Thesis. Bui Tung Lam

VIET NAM NATIONAL UNIVERSITY, HA NOI
UNIVERSITY OF ECONOMIC AND BUSINESS

FACULTY OF FINANCE AND BANKING
GRADUATION THESIS
FINANCIAL ANALYSIS OF VINH SON- SONG HINH

HYDROPOWER JOINT STOCK COMPANY
Supervisor: MA. Trinh Thi Phan Lan

Student: Bui Tung Lam
Class: QH-2011E- TCNH – CLC
Hanoi - 2015
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ACKNOWLEDGEMENT
With the passion to study about the corporate finance, I chose this topic for
my thesis after many considerations. Although I used to approach the company in
the subject of financial analysis, it is still too difficult to implement because it
requires deeply specialized knowledge in finance. However, with the enthusiastic
help of my advisor and my own efforts, I have already completed my thesis on the
topic “Financial Analysis of Vinh Son – Song Hinh Hydropower Joint Stock
Company”.
With profound gratitude, I would like to sincerely thank my supervisor and

teacher, MA. Trinh Thi Phan Lan who kindly supervises and gives me the excellent
suggestion, guidance, and encouragement all time during the thesis working
process. I would not be able to complete the thesis without her help.
I would also like to express my thankfulness to Viet Nam National University

- University of Economic and Business, and The Faculty of Finance and Banking
for equipping me with knowledge and skills on finance and banking.
Finally, I want to thank friends and relatives who help and encourage me to
accomplish my thesis.
Kindly regards,
Bui Tung Lam
Financial analysis of VSH Bui Tung Lam – QH2011E TCNH CLC

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CONTENTS
List of tables ............................................................................................................. vi
List of figures .......................................................................................................... vii
List of abbreviations ............................................................................................. viii
ABSTRACT ............................................................................................................. ix
CHAPTER 1: INTRODUTION ...............................................................................1
1.1. Reasons for research ...................................................................................1
1.2. Literature review .........................................................................................2
1.2.1. Financial statements ..................................................................................2
1.2.2. Financial ratios ..........................................................................................3
1.2.2.1. Financial leverage ratios ......................................................................4
1.2.2.2. Liquidity ratios ....................................................................................4
1.2.2.3. Activity ratios ......................................................................................5
1.2.2.4. Profitability ratio .................................................................................6
1.2.2.5. Market value ratio ...............................................................................7
1.2.2.6. Bankruptcy prediction .........................................................................8
1.2.3. Valuation of a company ...........................................................................10
1.2.4. Some practical case studies in Viet Nam .................................................11
1.2.5. Conclusion of literature review ................................................................11
1.3. Research objectives....................................................................................12
1.4. Research scope ...........................................................................................12
1.5. Research structure .....................................................................................12
CHAPTER 2: METHODOLOGY .........................................................................14
2.1. Company presentation ..............................................................................14

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2.1.1. Overview of hydropower industry ............................................................14
2.1.2. Company profile .......................................................................................15
2.1.2.1. Business profile.....................................................................................15
2.1.2.2. Formation history ..................................................................................16
2.1.2.3. Scope of business ..................................................................................16
2.1.2.4. Company organization ..........................................................................17
2.2. Data collection ............................................................................................18
2.3. Data analysis ..............................................................................................19
2.3.1. Non-financial analysis .............................................................................20
2.3.2. Financial analysis ....................................................................................20
2.3.3. Valuation ..................................................................................................23
2.3.3.1. Discount Cash Flow Model ..................................................................23
a. FCFF ...............................................................................................................23
b. FCFE ...............................................................................................................24
2.3.3.2. Dividend Discount Model .....................................................................25
CHAPTER 3: RESEARCH RESULT...................................................................26
3.1. General analysis .........................................................................................26
3.1.1. Business performance ...........................................................................26
3.1.2. Assets structure .....................................................................................28
3.1.3. Capital structure ...................................................................................30
3.1.4. Cash flows .............................................................................................32
3.2. Liquidity ratios ..........................................................................................35
3.2.1. Current ratio .........................................................................................35
3.2.2. Quick ratio ............................................................................................36

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3.2.3. Cash ratio .............................................................................................36
3.2.4. Operating cash flow ratio .....................................................................37
3.3. Debt coverage ratios ..................................................................................38
3.4. Activity ratios .............................................................................................40
3.4.1. Receivables turnover.............................................................................40
3.4.2. Inventory turnover ................................................................................42
3.4.3. Fixed asset turnover..............................................................................44
3.4.4. Total asset turnover ..............................................................................45
3.5. Profitability ratios......................................................................................46
3.6. Risk analysis ...............................................................................................49
3.6.1. Financial leverage ratios ......................................................................49
3.6.2. Bankruptcy prediction...........................................................................51
3.7. Market value ratios ...................................................................................53
3.8. Valuation ....................................................................................................54
3.8.1. FCFF ........................................................................................................54
3.8.2. FCFE ........................................................................................................60
3.8.3. DDM .........................................................................................................63
3.9. Conclusion of financial analysis ...............................................................65
CHAPTER 4: CONCLUSIONS ............................................................................67
4.1. Conclusions ....................................................................................................67
4.2. Limitations .....................................................................................................68
4.3. Suggestions for further research .................................................................69
REFERENCES ........................................................................................................70
APPENDIX ..............................................................................................................75

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List of tables
Name of table Page

Table 2.1: The demand of power 14
Table 2.2: The development plan for power 15
Table 2.3: SWOT analysis 18
Table 2.4: Formulas calculating financial ratios 22
Table 3.1: Change of business performance 26
Table 3.2: Assets structure of VSH 29
Table 3.3: Capital structure of VSH 31
Table 3.4: Cash flows of VSH 33
Table 3.5: Current ratio 35
Table 3.6: Quick ratio 36
Table 3.7: Cash ratio 37
Table 3.8: Operating cash flow ratio 37
Table 3.9: Debt coverage ratio 39
Table 3.10: Receivables turnover 41
Table 3.11: Inventory turnover 43
Table 3.12: Fixed asset turnover 44
Table 3.13: Total asset turnover 45
Table 3.14: Profitability ratios 46
Table 3.15: DuPont analysis 48
Table 3.16: Financial leverage ratios 49
Table 3.17: Calculation of Z-score 52
Table 3.18: Market value ratios 53
Table 3.19: Calculation of WACC 55
Table 3.20: Calculation of adjusted EBIT 56
Table 3.21: Calculation of reinvestment (FCFF) 56

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Table 3.22: Calculation of non-cash ROC 57

Table 3.23: Free Cash Flow to The Firm 59
Table 3.24: Calculation of adjusted EBT 60
Table 3.25: Calculation of reinvestment (FCFE) 60
Table 3.26: Calculation of non-cash ROE 61
Table 3.27: Free Cash Flow to Equity 62
Table 3.28: Calculation of dividend payout rate 63
Table 3.29: Calculation of ROE 63
Table 3.30: Dividend Discount Model 64
Table 3.31: Average value per share 65
List of figures
Name of figure Page

Figure 3.1: Business performance of VSH 27
Figure 3.2: Assets structure of VSH 29
Figure 3.3: Capital structure of VSH 31
Figure 3.4: Operating cash flow ratio 38
Figure 3.5: Interest coverage ratio 39
Figure 3.6: Receivables turnover 41
Figure 3.7: Inventory turnover 43
Figure 3.8: Fixed asset turnover 44
Figure 3.9: Profit Margin 46
Figure 3.10: Return on Asset 47
Figure 3.11: Return on Equity 48
Figure 3.12: Debt to equity ratio 50
Figure 3.13: Equity multiplier 51
Figure 3.14: Regression of beta 55

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List of abbreviations
Abbreviations Meanings
DCF Discount Cash Flow Model
DDM Dividend Discount Model
EBIT Earnings before Interest and Tax
EBT Earnings before Tax
EPS Earnings per Share
EVN Viet Nam Electricity Corporation
FCFE Free Cash Flow to Equity
FCFF Free Cash Flow to the Firm
NWC Net Working Capital
OCF Operating Cash Flow
Rd Cost of Debt
Re Cost of Equity
ROA Return on Asset
ROC Return on Capital
ROE Return on Equity
VSH Vinh Son - Song Hinh Hydropower Joint Stock Company
WACC Weight Average Cost of Capital

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ABSTRACT
The thesis clarifies the financial situation of Vinh Son – Song Hinh
Hydropower Joint Stock Company basing on database of its financial statements in
the period of 2010-2014. Different financial ratios are evaluated such as liquidity
ratios, solvency ratios, activity ratios, profitability ratios, leverage ratios and market
value ratios. By analyzing financial ratios method, the study shows a comprehensive
picture about financial strength of the firm. VSH has good business performance.
Besides, the company use low financial leverage, so they control well liquidity
ratios; however, it is not efficient because of low magnification of ROE. Another
important discovery is the affectations of new plant on the financial situation of the
firm with low activity ratios. Currently, Vinh Son – Song Hinh is undervalued on
the market, which is explained by the market value ratios. In addition, the valuation
model results the higher value of VSH share than the current market price. Finally,
from the findings, the research gives some recommendations and suggestions to the
investors and the further studies.
Keyword: Financial analysis, financial ratios, valuation, hydropower

industry.

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CHAPTER 1: INTRODUTION
1.1. Reasons for research
In the last decade there has been strong growth in hydropower industry by
dint of the priority development policy of the government and the high demand in
the market. Because of the higher and higher demand of power with the growth of
16-17% per year, fast rate of return and investment diversification, the attraction of
the industry is ranked 4th after the telecommunications, banking and oil and gas
industry. By the end of 5th, 2015, there are 59 plants with total capacity of 13,972
MW, representing approximately 40% of total power generation capacity
throughout the system in competitive electricity markets. In the future, the number
of plants participating in the electricity market will have to increase rapidly to meet
the requirements of the competitive electricity wholesale market. According to the
roadmap, the competitive electricity wholesale market will be piloted from 2015,
divided into two phases: Phase 1 from 2015 to 2017 and phase 2 from 2017 to 2019.
This is the market with many buyers, breaking the monopoly of EVN, so the
electricity price would increase in the coming period.
In comparison to other listed hydropower enterprises, Vinh Son – Song Hinh

Hydropower Joint Stock Company has biggest benefit after participating in
competitive electricity market because the electricity price of the firm under the
PPA contract is lowest. Also, the percentage of contribution into the sales of the
corporation is also the highest. VSH is now the largest and older hydropower firm
in the middle part of Viet Nam. The company has had rapid growth with 30.62%
growth of revenue and 18.81% of profit in the period 2010-2014. Notably, VSH has
built the Thuong Kon Tum project since 2010 and expects to operate in 2015, which
will be a significant contribution to the growth of the company. From that, it is
believed that the company will continue to have strong financial development,
leading to the growth of VSH share. With the passion to study about finance and
banking, the subject “Financial analysis of Vinh Son – Song Hinh Hydropower

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Joint Stock Company” was choose as the topic of the thesis to have a deep
estimation of the financial situation of the company.
1.2. Literature review

1.2.1. Financial statements
Financial analysis determines a company's health and stability. The data
gives us a comprehensive picture of how the company operates. Stockholders can
find out how management employs resources and whether they use them properly.
Governments and regulatory authorities use financial statements to determine the
legality of a company's fiscal decisions. Finally, government agencies, such as the
tax agency, use financial statement analysis to decide the correct taxation for the
company.
Ross, Westerfield and Jordan (2009) exhibits clearly financial statement

which provides information about financial situation, business performance and
cash flows of the firm. The balance sheet shows financial condition on a particular
time. The income statement shows the corporation’s performance over a period of
time. Lastly, the statement of cash flows explains the change in the cash balance as
operating activities, investing activities, and financing activities.
International Monetary Fund1 (2015) reviews the use of balance sheet

analysis in the Fund’s bilateral surveillance and introduces some practical examples
of how it can be deepened. They provide additional tools to help staff present and
analyze balance sheets, assess the interaction between balance sheets with the.
There is also an analysis of indicators of balance sheet by David Xiao Chen (2012).
This review shows that the small institution, particularly trust and loan companies,
generally have lower leverage and higher capital ratios than other types of financial
institutions. Besides, they also have huge liquid asset and faced with lower risk.
1
The Policy Paper prepared by IMF staff and completed on June 2015

3
Eugene F. Brigham and Joel F. Houston (2013) give an overview of the

income statement. The goal of the income statement is to determine revenue for the
period, which is match to the corresponding expenses. It presents a picture of a
company’s profitability over the entire period of time. The income statement
provides the trend of the sales and earnings of a firm, but it is not sure that the
company produces cash flow. There are five steps to create profit in income
statement; they are revenue, gross income, operating income, income before taxes
and net income (Joe Lan, 2012). Simply, the income statement provides a seen
about the process of convert revenue into net income or the relationship between
sales and expenses. From the analysis of income statement, if a company has the
decline in revenue or profit in several years, they have made a bad sign in business
performance. F. Tokodagba (2015) use income statement to analyze the suitability
of microfinance institutions interest rate, based on the average return to capital ratio.
If return to capital is higher than the average interest rate of credit, the operating
activity is economically profitable. In case this ratio is lower than the average
interest rate of credit, the activity is not economically profitable (Paraiso, 2012).
Besides, there are many studies about cash flow. Team FME (2013) analyzes
the firm’s financial strength through the relationship of working capital, liquidity
available and the ability to convert assets into cash. Despite the high assets and
profitability, a corporation may be short of liquidity if its assets cannot be readily
converted into cash. The cash flow is also compared to other statements (Maxwell
Samuel Amuzu, 2010). This research finds the link between cash flow statement
and income statement by the cash flow to sales ratio which measures the ability of a
firm to generate cash from operating activities. In addition, the cash flow return on
assets that interprets the relationship between cash flow statement and balance sheet
is used to evaluate cash inflow the company can create in relation to its size.
1.2.2. Financial ratios

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Many previous studies analyze corporate finance through six basic

categories: financial leverage ratios, activity ratios, profitability ratios, liquidity
ratios, market value ratios and bankruptcy prediction.
1.2.2.1. Financial leverage ratios
With the question “How much equity should we have versus how much
debt?” Lee Estenson (1996) considers leverage from four perspectives: cost of
capital, the business cycle influence, owner equity and competitive advantage. This
paper shows that if the return on asset surpasses the cost of capital, the leverage is
effective; so the higher leverage, the higher return on equity. In converse case, the
high level of leverage makes the return on equity lower and lower. Besides, stable
business cycle allows the corporation to use high leverage while the volatility only
permits the low rate. The cost of equity in the firm increase when they use more
debt to finance the operation. When a firm uses debt, financial leverage amplifies
the earning per share but it also creates more risk for the owner, leading to the
increase in required rate of return (Modigliani and Miller, 1958).
Equally important, the affectation of financial leverage in firm performance is
referred in some theses. Muhammad Wajid Raza (2013) shows the negative relation
between performance and leverage in textile industry, caused by that the long-term
debt is expensive. Second result is that there is no significance between leverage
and profitability, instead, it is consistent with picking order theory. In contrary,
Moses Ochieng Gweyi (2014) investigate the effect of financial on financial
performance of deposit taking savings in Kenya. The result is that there is a strong
positive correlation between financial leverage and financial performance of the
firms.
1.2.2.2. Liquidity ratios
Liquidity indicates the financial situation of a corporation by the ability to

convert its assets into cash to cover short-term obligations (Pacurari Doina and

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Muntean Mircea, 2007). These ratios mainly focus on current assets and current
liabilities, and consist of current ratio, quick ratio and cash ratio and operating cash
flow ratio. Current ratio measures current liability coverage and the reserve of liquid
funds. It is a simply computed, available in data and understandable. The current
ratio is favourable if it has a value over the unit lying between 2 and 2.5 times.
Beside, faster method to compute the liquidity is represented by the quick ratio
which ignores inventory in calculation because inventory is often the least liquid
current assets. A value of quick ratio between 0.8 and 1 is considered to be optimal.
Furthermore, cash ratio is the most effectively method to compute liquidity which is
calculated only from cash. The value of this ratio should be smaller than 0.5 times.
Too high values of these ratios may demonstrate an inefficiency use of resources
while the low values alarm that the company has some problems with liquidity.
Quasim Saleem and Ramiz Ur Rehman (2011) analyze the impacts of

liquidity on profitability. They use the regression model in order to check the
dependence of ROA, ROE and ROI on current ratio, quick ratio and liquid ratio. As
a result, the liquidity ratios affect profitability ratios; especially, ROA and ROI are
significantly affected. Beside, Monika Bolek and Wojciech Wilinski (2012) also
indicate that the probability of liquidity’s influence on ROA equals 98.24 percent.
1.2.2.3. Activity ratios
Asset management is used to help organizations to achieve their operating

objectives and determine the optimal blend of activities based on these objectives
(Robert Davis, 2008).
Farm Financial Standards Council (2011) defines financial efficiency as a

way to measure the intensity of a business in using its assets to generate revenues
and the effectiveness of production, purchasing, pricing, financing, and marketing
decisions. After that, Todd Doehring (2012) analyzes the efficiency of asset focus
on five specific measures; they are asset turnover ratio, operating expense ratio,
depreciation ratio, interest expense raio and net income from operation ratio. Renato

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Lima Rasmussen (2010) explains that measurements of capital utilization can be

useful for evaluating and comparing performance of the firms.
There is a positive relationship between inventory level and profitability of

small businesses (Abdulrasheed Abdulraheem, Khadijat Adenola Yahaya, Sulu
Babaita Isiaka, Olanrewaju Atanda Aliu, 2011). That is profitability of small
businesses increases when effective management of inventory is carried out. Diane
White (2008) refers that the accounts receivable ratio is an important analytical tool
for measuring the efficiency of receivables operations. Many companies sell goods
or services on account, so the customers purchase goods or services from a
company but do not pay for them at the time of purchase. Instead, it is record as
accounts receivables. Jo Nelgadde (2009) analyse company’s financial performance
definitely includes performing inventory analysis. Also, Jo Nelgadde (2010)
summarizes briefly the asset management ratio by dividing it into different
categories such as turnover and the average collect period. The higher turnover is,
the more efficiently the firms are managing inventory and accounts receivable.
Total assets turnover ratio has the impact of 3.3 percent and 12 percent on
net profit and return on assets respectively. In addition, fixed assets turnover is
significantly related to net profit and return on assets with 5.4 percent and 9.6
percent, respectively (Inun Jariya, 2011). Total asset turnover is dertermined by two
factor: total sales and average assets (James Clausen, 2009). Therein, total sales for
particular year is used while the total average assets for the year is used instead of
the ending assets, which is also true of fixed asset turnover.
1.2.2.4. Profitability ratio
Profitability ratio is the combination of income statement and balance sheet

to measure company’s profit performance. Income statement and balance sheet are
two important reports that show the profit and net worth of the company, showing

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how well the company is doing in terms of profits compared to sales (James
Clausen, 2009).
Profitability ratio can be measured by qualitative measures which includes

employee morale, employee safety, environmental constraint, legal constraint and
quantitative measures including interest rate based, cash based, time based
(Ekonomi Teknik Kimia, 2007). Beside, Gopinathan Thachappilly (2009) discusses
the profitability ratios by two parts: Margins and Returns. Therein, the process of
creating profit consists of four steps. Gross profit is the surplus generated by sales
over cost of goods sold. Operating profit is the rest after minus sales expenses,
administration from the gross profit. Then, due to offsetting revenue and expense
from financial activities, we have income before tax. The most important profit is
net income which is generated after paying taxes.
Ross, Westerfield and Jordan (2009) mention to three measures which are
probably the best known and most widely used of all financial ratios, including
profit margin, return on assets and return on equity. They are intended to measure
how efficiently a firm uses it assets and manages its operations. All other things
being equal, higher profit margin, efficiently the company manages expenses. ROE
exceeds ROA reflects a corporation uses financial leverage or raises capital by debt.
1.2.2.5. Market value ratio
Ohlson (1995) discusses the role of earning, book value and dividends in
equity valuation. Collins (1999) discusses the effect of negative earning on equity
valuation. Miller and Modigliani (1961) studied the effect of dividend policy and
the growth of the company on equity valuation. In 2007, Zhang and Chen establish
relationship between the equity value, earnings yield, the change in profitability,
capital investment, growth opportunity and in discount rate. In this article equity
value is dependent variable, other variables are independent variables. In 2012,
Pushpa Bhatt and Sumangala JK base on the cross series data of 50 companies in

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India to estimate the impacts of earnings per share on market value of the equity.
The result is that EPS can explain on an average about 45% of variation in market
value of equity.
Azhar, Osman and Parinduri (2009) give three characteristics to the measure
of stock valuation, they are symmetric, proportional and non-invariant. Talat Afza
and Samya Tahir (2012) show that dividend payout ratio, variability in market
price, growth opportunities and size significantly explain variations in price to
earnings ratio. Long Chen and Xinlei Shelly Zhao (2006) indicate the negative
relation between the market to book ratio and leverage ratio, firms with higher
market to book ratio face lower debt financing costs.
1.2.2.6. Bankruptcy prediction
Every economic organization may be at risk of bankruptcy which has

negative consequences on the entire its activity. The bankruptcy risk is the
company’s inability to meet maturing obligations resulting from either operations or
from compulsory levies (Gabriela-Daniela Bordeianu, Florin Radu, Marius Dumitru
Paraschivescu and Willi Pavaloaia, 2011).
Edward I. Altman (1968) has conducted Z-score model that predicts

corporate bankruptcy. The final discriminant function is as follows:
Where :
X1 = Working capital / Total asset
X2 = Retained Earnings/Total assets
X3 = Earnings before interest and taxes/Total assets
X4 = Market value equity/Book value of total debt

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X5= Sales/Total assets
Z = Overall Index
By many observations, it is concluded that all firms having a Z-score of

greater than 2.99 clearly fall into the non-bankrupt sector or safety zone, while the
firms having a Z-score below 1.8 are all bankrupt or distress zone. The area
between 1.8 and 2.99 is defined as the gray zone.
As well, Z-score model is combined with S&P equivalent rating to develop

Adjust Z”-score model which is reconciled with S&P indicators. (Edward I.
Altman, 2003).
In Vietnam, some researchers have developed adjusted Z model to suit the

domestic economic conditions. Basing on Z-score model of Altman, Dao Thi Thanh
Binh2 (2013) also constructs Z-score model applied to manufacturing enterprises in
Vietnam with the precision of 80 percent.
Where X1 = Working capital / Total assets
X2 = Retained earnings / Total assets
X3 = Net income / Total assets
X4 = Market value of equity / Book value of total liabilities
X5 = Market value of equity / Book value of equity
X6 = Total liabilities / Total assets
X7 = Net income / Sales

2
The model is presented in the study “Mô hình xếp hạng tín dụng cho các công ty sản xuất Việt Nam” of
PhD. Dao Thi Thanh Binh, Ha Noi Universisy in 2013.

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X8 = Net income / Fixed asset
This score also is classified into 3 regions as Altman model. Safety zone has
Z-score of greater than 0.975, distress zone has Z-score below 0.575 and the rest is
gray zone.
1.2.3. Valuation of a company

Value is the defining dimension of measurement in a market economy. The
corporate valuation is very important to invest in a firm. People invest in the
expectation that when they sell, the value of each investment will have grown by a
sufficient amount above its cost to compensate them for the risk they took (Tim
Koller, Marc Goedhart and David Wessels, 2010). The methods which are used
widely include Discount Cash Flow Model (DCF) and Dividend Discount Model
(DDM).
- The Free Cash Flow Model: There are two ways of using cash flows for the
Discount Cash Flow (DCF) valuation. We can use either the Free Cash Flow to the
Firm (FCFF) which is the cash flow that is available to debt- and equity holders, or
the Free Cash Flow to Equity (FCFE) which is the cash flow that is available to the
firm’s equity holders only (Meysam Kaviani, Vahid Faezinia and Vahid saghani,
2013). The FCFF uses cash flows from operating and investment activities while the
FCFE uses that from operating, investment and financial activities. The discount
rate of the model is Weight average cost of capital for FCFF and Cost of equity for
FCFE. The advantage of these approaches is that they design all future inflows and
outflows of funds, so they contribute to estimate more exactly the realistic value of
the company. However, the models also have some limitations when predicting the
interest rate or the structure of the financial sources (Sanja Vlaovic Begovic, Mirela
Momcilovic and Slobodanka Jovin, 2013).
- Dividend Discount Model: Myron J.Gordon (1956) publishes the dividend
discount model that evaluating the stock value by total future dividend discounted
back to present value. Then, the dividend discount model is mentioned by some

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authors like Eugene F. Brigham and Joel F. Houston (2001) or Ross, Westerfield
and Jordan (2009).
1.2.4. Some practical case studies in Viet Nam
There have been many regulations and papers related to financial analysis in
Viet Nam, however this article only refers to the studies of the hydropower sector.
The report of Phu Gia Securities Joint Stock Company3 (2011) demonstrates the
advantages, characteristics and development potential of the hydropower sector.
Also, the updated industry report of Sacombank4 (2015) assesses the impact of the
increase of electricity prices on the market.
Additionally, there also have been plenty of researches of the analysis of

Vinh Son – Song Hinh Joint Stock Company. Tran Le Son, Phan Thi Kim Thoa,
Ngo Thi Ai Van and Vo Thi Dao5 (2011) report on the financial analysis of VSH
and concluded that the company has good and safe financial situation. Besides,
Nguyen Manh Tu6 (2011) uses the earnings model to estimate the value of VSH
share, resulting in the value at 12,837 VND, higher than the market price at
9000VND. On the other hand, the reports of Che Thi Mai Trang7 (2015) charge
extra the change of electricity price from competitive electricity market to evaluate
the value of the company. The value of VSH shares under new model is 17,200
VND, 24.6% higher than the market price of 13,800 VND.
1.2.5. Conclusion of literature review
The research review’s purpose is to help the reader understand different

aspects posed by the researches on the corporate financial analysis. This is very
significant because many different authors have different approaches to assess the
financial strength of the firm. There has been much research and discussion
3
The report of industry analysis is conducted by Analysis Team – Investment Bank Department of Phu Gia
Securities Joint Stock Company in 2011.
4
The updated hydropower industry report is prepared by Analysis Center by Sai Gon Securities Joint Stock
Company – Sacombank in April, 2015.
5
The student group at Da Nang University of Economics.
6
Member of research team - Thang Long Securities Joint Stock Company.
7
Analysis expert of Bao Viet Securities Joint Stock Company.

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conducted on these opinions of the investors, the creditors and the managers. Most
of the researches use the financial ratios for the purpose of analysis; the creditors
mainly use liquidity ratios, the investor mainly use the profitability ratio and market
ratio while the managers use all of them. Nevertheless, the have been few
researches about Z-score which is adjusted to suit the enterprises in Vietnam.
Besides, the studies on financial situation and valuation of Vinh Son – Song Hinh
have not considered the impact of the Thuong Kon Tum project. Hence, it is
important to conduct more studies on the results and reasons of the financial
strength of the company.
1.3. Research objectives
With the topic about financial analysis and valuation in firms, the author is
going to resolve three following issues:
- How has the financial situation of Vinh Son – Song Hinh been in the past
five years?
- By the valuation models, what is the value of one VSH share? Is it higher
or lower than the current market price?
- Should the investors invest in VSH share?
1.4. Research scope
Research object: Financial situation of Vinh Son – Song Hinh Hydropower

Joint Stock Company.
Time: Period of 2010-2014.
1.5. Research structure
The research consists of five main chapters:
Chapter 1 - Introduction: This chapter shortly explains of the framework, scope

and purpose of the thesis.

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Chapter 2 - Literature Review: This chapter will review, analyze and summarize
of the studies which are used in the thesis.
Chapter 3 – Methodology: This chapter presents the method of data collection,

data analysis, the model and formula used in the research.
Chapter 4- Results: In this chapter, the researcher demonstrates the calculated

results, statistical analysis, graphical analysis and comparative analysis.
Chapter 5- Conclusion: In last chapter, the author summary what are the best
performance of the company, the limitations of the thesis and the suggestions for
further researches.

14
CHAPTER 2: METHODOLOGY
This chapter describes how the data was collected in order to fulfill the
purpose of the study. It also discusses the models and formulas, how the model and
formula are presented in the thesis.
2.1. Company presentation

2.1.1. Overview of hydropower industry
Viet Nam has great hydropower potential: the theoretical potential of about
300 billion kWh and technical potential of 123 billion kWh, equivalent to
approximately 31000 MW of Nlm. Currently, hydroelectric factories have exploited
4,800 MW or over 20% of hydropower potential.
Table 2.1: The demand of power
Year 2005 2010 2015

Nlm (MW) 11.286 27 60
Produced E (billion kwh) 54 124 257
Sold E (billion kwh) 46 107 223
Sold Eo (kwh/person/year) 550 1.2 2.3
Sources: Reporting of EVN
The hydropower sector is no cost for fuel, have low emissions and can
change rapidly the capacity. However, the sector has high initial investment, long
construction period and depends on the weather factors. In case of drought
prolongs, rainfall decreases, causing water volume in the lake area amounts lower
than design capacity and affecting on the power output of the plant production. In
addition, natural disasters such as floods and heavy rain can damage roads and dams
construction of the plant, causing the problem in the power generation and
increasing repair costs. The hydropower sector has accounted for 35-40% of the
total generating capacity of Vietnam's power system. In 2014, the contribution to
electricity production was 45% of the whole electricity system.

15
Table 2.2: The development plan for power
Year 2010 2015 2020 2025

Total Nlm (MW) 27 60 112 181
Hydropower rate (MW) 40% 28% 22% 17%
Hydropower output(MW) 10.211 19.874 24.148 30.548
Sources: Reporting of EVN
In the coming years, demand for electric power increase very fast, medium
8000MW annually. Despite reducing the proportion in the electricity industry
structure, the hydroelectric output still sees impressive numbers. It is expected that
the hydroelectric power increase average more than 100MW per year, showing that
the hydropower sector has great prospects and promises to bring more development
opportunities in the present and future.
2.1.2. Company profile

2.1.2.1. Business profile
Name: Vinh Son – Song Hinh Hydropower Joint Stock Company (VSH)
Major industrial field: Hydropower
Headquarter: 20 Nguyen Hue Street, Quy Nhon City, Binh Dinh Province
Phone number: +84-(0)56-389.2069 / Fax: +84-(0)56-389.19.75
Email: nmtdvson@dng.vnn.vn / Website: http://www.vshpc.evn.com.vn
Charter capital: 2,062.41 billion VND
Market capitalization: 3,444.23 billion VND
Posted share volume: 206,241,246
Trading share volume: 206,241,246
Current market price per share: 13,800 VND (updated on 03rd July, 2015)

16
2.1.2.2. Formation history
1994 • Vinh Son Hydropower Fatory began operating
• The plant was renamed as Vinh Son - Song Hinh Hydropower

2000 Factory
• Transforming into joint stock company named Vinh Son – Song

Hinh Hydropower Joint Stock Company
2005
• The company's shares are officially listed at Ho Chi Minh Stock
Exchange
• The charter capital is 1,250 billionVND, equivalent to 125 million

2006
shares were traded.
2007 • VSH increased its chartered capital to VND 1,374.94 billion VND.
2009 • The charter capital is 2,062.41 billion VND
2.1.2.3. Scope of business
According to the business registration certificate No.3503000058 on 4th May,

2005 of Business registries Department - Planning and Investment Department,
Binh Dinh Province. The 4th registration was changed on 29th December, 2009. The
business of the company includes:
- Manufacturing and trading of electricity.

- Service of management, operation and maintenance of hydropower plants.
- Project management consultancy and construction supervision of
hydropower plant projects.
- Consultancy of designing irrigation works, transportation and hydropower.
- Consultancy of construction supervision
- Electrical experiments.
- Merchandising hydropower supplies and equipment; business of real estate.
- Investment in the construction of power factories.

17
2.1.2.4. Company organization
GENERAL SHAREHOLDERS
BOARD OF CONTROL
DIRECTORS COMMITTEE
CHAIRMAN
OF THE BOARD
CEO
Vice Director of Vice Director of

Chief Accountant
Operation Operation
Technical
Vinh Song Plan – Finance – Project
Services Consultancy Technical Synthetic
Son Hinh Investment Accounting management
Limited Center Department Department
Plant Plant Department Department Department
Company
2.1.3. SWOT analysis

The SWOT analysis has the purpose of analyzing the non- financial value.
The author analyses information of each category (strengths, weaknesses,
opportunities, and threats) to find the firm’s competitive advantages.

18
Table 2.3: SWOT analysis

Strengths Weakness
- Large hydropower potential - High initial investment costs
- Low labor costs - Long investment time
- Professional managements - Production depends on climate
- Capabilities of adapting to new - Low outward investment efficiency
environmental policies - High management cost
- Modern technological level
Opportunities Threats
- The economy has many positive - Plants require high safety
changes - Complex legal procedures
- Demand exceeds supply - Other energy sources are exploited as
- Preferred tax and interest rates wind, nuclear, …
- Electricity price increases - The appearance of many competitors
As we can see in the SWOT analysis, VSH has large potential with stable
markets. The weakness of the company compared to the other companies is
efficiency of the outward investment with high cost. In fact, with the new plants
built, VSH will have more expectations to their growth potential in the future.
2.2. Data collection
There are two sources of data: primary data and secondary data. Primary data
are the data collected specifically for the study in question and may be collected
from methods such as personal investigation or questionnaires. In contrast
secondary data are not originally collected for the specific purpose of study at hand,
but rather for a different purpose (Lee et al., 1998, 14). The main advantage of
primary data is that the investor directly controls how the data are collected;
therefore we can ensure that the information is relevant to the problem at hand. This
makes the data collected, using primary methods, as best suited for the research.
The disadvantage of the method is that developing appropriate surveys or
questionnaires requires considerable time, money and experience. On the other
hand, secondary data are almost always less expensive than primary data in terms of

19
money, time, and effort. The quality of data is similarly a considerable point, so the
researcher must be extremely careful about the reputation and capability of the
collection agency, or at least the credentials of the past researcher. In case multiple
sources of secondary data are being used, it might be possible that combining
different sources could lead to errors of collection and introduce bias. In these cases,
the analyst must always check the conflicting aspects of the data source before
using the particular data source (Wegner, 2007).
In this thesis, the authors mainly use the secondary data which is collected
from the annual financial statements of Vinh Son – Song Hinh hydropower joint
stock company. The financial statements include balance sheet, income statement,
cash flow statement and notes. Data is collected in the five years period from 2010
to 2014 in order to be able to compare the years together, so we can evaluate the
trend of items. Besides, some non-financial information is referred from related
books, papers, reports and the home page of Vinh Son – Song Hinh. These reports
are available on the websites like http://cafef.vn or http://cophieu68.vn...
2.3. Data analysis
The process of data analysis is shown in below diagram:
Introduction
Non-financial analysis Financial analysis
Valuation
Conclusion

20
2.3.1. Non-financial analysis
Non-financial analysis provides the basic information about the company

such as history and development, scope of business, organization structure, position,
and strategies of development. Besides, the researchers use SWOT model in order
to figure out the inside and outside elements impacting on the business objectives.
The inside factors consist of strengths and weaknesses; as well, the outside include
opportunities and threats.
2.3.2. Financial analysis
The financial analysis which reflects directly the company’ situation is

completed through three steps as below:
Firstly, the researchers analyze the trend of financial statement. This step
figures out the scale and structure of assets and capital in balance sheet, the business
performance in income statement and the ability to create cash flow in the cash flow
statement. Balance sheet data are static since they measure a single point in time
while the income statement contains several fixed and non-cash collection such as
revenue or sales (Kremer, Rizzuto & Case, 2000). In contrast, cash flow statement
records the changes in all the other statements relative to cash flow, thereby
focusing on what the holders are most concerned about, which is cash available for
operations and investments (Rujoub, Cook & Hay, 1995).
The comparative analysis of cash flow ratio of company is the primary

objective of the present report. Cash flow ratio analysis is the chosen method of
comparison because it is considered as an excellent way to gain an overview of
organization’s activities, as they provide a comprehensive view of the company’s
financial activities. Horizontal analysis which allows the assessment of relative
changes in different items over time is uses to illustrate the change of items in the
statements, the impact and reason of them. It also indicates the change of revenues,

21
expenses, and other line items of financial statements over the course of time. In
addition, the vertical analysis figures out the structure of assets, capital or sales.
Secondly, the financial situation of the company is evaluated by the analysis

of financial ratios including financial leverage ratios, activity ratios, profitability
ratios and liquidity ratios. The financial leverage ratios which shows the capital
structure the company has used is explained by debt ratio and equity multiplier. As
well, the assets and operation management is expressed by activity ratios, including
turnovers and average collect period. The indicators like profit margin, return on
asset and return on equity are used in order to assess the ability to generate profit of
the company. The factors affecting ROE are analyzed by Dupont model. Liquidity
ratios which are very vital for the creditor are assessed through current ratio, quick
ratio, cash ratio and OCF ratio. Finally, the researcher uses Z-score model to
appreciate the risk of bankruptcy of the company. Therein, this model is applied as
both the original version of Altman and the adjust model for Viet Nam.
Finally, to have a comprehensive and objective view about the financial

situation of the company, the calculated ratios are compared with the average of
hydropower industry which are estimated by the average result of five hydropower
companies. They are Nam Mu Hydropower Joint Stock Company (HJS), Na Loi
Hydropower Joint Stock Company (LNC), Southern Hydropower Joint Stock
Company (SHP), Thac Ba Hydropower Joint Stock Company (TBC), Thac Mo
Hydropower Joint Stock Company (TMC).
Many different categories of formula are used for calculation of different

kinds of ratio. Most formulas are collected from the book of Fundamental of
Corporate Finance by Ross, Westerfield and Jordan (2009):

22
Table 2.4: Formulas calculating financial ratios Source: (Ross, Westerfield, & Jordan, 2009)
Liquidity ratios Profitability ratios

Current ratio =
Current ratio Profit margin Profit margin = Net income/ Sales
Current assets/ Current liabilities
Quick ratio = Return on asset Return on asset = Net income/ Average total asset
Quick ratio
(Current asset – Inventory)/ Current liabilities Return on equity Return on equity = Net income/ Average total equity
Cash ratio Cash ratio = Cash/ Current liabilities ROE = Profit margin * Total asset turnover * Equity
Dupont identity
Operating cash flow ratio = multiplier
Operating cash flow ratio
Cash flow from operating/ Current liabilities Activity ratios
Receivables turnover Receivables turnover ratio
Total debt ratio Total debt ratio = Total liabilities/ Total assets
ratio = Sales/ Account receivables
Days’ sales in Days’ sales in receivables
Interest coverage ratio Interest coverage ratio = EBIT / Interest
receivables = 365/ Receivables turnover
Ratios of risk analysis
Inventory turnover
Working capital Inventory turnover
Working capital = Cost of goods sold / Average Inventory
= Current assets – Current liabilities
Working capital needs Working capital needs = Days’ sales in inventory Days’ sales in inventory = 365/ Inventory turnover
(Current asset – Cash – Short-term investment) Fixed asset turnover Fixed asset turnover = Sales/ Net fixed asset
– (Current liabilities – Short-term borrowings) Total asset turnover Total asset turnover = Sales/ Total assets
Cash capital =
Cash capital Market value ratios
Working capital – Working capital needs
Debt to equity ratio
Debt to equity ratio Earnings per share EPS = Net income / Outstanding Shares
= Total liabilities/ Total equity
Equity multiplier Equity multiplier = Total assets/ Total equity Price to earnings ratio Market price / EPS
Altman Z-score Z =1.2X1 + 1.4X2+ 3.3X3 + 0.6X4 + 0.999X5 Market to book ratio Market to book ratio = Market value/ Market value
Z = 0.23X1 – 0.107X2 – 0.047X3 + 0.092X4 +
Adjusted Z-score
0.123X5 – 0.002X6 + 0.749X7 + 0.619X8

23
2.3.3. Valuation
The authors use two main methods in valuation: Discount Cash Flow Model and
Dividend Discount Model. The value of the firm is determined by discounting the
future cash flow of each model with a corresponding required rate of return which is
the result of the calculation of the cost of capital.
2.3.3.1. Discount Cash Flow Model
This model estimates the value of the firm through two kinds of future cash
flow: FCFF and FCFE.
a. FCFF
The free cash flow to the firm includes the cash flow to creditor and the cash
flow to investor. Annual FCFF equals adjusted EBIT after tax minus reinvestment.
The value of the firm is the present value of the expected future FCFF
discounted at the WACC
Where, WACC is determined based on cost of equity and cost of debt.
- Cost of equity is determined by the capital asset pricing model:
Beta is calculated based on regression analysis. The dependent variable is the

rate of return of stock and the independent variable is the rate of return of the market.
They are calculated from the data of weekly closing price of VSH shares and VN-
Index in 2012-2015. The coefficient of the equation will be the beta of the company.

24
The risk premium is calculated through the risk-free rate and the market risk
premium by using the difference between the average annual rate of return of the
market and the average annual rate of return of government one year bonds from 2000-
2014.
- To calculate the cost of debt, we consider the borrowing and debt, including
short-term debt and long-term debt. Cost of debt is determined by average quarter
interest rate in 2012-2015.
- The weight average cost of capital is the required return on the firm’s asset. It’s
a weighted average of the required return on equity and the after-tax required return on
debt.
Weight average cost of capital is calculated by the equation:
After calculating WACC and the firm’s value, the value of firm’s equity is
calculated by subtracting out the market value of debt.
b. FCFE
The free cash flow to the equity is the rest of free cash flow to the firm after
doing all obligations for creditor and paying tax. Annual FCFE equals adjusted EBT
after tax minus reinvestment.

25
The value of the firm’s equity is present value of the expected future FCFE
discounted at the required return on equity.
2.3.3.2. Dividend Discount Model
The DDM method uses the annual dividend to calculate the value of stock. The
annual dividend equals dividend payout rate multiplier the expected earnings per share.
The value of the stock is present value of the expected future dividend
discounted at the required return on equity.

26
CHAPTER 3: RESEARCH RESULT
3.1. General analysis

3.1.1. Business performance
Basing on the data on the income statement, we can see that net income grew
significantly in absolute figures but it was unstable over the years. This fluctuation
implied the affection of the systematic risk on business performance of VSH. The
relative data is shown in the below table which shows the change of business
performance compared with the base year 2010.
Table 3.1: Change of business performance

Unit: %
YEAR 2014 2013 2012 2011 2010
Net sales 130.62 66.83 78.25 108.22 100
Cost of goods sold 85.90 71.48 84.09 101.04 100
Gross profit 164.77 63.27 73.79 113.71 100
Revenue from financial activities 25.94 85.18 88.90 125.68 100
Expense for financial activities 33.98 35.59 -32.99 223.17 100
Interest 96.57 107.94 123.77 120.96 100
General and administrative expenses 172.14 135.85 151.23 164.38 100
Operating profit 123.85 69.58 81.62 110.49 100
Other profit 2.61 9.15 86.93 141.83 100
EBT 123.58 69.65 81.78 112.02 100
Tax 183.39 125.55 137.81 151.44 100
Net income 118.80 65.27 77.38 108.80 100
(Source: Calculating from financial statements of VSH)
There are slight increases in both sales and net income with the rise of
respectively 31 percent and 19 percent.

27
Sales of goods and services significant fluctuated and tended to grow up in the
period 2010-2014. After increasing to 118.22 percent in 2011, in went down to 78.25
percent in 2012 and 66.83 percent in 2013, following by the rise again to 130.62
percent in 2014. However, in the comparison to industry, this indicator grew much less
due to the 2 times rise of industry’s sales. Due to the zero revenue deductions, net sales
also followed a similar trend. Revenue from financial activities fell sharply through the
years because the company reduced fast short-term deposits.
Figure 3.1: Business performance of VSH
600000
500000
400000
Sales
300000
Total cost
200000 Net income
100000
0
2010 2011 2012 2013 2014
(Source: Summary by author)
Cost of goods sold decreased from 183 billion dong in 2010 to 158 billion dong
in 2014 because company purchased significantly less production machinery and
power transmission medium than the previous years. The management of sales cost of
the company was quite well compared to the industry in this period as the average cost
of sales in the sector increased dramatically with more than 5 percent per year.
Notably, in the previous years, the financial costs were very high, but from 2012 it

28
suddenly plummeted to over 30 percent due to not foreign exchange losses. The
company was not under pressure from interest expense because it only reached about
10 percent of sales. Similarity the interest of other companies in the hydropower sector
declined slightly. General and administrative expenses saw a volatility with the
increase of over 50 percent each year while that of industry had the same trend.
Therefore, VSH should consider reducing this cost.
Net income was positive and unstable fluctuated over the years. After growing
up from 302 billion dong in 2010 to 329 billion dong in 2011, it decreased to 233
billion dong in 2012 and 197 billion dong in 2013 equivalent to over 30 percent,
following by the growth again to 359 billion dong or 18.8 percent than 2010. The main
reason causing this volatility is the change of revenue. From 2000-2013, it decreased
because of the fall of both electricity output and the price, but in 2014 the increasing
adjustment of new price and the revenue for the previous period leaded to the growth
of sales and net income. In the growth, net income of industry went up much more than
VSH with the growth by 400 percent. However, the opposite is true of the percentage
of that on sales because VSH’s net income occupied about 70 percent of sales while
that of industry only accounted for over 30 percent.
Thus, we can see a good signal for the investors. That is the company has
managed well interest payments, reduced repayment pressure, the annual business
results was quite good and stable, therefore investing in VSH can be a great
opportunity for the investors.
3.1.2. Assets structure
To find out the assets structure of VSH in period 2010-2014, researcher

analyzes the common-size statements and obtains the following result:

29
Table 3.2: Assets structure of VSH
Unit: %
YEAR 2014 2013 2012 2011 2010
A. Current assets 27.12 34.29 43.39 54.13 54.77
1. Cash 7.20 15.66 18.93 14.43 22.37
2. Short-term investment 0.00 0.00 5.35 20.91 18.18
3. Accounts receivable 18.90 17.14 17.70 18.03 12.82
4. Inventory 1.00 0.99 0.91 0.76 1.39
5. Other current assets 0.03 0.51 0.48 0.00 0.00
B. Long-term assets 72.88 65.71 56.61 45.87 45.23
1. Fixed assets 72.46 65.28 56.13 45.40 44.76
2. Long- term investment 0.34 0.35 0.40 0.39 0.39
3. Other assets 0.08 0.08 0.08 0.08 0.09
C. Total assets 100 100 100 100 100
Figure 3.2: Assets structure of VSH
100%
90%
80%
70%
60%
50% CURRENT ASSETS
40% LONG- TERM ASSETS
30%
20%
10%
0%
2010 2011 2012 2013 2014

30
In general, on the absolute figures, in period 2010-2014 total assets of VSH

increased significantly, from 3 trillion VND to 3.6 trillion VND. However, the assets
structure strongly changed with the smaller current assets and the decrease of long-
term assets.
Current assets witnessed an extremely dramatic fall, from 54.77 percent in 2010
to 27.12 percent in 2014. That was caused by the drop of almost items in short-term
assets over the years with the fall of 15 percent in cash and 18 percent in short-term
investment. Notably, the short-term investments have decreased to zero since 2013
because almost the entire short-term investments are loans for Viet Nam Electricity
Corporation (EVN) which are paid in full in early 2013. Besides, the rest of this
account also is liquidated to invest in new projects. Accounts receivable tended to
increase 1.5 times, showing that more capital was appropriated. Inventory only held a
very small rate, about over 1 percent.
Long-term assets were 72.88 percent of total assets in 2014, up from 45.23
percent in 2010. The dramatic increase of fixed assets and expenses of construction in
progress shows that company tended to expand the scale of production by building
more facilities such as Thuong Kon Tum project. This is an inevitable trend when the
demand for electricity is increasing while the amount of domestic electricity is not
enough to meet the needs of the market. The long-term investment and other assets
seem to remain unchanged and only contribute small proportion.
The assets structure of hydropower industry had opposite trend with the rise of
current assets and the fall of long-term assets8. However, the structure of VSH is
changing and gradually matches that of the industry.
3.1.3. Capital structure
8
The figure is demonstrated in APPENDIX 5.

31
Table 3.3: Capital structure of VSH

Unit: %
YEAR 2014 2013 2012 2011 2010
A. Liabilities 18.60 28.77 27.55 29.92 19.77
1. Current liabilities 14.83 24.58 21.29 22.21 8.71
Short-term borrowings 7.10 18.14 17.47 15.60 6.07
2. Long- term debt 3.77 4.19 6.26 7.71 11.06
Long-term borrowings 3.77 4.19 6.26 7.71 11.05
B. Owners’ equity 81.40 71.23 72.45 70.08 80.23
C. Total liabilities and
100 100 100 100 100
owners’ equity
Figure 3.3: Capital structure of VSH

100%
90%
80%
70%
60%
CURRENT LIABILITIES
50%
LONG-TERM DEBT
40%
OWNERS' EQUITY
30%
20%
10%
0%
2010 2011 2012 2013 2014
The company’s capital structure saw a fluctuation during period 2010-2014 with
a steady fall of liabilities and a rise of owners’ equity.

32
Although there was an increase in absolute figures from 599 billion VND in
2010 to 677 billion VND in 2014, the density of total liabilities fell by 1.17 percent,
from 19.77 percent to 18.6 percent of total capital. The items of liabilities unstably
fluctuated over the years, but generally the decrease in total liabilities was mainly due
to the strong decline of long-term debt. Current liabilities were 8.71 percent in 2010, up
to approximate 30 percent in the next three years before dropped again to 14.83 percent
in 2014. The opposite is true of long-term debt that decreased dramatically from 11.06
percent in 2010 to 3.77 percent in 2014.
The opposite was true of owners’ equity which occupied over 70 percentage of
capital resource per year. After dropping from 80.23 percent in 2010 to over 70 percent
in 2012, it remained unchanged in the next three years, following by the recover to
80.4 percent in 2014. In this period, owners’ equity only increase slightly in absolute
figure because the company has not issue any more stock and the retained earnings also
did not increase much.
In comparison to other companies, VSH mobilized over 80% their capital from
investors rather than from lenders and they used only approximately 9% total capital
worth of current liabilities. On the other hand, other companies in the industry used at
least 35% total capital worth of liabilities and their equity was only about 65% of the
total capital9. The change in capital structure of Vinh Son – Song Hinh was cause
mainly by the change of total liabilities. Therefore, with low debt ratios, it is realized
that VSH has the most healthy capital structure in the group but they also do not gain
the advantages of financial leverage.
3.1.4. Cash flows
Cash flow of the firm was shown in the table below:
9
The figure of industry is illustrated in APPENDIX 6.

33
Table 3.4: Cash flows of VSH
Unit: million VND

Year 2014 2013 2012 2011 2010
Cash flow from operating activities 47,357 200,804 256,676 285,341 270,306
Cash flow from investing activities 78,140 -257,459 -39,126 -434,714 88,592
Cash flow from financing activities -469,470 -9,755 -60,005 -45,247 122,239
Net cash flow -343,973 -66,410 157,545 -194,620 481,137
Cash flow from operating activities was the main inflow of the company, which
was sizable positive every year (averaged over 200 billion), so it was able to finance
both investment and financing activities. This is a good signal for the capital providers.
Every year, VSH had the outstanding business performance with net income always of
about 300 billion dong. Besides, in general, the hydropower firms have giant fixed
assets, so the yearly depreciations are also large, contributing to raise operating cash
flow. In comparison with industry, VSH had larger operating cash inflow than the
others, explained by that the cash inflow of industry only reached about 150 billion per
year. Nevertheless, this indicator suffered a downward trend; from 270 billion in 2010
fell rapidly to over 47 billion dong in 2014. The reason is that accounts receivables
increased very quickly leading to the cash outflow. Besides, that the annual electricity
output dropped due to lack of water also made the revenue decrease resulting to the
decrease of cash flow.
Cash flow from investing activities was negative most of the years, which was
similar to that of industry. It depended on the change in cash for purchasing fixed
assets, cash for financing other corporations, cash from withdrawal and cash from
dividend. Cash flows from investing activities was positive 88 billion in 2010, then fell
to negative in next three yea before rebounding to78 billion in the last year. The items

34
of investing cash flow witnessed the instable trend, leading to the instability of that.
VSH spent much money to purchase and build fixed assets (average of 500 billion
dong per year) which were used to invest in Thuong Kon Tum hydropower projects
and Vinh Son 2 and 3 hydropower projects. The same trend was true of investment to
the other firms (over 100 billion per year), which was mainly invested in shares of Pha
Lai Thermal Power Joint Stock Company and lent to Viet Nam Electricity Corporation
(each year 500 billion). Besides, the recovered investment was also relatively large
reducing cash outflow. This indicated that the company still has tended to invest more,
including investment in production and outward investment.
Cash flow from financial activities declined dramatically over the year. It
reached positive 122 billion dong 2010, then plummeted to negative values in the
following years, especially in 2014 it equal minus 469 billion. The cash inflows mainly
generated by the money from the loan (average over 1000 billion per year). However,
this cash flow is balanced by money paid the principal with corresponding values.
Every year, the company did not issue additional shares because equity has accounted
for high percentage of the capital structure, instead, the company raised capital by debt
to make use of financial leverage. Cash flow from financing activities mainly depends
on the dividends paid to shareholders. In 2014, negative cash flow was cause by that
VSH pay off large amounts of debts by 1,389 billion dong.
VSH's net cash flow was relatively unstable, it reached 481 billion in 2010, up
and down in the following years; especially, it plummeted to minus 344 billion in 2014
due to a fall in cash flow from financing activities. However, in the period 2010-2014,
the company's cash flow had the similar trend with the industry because of positive
operating cash flow, negative investing cash flow and negative financing cash flow. In
comparison to the industry, the company's cash flows were much larger, investing and
financing activities demand were ensured by cash from operating activities.

35
3.2. Liquidity ratios
The liquidity ratios are used to evaluating the ability of a corporation to pay of
current liabilities by its short-term assets. Besides, it also measure how easy the
company converts assets into cash to cover debt.
Common liquidity ratios include four indicators:
- Current ratio
- Quick ratio
- Cash Ratio
- Operating cash flow ratio
3.2.1. Current ratio
Current ratio shows the possibility of a company in the use of short-term assets
such as cash, inventory and accounts receivable to pay off its liabilities. The higher
ratio is, the more easily company can repay debts. If current liquidity ratio is less than
1, the company is in the negative financial situation, likely unable to pay debts in due.
However, that the ratio is too high is not a good sign because it shows that the business
is using the assets ineffectively.
Table 3.5: Current ratio

Unit: times
YEAR 2014 2013 2012 2011 2010
VSH 1.83 1.39 2.04 2.44 6.29
Average of industry 4.92 5.48 3.24 2.92 1.63
(Source: Calculating from financial statements of hydropower firms)
In general, in period 2010-2014, VSH had good current ratio, which plummeted
by 3.85 times in the first year, following by the gradually fall to 1.83 times in 2014.

36
The average value of 2.8 times demonstrates that each dollar of current liabilities was
cover by $2.8 in current asset. Despite being lower than the industry, it is still very
impressive, proving that VSH could control well debts and use asset effectively.
3.2.2. Quick ratio
Quick ratio shows whether the company has enough short-term assets to pay off
short-term debt without inventory. This ratio reflects more accurately current ratio. A
company with a quick ratio less than 1 is unlikely to repay short term debt. Also, if this
ratio is much smaller current ratio, short-term assets of the enterprise depends heavily
on inventory.
Table 3.6: Quick ratio
Unit: times
YEAR 2014 2013 2012 2011 2010
VSH 1.76 1.35 2.00 2.40 6.13
Quick ratio was similar to current ratio because inventory only occupied a very
small percentage of assets. Dropping strongly from 6.13 times in 2010 to 2.4 times in
2011, then this ratio went on decreasing slightly to 1.76 times 2014. The average value
of 2 times means that VSH can cover its current liabilities easily.
3.2.3. Cash ratio
Cash ratio shows how well a company can pay off its current liabilities with
only cash and cash equivalents. Also, this ratio expresses how fast the firm can repay
its debts because cash and cash equivalents are the assets that have the highest
liquidity.

37
Table 3.7: Cash ratio
Unit: times
YEAR 2014 2013 2012 2011 2010
VSH 0.49 0.64 1.14 1.59 4.66
Like current ratio and quick ratio, the cash ratio of VSH is lower than the
average of industry. It decreased dramatically while the opposite was true of the
average cash ratio of other companies. For this reason, VSH is reducing its cash while
other companies are holding cash. Many firms had very high cash ratio, so they has
been in excess of cash. VSH had more reasonable cash ratio which was about
approximate 1 times, proving the efficiency in the management of debt and cash.
3.2.4. Operating cash flow ratio
Operating cash flow ratio is a measurement of how well an enterprise covers its
current liabilities by the cash flow generated from the operations. It shows the liquidity
of the company in the short-run. The higher this ratio is, the higher liquidity the firm
has.
Table 3.8: Operating cash flow ratio
Unit: times
YEAR 2014 2013 2012 2011 2010
VSH 0.09 0.22 0.36 0.38 1.02

38
Figure 3.4: Operating cash flow ratio

3.00
2.50
2.00
1.50 VSH
Average of industry
1.00
0.50
0.00
2010 2011 2012 2013 2014
From the figure, we can see the instability in the operating cash flow ratio of
both VSH and the hydropower branch. The average ratio of industry increased 4 times
during the period, but has tended to go down in recent year. In contrast, this ratio of
VSH has decreased from 1.02 times to 0.09 times because of the fall of cash flow from
operating. That means VSH covered debt less effectively than other companies.
3.3. Debt coverage ratios
Debt coverage ratios measure the ability of a firm to pay off all debts and
obligations relating to debt. In this thesis, the researcher uses two ratios to analyze the
covered level of debt related to total debt, long-term debt and interest, including total
debt ratio and interest coverage ratio
Total debt ratio demonstrates the percentage of total in capital structure, defined
as the ratio of total debt to total assets. The low debt ratio brings the creditors the high
level of protection, so they usually prefer low ratio. Conversely, the shareholders want

39
to have high debt ratio because it increased profitability for them. Debt ratio depends
on many factors: type of business, size of business, field operations, loan purpose.
Table 3.9: Debt coverage ratios

Unit: %
YEAR Indicator 2014 2013 2012 2011 2010
Total debt ratio 18.6 28.77 27.55 29.92 19.77
VSH
Interest coverage ratio 122.77 62.4 63.88 89.12 96.16
Total debt ratio 34.18 34.49 35.58 34.78 34.52
Average of industry
Interest coverage ratio 195.97 254.72 43.78 40.35 279.75
In period 2010-2014, total debt ratio of the industry was likely to remain stable
by about 34 percent. The ratio of VSH, which rose in the first year held by over 28
percent in next three years, then it went out again to 18.6 percent in 2014. Under the
view of the creditors, VSH was better than other companies because the low debt ratio
created the safety in capital structure.
Figure 3.5: Interest coverage ratio

300.00
250.00
200.00
150.00 VSH
Average of industry
100.00
50.00
0.00
2010 2011 2012 2013 2014

40
The graph illustrates that interest coverage ratio of VSH was more stable than
other firms even though it was lower. In average, it was 86.87 times, which means that
VSH only needed about one percentage of EBIT to pay off entire interest expense.
Since 2013, this ratio of VSH has increased dramatically while the opposite is true of
the average of industry, so it is believed that Vinh Son - Song Hinh will have better
interest solvency in future.
3.4. Activity ratios
Activity ratios indicate the efficiency of a firm in using assets. They assess how
effectively a company is able to generate revenue in the form of cash and sales based
on its assets and capital. In addition, they are also known as turnover ratios and asset
efficiency ratios. Activity ratios include four main parts below:
- Receivables turnover
- Inventory turnover
- Fixed asset turnover
- Total asset turnover
3.4.1. Receivables turnover
Receivables turnover reflects the ability to convert the accounts receivables into
cash. The large receivables turnover represents the pretty close payment policy of the
company, ensuring liquidity but it can also reduce revenues due to the inflexibility in
transaction with the customers.
Conversely, if receivables turnover is too small, there will be potential risks of

liquidity. The capital is occupied more and more, so the cash will decrease, reducing
the autonomy of enterprises in the financing working capital in production and maybe
they have to borrow to finance this working capital.

41
Table 3.10: Receivables turnover

Unit: times
YEAR Indicator 2014 2013 2012 2011 2010
Receivables turnover 0.81 0.45 0.55 0.76 1.09
VSH
Days' sales in receivables 452.73 808.15 657.92 479.27 333.93
Receivables turnover 4.01 4.61 3.92 6.58 4.88
Average of industry
Days' sales in receivables 206.06 136.46 149.79 161.55 199.88
Figure 3.6: Receivables turnover
7.00
6.00
5.00
4.00
VSH
3.00 Average of industry
2.00
1.00
0.00
2010 2011 2012 2013 2014
Receivables turnover was very low and saw a strong downtrend. In 2010 it was
at 1.09 times, down gradually over the years to just 0.45 time in 2012, following by
rising again to 0.81 in 2014, indicating that the company was losing more time to
collect the money from the business. It means that the management of accounts
receivable is not good, making a large amount of capital be occupied. This indicator
was much worse than the other companies which had the turnover of over 4 times each
year. However, the prepayments to suppliers had an important impact on receivables

42
turnover. The company has built Thuong Kon Tum factory, Vinh Son 2 and Vinh Son
3 factory since 2010, so they had to prepay to the construction firm like Hydrochina
Hua Dong Corporation and Andrizt Hydro Corporation. After ignoring this expenses,
the researcher calculated the adjust receivables turnover. They were respectively 2.03
times, 1.29 times 1.99 times, 1.47 times and 1.13 times from 2010 to 2014, which were
much better.
As a consequence of low receivables turnover, the day’s sales in receivables of

VSH was very high in period 2010-2014. That is an indication of a few possible
problems for the company. This indicator went up in first four year, but it began
dropping to 266.06 days in 2014 meaning that VSH needed 266 days to collect all
debts. The opposite was true of the average of sector that fell slightly from 2010 to
2013 before rising in 2014. Generally, VSH had to spend more time recovering money
than the other companies but the firm has been considered reducing this indicator.
3.4.2. Inventory turnover
Inventory turnover represents inventory management capabilities of a

corporation. It is the number of average times when the inventory rotates in the period.
The large turnover shows that rotation speed of goods in warehouse is quickly and
conversely, if this coefficient is small, the inventory rotates slowly. The higher
inventory turnover is, the faster sales is, which means inventory was not stagnant, so
the firm will be less risky.
However, that inventory ratio is too high is not good because inventories in
store will lack if market demand increases dramatically. It is likely that businesses will
lose customers. Moreover, the shortage of the reserves of raw materials for the
production may make the production lines delay. Therefore, inventory turnover should
be sufficient to guarantee production and meet customer demand.

43
Table 3.11: Inventory turnover

Unit: times
YEAR Indicator 2014 2013 2012 2011 2010 Average
Inventory turnover 4.34 3.63 5 7.31 4.36 4.928
VSH
Days' sales in inventory 84.04 100.46 73.03 49.96 83.71 78.24
Average Inventory turnover 17.57 22.67 46.8 41.07 43.82 34.386
of industry Days' sales in inventory 33.44 29.8 14.81 20.85 40.13 27.806
The inventory of VSH was more stable than the other companies although it was
smaller. Seeing a rise from 4.36 times to 7.31 times in first year, this ratio went down
to 3.63 in next two years before growing up to 4.34 times in 2014. The average
inventory turnover of the hydropower branch has been decreasing fast while that of
VSH has been tending to steadily rise, so they may meet the other in coming years.
Figure 3.7: Inventory turnover

50.00
45.00
40.00
35.00
30.00
25.00 VSH
15.00
10.00
5.00
0.00
2010 2011 2012 2013 2014

Days’ sales in inventory of both VSH and the hydropower industry had the same
trend with the instability in period 2010-2014. VSH has average inventory period of 78

44
days, three times higher than the industry, so it took the company more time to work
off inventory than other firms. Specially, in 2013 the days’ sales in inventory of VSH
was 100.46, meaning that it need over three months to circulate an inventory turnover.
3.4.3. Fixed asset turnover
Fixed asset turnover helps the analysts assess the efficiency of fixed assets of
the enterprise, showing how many sales are created by one unit of fixed assets from the
process of production. The higher this index is, the more efficient the corporate fixed
assets are.
Table 3.12: Fixed asset turnover

Unit: times
YEAR 2014 2013 2012 2011 2010
VSH 0.21 0.12 0.17 0.30 0.31
Figure 3.8: Fixed asset turnover
0.70
0.60
0.50
0.40
VSH
0.30
Average of industry
0.20
0.10
0.00
2010 2011 2012 2013 2014

45
There were two opposite trends in fixed asset turnover of VSH and the average
of the industry. Fixed assets turnover of VSH was low (about 0.2 times per year). It
decreased in the first three years from 0.31 times to 0.12 times, following by the
increase to 0.21 times in the last year. That was explained by that the facilities of
Thuong Kon Tum and Vinh Son 2 projects were calculated in fixed assets although
they still have not operated, leading to the high fixed asset and the low turnover.
Instead, the average fixed asset turnover of the branch grew dramatically from 0.23
times to 0.61 times along the period. Even though fixed asset turnover of VSH was
lower than that of industry, it has risen since 2013, demonstrating that the company has
focused on improving asset efficiency.
3.4.4. Total asset turnover
Total assets turnover is used to evaluate the effectiveness of the use of

company’s assets. Through this ratio we can know how much revenue is generated
from one unit of assets. The high total asset turnover means that the company uses its
assets efficiently in the production and business operations. To conclude exactly about
the performance of the use of the company’s assets, we need to compare it with the
other enterprises or the average of industry
Table 3.13: Total asset turnover
Unit: times
YEAR 2014 2013 2012 2011 2010
VSH 0.16 0.10 0.13 0.18 0.18
Total asset turnover of a hydropower firm is quite similar to fixed asset turnover
because the fixed assets account for a very large percentage of total assets. As the fixed

46
assets ratio, this ratio of VSH was lower than the average of industry due to the new
project.
3.5. Profitability ratios
Profitability ratios are indicators that measure profitability and performance of a
firm. They compare income statement with the others to assess the firm’s ability to
create profit after deducting all costs and expenses related to earning the income. The
high profitability ratios show that the firm operates efficiently. In addition, profitability
ratios are also important to estimate firm’s solvency.
Table 3.14: Profitability ratios

Unit: %
YEAR Indicator 2014 2013 2012 2011 2010
PM 61.63 52.31 54.42 55.06 56.58
VSH ROA 9.87 5.39 6.92 9.83 9.98
ROE 12.13 7.56 9.55 14.03 12.44
PM 31.84 35.62 33.03 28.76 20.26
Average of industry ROA 9.57 9.47 8.33 6.39 3.86
ROE 13.24 13.64 13.11 9.29 5.08
Figure 3.9: Profit Margin

70.00
60.00
50.00
40.00
VSH
30.00
Average of industry
20.00
10.00
0.00
2010 2011 2012 2013 2014

47
There were two opposite tendency in profit margin of VSH and the average of
the hydropower sector. The profit margin of VSH was extremely high because the net
income and sales have increased, two times higher than the average of industry.
Besides, it tended to increase from 52.31 percent in 2013 to 61.63 percent in 2014
while that of the branch fell about 8 percent, demonstrating that VSH has created more
income from sales.
Figure 3.10: Return on Asset
12.00
10.00
8.00
6.00 VSH
Average of industry
4.00
2.00
0.00
2010 2011 2012 2013 2014

The column chart illustrates the instability in ROA of VSH and the growth of
industry. We can see that the average return on asset of the branch gradually increased
from 3.86 percent in 2010 to 9.57 percent in 2014. Whereas, despite going up in first
year, ROE of VSH fast dropped by 4.4 percent in the next two years before increasing
again to 9.87 percent in 2014. This change was caused mainly by that VSH and EVN
had not unified the price of electricity, so the company record revenue under the
decreasing temporary price, leading to the reduction of net income and ROA. In 2014,

48
the firm received the adjust sales for period 2010-2013, raising sales, net income and
ROA.
Figure 3.11: Return on equity
16.00
14.00
12.00
10.00
8.00 VSH
4.00
2.00
0.00
2010 2011 2012 2013 2014

We can see that ROE of VSH and the industry changed chaotically, which were
similar to the tendency of ROA. Average ROE was about 10 percent, it was not much
higher than ROA because of the low financial leverage ratio. In recent year, despite
being lower than the average ROE of industry, ROE of VSH has increased strongly.
That brings good information about the ability to generate profits of the company.
Table 3.15: DuPont analysis
YEAR 2014 2013 2012 2011 2010

ROE (%) 12.13 7.56 9.55 14.03 12.44
Profit margin (%) 61.63 52.31 54.42 55.06 56.58
Total asset turnover (times) 0.15 0.08 0.10 0.14 0.14
Equity multiplier (times) 1.23 1.40 1.38 1.43 1.25

49
Dupont analysis is a method that evaluates ROE by dividing it by three parts:

profit margin, total asset turnover and equity multiplier. ROE is affected by three
things: operating efficiency, asset use efficiency and financial leverage, which are
measured respectively by above ratio. Hence, the firm can enhance business efficiency
by improve those indicators.
From the table, we can see that in 2011 ROE was higher than 2010 because the
strongly rise of financial leverage. From 2011 to 2013, the decrease of all indicators
made ROE fall significantly to 7.56 times. However, in 2014, the significantly increase
of total assets turnover and profit margin offset the decline of both profit margin and
equity multiplier, raising ROE from 7.56 percent to 12.13 percent.
3.6. Risk analysis
In this step, the authors find out the financial risk of VSH by analyzing the
financial leverage and Z-score.
3.6.1. Financial leverage ratios
Financial leverage ratios show which capital structure the corporation is using,
including the percentage of debts and owners’ equity.
Table 3.16: Financial leverage ratios

Unit: times
YEAR Indicator 2014 2013 2012 2011 2010
Debt to equity ratio 0.23 0.4 0.38 0.43 0.25
VSH
Equity multiplier 1.23 1.4 1.38 1.43 1.25
Debt to equity ratio 0.83 0.93 0.96 0.91 0.8
Average of industry
Equity multiplier 1.82 1.94 1.96 1.91 1.81

50
The debt to equity ratio is a financial ratio that compares a company's total debt
to total equity. This ratio indicates the relationship between capital raised by borrowing
and equity. The small debt to equity ratio demonstrates the firm is independent from
the creditors or it has low risk. However, that also implies the business has not made
use of benefits of tax savings.
Figure 3.12: Debt to equity ratio
1.20
1.00
0.80
0.60 VSH
Average of industry
0.40
0.20
0.00
2010 2011 2012 2013 2014
The chart indicated that the debt to equity ratio of VSH and the industry had the
same trend in the period 2010-2014. They increased in the first three years, then they
fell again to the original point. However, this rate of VSH was much lower than the
industry, showing VSH used less debt than the other firms, instead, it operated mainly
by equity. In this period, the equity rose a little because the firm did not issue
additional shares and the retained earnings only increased slightly. Therefore, the
change in capital structure was primarily caused by debt.

51
Figure 3.13: Equity multiplier
2.50
2.00
1.50
VSH
0.50
0.00
2010 2011 2012 2013 2014
Like debt to equity ratio, equity multiplier of VSH and the industry had the
similar trend from 2010-2014. They did not significantly change, indicating that the
hydropower companies have remained stable capital structure in recent years. Financial
leverage ratio of VSH was relatively low (average of 1.27 times per year) while that of
industry was over 1.8 times, showing that the company has used the safe capital
structure, thus they were self-financing and controlled well debt, which was prove by
good liquidity ratios. However, that prevents the firm from making use of efficiency of
financial leverage, expressed by that ROE of VSH was lower than the average of the
industry despite higher ROA. In other word, the current financial leverage of VSH is
not efficient, so the company should consider raising capital by using more debt to
amplify profit for the shareholders.
3.6.2. Bankruptcy prediction
Bankruptcy prediction is the method of predicting bankruptcy and measuring of

financial distress of public firms which was calculated as the below table:

52
Table 3.17: Calculation of Z-score
Method Indicator 2014 2013 2012 2011 2010

X1 0.12 0.1 0.22 0.32 0.46
X2 0.23 0.23 0.25 0.26 0.28
X3 0.11 0.06 0.08 0.11 0.11
Altman Z-score
X4 4.33 2.78 3.14 2.93 4.89
X5 0.15 0.08 0.1 0.14 0.14
Z 3.59 2.39 2.87 3.00 4.38
X1 0.12 0.1 0.22 0.32 0.46
X2 0.23 0.23 0.25 0.26 0.28
X3 0.1 0.05 0.07 0.1 0.1
X4 4.33 2.78 3.14 2.93 4.89
Adjusted Z-score X5 0.99 1.12 1.2 1.25 1.21
X6 0.19 0.29 0.28 0.3 0.2
X7 0.65 0.7 0.7 0.72 0.71
X8 0.14 0.08 0.12 0.22 0.22
Z 1.09 0.96 1.06 1.13 1.34
The table shows that VSH has very good Z-score in this period with the number
was higher than 2. Although in 2012 and 2013 this indicator was lower than 2.99
meaning that VSH was in the grey area, from 2014 it has increased to 3.59, much
higher than 2.99, so VSH has operated in the safe environment.
In theory, although Z-score of Altman showed a good result, it may not match
the actual economic conditions in Vietnam. Therefore, the author used Adjusted Z-
score which was researched for the firms in Viet Nam by Dao Thi Thanh Binh to
compare with Altman Z-score and assess the corporate risk more effectively.
Results showed that as Altman score, the adjusted score was low in 2012 and
2013 but it increased dramatically in 2014. Adjusted Z-score of VSH in 2014 was 1.09.

53
In comparison to point 0.975 of safety area, this index is much higher, thus the
company has operated in a safe area with no risk of bankruptcy.
3.7. Market value ratios
Market value ratios evaluate the economic status of a company in the wider
market place. They give management a picture of the firm's performance in the market.
Market value ratios include three basic indicators:
- Earnings per share (EPS)

- Price – earnings ratio (P/E)
- Market to book ratio (P/B)
Table 3.18: Market value ratios
Firm Indicator 2014 2013 2012 2011 2010

EPS 1,776 976 1,157 1,627 1,470
Price 11,700 12,800 8,700 6,600 8,000
VSH
P/E 6.6 13.1 7.5 4.1 5.4
P/B 0.84 0.99 0.72 0.57 0.67
EPS 2,181 1,822 1,873 1,482 1,608
Price 19,280 19,280 19,280 19,280 19,280
Average of Industry
P/E 9.53 7.79 5.28 6.16 13.02
P/B 1.22 0.96 0.68 0.61 1.04
Earnings per share of both VSH and the industry were high and tended to rise in
2010-2014. Because the outstanding shares remained unchanged, the change of EPS
was caused by the change of net income which is explained in business performance.

54
The P/E in 2013 was very high with the number of 13.1 because of the low
income. In 2014, the adjustment of electricity price created the sudden increase of
revenue and net profit while the market price has not responded promptly, making P/E
lower than in 2013. In this period, the market to book ratio of VSH increased slightly
but it was still less than 1, showing that the company is undervalued in the market.
In conclusion, we can see that though EPS of VSH was not as high as the
industry, it has increased sharply. Besides, P and P/E were much lower than other
companies. The capital structure was mainly based on owners’ equity (80%) so the
interest was not big problem, and most of the profits would be given to shareholders.
Moreover, the profitability was also good, as high as other companies in the sector. In
other word, it is believed that the VSH share is attractive but it has been undervalued,
so hopefully VSH share will grow.
3.8. Valuation
In addition to analyzing the financial ratios, the researchers use valuation

models to evaluate the value of the company whether it is lower or higher than the
current market price. The valuation results include FCFF, FCFE and DDM.
3.8.1. FCFF
Calculation of WACC:
Firstly, the regression was ran to find the company’s cost of equity, with the
input of the historical market risk premium and the historical stock risk premium in the
period of two years to find out the. The historical beta value calculated by the
regression analysis in excel equal 0.7487 <1, meaning that the VSH share is less risk
than the market portfolio. R2 = 0.3073 explains that 30.73% risk of VSH stock was
from the market, the rest was from itself.

55
Figure 3.14: Regression of beta10
20.000%
15.000%
10.000%
y = 0.7487x + 0.0018
5.000% R² = 0.3073
Series1
0.000% Linear (Series1)

-15.000% -10.000% -5.000% 0.000% 5.000% 10.000%
-5.000%
-10.000%
-15.000%
Table 3.19: Calculation of WACC
Rd 10.85%
Beta 0.749
11
Rf 7.94%
12
Rm 16.54%
Risk premium (Rm-Rf) 8.60%
Re 14.38%
Wd 81.40%
We 18.60%
Tax rate 22%
WACC 13.28%
10
Calculating from the data of weekly closing price of VSH shares and VN-Index in 2012-2015
11
Data is shown in APPENDIX 7.
12
Data is shown in APPENDIX 7.

56
Table 3.20: Calculation of adjusted EBIT
Year 2014 2013 2012 2011 2010

EBT 401,238 226,125 265,533 363,691 324,673
Interest 3,295 3,683 4,223 4,127 3,412
EBIT 404,533 229,808 269,756 367,818 328,085
Financial activities' profit 28,519 93,661 97,758 138,204 109,962
Adjusted EBIT after tax 293,291 106,195 134,158 179,099 170,136
Average adjusted EBIT after tax 220,344
Table 3.21: Calculation of reinvestment
Year 2014 2013 2012 2011 2010

Acquisition of property, plants and
351,006 550,150 547,653 428,121 252,937
equipment
Investments in other entities 32,000 0 0 233,500 0
Capital spending 383,006 550,150 547,653 661,621 252,937
Depreciation 76,897 73,938 86,255 117,477 143,753
Change in Non-cash NWC13 -3,108 -70,212 109,163 57,237 211,659
Total reinvestment 303,001 406,000 570,561 601,381 320,843
Reinvestment rate 103.31% 382.32% 425.29% 335.78% 188.58%
Average total reinvestment 388,849
Average reinvestment rate 176.47%
The reinvestment in 2015 is determined by the average total reinvestment in the

budget period, which was 343,446 million. VSH has spent large investments to build
13
The calculation is shown in APPENDIX 9.

57
the facilities for the Thuong Kon Tum project. Besides, since 2014 the company has
paid loans for investment in projects so the reinvestment rate was high.
Table 3.22: Calculation of non-cash ROC
Year 2014 2013 2012 2011 2010

Adjusted EBIT after tax 293,291 106,195 134,158 179,099 170,136
Non-cash total equity14 2,700,651 2,036,561 1,628,990 1,162,377 1,201,902
Short-term borrowings and debt 258,430 664,833 591,015 522,020 183,722
Long-term borrowing sand debt 137,064 153,503 211,877 257,844 334,834
Non-cash ROC 9.47% 3.72% 5.52% 9.22% 9.89%
Average non-cash ROC 7.56%
From the reinvestment and non-cash ROC, the authors estimate the expected
growth rate in 2015 by:
= 7.56% * 176.47% = 13.35%
Growth assumption
The current business situation of VSH cannot attractive but revenue and profit
are expected to increase significantly from 2016 when the Thuong Kon Tum
hydroelectric plants start operating. This plant has a generating capacity of 220MW,
1.6 times higher than the current capacity of VSH of 136MW.
Besides, average prices of electricity increases 92% compared to 2014. The

average price in 2014 was only 351VND/kwh while that in 2015 is 674VND/kwh.
Secondly, revenue is record from the competitive market, so the average selling price
on the market is about 1,084 VND /kWh, higher than the contract price. Furthermore,
14
The calculation is shown in APPENDIX 10.

58
the new plant is expected to sell power at a provisional price of 931 kWh which is two
times higher than the old price. With production estimated at 1,083 kwh/year, each
year the plant will bring about 1,000 billion in revenues. From that, the researchers
assume the growth as below:
Period 2015-2020: Rapid growth stage. The reinvestment rate and growth rate
increase, from 13.35% to 16%.
Period 2020-2025: Transition stage. The reinvestment rate and growth rate tend
to decrease, from 16% to 6%
Period from 2025: Sustainable stage. The growth rate is equivalent to the growth
of GDP, about 6%.
After determining the weight average cost of capital, the adjusted EBIT after tax
and the reinvestment, the FCFF is calculated for each year and discounted to the
present value as the table below:

59
Table 3.23: Free Cash Flow to The Firm
Year 2014 2015 2016 2017 2018 2019 2020

WACC 13.28% 13.28% 13.28% 13.28% 13.28% 13.28% 13.28%
G 9.79% 13.35% 14.00% 15.00% 15.00% 16.00% 15.00%
Adjusted EBIT after tax 293,291 332,440 378,982 435,829 501,203 581,396 668,605
Reinvestment 303,001 343,446 391,529 371,952 353,355 335,687 318,903
FCFF -9,710 -11,006 -12,547 63,877 147,849 245,709 349,703
PV -9,710 -9,716 -9,778 43,946 89,797 131,742 165,525
Year 2021 2022 2023 2024 2025 2025 2026
WACC 13.28% 13.28% 13.28% 13.28% 13.28% 13.28% 13.28%
G 13.00% 11.00% 9.00% 7.00% 6.00% 6.00% 6.00%
Adjusted EBIT after tax 755,524 838,632 914,108 978,096 1,036,782 1,036,782
Reinvestment 302,958 287,810 273,419 259,748 246,761 246,761
FCFF 452,566 550,822 640,689 718,348 790,021 790,021
PV 189,107 203,187 208,638 206,510 200,496 10,857,342
Total PV from 2014 to 2025 1,409,743
Ending value 3,121,261 With the discount rate WACC of 13.28%, the value of
Cash and short-term securities 261,958
VSH stock valuated by FCFF is 19,957VND, higher
Total liabilities 676,940
Stock value 4,116,022 than 15,200VND of the current price.
Number of trading share 206,241,246
Value per share 19,957

60
3.8.2. FCFE
The calculation of FCFE is similar to the FCFF, however this model uses cash
flow for the owners.
Table 3.24: Calculation of adjusted EBT
Year 2014 2013 2012 2011 2010

EBT 401,238 226,125 265,533 363,691 324,673
Financial revenue 28,519 93,661 97,758 138,204 109,962
Adjusted EBT after tax 290,721 103,322 130,865 175,880 167,475
Average adjusted EBT after tax 173,652
Table 3.25: Calculation of reinvestment
Year 2014 2013 2012 2011 2010

Acquisition of property,
351,006 550,150 547,653 428,121 252,937
plants and equipment
Investments in other entities 32,000 0 0 233,500 0
Capital spending 383,006 550,150 547,653 661,621 252,937
Depreciation 76,897 73,938 86,255 117,477 143,753
Change in Non-cash NWC -3,108 -70,212 109,163 57,237 211,659
New liabilities 964,928 1,213,015 1,001,172 551,643 262,754
Payments of short-term and
1,289,392 1,200,696 977,732 318,442 36,128
long-term debts
Total reinvestment 627,465 393,681 547,121 368,180 94,217
Reinvestment rate 215.83% 381.02% 418.08% 209.34% 56.26%
Average total reinvestment 406,133
Average reinvestment rate 233.88%

61
Table 3.26: Calculation of non-cash ROE
Year 2014 2013 2012 2011 2010

Book-value of total equity 2,962,609 2,610,493 2,450,451 2,344,757 2,430,005
Cash and cash equivalents 261,958 573,932 640,343 482,797 677,418
Short-term financial investments 0 0 181,118 699,583 550,685
Non-cash total equity 2,700,651 2,036,561 1,628,990 1,162,377 1,201,902
Average non-cash total equity 1,746,096
Average non-cash ROE 9.95%
From the reinvestment and non-cash ROE, the authors estimate the expected
= 9.95% * 233.88% = 23.26%
Growth assumption
The researchers assume the growth as below:
of GDP, about 6%.

62
Table 3.27: Free Cash Flow to Equity
Year 2014 2015 2016 2017 2018 2019 2020

Re 14.38% 14.38% 14.38% 14.38% 14.38% 14.38% 14.38%
G 23.23% 23.26% 23.50% 24.00% 25.00% 26.00% 26.00%
Adjusted
290,721 358,341 442,551 548,763 685,954 864,302 1,089,021
EBT after tax
Reinvestment 627,465 773,410 955,161 907,403 862,033 818,932 777,985
FCFE -336,744 -415,069 -512,610 -358,640 -176,079 45,371 311,036
PV -336,744 -362,898 -391,847 -239,691 -102,888 23,179 138,930
Year 2021 2022 2023 2024 2025 2025 2026
Re 14.38% 14.38% 14.38% 14.38% 14.38% 14.38% 14.38%
G 23.00% 16.00% 11.00% 8.00% 6.00% 6.00% 6.00%
Adjusted
1,339,496 1,553,815 1,724,735 1,862,713 1,974,476 1,974,476
EBT after tax
Reinvestment 739,086 702,131 667,025 633,674 601,990 601,990
FCFE 600,410 851,684 1,057,710 1,229,040 1,372,486 1,372,486
PV 234,476 290,799 315,751 320,781 313,195 16,385,538
Total PV from 2014 to
203,044
2025
Ending value 4,276,652
Cash and short-term With the discount rate Re of 14.38%, the value of
261,958 VSH stock valuated by FCFE is 22,991VND, higher
securities
than 15,200VND of the current price.
Stock value 4,741,654
Number of trading share 206,241,246
Value per share 22,991

63
3.8.3. DDM
Table 3.28: Calculation of dividend payout rate
YEAR 2014 2013 2012 2011 2010

Net income 359,272 197,396 233,998 329,036 302,413
Dividend 45,006 75,524 83,446 278,448 57,268
Dividend payout rate 12.53% 38.26% 35.66% 84.63% 18.94%
Average dividend 107,938
Average dividend payout rate 37.95%
Table 3.29: Calculation of ROE
YEAR 2014 2013 2012 2011 2010

Equity 2,962,609 2,610,493 2,450,451 2,344,757 2,430,005
Average equity 2,559,663
Average ROE 11.11%
From the dividend payout rate and ROE, the authors estimate the expected
= 11.11% * (1 – 37.95%) = 6.89%
Growth assumption
The researchers assume the growth as below:
of GDP, about 6%.

64
Table 3.30: Dividend Discount Model
Year 2014 2015 2016 2017 2018 2019 2020

Re 14.38% 14.38% 14.38% 14.38% 14.38% 14.38% 14.38%
G 6.89% 8.00% 9.00% 12.00% 13.00% 13.00%
Net income 359,272 384,043 414,767 452,096 506,347 572,172 646,555
EPS(VNĐ) 1,742 1,862 2,011 2,192 2,455 2,774 3,135
Dividend(VNĐ) 218 707 804 986 1,228 1,526 1,881
PV 218 618 615 659 717 780 840
Year 2021 2022 2023 2024 2025 2025 2026
Re 14.38% 14.38% 14.38% 14.38% 14.38% 14.38% 14.38%
G 11.00% 9.00% 8.00% 6.00% 6.00% 6.00% 6.00%
Net income 717,676 782,267 844,848 895,539 949,271 949,271
EPS(VNĐ) 3,480 3,793 4,096 4,342 4,603 4,603
Dividend(VNĐ) 2,018 2,162 2,294 2,388 2,511 2,511
PV 788 738 685 623 573 1,785
Value of share 9,639 VND
With the discount rate Re of 14.38%, the value of VSH stock valuated by DDM is 9,639 VND, lower than
15,200VND of the current price.

65
Table 3.31: Average value per share
Model FCFE FCFF DDM

Value 22,991 19,957 9,639
Average value 17,529
To reduce error from models and estimate more exactly the value of VSH stock,
the authors use average value of three methods as the result of valuation, so the
expected value of VSH stock is 17,529VND. By this estimate, we can see that the VSH
share has to be undervalued in the market.
3.9. Conclusion of financial analysis
The financial statement analysis had the purpose of mapping an overall picture
of VSH’s financial statements in the period 2010- 2014 and to find and analyze the
financial value of the firm.
VSH has outstanding business performance. Both revenue and net income
increase while the proportion of expenses drops, indicating that the company has well
managed costs. Each year, the profit accounts for nearly 60% of total revenue.
Moreover, the participation in electrical competitive market since 2015 has contributed
to improve sales and it is expected to bring higher business performance to the firm.
Currently, VSH has maintained capital structure mainly based on equity with
low financial leverage (only about 1.3 times). This policy has two opposite effects to
the financial performance of the corporation. Firstly, the use of less debt help the
managements control well the financial obligations; specifically, there is no problem
with the liquidity and solvency of the company because VSH always has high liquidity
ratios, over 1 time. Hence, it can cover current liabilities easily and has favorite
opportunities to borrow more when in need of capital. Cash is also held at a reasonable

66
level, about 10 percentages of total assets. Secondly, in spite of having positive effects
on liquidity and solvency, the low leverage limits the amplification of profits, which is
expressed by ROE and ROA. Specifically, ROE is not much different than ROA (only
approximately1.3 times) while the amplification of other companies are 1.8 times.
Notably, the activity ratios of the company are much lower than the industry,
which is the impact of Thuong Kon Tum project. Although the project has not operated
and generated revenue, it makes fixed assets increase dramatically. Besides, the
advances to the contractors also inflict large receivables (20% of total assets). At the
end of 2015, when the project is completed, hopefully these ratios will be improved.
According to risk analysis by Z-score model with the result of nearly 3 times,
VSH has located in a safe business area. Moreover, this indicator tends to increase, so
there is nothing to worry about the possibility of bankruptcy.
The market measures show that although VSH has impressive business
performance, liquidity and profitability; the expectation of the market on the
company’s share is still not as high as the other firms. Also, by the valuation models,
the company’s stock value is evaluated in average at 17,529 VND which is much
higher than the current market price. Therefore, the VSH stock is recommended
outperform.

67
CHAPTER 4: CONCLUSIONS
4.1. Conclusions
In this study, the researchers have used the financial indicators and models to
analyze the financial situation as well as the intrinsic value of Vinh Son – Song Hinh
Hydropower Joint Stock Company. Besides, the calculated results are also compared
with the average of hydropower industry in order to assess more objectively and
exactly about the company. The analysis will be summarized in order to answer the
research questions and fulfill the purpose of the thesis. From that, the authors
demonstrate the achievements and limitations in activities of the company as follow:
VSH has high business performance with the increase of both revenue and net
income while total cost decreases. However, the real cash inflows were negative in
spite of the high revenue and income. It was mainly caused by the Thuong Kon Tum
project which is going to be finished in 2015, so the next period is expected to bring
more positive cash flows.
As the characteristics of a hydropower company, VSH choose the capital

structure based primarily on equity. This is a secure capital structure and limited risk,
however the use of too little debt does not make use of the revenue from the tax shield
or it does not take advantage of financial leverage.
The financial ratios are quite impressive. The liquidity is very good and cash is
held at a suitable level except that the account receivables are relatively high.
Additionally, although the activity ratios are lower than the industry, they are still not
bad. Also, the profitability ratios are high and have increased. Nevertheless, the
expectation of the investors in VSH stock is not much positive, expressed by the lower
market value in comparison with the industry.

68
By dint of using both Altman Z-sore and Z-score adjusted for Viet Nam market
to analysis the risks, the authors find that both two indicators are very high and see the
upward trend, demonstrating the company has operated in a very safe area.
Equally important, the valuation models result in some different results, FCFF
and FCFE show the higher results than the market price while the DDM shows the
lower results. However, the average value of share still much higher than the current
price in the market, so expecting the share price will rise in the future.
In addition to the financial analysis, there is some other notable information.

Firstly, Thuong Kon Tum project has a capacity of 220MW, 1.6 times more than the
current capacity of 136MW; the average output of 1,094 million kWh / year. It was
started in 2010 and scheduled to end in 2014; however, due to the delay by Hydrochina
Hua Dong Corporation, the project will be operated at the end of 2015. In addition, the
new plant is expected to sell electricity at the prices of 931 VND/kWh, twice as much
as the price of Vinh Son and Song Hinh factories. With production estimated at 1,083
kWh / year, each year the plant will bring about 1,000 billion in revenues. Secondly,
the electricity competitive wholesale market makes the price of electricity go up,
contributing to increase sales and profits.
All things considered, with good financial ratios, high intrinsic value and future
prospects, recommending outperform with VSH stock.
4.2. Limitations
Although the author has finished the thesis with the passion and effort, it still
has some limitations. Firstly, the report has been done in the middle of 2015 but the
available data is only updated at the end of 2014, so the following data is not shown.
Secondly, the data is mainly collected from the secondary sources, leading to some

69
errors and bias. Besides, it is assumed that the reader of the thesis has basis knowledge
about economics and finance so the economic theory and the applied models are not
deeply explained. Furthermore, Thuong Kon Tum project still has not operated at the
time of reporting, thus the author did not have enough information and did not
calculate it in the thesis.
4.3. Suggestions for further research
This study makes general assessment of the financial development of the

company. In addition, there are many approaches for financial analysis of enterprise, so
the other authors could choose a smaller item in the financial statements for further
analysis to evaluate more deeply and clearly. For example, VSH has using low
financial leverage which is inefficient, so the analysis to enhance the effect of financial
leverage should be carried out. Besides, there is a problem with the account
receivables, so it is necessary to find the cause and solution for managing this account.
In other word, since Thuong Kon Tum factory was built, it has had many adverse
effects on financial ratios like liquidity ratios, activity ratios…, thus the researchers
should find out more about the impact of the project on these ratios. In next year, the
project will operate soon, it brings a great development potential to the company, so
the financial analysis of the project will also be interesting subject for future research.

70
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APPENDIX
Appendix 1: Balance sheet of VSH (2010-2014)
Unit: Million VND 2014 2013 2012 2011 2010

A. CURRENT ASSETS 987,069 1,256,830 1,467,517 1,811,132 1,658,769
1. Cash 261,958 573,932 640,343 482,797 677,418
2. Short-term investment 0 0 181,118 699,583 550,685
3. Accounts receivable 687,753 628,101 598,779 603,245 388,372
4. Inventory 36,358 36,166 30,927 25,421 42,157
5. Other current assets 1,000 18,631 16,349 86 137
B. LONG- TERM ASSETS 2,652,479 2,408,123 1,914,896 1,534,601 1,370,061
1. Fixed assets 2,637,200 2,392,392 1,898,614 1,518,890 1,355,554
( Accumulated depreciation) (2,124,585) (2,047,688) (1,973,750) (1,887,495) (1,770,018)
2. Long- term investment 12,496 12,908 13,521 12,942 11,721
3. Other assets 2,783 2,823 2,761 2,769 2,786
TOTAL ASSETS 3,639,548 3,664,952 3,382,412 3,345,733 3,028,831
A. LIABILITIES 676,940 1,054,460 931,962 1,000,976 598,826

1. Current liabilities 539,875 900,957 720,085 742,949 263,802
Short-term borrowings and debt 258,430 664,833 591,015 522,020 183,722
Accounts payable 194,327 38,063 11,058 25,116 15,812
2. Long- term debt 137,064 153,503 211,877 258,027 335,023
Long-term borrowings and debt 137,064 153,503 211,877 257,844 334,834
B. OWNERS' EQUITY 2,962,609 2,610,493 2,450,451 2,344,757 2,430,005
1. Equity 2,962,117 2,609,649 2,449,204 2,343,098 2,427,912
2. Other funds 492 844 1,247 1,659 2,093
TOTAL LIABILITIES AND
3,639,548 3,664,952 3,382,412 3,345,733 3,028,831
OWNERS' EQUITY
Appendix 2: Income Statement of VSH (2010-2014)
Unit: million VND 2014 2013 2012 2011 2010

Gross Sales 554,477 283,680 332,191 459,415 424,508
Revenue deductions 0 0 0 0 0
Net Sales 554,477 283,680 332,191 459,415 424,508

76
Cost of goods sold 157,907 131,398 154,577 185,734 183,823

Gross profit 396,570 152,282 177,613 273,681 240,685
Revenue from financial activities 28,519 93,661 97,758 138,204 109,962
Expense for financial activities 5,540 5,802 (5,379) 36,386 16,304
Interest 3,295 3,683 4,223 4,127 3,412
Sales expenses 0 0 0 0 0
General and administrative
19,455 15,354 17,092 18,578 11,302
expenses
Operating profit 400,095 224,786 263,659 356,921 323,040
Other profit 4 14 133 217 153
Gross profit 401,238 226,125 265,533 363,691 324,673
Tax 41,966 28,730 31,536 34,655 22,883
Net income 359,272 197,396 233,998 329,036 302,413
202,241,2 202,241,2 202,241,2 202,241,2 202,241,2
Outstanding shares
46 46 46 46 46
Price 11,700 12,800 8,700 6,600 8,000
EPS 1,776 976 1,157 1,627 1,470
P/E 6.6 13.1 7.5 4.1 5.4
Book value 14,006 12,900 12,100 11,600 12,000
Appendix 3: Statement of Cash Flow of VSH (2010-2014)
Unit: million VND 2014 2013 2012 2011 2010

Cash flow from operating activities 47,357 200,804 256,676 285,341 270,306
Cash flow from investing activities 78,140 -257,459 -39,126 -434,714 88,592
Cash flow from financing activities -469,470 -9,755 -60,005 -45,247 122,239
Net cash flow -343,973 -66,410 157,545 -194,620 481,137
Beginning cash 573,932 640,343 482,797 677,418 196,281
Ending cash 229,959 573,932 640,343 482,797 677,418
Appendix 4: Common-size Income Statement of VSH
Unit: % 2014 2013 2012 2011 2010

Net sales 100 100 100 100 100
Cost of goods sold 28.48 46.32 46.53 40.43 43.30

77
Gross profit 71.52 53.68 53.47 59.57 56.70

Revenue from financial activities 5.14 33.02 29.43 30.08 25.90
Expense for financial activities 1.00 2.05 -1.62 7.92 3.84
Interest 0.59 1.30 1.27 0.90 0.80
Sales expenses 0.00 0.00 0.00 0.00 0.00
General and administrative expenses 3.51 5.41 5.15 4.04 2.66
Operating profit 72.16 79.24 79.37 77.69 76.10
Other profit 0.00 0.00 0.04 0.05 0.04
Gross profit 72.36 79.71 79.93 79.16 76.48
Tax 7.57 10.13 9.49 7.54 5.39
Net income 64.79 69.58 70.44 71.62 71.24
Appendix 5: Average asset structure of hydropower companies
Unit: % 2014 2013 2012 2011 2010

A. CURRENT ASSETS 26.53 20.93 21.50 18.17 16.86
1. Cash 9.54 10.34 10.52 5.05 3.29
2. Short-term investment 6.23 2.50 1.65 2.18 5.73
3. Accounts receivable 9.37 6.81 7.93 9.53 6.25
4. Inventory 1.09 1.04 0.36 0.42 0.81
5. Other current assets 0.29 0.23 1.05 0.98 0.78
B. LONG- TERM ASSETS 73.47 79.07 78.50 81.83 83.14
1. Fixed assets 67.34 75.62 74.27 75.98 76.73
2. Long- term investment 3.10 3.16 3.90 5.31 5.80
3. Other assets 0.27 0.29 0.33 0.54 0.60
TOTAL ASSETS 100 100 100 100 100
Appendix 6: Average capital structure of hydropower companies.
YEAR 2014 2013 2012 2011 2010

LIABILITIES 34.15 34.46 35.48 34.72 34.52
1. Current liabilities 13.72 15.26 14.71 10.27 9.63
Short-term borrowings 4.50 6.92 6.07 2.37 2.52
2. Long- term debt 22.09 19.19 20.77 24.45 24.89
Long-term borrowings 20.70 19.19 20.73 24.36 24.72

78
OWNERS' EQUITY 65.85 65.54 64.52 65.28 65.48

TOTAL LIABILITIES
100 100 100 100 100
AND OWNERS' EQUITY
Appendix 7: Rf and Rm (2000-2014)
Year T-bond (1 year) % VNIndex R(m)
2000 206.8
2001 5.51% 235.4 13.83%
2002 5.90% 183.3 -22.13%
2003 6.10% 166.9 -8.95%
2004 5.79% 239.3 43.38%
2005 6.18% 307.5 28.50%
2006 6.45% 751.8 144.49%
2007 7.19% 927.0 23.30%
2008 13.06% 315.6 -65.95%
2009 9.08% 494.8 56.78%
2010 10.73% 484.7 -2.04%
2011 12.90% 351.6 -27.46%
2012 8.55% 413.7 17.66%
2013 7.10% 504.6 21.97%
2014 6.62% 545.6 8.13%
Average 7.94% 16.54%
Appendix 8: Interest rate of VSH (2010-2014)

Year 2015 2014 2013 2012 Average
Annual before-tax interest rate 7.40% 10.50% 11.00% 14.50% 10.85%
The cost of debt is calculated basing on the quarter interest in period 2012-
2015. Interest for the loans in 2012 is 11.5% - 17.5%, in 2013 is 8.5% - 13.5%, in 2014
is 7.5% - 13.5% and in 2015 is 5.3% - 9.5%.

79
Appendix 9: Non- cash NWC

Unit: million VND 2014 2013 2012 2011 2010 2009
Current asset 987,069 1,256,830 1,467,517 1,811,132 1,658,769 1,159,173
Cash and cash equivalent 261,958 573,932 640,343 482,797 677,418 196,280
Short-term investment 0 0 181,118 699,583 550,685 785,685
Current liabilities 539,875 900,957 720,085 742,949 263,802 69,199
Short-term borrowing and
258,430 664,833 591,015 522,020 183,722 30,918
debts
Non-cash net working
443,666 446,774 516,986 407,823 350,586 138,927
capital
Appendix 10: Non- cash total equity

Unit: million VND 2014 2013 2012 2011 2010
Book-value of total equity 2,962,609 2,610,493 2,450,451 2,344,757 2,430,005
Cash and cash equivalents 261,958 573,932 640,343 482,797 677,418
Short-term financial investments 0 0 181,118 699,583 550,685
Non-cash total equity 2,700,651 2,036,561 1,628,990 1,162,377 1,201,902
Average non-cash total equity 1,746,096
Appendix 11: Z”-score and classification of S & P 15
Adjust Z”-score S&P

> 8.15 AAA
7.60 – 8.15 AA+
7.30 – 7.60 AA
7.00 – 7.30 AA-
6.85 – 7.00 A+
6.65 – 6.85 A
6.40 – 6.65 A-
6.25 – 6.40 BBB+
5.85 – 6.25 BBB
15
Average Z” – Score by rating from In-Depth Data Corporation financial statements. Altman, Edward.I., 2005.
An emerging market credit scoring system for corporate bonds, p.314.

80
5.65 – 5.85 BBB-

5.25 – 5.65 BB+
4.95 – 5.25 BB
4.75 – 4.95 BB-
4.50 – 4.75 B+
4.15 – 4.50 B
3.75 – 4.15 B-
3.20 – 3.75 CCC+
2.50 – 3.20 CCC
1.75 – 2.50 CCC-
<1.75 D

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VIET NAM NATIONAL UNIVERSITY, HA NOI

UNIVERSITY OF ECONOMIC AND BUSINESS

FINANCIAL ANALYSIS OF VINH SON- SONG HINH

Supervisor: MA. Trinh Thi Phan Lan

With profound gratitude, I would like to sincerely thank my supervisor and

I would also like to express my thankfulness to Viet Nam National University

Bui Tung Lam

Financial analysis of VSH Bui Tung Lam – QH2011E TCNH CLC

List of figures .......................................................................................................... vii

List of abbreviations ............................................................................................. viii

CHAPTER 1: INTRODUTION ...............................................................................1

1.1. Reasons for research ...................................................................................1

1.2. Literature review .........................................................................................2

1.2.1. Financial statements ..................................................................................2

1.2.2. Financial ratios ..........................................................................................3

1.2.2.1. Financial leverage ratios ......................................................................4

1.2.2.2. Liquidity ratios ....................................................................................4

1.2.2.3. Activity ratios ......................................................................................5

1.2.2.4. Profitability ratio .................................................................................6

1.2.2.5. Market value ratio ...............................................................................7

1.2.2.6. Bankruptcy prediction .........................................................................8

1.2.3. Valuation of a company ...........................................................................10

1.2.4. Some practical case studies in Viet Nam .................................................11

1.2.5. Conclusion of literature review ................................................................11

1.3. Research objectives....................................................................................12

1.4. Research scope ...........................................................................................12

1.5. Research structure .....................................................................................12

CHAPTER 2: METHODOLOGY .........................................................................14

2.1. Company presentation ..............................................................................14

Financial analysis of VSH Bui Tung Lam – QH2011E TCNH CLC

2.1.1. Overview of hydropower industry ............................................................14

2.1.2. Company profile .......................................................................................15

2.1.2.1. Business profile.....................................................................................15

2.1.2.2. Formation history ..................................................................................16

2.1.2.3. Scope of business ..................................................................................16

2.1.2.4. Company organization ..........................................................................17

2.2. Data collection ............................................................................................18

2.3. Data analysis ..............................................................................................19

2.3.1. Non-financial analysis .............................................................................20

2.3.2. Financial analysis ....................................................................................20

2.3.3. Valuation ..................................................................................................23

2.3.3.1. Discount Cash Flow Model ..................................................................23

2.3.3.2. Dividend Discount Model .....................................................................25

CHAPTER 3: RESEARCH RESULT...................................................................26

3.1. General analysis .........................................................................................26

3.1.1. Business performance ...........................................................................26

3.1.2. Assets structure .....................................................................................28

3.1.3. Capital structure ...................................................................................30

3.1.4. Cash flows .............................................................................................32

3.2. Liquidity ratios ..........................................................................................35

3.2.1. Current ratio .........................................................................................35

3.2.2. Quick ratio ............................................................................................36

Financial analysis of VSH Bui Tung Lam – QH2011E TCNH CLC

3.2.3. Cash ratio .............................................................................................36

3.2.4. Operating cash flow ratio .....................................................................37

3.3. Debt coverage ratios ..................................................................................38

3.4. Activity ratios .............................................................................................40

3.4.1. Receivables turnover.............................................................................40