage return that Vinamilk pays out to them in form of dividend. They
usually expect high dividend yield ratio because it means they can get higher
from Vinamilk. However, some investors may look for the stability of the high
dividend yield rather than its growth. They do not want to lose out in the long
term because of high dividends in the short term. Therefore, Vinamilk should
ensure that the high dividend yield is not just a temporary phenomenon but
sustainable.
1.3 Legal and regulatory influences on financial statements
1.3.1 Companies Act 1985
In 1985, all existing companies legislation was brought together in a number of
consolidating Acts, of which by far the most important is the Companies Act 1985
(CA1985). The Companies Act 1985 requires companies to include a note to the
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Financial statements Regulatory Framework & Interpretation
accounts stating that the accounts have been prepared in accordance with applicable
accounting standards or, alternatively, giving details of significant departures from
those standards.
The form and content of the accounts are regulated primarily by CA 1985. As far as
the preparation of accounts is concerned, the overriding requirement of companies’
legislation is that accounts should show a ‘true and fair view’.
Additionally, the legislation such as Company Act 1985 or Company Act 1989 also
required that the accounts of any limited company above a certain size must be
audited. An audit, for this purpose, may be defined as an ‘independent examination
of, and expression of opinion on, the financial statements of an enterprise’. This
means in practice that a limited company must engage a firm of chartered or certified
accountants to conduct an examination of its accounting records and its financial
statements in order to form an opinion as to whether the accounts which are to be
published present a ‘true and fair view’. At the conclusion of their audit work, the
auditors issue a report which is published as part of the accounts.
1.3.2 Partnership Act 1890
The formation of a partnership is relatively simple and does not require any
formalities. According to the Partnership Act 1890 a partnership automatically comes
into existence when persons are “carrying on a business in common with a view of
profit”.
Partnerships are usually regulated by contractual agreements between the partners,
although this is not compulsory. What the Partnership Act 1890 seeks to do is to
compensate for the lack of a Partnership Agreement or fill in any gaps in a Partnership
Agreement by implying certain terms. (Anon., 2012)
Ultimately, the purpose of the Partnership Act 1890 is to treat all partners fairly and
equally because a partnership is a relationship which requires utmost good faith. This
is a duty which applies throughout the life of the partnership until a partner’s
retirement; although it is worth noting that a retired partner continues to be liable for
any breaches of duty whilst they were a partner. (Anon., 2012)
1.3.3 International European Directives
EU directives lay down certain end results that must be achieved in every Member
State. National authorities have to adapt their laws to meet these goals, but are free to
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Financial statements Regulatory Framework & Interpretation
decide how to do so. Directives may concern one or more Member States, or all of
them.
Each directive specifies the date by which the national laws must be adapted - giving
national authorities the room for manoeuvre within the deadlines necessary to take
account of differing national situations.
Directives are used to bring different national laws into line with each other, and are
particularly common in matters affecting the operation of the single market (e.g.
product safety standards). (Europa, n.d.)
1.3.4 International Accounting standard
International Financial Reporting Standards (IFRSs) are produced by the International
Accounting Standards Board (IASB). The IASB develops IFRSs through an
international process that involves the world-wide accountancy profession, the
preparers and users of financial statements, and national standard setting bodies. In
many countries, some or all companies are required to follow IFRSs, rather than
national standards. (Education, 2010)
The advantages to investors is clear. IFRSs make it easier to compare the accounts of
companies in different countries. They also incorporate many improvements on most
current standards. As things stand, the problem of differences in accounting standards
will continue to exist for some time.
However, IFRSs do not completely eliminate national differences. In the EU an IFRS
only applies after it has been through an approval process and most other countries
have similar procedures. There may also be differences in interpretation of IFRSs by
national standards bodies, and by national standards that fill in gaps in IFRSs (e.g.
valuations of particular types of asset).
Major changes in the UK that resulted from the adoption of IFRSs include:
The treatment of goodwill
The value of options issued as remuneration being shown as a cost on the face
of the P & L
The use of fair value rather than book value for assets acquired in a takeover
Valuation of embedded options.
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(Moneyterms, n.d.)
1.3.5 UK Accounting standard
The Financial Reporting Council (FRC)
FRC is responsible for funding and ensures the smooth running of the standard
setting process. Its most important task is to set a general work programme for
ASB, along with a guide to broad policy issues. (BPP, 2010). In more particular,
the role of FRC includes:
Investigating cases of accounts that may not adhere to the requirements
of accounting standards and the Companies Act.
Acting as a disciplinary body for accountants, although it only
investigates cases of "public interest" referred to it by the accountancy
bodies.
Authorising accountants' professional bodies to act as supervisory bodies
for the profession and to offer professional qualifications. It also
overseas these bodies.
Setting accounting standards
The oversight of actuaries and setting actuarial standards.
The standards setting part of the FRC's responsibilities are limited in scope
because of the adoption of IFRSs. The FRC's standard setting arm, the ASB, now
sees its main role as influencing the development of IFRSs. (Moneyterms, n.d.)
The Accounting Standards Board (ASB)
The role of the Accounting Standards Board (ASB) was to issue accounting
standards. It was recognised for that purpose under the Companies Act 1985. It
took over the task of setting accounting standards from the Accounting Standards
Committee (ASC) in 1990.
The ASB also collaborated with accounting standard-setters from other countries
and the International Accounting Standards Board (IASB) both in order to
influence the development of international standards and in order to ensure that
its standards were developed with due regard to international developments.
(FRC, n.d.)
The Financial Reporting Review Panel (FRRP)
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The FRRP examines accounts published by companies if it appears that
Companies Act requirements have been breached. In particular, the requirement
that accounts should show a true and fair view. (BPP, 2010)
The Urgent Issues Task Force (UITF)
The UITF was part of the previous standard setting arrangements and assisted the
ASB by investigating areas where conflicts or unsatisfactory interpretation of an
accounting standard or Companies Act provision existed or may have developed
in the future
The UITF reached a consensus on the issues it investigated and published
abstracts to guide the preparation of financial statements. In order for accounts to
present a true and fair view, they must comply with UITF Abstracts. UITF
Abstracts and Information Sheets are available to download from the UITF
pages of the FRC website. (ICAEW, n.d.)
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2 INTERPRETATION OF FINANCIAL STATEMENTS
2.1 Accounting ratios calculation
2.1.1 Profitability
Formula Indication Vinamilk 2011 Interpretation
Gross Profit Margin
Gross ProfitRevenue
Measure how much profit firms can
make on its cost of sales
29.85% Vinamilk earned 298.5 VND for each
thousand VND of its turnover in
2011
Return on capital employed (ROCE)
Profit before interest∧taxationCapital Employed
= ¿Profit before interest∧taxationTotal assets−current liablity
It is the rate of return a business is
making on the total capital employed in
the business
39.5% Vinamilk can generate 39.5% of
earning from capital employed. In
other words, it can earn 393 VND
from 1000 VND of total capital
employed.
Return on Equity (ROE)
Profit after taxEquity shareholder s' fund
Measure how much profit a company
generates with the money shareholders
have invested
33.81% Vinamilk can generate 338.1 VND in
total 1000 VND of shareholders’
equity
Asset turnover ratio
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Financial statements Regulatory Framework & Interpretation
SalesCapital Employed
Measures a company’s efficiency at
using its assets in generating sales or
revenue from its capital
1.75 Vinamilk can generate the revenue
of sales 1.75 times from capital
2.1.2 Liquidity
Formula Indication Vinamilk 2011 Interpretation
Current ratio
Current assetsCurrent liablities
Measure the ability of the company to
pay back its short-term liabilities with
its short-term assets. For most
industrial companies, 1.5 may be an
acceptable current ratio
3.21 Current ratio of Vinamilk is much
more than 1.5. It means that
Vinamilk may not be using its
current assets or its short-term
financing facilities efficiently.
Quick ratio
Current assets−stocksCurrent liablities
Measure the ability of the company to
pay back its short-term obligations
with its most liquid assets. A company
with a Quick Ratio of less than 1 cannot
currently pay back its current liabilities.
2.06 Quick ratio of Vinamilk is higher than
1. It means that this company
currently can pay back its current
liabilities.
Cash ratio
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Financial statements Regulatory Framework & Interpretation
Cash+CashequivalentsCurrent Liabilities
Measure how quick firms can repay its
short term debts. In some countries a
cash ratio of not less than 0.2 is
considered as acceptable.
1.07 This result shows that Vinamilk has
sufficient cash and cash equivalents
to repay its current debt.
2.1.3 Debt/gearing ratio
Formula Indication Vinamilk
2011
Interpretation
Debt ratio
TotaldebtsTotalassets
Measure a company’s total debt to its
total assets. 50% is considered as a
safe limit
19.93% Debt ratio of Vinamilk is lower than
50%. It means that most of
Vinamilk’s assets are financed
through equity. safe
Gearing ratio
Long−termdebtShareholder s' equity+Long−termdebt
Focus on the capital structure of the
business – that means the proportion
of finance that is provided by debt
relative to the finance provided by
equity (or shareholders).
1.26% Gearing ratio of Vinamilk is lower
than 25%. It means that Vinamilk is
described as having “low gearing”
Interest cover
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Profit before Interest∧taxInternest charges
Show whether a company is earning
enough profits before interest and tax
to pay its interest costs comfortably
383.92 Vinamilk has a great capacity to
pay its interest costs
2.1.4 Efficiency ratio
Formula Indication Vinamilk 2011 Interpretation
Inventory turnover
COGSInventory
show how many times a
company’s inventory is sold and
replaced over a period
4.6 times Vinamilk’s inventory is sold and
replaced 4.6 times over a period.
Inventory days
InventoryCost of sales
x365 Indicate the average number of
days goods remain in inventory
before being sold
79.41 days Vinamilk’s goods are remained
averagely 79.41 days before being
sold
2.1.5 Investment ratio
Formula Indication Vinamilk 2011 Interpretation
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Financial statements Regulatory Framework & Interpretation
Earnings per share
Net earnings for ordinary shareholderNumber of ordinary shares
Give investors a means of determining
the amount the business earned on
their stock share investments.
7.717 The earnings Vinamilk generated per
one share of stock in 2011 is 7.717
VND
Price-earnings
Share priceEPS
A ratio of the current market price of
the stock in the stock market and the
net profit earned by the company per
share
11.53 times Investors had to pay 11.53 VND for
every 1 VND of Vinamilk’s earnings
in 2011.
Dividend yield
Dividend per shareMarket value per share
Measure how many percentage return a
company pays out to shareholders in
the form of dividends
3% Investors have potential to earn 3%
on their investment for each VND
they invest in Vinamilk in 2011
Dividend cover
EPSDividend per oridnary shares
show how much the corporation’s net
profit is paid out as dividends
2.58 times Vinamilk’s profit attribute to
shareholders was 2.58 times the
amount of dividend paid out.
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2.2 A report on incorporating and interpreting accounting ratios with suitable
comparisons
VINAMILK’S RATIO REPORT
To: Director of Finance
From: Client Service Manager
Date: 9 January 2013
Performance and financial position of Vinamilk
As required, I have analysed the the performance and position of Vinamilk with
special reference to accounting ratios. The calucation of the ratios is shown in the
previous part and also in Appendix. Thu purpose of this paper is to assess the
operating and financial position of Vinamilk
General comments
Vinamilk Corporation is the leading producer of dairy products in Vietnam based
on sales volume and revenue. Since Vinamilk was establish in 2976, its position
in dairy market is non-stop developing through the significant growth of market
share as well as production portfolio. This company has built the largest
distribution network in Vietnam and have leveraged the network to introduce
new products to the markets. It is forecasted that Vinamilk Corporation will be
continually developing and growing in the future.
Profitability
Gross margin ratio for three years
2011 2010 200929.85% 32.17% 35.84%
There is an decrease in gross margin ratio of Vinamilk from 2009 to 2011. This
ratio indicates the efficiency of the company, therefore it can be said that
Vinamilk achieved higher efficiency ratings since 2009 but it tend to be
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Financial statements Regulatory Framework & Interpretation
decreased. Vinamilk should try to increase it the future. It should be able to make
a decent profit as long as overhead costs are controlled.
ROCE ratio for three years:
2011 2010 200939.50% 52.38% 39.71%
Based on the indication of ROCE ratio above, it is clear that the higher the
percentage figure, the better. From 2009 to 2011, the ROCE ratio of Vinamilk
increased from 2009 to 2010. However it went down in 2011 and fall at 39.50%.
it means that Vinamilk should improve its operating in the future to recover the
ROCE and make it developed. To do that, Vinamilk should improve the top line
without a corresponding increase in capital employed, and try to maintain
operating profit but reduce the value of capital employed.
Asset turnover for three years
2011 2010 20091.75 1.98 1.57
The higher asset turnover is, the higher efficiency of company in using its assets.
The increase of asset turnover of Vinamilk from 2009 to 2010 was a positive
trend. However, there was a drop in 2011. Vinamilk should improve this ratio in
the future by increasing sales, improving efficiency, computerizing inventory and
order systems, etc.
Liquidity
Current ratio for three years:
2011 2010 2009 3.21
2.24
3.27
The result of three years shows that, Current ratio of Vinamilk are high. It fell
down in 2010 but keep increasing in 2011 and reach 3.21. High current ratio
indicates that management has so much cash on hand, they may be doing a poor
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job of investing it. It means that Vinamilk is having problems in working capital
management. The company should look back to annual reports and investigate
the reasons.
Quick ratio for three years:
2011 2010 2009 2.06
1.32
2.23
Follow the trend of current ratio, quick ratio also decrease in 2010 but increase
in 2011. An increasing quick ratio generally indicates that Vinamilk is
experiencing solid top-line growth, quickly converting receivables into cash, and
easiliy able to cover its financial obligations. Vinamilk shout maintain this
positive results in the future.
Cash ratio for three years:
2011 2010 2009 1.07
0.89
1.77
Based on the results above, although there was a drop of cash ratio of Vinamilk in
2010 but it was still higher than 0.2. Therefore, Vinamilk has enough of cash
assets to cover liability through three years. However, managers should notice
that, a too high cash ratio is not realistic. The reason being that it's often seen as
poor asset utilization for a company to hold large amounts of cash on its balance
sheet, as this money could be returned to shareholders or used elsewhere to
generate higher returns.
Debt/Gearing ratio
Debt ratio of three years:
2011 2010 200919.93% 26.07% 21.32%
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There is an increase of debt ratio from 2009 to 2010, and then fall down to
19.93% in 2011. They are all under 50% meaning not much proportion of
Vinamilk’s assets is claimed by creditors. Vinamilk should maintain this result in
the future and avoid increasing because an increasing Debt Ratio is generally a
negative sign, showing the company may not have been able to secure long-term,
lower interest financing, instead having to secure short-term, higher interest
short term financing.
Gearing ratio of three years:
2011 2010 20091.26% 2.01% 3.71%
There was an increase of gearing ratio from 2009 to 2011. All of them were
under 25% it means that Vinamilk is considered as low-gearing company. It
means in Vinamilk, the largest proportion of the funding has come from
investment by shareholders. As low gearing will be a result of a low level of
borrowings, this can indicate that Vinamilk is growing through reinvestment of
profits, minimizing risk.
Interest cover of three years:
2011 2010 2009383.92 709.50 456.17
Though there was an decrease from 2010 to 2011, interest cover of Vinamilk in
general are very high. It means that Vinamilk is easily able to meet its interest
obligations from profits. This company should remain this positive results in the
future.
Efficiency
Inventory turnover of three years:
2011 2010 20094.60 4.50 5.14
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There was a drop of Vinamilk’s inventory in 2010 but it was increased again in
2011 and reached 4.6 times. Those figures are considered quite high. It indicates
that Vinamilk has good performance in controlling inventory levels. It should
remain the increasing inventory turnover in the future
Inventory days of three years:
2011 2010 200979.41 81.11 71.05
Vinamilk’s days of inventory was increased in 2010 but fell down in 2011. In
general, the smaller the number of days, the more efficient the company is, as it is
holding inventory for less time and less money is tied up in inventory. However,
sometimes, An increasing number of days in inventory can be a good thing if
sales are rising and the company is building inventory to meet an anticipated
increase in demand.
Investment ratio
Earnings per share for three years
2011 2010 2009 7.717
10.244
6.769
There was an significant increase of Vinamilk’s earnings per share from 2009 to
2010. However, it was decreased in 2011. The higher EPS is, the better,
therefore, Vinamilk should try to increase its EPS in the future because a high
EPS indicates that the company is generating and increasing amount of earnings.
Price/Earning ratio for three years:
2011 2010 200911.53 5.59 7.39
There is no absolute guide to the maximum safe PE ratio. It tends to vary from
industry to industry. Therefore, it could not be sure whether PE ratio of Tran’s
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company is high or low. The decrease of PE between 2009 and 2010 may reflect
slower expected earnings growth, or higher risk earnings.
Dividend yield ratio for three years:
2011 2010 20093% 7% 6%
There was a significant decrease in Vinamilk’s yield ratio in 2011. It might be a
negative sign for Vinamilk because investors do not want to get low from
dividend. High dividend yield maybe an indication of a stock’s current
attractiveness. Therefore, Vinamilk should try to increase the dividend yield ratio
in the future. Also, it should notice that investors may look for the stability of the
high dividend yield rather than its growth. They do not want to lose out in the
long term because of high dividends in the short term. Therefore, Vinamilk
should ensure that the high dividend yield is not just a temporary phenomenon
but sustainable.
Dividend cover ratio for three years:
2011 2010 2009 2.58
2.56
2.26
There was not much changes in Vinamilk’s dividend cover ratio from 2009 to 2011
but it has a trend to be increased. They are all higher than 1.5, meaning this company
is earning enough in profits to cover the dividend. Also, the increase of dividend
cover over three years indicates a good sign for Tran’s company because the
higher the cover, the better the ability to maintain dividends it profits drop, and
the more easily the company can meeting the obligation to pay dividends.
Vinamilk should maintain this trend in the future to ensure company’s good
operation and attract more investors.
Conclusion
According to the analysis above, speaking in general, Vinamilk has a stable
development and strong financial position. The profitability, liquidity, efficiency
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and investment ratio generally have positive results and trend. To have better
performance in the future, Vinamilk should improve some considered ratios
which mentioned in the report.
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Financial statements Regulatory Framework & Interpretation
CONCLUSION
Through this report, it can be seen that, firstly, different users of financial statements
and their needs were clarified. Come with that, the assessment of the implications for
users were also mentioned in this report. The next part is about the legal and regulatory
influences on financial statement was presented through the understanding of
Companies Act 1985, Partnership 1890, international European Directives,
International Accounting standard, and UK Accounting Standard.
The second main part is about interpretation of financial statement. Applying to
Vinamilk Corporation, important accounting ratios were calculated, analysed through
the report for Vinamilk’s Director of Finance, to evaluate the financial position of
Vinamilk
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Financial statements Regulatory Framework & Interpretation
REFERENCES
Accouting-Simplified, n.d. Accouting-Simplified.com. [Online]
Available at: http://accounting-simplified.com/financial/users-of-accounting-
information.html
[Accessed 18 November 2012].
Anon., 2012. Darlingtons. [Online]
Available at: http://www.business-law.co.uk/blog/partnership-act-1890
[Accessed 7 January 2012].
Education, B. P., 2010. Management Accounting and Financial Reporting . In: London:
BPP learning media ltd, p. 279.
Europa, n.d. European Commission. [Online]
Available at: http://ec.europa.eu/eu_law/introduction/what_directive_en.htm
[Accessed 8 January 2013].
FRC, n.d. Financial Reporting Council. [Online]
Available at: http://www.frc.org.uk/About-the-FRC/FRC-structure/Former-FRC-
structure/Accounting-Standards-Board.aspx
[Accessed 8 January 2013].
ICAEW, n.d. Library & Information Service. [Online]
Available at: http://www.icaew.com/en/library/subject-gateways/accounting-
standards/knowledge-guide-to-uk-accounting-standards
[Accessed 8 January 2013].
Moneyterms, n.d. Money Terms Co.UK. [Online]
Available at: http://moneyterms.co.uk/ifrs/
[Accessed 8 January 2013].
Moneyterms, n.d. Money Terms CO.Uk. [Online]
Available at: http://moneyterms.co.uk/frc/
[Accessed 8 January 2013].
Cow-F04B-FR A2 Page 26
Financial statements Regulatory Framework & Interpretation
Reaich, N., 2012. Bized. [Online]
Available at: http://www.bized.co.uk/notes/2012/07/introduction-users-accounts
[Accessed 19 November 2012].
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Financial statements Regulatory Framework & Interpretation
APPENDIX
Calculation of financial ratio for Vinamilk (2009-2011)
Vinamilk
(2011)
Vinamilk
(2010)
Vinamilk
(2009)
Profitability ratio
Gross profit margin 29.85% 32.17% 35.84%
Asset turnover 1.75 1.98 1.57
ROE 33.81% 45.40% 35.80%
ROCE 39.39% 52.38% 39.71%
Liquidity ratio
Current ratio 3.21 2.24 3.27
Quick ratio 2.06 1.32 2.23
Cash ratio 1.07 0.89 1.77
Debt/gearing ratio
Debt ratio 19.93% 26.07% 21.32%
Capital gearing ratio 1.26% 2.01% 3.71%
Interest cover 382.92 709.50 456.17
Efficiency ratio
Inventory turnover 4.60 4.50 5.14
Inventory days 79.41 81.11 71.05
Investment ratio
EPS 7.717 10.244 6.769
Price-earnings 11.53 5.59 7.39
Dividend yield 3% 7% 6%
Dividend cover 2.58 2.56 2.26
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Financial statements Regulatory Framework & Interpretation
Figures taken from Annual Report of Vinamilk (2008-2010 and Hanoimilk (2011)
Vinamilk
(2011)
Vinamilk
(2010)
Vinamilk
(2009)
Sales 22070 16081 10820
COGS 15039 10579 6735
Gross profit 6588 5173 3878
Profit after tax 4218 3616 2376
Interest expense 13 6 6
PBIT 4978 4251 2731
Assets 15582 10773 8482
Current assets 9467 5919 5069
Inventory 3272 2351 1311
Cash + cash equivalent 3156 613 426
Short-term investment 736 1742 2314
Short-term receivables 2169 1124 728
Current liabilities 2946 2645 1552
.
Cow-F04B-FR A2 Page 30