Factors Affecting Business Performance of Meiko Trading and Construction Company Limited

In 2019, the debt increased to 2,438 because the company borrowed to invest in additional fixed assets and expand the factory.

Owner's capital: The company's owner's capital in the period of 2016-2017 was maintained at 10,000 million VND. In 2018, the company increased its capital to 13,000 million VND to expand the company's scale and invest in development to increase revenue. In 2020, due to many impacts of the epidemic, inventories increased, customer receivables increased, leading to a decrease in the company's cash flow. Therefore, the company's owner added 1,000 million VND to maintain working capital for the company.

Total capital : In general, the company's total capital only changed significantly in 2018 when the company increased its equity capital from VND 10,000 million to VND 13,000 million, increasing total capital from VND 12,000-13,000 million in the period 2016-2017 to around VND 16,000-18,000 million in the period 2018-2020. The debt-to-equity ratio is relatively low, always below 20%, so it is quite safe.

2.1.2. Factors affecting the business performance of Meiko Trading and Construction Company Limited

2.1.2.1. Group of factors outside the enterprise

Political and legal environment

The political-legal environment is associated with the activities of promulgating and implementing laws from codes to sub-law documents. All legal regulations on business directly affect the business results and efficiency of enterprises. The political-legal environment creates a "playground" for enterprises to participate in business, both competing and cooperating with each other, so creating a healthy legal environment is very important. A healthy political-legal environment not only creates conditions for enterprises to smoothly conduct their business activities but also regulates micro-economic activities in the direction of not only paying attention to individual results and efficiency but also paying attention to the interests of other members of society.

The political and legal environment ensures equality for all types of enterprises and will regulate the business activities and healthy competition of enterprises. The strictness of the law, expressed in the actual business environment, to any extent, will strongly affect the business results and efficiency of each enterprise. Enterprises are obliged to strictly comply with all regulations of the law.

Law, business in the international market, enterprises must have a firm grasp of the laws of the host country and conduct their activities on the basis of respecting the laws of that country.

In the context of the complicated Covid-19 epidemic situation from 2020 to present, it is extremely important for the Government to maintain the stability of the political and social environment, creating conditions for Meiko Trading and Construction Company Limited to continue to have a stable and safe business environment. During the complicated Covid-19 epidemic in 2020, Meiko Trading and Construction Company Limited also strictly complied with the regulations issued by the Government on social isolation periods (temporary suspension of production and business), or "3 on-site" production, and complied with the 5K regulations on epidemic prevention.

Economic environment

The economic environment plays a very important role, deciding the formation and completion of the business environment, and at the same time affecting the competitiveness of enterprises. Economic factors include: economic growth rate, exchange rate, interest rate, inflation and economic policies of the state.

- Economic growth rate: A high and stable economic growth will increase the income of the population, leading to increased purchasing power of goods and services. In 2020, despite the complicated developments of the Covid-19 epidemic globally, Vietnam has controlled the pandemic relatively well, the economic shutdown period is not too long, so the economic growth rate is still maintained without being affected too much compared to previous years. This is a good opportunity for Meiko Trading and Construction Company Limited to have a stable and regular business environment, with few interruptions, promptly meeting the needs of customers, creating success in the Company's business. A stable economic growth leads to high efficiency in business activities of enterprises, high accumulation and production concentration.

- Exchange rate: This is a factor that has a rapid and profound impact on each country and each enterprise, especially in the conditions of an open economy. In the recent period, the relatively stable exchange rate has helped Meiko Trading and Construction Company Limited to stabilize the prices of imported input materials, helping the Company to control well the cost of goods sold.

- Bank lending interest rates: If high lending interest rates lead to high business costs for the enterprise, this reduces the competitiveness of the enterprise, especially when compared to enterprises with strong capital potential. In 2020, the State Bank issued directives to reduce interest rates to support businesses and individuals borrowing capital to overcome difficulties caused by the epidemic. Therefore, Meiko Trading and Construction Company Limited also benefits when bank lending interest rates decrease, helping the company reduce interest costs.

- Inflation: With high inflation, businesses will not invest in production and business, especially in expanding production and investing in innovation in production technology because businesses are afraid of not being able to guarantee physical assets, not being able to recover production capital, and business risks when inflation occurs are very high. In the recent past, although the Covid-19 epidemic situation has been complicated across the country, the Government has managed the economy reasonably and cautiously in launching stimulus packages and regulating the market, helping to keep inflation from occurring at a high level. This helps Meiko Trading and Construction Company Limited to have stability in business when implementing signed contracts because the cost of capital and prices have not changed significantly.

Infrastructure elements

Infrastructure factors such as traffic systems, communication systems, electricity, water, etc. as well as the development of education and training are all factors that strongly affect the business performance of enterprises. Enterprises operating in areas with convenient traffic systems, adequate electricity and water, densely populated areas with high educational levels will have many favorable conditions to develop production, increase product consumption, increase revenue, reduce business costs, etc. and thus improve business performance.

Competitors

Competition is inevitable when there are many businesses participating in the industry. Currently, the competitive situation of Meiko Trading and Construction Company Limited in the market is as follows:

- Domestic competitors: Meiko Trading and Construction Company Limited faces competition from many traditional and capable competitors. Currently, in the domestic market,

In the domestic market, Meiko Trading and Construction Company Limited has to compete fiercely with a large number of leather shoe manufacturing enterprises and factories, including foreign-invested enterprises with experience in construction consulting, electronic equipment and organic agriculture that have participated in the market for a long time.

- Competitors from other countries: Meiko Trading and Construction Company Limited is facing increasingly fierce competition from other countries in the world, especially countries in the region such as China, Indonesia, etc. These countries mostly have the same advantages as us in terms of labor costs, abundant labor force, but they have more favorable conditions than us such as: customers, marketing, product prices, fashion models. However, the positive side is that for the construction consulting industry, customer development requires a long time, as well as different standards in each market, companies in the industry have specific customers and products, so the barriers to entry into the industry are relatively high, competition is not as fierce as other industries.

2.1.2.2. Group of factors within the enterprise

Human factor

Human is considered the decisive factor in the operation of a business. In the present era, the qualifications and experience of an employee greatly affect the business efficiency of a business, especially managers. They are the indirect factors that create business products, but they are the ones who plan the directions for the business, deciding the success or failure of the business. Therefore, the human factor has a direct impact on improving the business efficiency of the business. This becomes even more urgent in the context of Vietnam joining the WTO and being proactive in the process of international integration . Recognizing this issue in the past 5 years , Meiko Trading and Construction Company Limited has focused on the development of human resources . The company has meticulously implemented from the recruitment stage to the training and development to improve the professional qualifications of employees, especially the management staff. Currently, the company is actively implementing policies, improving the quality and capacity of all employees of the company such as: reorganizing the structure reasonably, opening training courses on skills as well as management level and continuing to recruit more capable staff and employees. Human resources

The company's strength has grown stronger not only in quantity but also in quality, ready to meet the demands of the market and is an internal strength of the company in the coming time.

Capital factor

No business can operate without capital. Capital is very important, affecting the business performance of the enterprise. Capital in the enterprise is formed from three main sources: equity, borrowed capital, and state-funded capital. Meiko Trading and Construction Company Limited uses two basic sources of capital in its production and business activities: equity and borrowed capital. In general, the Company is still controlling its financial situation well, the debt-to-equity ratio is relatively low, always below 20%, so it is quite safe. However, recently, due to the impact of the epidemic, the company has had to increase short-term loans to supplement working capital, causing interest pressure to increase, also affecting the company's profits.

Technical factors

In a market economy, technical facilities are part of the capital of manufacturing and trading enterprises. Technical facilities are one of the factors contributing to increasing labor productivity, thereby promoting company development. The current state of technology in our country is very low, several generations behind developed countries. Therefore, the general direction is to combine many types of technical and technological levels, and carry out selective technology transfer to take advantage of the advantages of later-developing countries.

Machinery and equipment are an important production factor. In the production activities of Meiko Trading and Construction Company Limited, due to the characteristics of the industry, machinery and equipment play a major role in improving the productivity and quality of the company's products. Currently, due to the recent conversion of production items, all machinery and equipment mainly serving the company's production process have been imported in recent years (mainly since 2015). In general, the machinery and equipment of Meiko Trading and Construction Company Limited are in quite good condition and are relatively modern. The company's machinery and equipment have many types that meet the different technical requirements of each type of product. Moreover, the company is investing in adding some new, modern and synchronous equipment to the production line of smart home design and construction. But currently

Machinery and equipment have not been fully utilized (about 55-60% of design capacity), so the company needs to further expand the market to increase production output and avoid wasting resources.

Business relationships and reputation in the market

This is the intangible value of the enterprise, it affects the success or failure in improving business efficiency. That impact is intangible and we cannot calculate or measure it by quantitative methods. The relationship and reputation of the enterprise will allow to expand business opportunities, expand business contacts and from there the enterprise will have the right to choose what is beneficial to itself. Moreover, the relationship and reputation will allow the enterprise to have an advantage in consumption, borrowing capital or buying goods on credit.

Since its establishment, Meiko Trading and Construction Company Limited has overcome many difficulties and obstacles, from which the company has continuously innovated and improved its operational productivity in order to move towards the overall development of the entire company. The company has continuously put forward strategies and plans for the company to survive and develop better. Therefore, over the years, the company has built its brand and enhanced its reputation in the market, attracting a lot of cooperation from customers; expanding its scale of operations, the company has received trust from customers through large contracts.

2.2. Current business performance of Meiko Trading and Construction Company Limited

2.2.1. Overall business performance of Meiko Trading and Construction Company Limited

The overall business performance of Meiko Trading and Construction Company Limited for the period 2016 - June 30, 2021 is presented in the following table:

Table 2.3. Company's overall business performance table

Unit: million VND

Target

Year
2016	2017	2018	2019	2020	6T.2021
Net revenue	10,549	13,523	15,761	16,676	18,727	6,554
Total cost	9.010	11,333	13,331	14,455	16,280	5,698
Profit after tax	1,538	2,190	2,430	2.221	2,447	856
Total assets	12,827	12,735	16,143	17,664	18,438	17,179
Equity	10,271	10,291	13,446	13,372	14,042	14,042
Profit margin /Revenue	14.58%	16.20%	15.42%	13.32%	13.07%	13.07%
Profit margin /Total cost	17.07%	19.33%	18.22%	15.37%	15.03%	15.03%
Profit margin /Total assets	11.99%	17.20%	15.05%	12.57%	13.27%	4.99%
Profit Margin / Equity	14.98%	21.28%	18.07%	16.61%	17.43%	6.10%

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Source: Company Accounting Department

- Profit margin after tax on revenue: In the period 2016-2018, the company's profit margin on revenue fluctuated insignificantly. In 2016, it reached 14.58%, in 2017 it increased to 16.20%, in 2018 it reached 15.42%. However, in the period 2019-2020, the profit margin on revenue decreased to only 13.32% and 13.07% respectively, meaning that in 2020, every 100 VND of net revenue generated 13.07 VND of profit after tax. This shows that the company's expenses are too large, the company has not yet improved its cost management ability. The profit margin in 2019 and 2020 decreased partly due to the decrease in profit in 2019 and the growth in revenue over the years.

- Profit after tax on cost: In 2016, the profit after tax on cost reached 17.07%, which means that for every 100 VND of cost, the company generated 17.07 VND of profit after tax. In 2017, it reached 19.33%, showing that the company managed and used all types of costs very effectively. In 2018, it decreased slightly to 18.22%. In the period of 2019-2020, the company's profit after tax on cost decreased sharply, reaching 15.37% and 15.03% respectively, showing that the company was no longer managing and exploiting its costs effectively.

- Return on assets: the company's return on total assets fluctuates relatively erratically. In 2016, the return on total assets reached 11.99%, in 2017

increased dramatically to 17.20%, showing that in 2017 the company used its assets very effectively. However, from 2018 to now, the company has not maintained the efficiency in using assets. In 2018, it decreased slightly to 15.07% and continued to decrease in 2019 and 2020, reaching only 12.57% and 13.27% respectively. The reason is that the company has increased investment in fixed assets, expanded factories, machinery and equipment since 2018, and investment takes time to bring about efficiency. However, it can be seen that in 2019 and 2020, the profit margin on total assets continued to decrease, proving that the company has not achieved the desired asset usage efficiency. In 2020, the profit margin on total assets was 13.27%, meaning that for every 100 VND of average assets, 13.27 VND of profit after tax was generated.

- Return on equity: The company's return on equity fluctuated from 14.98% - 21.28% in the period 2016 - 2020, generally above 15% for businesses in Vietnam is at a good level. In 2016, the return on equity reached 14.98%, in 2017 it increased dramatically to 21.28%. In 2018, there was a decrease to 18.07% and a slight decrease in 2019 and 2020, reaching 16.61% and 17.43% respectively. The reason is that the company has increased its equity sharply since 2018, the owner's contributed capital increased from 10,000 million VND to 13,000 million VND, and the investment takes time to be effective. However, it can be seen that in 2019 and 2020, the return on equity ratio continued to decrease, proving that the company has not achieved the desired capital efficiency. In 2020, the return on equity ratio was 17.43%, meaning that for every 100 VND of equity, 17.43 VND of profit after tax was generated. The company needs to improve the efficiency of using equity because for investors, ROE is the most important ratio, directly affecting investment decisions.

2.2.2. Business performance of Meiko Trading and Construction Company Limited

2.2.2.1. Efficiency of using the Company's assets

⮚ Efficiency of fixed asset usage

The efficiency of using fixed assets of Meiko Trading and Construction Company Limited in the period of 2016 - June 30, 2021 is presented in the following table:

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