BTEC Unit 5: Analysis of ABC Fooding and Hoa Phat Financial Statements

This report presents a comprehensive analysis of financial statements for ABC Fooding and Hoa Phat, incorporating ratio analysis to evaluate their financial performance. The report begins with an introduction letter from the consulting department of ABC Fooding, followed by an in-depth examination of ABC Fooding's financial statements, including profitability, liquidity, and solvency ratios. The analysis covers multiple years, highlighting trends and providing interpretations of the company's financial position. The report then transitions to an interpretation of Hoa Phat's financial statements, focusing on profitability and liquidity ratios, and asset usage ratios. The analysis covers a five-year period, offering insights into Hoa Phat's financial performance, and includes a forecast for 2021. The report concludes with a discussion of the financial health of both companies, drawing conclusions based on the ratio analysis and providing insights into their financial stability and performance.

BTEC LEARNER ASSESSMENT SUBMISSION AND DECLARATION
When submitting evidence for assessment, each learner must sign a declaration
confirming that the work is their own.
Learner Name: Nguyen Quoc Viet/F14266
Assessor Name: Dr.Nguyen Thi Thanh Mai, Dr.Le Thi Thu Ha
and Ms. Nguyen Thi Kieu Trang
Unit or Component Number
and Title:
Unit 5: Accounting Principles
Assignment Title: A2: Production and Interpretation of
Financial Statements (2 of 2)
Date Assignment Submitted: 06/01/2021
Please list the evidence submitted for each task. Indicate the page numbers where
the evidence can be found or describe the nature of the evidence (e.g. video,
illustration).
Learner declaration
I certify that the work submitted for this assignment is my own. I have clearly
referenced any sources used in the work. I understand that false declaration is a
form of malpractice.
Learner signature: Nguyen Quoc Viet Date: 5/01/2021
2021/22 BTEC Learner Assessment Submission Declaration Template
Issue Date: June 2021
Owner: BTEC Assessment
DCL1 Public (Unclassified)
Version 1.0

Table of contents
Contents
Exel.............................................................................................................................................................1
Recommendation Letter............................................................................................................................3
I, Financial Statement and the Adjusting Entries...................................................................................3
.................................................................................................................................................................... 4
II, Interpretation of ABC Fooding Ratio.................................................................................................4
1. Profitablity Ratios:............................................................................................................................5
2. Liquidity Ratio...................................................................................................................................5
3. Solvency Ratio....................................................................................................................................6
I, Interpretation of Hoa Phat Financial Statement 2016-2020...............................................................7
Profitability Ratio:.................................................................................................................................8

Exel
1

2

Recommendation Letter
ABC Fooding company
Ha Noi, Vietnam
5/1/2021
Dear Customers,
Hello, my name is Nguyen Quoc Viet, my role is the consulting department of ABC Fooding
company. I will assist you in making decisions about whether to invest or allocate money in the
company by providing you with detailed and accurate information about the company's financial
position, ensuring the accounting standard procedures such as VAS have been strictly followed
by the company.
I, Financial Statement and the Adjusting Entries
3

II, Interpretation of ABC Fooding Ratio
January 4, 2021
From,
Nguyen Quoc Viet
Finance manager
ABC Fooding Ltd Company
22 Hoang Ngan Street, Ha Noi
0333982843
[e-mail]
To,
Mrs. Ha
Chief financial officer
AJP Drinking Ltd Company
147 hoang ngan StreetHa Noi, 124000
Dear Mrs. Ha:
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1. Profitablity Ratios:
Gross Profit Margin
The gross profit margin is the proportion of revenue left over after covering direct expenditures,
indicating that the company has enough profit to cover indirect costs and certain non-operating
expenses. Taxes and overheads are examples of such expenses. The greater the number, the
better. ABC Fooding may be stated to have maintained product manufacturing costs as well as a
high share of profit after subtracting direct costs for three years. However, there is a minor
change in three years 2019, 2020, and 2021 when the three-year weights are 58%, 56%, and
55%, respectively, indicating that the corporation is gradually losing its position to keep it
higher. However, it continues to function normally.
Operating Profit Margin:
The operational profit margin is a useful indicator for determining a company's profitability
since it indicates the proportion of profit generated by ABC Fooding's activities after subtracting
direct and indirect operating expenditures. The higher the proportion, the better. ABC Fooding's
business is very terrible in three years of 2019 because it has incurred big indirect costs, thus
operating profit has declined from 15% in 2019 to 8% in 2020 and has consistently decreased to
4%. When non-operating costs grow excessively high for the firm, it indicates that the
organization is having difficulty allocating resources.
Net Profit Margin:
Profit margin from business activities decreased significantly, leading to a significant decrease in
net profit margin, specifically from 12% in 2019 to 6% in 2020 and to only 3% in 2021. It
demonstrates that the firm is having issues with its cost structure. as well as poor methods in
which extravagant spending have a significant influence in weakening net earnings.
2. Liquidity Ratio
Current ratio:
In a year, this ratio must be higher than 1, this shows that the company has enough assets to meet
its debts, the current ratio shows the ability of the company in the performance of short-term debt
obligations. With the current ratio calculated by ABC Fooding is 1.9 respectively; 2,3 and 2.9 for
3 consecutive years 2019,2020, 2021.First, it demonstrates the company's solid financial
situation, as they have adequate money to cover short-term bills, and its number is growing year
after year, indicating the company's improving efficiency. Accounts receivable and payable, as
well as contract expenses, are managed. when they gradually transfer their obligations from
short-term to long-term in order to boost the company's long-term growth.
Quick Ratio:
Quick Ratio, which indicates a company's ability to pay its short-term liabilities as they come
due with rapid conversions from assets to cash to pay off current liabilities invoice and it needs
to be equal to one or higher that can indicate the company's ability to meet the obligation. The
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higher it is, the better the financial position of the company. ABC Fooding has always had this
ratio higher than 1 for 3 consecutive years from 2019 to 2021, but not more than 2 with 1.08,
1.22 and 1.8 respectively. First, the company appears to be running a sound business, has enough
money to meet its obligations, but when it comes to paying, it can run into trouble when the asset
shortfall is severe, especially in 2019 or 2020, but they are gradually improving it as in 2021,
ABC Fooding has seen a remarkable increase to 1.8, demonstrating the company's sustainability
in terms of liquidity.
Cash Ratio:
The cash ratio shows that the company has enough cash to cover their debts and needs to be
higher than 1, demonstrating the amount of cash left over when compared to debt, which is
considered ideal for a company because they will be able to repay their debts easily, in that the
lender can get the loan back in a short time with more profit. On ABC Fooding side, the ratio is
0.38, 0.5 and 0.84 respectively, It shows the company's ability to provide better cash. While this
is not an ideal number, it is preferable when the company is still a sufficient number to settle the
obligation. This score has improved dramatically over the same period, clearly demonstrating the
firm's improved financial condition, since it now indicates that the company is more liquid than
before and has more capacity to develop. capacity to restructure their debt.
3. Solvency Ratio
Debt/Equity Ratio: It is the relative percentage of shareholder’s equity in debt utilized to finance
the company as well as evaluate the how much leverage used by company and a good
debt/equity is lower than 1 and more than 1 is quite risky. Toward ABC Fooding, with the 70%,
71% and 71% respectively in 2019-2021, it indicated that company have low amount of debt
financed via lenders, which implied the stability of business that they can have any pressure from
lenders. Moreover, the task of keeping it stable However, higher than 1 isn’t bad, it depends
because the companies can utilize the overused leverage to bring forward more benefit and
reduce the cost base on the interest rate of market as well as the industry they are.
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I, Interpretation of Hoa Phat Financial Statement 2016-2020
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Profitability Ratio:
Gross profit margin:
During the 5-year period 2016 - 2020, Hoa Phat's gross profit margin fluctuated between 17%
and 26% for five consecutive years from 2016 to 2020, the highest was in 2016 with 26% and
down slightly to 17% in 2019 and slightly back to 21% in 2020, but a good gross margin of 50-
60%. This demonstrates that Hoa Phat has a weak financial condition, probably owing to
declining income as well as rising direct expenses, however this is logical given that Hoa Phat is
have whopping direct cost.
Operating profit margin:
In terms of operating profit margin, the creation of a large amount before tax has helped Hoa
Phat achieve good operating results with most of them over 15% in 3 years from 2016 -2018
largely comes from the optimal reduction of overall costs and profits for the company. However,
the company seems to have lost its pace in 2019 and 2020 as Operating Margin dropped to 14%
in 2019 and rebounded in 2020 and largely because overheads arise. but overall, it's nothing
serious when all these percentages are still large for a company.
ROA:
In terms of ROA ratio, Hoa Phat has done well over the last five years, with ROAs ranging from
10% to 26%, much above the industry average of 5%. It had achieved a height of 26.16 percent
in 2016, indicating outstanding performance and efficiency in producing profit from existing
assets, but they appear to have lost their stance when its percentage dropped drastically to
10.03% in 2019 and then bounced back to 13.11%.
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Liquidity Ratio:
Current ratio: The company's ability to collect short-term liabilities is very good when Hoa Phat
has maintained a higher current level than the company's liabilities when this ratio is more than 1
is maintained during the past 5 years. The company is on a downward trend for 3 consecutive
years with 1.09 in 2020 but still a good ratio for a company. Furthermore, for a challenging
business like steel, this is regarded a respectable score because this industry requires huge capital
and cash to satisfy demand in the manufacturing process as well as raw material procurement,
especially when compared to other firms. Otherwise, Hoa Phat is far behind. When three
consecutive years fall below one, the company's operational performance suffer slightly more
than rival Hoa Sen. This can have a significant impact on the company's operating results when
there does not appear to be enough cash to pay short-term obligations.
Asset usage Ratio
Account Receivable Turnover: Hoa Phat company has good credit terms as well as reliable
partners and customers shown in most ART scores are above 10, highest in 2029 and 2020
reaching 18.6 and 17 ,9. With such a high ART, it's no surprise that Hoa Phat was able to collect
its receivables in such a short period of time. Furthermore, Hoa Phat may be able to collect its
receivables early and preserve the company's steady financial situation.
Explanation of making forecast
2021 seem to be a successful year toward Hoa Phat when they have utilized the market
conditions in Vietnam with the high import and export turnover up to 600 billion dollars in 11
months of 2021 and place in the 20 biggest trading economy, from that they can promote and
enjoy the remarkable rise in steel export in the first 11 months of 2021 with more than 914
thousand tons of steel have been exported and skyrocket up to 90% YOY as well as the
acquisition of new steel mine in May/2021 and it reflected on the financial statement of company
in each quarter with the successful quarter 2 and 3 when Hoa Phat have witnessed the
unprecedented rise in revenue and total assets, and base on this I can come up with some
predictions about the whole year financial statement of 2021.
According to the mid-year fiscal reports for 2021, the organization's basic predictions, for
example, ROA and ROE, have decreased significantly when compared to a comparable period in
2020. In any instance, there is a distinction between revenue and benefit prior to and after the
event. Charges, along with Current Assets, Total Assets, Current Liabilities, Liabilities, and
Equity, have grown dramatically, implying that the estimations and claims generated by the 2020
financial reports are complete.
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