The business is more optimistic. In 2007, the turnover rate of receivables decreased. Specifically, it decreased from 10.7 cycles to 9.03 cycles, leading to an increase in the collection period to 40 days. The reason for this situation is that the growth rate of receivables is higher than the growth rate of net revenue. The debt collection situation in this period is not as good as in 2006, showing the slow ability to recover capital. The business's capital is stagnant and occupied by other units, making it more difficult for the business to pay.
However, when compared with the three companies in the same industry, Agifish is the company with the best receivables indicators. The average collection period of those companies in 2007 was 1.5 to 2 times higher than that of Agifish. This proves that the quality of Agifish's revenue is very high and also shows the company's tight credit policy. But a low average collection period is not entirely good. Tightening credit to customers can cause the company to miss out on many contracts to competitors, leading to a decrease in revenue growth.
Considering the working capital turnover rate (inventory and receivables) of Agifish, it can be seen that the turnover rate in 2007 decreased compared to 2005 and 2007, proving that the amount of working capital needed for production and business to generate 1 dong of net revenue tends to increase. The efficiency of the company's working capital usage is decreasing, the slow turnover rate leads to capital stagnation and capital appropriation by other units. However, in comparison with three other enterprises in the same industry, in 2007, the working capital turnover rate of Agifish was at an average level. Thus, the company's working capital turnover rate is at an acceptable level.
Fixed capital turnover
Table 22: Fixed capital and fixed capital turnover AGF 2005-2007
Target
Unit | 2005 | 2006 | 2007 | |
Net revenue | Billion VND | 831 | 1198 | 1246 |
Fixed capital at the beginning of the period | Billion VND | 96 | 187 | 320 |
Fixed capital at the end of the period | Billion VND | 83 | 96 | 187 |
Average fixed capital | Billion VND | 89.5 | 141.5 | 253.5 |
Fixed capital turnover | Time | 9.28 | 8.47 | 4.92 |
Number of days/turn | Day | 89.5 | 141.5 | 253.5 |
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Source: AGF Balance Sheet 2005-2007
From the table, we can see that in the period 2005-2007, the number of fixed capital turnovers continuously decreased very rapidly, especially in 2007. In 2005, the fixed capital turnover rate was 9.28 times, each time 90 days. In 2006, the fixed capital turnover rate decreased slightly by 0.81 times, but the number of turnovers increased to 142 days. In 2007, the turnover rate decreased sharply to 4.92 times and the number of days in the turnover increased to 256 days. The reason for this situation is that the average fixed capital used has been increasing continuously and at a rapid rate (in 2006 it increased by 58% compared to 2005, in 2007 it increased by 79% compared to 2006) while net revenue has been increasing at a slower rate, especially in 2007. The analysis results show that the efficiency of the company's fixed capital use has been decreasing, and at the same time, the company's ability to recover fixed capital is getting slower. However, with the amount of new fixed assets invested in the last 1-2 years, in the coming time, it is possible that this asset will bring revenue to the company. Therefore, it is expected that the fixed capital turnover rate of Agifish will be improved in the coming time.
In summary, through the entire analysis process above, we see that the efficiency of capital use of enterprises tends to decrease, as evidenced by the decrease in turnover rate of receivables, inventories, and fixed capital in 2007. Therefore, in the coming years, the company needs to take measures to improve the efficiency of capital use such as proposing solutions to quickly recover debts.
receivables, limit unnecessary fixed assets, do not ensure technical and production capacity, and increase sales revenue.
4.2.2. Ability to pay
Payment Analysis
Analysis of payment situation is to evaluate the reasonableness of the fluctuations in receivables and payables, helping us to have more accurate assessments of the financial situation of the enterprise. From there, we can find out the causes of all stagnation and delay in payments or exploit the potential to help the enterprise control the financial situation. It has a particularly important meaning for the existence and development of the enterprise.
Table 23: AGF's receivables structure 2005 - 2007
Target
Unit | 2007 | 2006 | 2005 | |
Short-term receivables | Million Dong | 140,355 | 135,820 | 88,063 |
Accounts receivable | Million Dong | 112,782 | 100,697 | 85,364 |
Prepayment to seller | Million Dong | 27,346 | 34,256 | 2,452 |
Other receivables | Million Dong | 227 | 1,044 | 371 |
Receivables/current assets | % | 58 | 49 | 39 |
Source: AGF Balance Sheet 2005 - 2007
Based on the above table, we see that in 2006, receivables increased by 47.8 billion VND, or 54% compared to 2005. All items increased. Receivables from customers increased by 18%, prepayments to sellers increased by nearly 32 billion VND, many times higher than in 2005. This can be explained by the fact that in 2006, the company expanded its economic relations and expanded its export markets. In fact, revenue in 2006 increased by 44% compared to the previous year. And it is reasonable that the company's receivables were like that.
In 2007, Agifish's receivables increased slightly by 4.5 billion VND, or only 3.3%. Notably, prepayments to sellers decreased sharply, from 34.2 billion VND to 27.3 billion VND, demonstrating the company's ability to be more proactive in its raw material sources. Receivables from customers increased by 12% to 112.6 billion VND.
while revenue increased only 4%. Thus, the company's ability to manage customer receivables in 2007 has not improved.
Although the absolute value of the company's receivables increased during the period 2005-2007, the ratio of receivables to current assets showed a steady and steady downward trend.
In summary, through the entire analysis process above, we see that the value of receivables tends to increase, but if we consider the proportion of receivables to total current assets, it tends to decrease. This shows that the company is on the one hand increasing its search for partners, expanding the market, on the other hand, it has made efforts in debt collection, reducing the amount of capital occupied by other units, contributing to more effective capital use. However, the company also needs to take measures to further reduce the proportion of receivables from customers in the coming time.
Similar to accounts receivable, we analyze accounts payable to see the level of capital occupation of the company as well as understand the company's debt repayment situation.
Table 24: AGF's receivable structure in 2005-2007
Target
2005 | 2006 | 2007 | ||||
Value (billion VND) | Proportion (%) | Value (billion VND) | Proportion (%) | Value (billion VND) | Proportion (%) | |
Short-term debt | 138.7 | 100.0 | 166.5 | 100.0% | 221.2 | 100.0% |
Short-term loans and debt | 74.6 | 53.8% | 113.2 | 68.0% | 163.0 | 73.7% |
Payable to seller | 37.1 | 26.7% | 25.3 | 15.2% | 43.6 | 19.7% |
Buyer pays in advance | 8.2 | 5.9% | 0.1 | 1% | 3.0 | 1.4% |
Taxes and liabilities pay to the State | 3.3 | 2.4% | 2.7 | 1.6% | 0.4 | 0.2% |
Payable to workers | 7.5 | 5.4% | 17.9 | 10.8% | 4.8 | 2.2% |
Cost to Pay | 4.6 | 3.3% | 5.3 | 3.2% | 2.7 | 1.2% |
Other short-term payables | 3.3 | 2.4% | 2.1 | 1.3% | 3.8 | 1.7% |
Source: AGF 2005-2007 financial report notes
Looking at the table of payables analysis, we can see that in the period 2005-2007, payables tended to increase. Specifically, in 2006, it increased by 27.8 billion - an increase of 20% compared to 2005. The reason was due to an increase in short-term debt and an increase in payables to employees. In 2007, payables continued to increase by 54.7 billion to 221.2 billion - an increase of 33%. Of which, short-term debt increased by 50 billion, payables to suppliers increased by 18.3 billion. Payables to suppliers increased significantly compared to the previous year, demonstrating the company's increased reputation. In addition, payables to employees this year decreased significantly, from 17.9 billion to 4.8 billion.
Thus, in general, the payables over the past 3 years tend to increase quite rapidly, mainly due to the company's increasingly expanding production and investment activities, but the company's own capital is still limited, so to ensure normal business operations, the company must borrow capital, or appropriate capital from other units such as suppliers or employees to meet this capital shortage. Therefore, in the coming years, the company needs to reduce the amount of borrowed capital, because if it borrows more and more, the business risks will increase. Moreover, interest costs will also increase sharply, especially in the current period of tightening bank credit activities.
Chart 3: Correlation between receivables and payables of AGF in 2005-2007
Receivables - Payables ratio (billion VND)
221.2
2007
140
362
166.5
2006
136
275
Payables Receivables
Current assets
2005
138.7
88
151
-
100
200
300
400
Source: Data processing from AGF balance sheet 2005-2007
It can be seen that the company's payables in the 3-year period 2005-2007 were always higher than receivables, while payables tended to increase faster. Therefore, the company needs to be careful in its business plan because these payables may become overdue debts if the business plan is not successful.
Solvency analysis
The company's production, business and financial situation is directly affected and impacted on its ability to pay. To clearly see the current and future situation of the company, it is necessary to deeply analyze the company's needs and ability to pay.
Short-term solvency
Short-term solvency analysis is to examine whether a company's assets are sufficient to cover its short-term liabilities.
Table 25: Current ratio of AGF and 3 companies in the same industry
Target
Unit | AGF | ABT (2007) | ANV (2007) | ACL (2007) | |||
2005 | 2006 | 2007 | |||||
Floating capital | Billion VND | 12 | 108 | 141 | 185 | 1249 | 162 |
Current ratio | Time | 1.09 | 1.65 | 1.63 | 1.45 | 2.73 | 2.25 |
Quick ratio | Time | 0.7 | 1.07 | 0.84 | 1.19 | 2.24 | 1.88 |
Cash payment ratio | Time | 0.06 | 0.26 | 0.21 | 0.37 | 0.66 | 0.13 |
Source: AGF 2005-2007 balance sheet and ABT, ANV, ACL 2007
For Agifish, in the period 2005-2007, the company's working capital continuously increased at a high rate. This shows that the payment pressure on short-term assets is reduced over time. However, compared to three companies in the same industry, Agifish has the lowest working capital. In addition, in 2007, the coefficients reflecting Agifish's short-term payment ability were also low. Thus, Agifish's short-term credit risk is high.
4.2.3. Profitability analysis
Table 26: Profit margin of AGF and 3 companies in the same industry
Target
Unit | AGF | ABT (2007) | ANV (2007) | ACL (2007) | |||
2005 | 2006 | 2007 | |||||
Profit after tax | Billion VND | 22.3 | 46.6 | 40 | 45.4 | 370 | 55.7 |
Net revenue | Billion VND | 831 | 1198 | 1246 | 432 | 3200 | 539 |
Financial revenue | Billion VND | n/a | 5.5 | 9 | 17.1 | 64.8 | 3.8 |
Profit after tax/Revenue | % | 2.7 | 3.9 | 3.2 | 10.5 | 11.6 | 10.3 |
Source: Business results of AGF 2005-2007 and of ABT, ANV, ACL in 2007
Agifish's profit margin on revenue in 2006 and 2007 improved significantly compared to 2005. In 2005, the company's profit margin was 2.7%, then in 2006 it increased to 3.9%, and in 2007 it was 3.2%. 2006 was a very effective year for Agifish, when revenue increased sharply, costs decreased, leading to very high profits. However, in 2007, as analyzed above, due to the suspension of AGF8 factory, the company could no longer maintain a high revenue growth rate, while management costs and inventory costs remained high. However, in 2008, when AGF8 factory is repaired and put into production, the company's profit margin is expected to be higher.
Compared to other companies in the same industry, Agifish's after-tax profit margin is less than 1/3, which is mainly explained by the fact that Agifish's cost of goods sold ratio is higher than other companies. The revenue of export companies is very high, so even a small difference in cost of goods sold ratio can cause a large difference in profit. In addition, the high profit of the 3 companies in the same industry is also explained by the fact that the revenue from financial activities of those companies accounts for a large proportion of the total profit. This profit does not come from the company's traditional business activities, so we can completely eliminate that profit to more accurately assess the company's profit margin.
To make an accurate assessment, we analyze some profitability indicators:
Table 27: Profitability indicators of AGF and 3 companies in the same industry in 2007
Target
Unit | AGF | ABT | ANV | ACL | |
ROA | % | 4.7 | 10.9 | 15.8 | 25.7 |
ROE | % | 6.4 | 15.8 | 21.9 | 43.3 |
Profit margin/revenue | % | 3.2 | 68.9 | 72.2 | 59.4 |
Debt leverage | Time | 1.36 | 1.45 | 1.39 | 1.68 |
Capital turnover ratio | Time | 1.47 | 1.04 | 1.37 | 2.49 |
Source: Financial reports of AGF, ABT, ANV and ACL in 2007
Thus, the return on total assets and return on equity of Agifish are very low compared to the three enterprises in the same industry. According to Dupont analysis, this is due to the low profit/revenue ratio of Agifish as analyzed above. In addition, Agifish's debt leverage is also low compared to other enterprises because Agifish mainly relies on self-funded capital from shareholders, with little mobilization from credit institutions. In the coming years, Agifish needs to improve business efficiency, increase profit margin on revenue to keep up with other enterprises in the industry.
III. ASSESSMENT OF THE PRODUCTION AND BUSINESS SITUATION OF AN GIANG SEAFOOD IMPORT-EXPORT COMPANY
1. Strengths and weaknesses
1.1. Strengths
- Agifish is a seafood processing company with a long history of operation in Vietnam and has affirmed its reputation in the domestic and foreign markets. Agifish is continuously in the top 5 largest pangasius and basa fish exporting companies in Vietnam.
- Agifish is the first enterprise in Vietnam to establish the APPU clean fish union in September 2005, linking the company with fish farmers, feed and medicine suppliers, to provide a stable and standard source of raw materials for the company, helping the company to maintain production activities.