VIETNAM NATIONAL UNIVERSITY, HANOI

INTERNATIONAL SCHOOL

STUDENT’S SCIENTIFIC RESEARCH REPORT

Financial distress likelihood of the listed companies in Vietnam

Fianancial scientific research

Hanoi, April 29th 2019

Table of Contents

INTRODUCTION ................................................................................................................................................ 3
1. Introduction ......................................................................................................................................................3
2. Objective ...........................................................................................................................................................4

CHAP 1: LITERATURE REVIEW – THEREOTICAL BACKGROUND ........................................................ 5

I. The meaning of this research: ...............................................................................................................................5
II. Theoretical background:.......................................................................................................................................5
III. Empirical research and research hypotheses: ....................................................................................................8
IV. Definition of variables .......................................................................................................................................11

CHAP 2: DATA & METHODOLOGY ............................................................................................................. 12

I. Scope ....................................................................................................................................................................12
II. Method ................................................................................................................................................................13
III. Sources of data ..................................................................................................................................................15

CHAP 3: DATA ANALYSIS .............................................................................................................................. 15

I. Analysis ................................................................................................................................................................15
II. Run the model .....................................................................................................................................................24

CHAP 4: CONCLUSION ................................................................................................................................... 24

APPENDIX ......................................................................................................................................................... 24

REFERENCES ................................................................................................................................................... 24

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 This paper uses the Logistic regression model to measure financial distress
likelihood of the listed companies in Vietnam through a panel data of 105 firms
over 4-year period from 2015 to 2018. The paper identified firms’ internal
factors that affect the financial distress in Vietnam business such as cash
holdings, debt ratio, firm size, assets turnover and retained earnings ratio.
Macro factors and market elements have no impacts on the financial distress.
At the same time, the study proposes an estimating model of financial distress
for the business with the correct prediction rate on population of 120 firms.

INTRODUCTION
1. Introduction
Financial distress forecasting is an issue increasingly attracting the attention of
investors, creditors and managers. Determining when a company falls into
financial distress is essential because it helps managers make appropriate
decisions to maintain operations and motivate the company to continue
development helps investors and creditors have a full measure of the level of risk
they are suffering when the company falls into financial distress.

According to the General Statistics Office, in 2018, Vietnam's GDP growth rate
reached 7.08%, higher than the previous year (6.81%). The number of newly
established enterprises reached 131.3 thousand with a total registered capital of
VND 1,478.1 trillion, an increase of 3.5% in number of enterprises and an increase
of 14.1% in registered capital compared to 2017. This is a positive sign of
economic growth. This also shows that corporate executives are expecting the
prosperity of businesses in the future.

However, in 2018, the number of enterprises falling into difficulties is forced to

dissolve, suspend operation for a definite or indefinite time also increases
significantly. Accordingly, the number of enterprises suspended operation is
90,651, an increase of 49.7% over the previous year, including 27,126 enterprises
registered to suspend business for a definite time, up 25.1% and 63,525 temporary
enterprises stop operating without registering or waiting for dissolution, up
63.4%; 16,314 enterprises completed dissolution procedures, up 34.7%. This

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shows that it is necessary to early identify financial distress to find solutions to
help businesses survive and develop.
Most of the well-known studies of financial distress have been implemented in
the US and European countries. In Vietnam, this research topic is still new and
only implemented by a few domestic researchers. From the above-mentioned
realities, this study is undertaken to find a suitable and appropriate financial
distress forecast model for listed companies Viet Nam stock market.
2. Objective
The purpose of this study is to examine the possible uses of Ohlson’s O-score in
relation to Vietnam data and to observe how it applies to modern Vietnam firms
of today. That includes analyzing the differences between the original model,
published in a paper in 1980 and an altered model based upon the same statistical
methods and variables, but on Vietnam listed firms being active during recent
years. Basically, we aim to examine how Ohlson’s studies can be employed today
in order to determine the probability of a Vietnam listed firm becoming bankrupt
or reaching another condition related to financial distress. Furthermore, since the
models are almost entirely relying on accounting-based information derived from
the annual reports, we would like to examine whether there is a gain to be attained
in also considering the quality of these reports, with regard to the model. That is,
can we increase the predictability of corporate failure by inducing an audit
element and incorporating data regarding the audit reports into the model? Above
all this, the underlying purpose is, with Ohlson’s O-score as a starting point, to
find a model that can easily be understood and applied by investors investing in
Swedish stocks on as many levels as possible. This also includes that the data
should be easily acquirable and used as input in the model.
The general objective of the study is to identify suitable financial distress
prediction model for companies in Vietnam. The specific objectives are:
1) to provide a detailed demonstration of the regression model that was developed
by Ohlson (1980)
2) Is it the model applicable in predicting financial failure of companies and a
useful tool for investors in the Vietnam or not?
3) Providing solutions and possible ways to use regression model more accurate

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 CHAP 1: LITERATURE REVIEW – THEREOTICAL BACKGROUND
I. The meaning of this research:
Since Vietnam has joined in WTO, there has been faced with financial
distress that caused strong impacts on various sectors of the economy such as
investment, banking, stock market,…Vietnamese enterprises have been
deeply affected and had many difficulties to stabilize. Facing with challenges,
some businesses have found their own strategies to overcome crisis.
However, some businesses cannot overcome the crisis and the rate of
bankruptcy is increasing. The problem now is how to identify a business in
the financial distress.
Financial distress has pointed to shortcomings in the assessment and
management of loans that have a huge impact on business performance.
Therefore, it is necessary to research the financial distress of the Listed Stock
Industrial Firms. There are many factors that can help to predict the
probability of a company's financial distress like internal and external ones.
It leads to find the best forecasting model that helps firms to forecast the
corporate operation situations according to the information provided by the
financial distress prediction system, set up the right direction and
measurement in order to get rid of the financial distress and increase the value
of the enterprise and the investors and creditors can make the right investment
choice by dynamic analyzing on the financial forecasting indicators.
II. Theoretical background:
The term "financial distress" of the business is said by the researchers as a
state, a difficult period of business arising before the time the business
declares bankruptcy until the bankruptcy business. Serious financial distress
is leading to bankruptcy. However, in some case financial distress is likely to
be detected before the company falls into insolvency. As such, it is noted that
financial distress does not warrant for a bankruptcy The financial distress is
divided into two phases, the first stage is the business falls into temporary or
permanent difficulties in the repayment of due debt due to joint lack of cash;
in the latter stage, the enterprise is completely unable to repay, after repeated
negotiations and restructuring with the creditor but fails to meet the target,
the enterprise must complete the procedure with the court to declare
bankruptcy. A researcher named Altman introduced multiple linear
discriminate projections into the financial distress prediction field in 1986.
He marked the companies according to the multiple linear discriminate
methods and set up Z score model. Then when he predicted the companies 1
year before bankruptcy, 95 percent of the results are correct (Altman, E. I., &
Hotchkiss, E. (2006), Corporate Financial Distress and Bankruptcy, 3rd Ed,

5
 New Jersey: John Wiley & Sons, Inc.,.). The financial distress is, therefore,
different from the bankruptcy. In particular, financial distress occurs when
firms may not be able meet financial obligations from their creditors due to a
loss in firm’s business operating, illiquid assets, high fixed cost. On the other
hand, bankruptcy is a final state when firms stop doing business because
businesses still cannot meet their financial obligations in the financial
distress.
There are several definitions of financial distress, according type, namely
economic failure, business failure, technical insolvency, insolvency in
bankruptcy, and legal bankruptcy (Brigham and Gapenski, 1997).
- Economic failure: is a situation where the company's revenues cannot cover
the total cost, including the cost of capital. The business can continue to
operate throughout the lenders would provide capital and its owner will
accept return rate (rate of return) in the bottom of the market. Although there
is no injection of new capital assets when parents had to be replaced, the
company can also be economically viable, new capital assets when the
parents had to be replaced, the company can also be economically viable.
- Business failure: is defined as a business that ceased operations with
consequent losses to creditors.
- Technical insolvency: A company is said to be in a state of technical
insolvency if it can't meet current liabilities as they fall due. Inability to pay
the debt technically indicate a temporary lack of liquidity, which if given the
time, the company may be able to pay its debts and survive. On the other
hand, if the technical insolvency are the first signs of economic failure, this
may be the first stop toward financial disaster.
- Insolvency in bankruptcy: A company is said to be in a state of insolvent in
bankruptcy if the debt book value exceeds the market value of assets. This
condition is more serious than technical insolvency because, generally, it is
economic failure sign, and even lead to the liquidation of the business.
Businesses in insolvent circumstances in bankruptcy does not need to be
involved in bankruptcy claims legally.
- Legal bankruptcy: Companies say bankruptcy law if it has been filed formally
with the demands of the legislation (Brigham and Gapenski,1997).
1/ Most of the research adopts bankruptcy as a standard, and generally can be
divided into two models: one based on pure financial indicators and the other
mixed model based on financial and non-financial indicators. The financial
distress prediction which based on financial indicators dates happened from
the 1930s. A researcher named Fitzpatrick firstly studied a one variable
bankruptcy prediction by having selected 19 companies as sample, and

6
 divided the sample into two groups called bankruptcy and non-bankruptcy
according to a single financial ratio. The first person to research financial
distress prediction by the financial indicators is Chen Jin (1999) who studied
the model by adopting debt-asset ratio and liquidity ratio and the statistics of
27 stock companies and non-stock companies in 1998. (Chen Jin, “The
Empirical Analysis on the Financial Distress Prediction of the Listed
Corporate,” Accounting Research. 4, pp. 31-38,1999). He selected 120 listed
companies as the sample and set up the financial distress prediction model by
picking 15 financial indicators according the ability to repay debt, the
profitability and so on.
2/ In business, profit is one of the general financial information that can reflect
the process leading to financial distress. No profit is the failure of sales,
competition, ...resulting in financial distress. A researcher named
Dwitridinda examined the effect of corporate governance implementation to
the possibility of companies experiencing financial distress. The study
showed that companies size variables, the implementation of corporate
governance, as well as profit have a significant association with financial
distress. (Dwitridinda 2007 Pengaruh Penerapan Corporate Governance
Terhadap Kemungkinan Perusahaan Mengalami Financial Distress. Jakarta:
Universitas Indonesia).
3/ Enterprises are in danger of falling into financial distress when having one of
the following signs: the securities of such enterprises are put under control or
placed under warning, the profit after tax is negative, the profit after tax has
not been distributed and the business violations of the regulations on
information disclosure. According to Ross et al the company is facing
bankruptcy when its assets values are equal that of the debts. When this
happens, the equity value is equal to zero, and control the company is shifted
from stockholder bondholder. (Ross, W.J. (2013). Fundamental of Corporate
Finance, McGraw-Hill, Irwin)
a/ Cash Management Theory (Baumol, 1988): The loss of control over cash
management will affect the business situation of the business, affect the
profitability of the business, potentially threatening financial distress at a
time. (Baumol, W. J. (1988), ‘Economists as Innovators: Practical Products
of Theological Research’, Journal of Economic Literature,)
b/ Classification theory (Myers & Majluf, 1984): New investors who have a lot
of information on the business often require a higher profit margin when they

7
 accept financing for businesses, which makes the cost of financing from new
external financing be more expensive than current capital. Therefore, when
the enterprise seeks funding for its investment needs, priority is given to
funding from internal sources (retained earnings). The use of funds from the
profits will reduce the risk of financial distress of the business. (Myers, S. &
Majluf, N. (1984), ‘Corporate financing and investment decisions when firms
have information that investors do not have’, Journal of Financial
Economics)
c/ The cost representative theory (Jensen & Meckling, 1976) deals with the
conflicting interests of three groups: shareholders, managers and creditors.
Large-scale enterprises often perform well in-house controls because the
control department operates independently from the board of directors,
performing the role of supervisory board. Thus, large-scale enterprises reduce
the risk of financial distress (Jensen, M. C., & Meckling, W. H. (1976),
‘Theory of the firm managerial behavior, agency costs and ownership
structure’, Journal of Financial Economic)
d/ Signal theory (Miller & Rock, 1985), the financial situation of enterprises is
reflected by signals of capital mobilization of enterprises. According to this
theory, when the company issued additional shares are usually the business
share of risk, so the stock price will decline and vice versa. So stock price
fluctuations reflect the status of the business (Miller, M. H. & Rock, K.
(1985), ‘Dividend policy under asymmetric information’, The Journal of
Finance.)
III. Empirical research and research hypotheses:
Empirical studies on metro-logy and financial distress are divided into four
groups of factors that affect financial distress.
1/ Internal factors: These are only held in some enterprises. Poor management
experience has led to erroneous or subjective financial decisions,
conservative investment and management, slow technological innovation,
rigid business planning, product quality, non-compliance with payment
discipline… that makes companies get into financial distress.
a/ Enterprise Cash Management Policy: The relationship between the level of
money holdings and financial distress is counter-trend. The company's cash
management policy reflects the amount of cash the company reserves to meet
the needs of fast, reserve, speculative. The imbalance between cash inflows
and outflows leads to wastage or the risk of business failure. Therefore the

8
 higher the amount of cash the bank will be able to secure, the faster repayment
of debt and reducing the risk of financial distress (Jiming & Weiwei, 2011).
A researcher named Almilia conducted a study on «Predicting Financial
Distress in Listed Companies Using Logit Multinomial Analysis». The
results showed that the financial ratios from the income statement, balance
sheet and cash flow statement have a significant influence in predicting
financial distress. ( Almilia, L.S. (2006). Prediksi Kondisi Financial Distress
Perusahaan Go Public dengan Menggunakan Analysis Multinomial Logit.
Jurnal Ekonomi dan Bisnis, XII (2).)
b/ Capital structure of business: The relationship between debt ratio and
financial distress is the same trend. An enterprise with a capital structure
financed primarily by debt, equity is less, the risk of falling into financial
exhaustion is very high. (Kraus, A., & Litzenberger, R. H. (1973), ‘A stage –
preference model of optimal Financial Leverage’, The Journal of Finance).
A researcher named Pranowo conducted a study on the «Determinant of
Corporate Financial Distress in an Emerging Market Economy: Empirical
Evidence from the Indonesia Stock Exchange 2004 - 2008» in 2010.The
results of the study showed that the variables of current ratio, efficiency,
equity, and dummy variable of good financial condition, have a positive and
significant impact on the financial distress, whereas leverage variable has a
negative and significant impact on the financial distress.( Pranowo, K.
(2010). Determinant of Corporate Financial Distress In An Emerging Market
Economy. Euro journal Publishing, Inc.2010,52.)
c/ Operational capacity: Relationship between firm size and financial distress is
counter-trend and the relationship between asset efficiency and financial
distress is counter-trend. Performance capability reflects the scale (size of
assets) and market share (size of sales) of the business. The lower the capacity
of the enterprise, the higher the likelihood of financial abuse. The larger the
size of the enterprise, the stronger the company's ability to overcome the
difficult times in business, thus reducing the risk of bankruptcy. (Jiming, L.,
& Weiwei, D. (2011), “An Empirical study on the corporate financial distress
Prediction based on logistic model”)
d/ Profitability Debt affordability: The relationship between the rate of return
and financial distress is counter-trend. Profitability reflects the level of profit
generated by the investment of the business. Enterprises with low
profitability, the risk of falling into financial distress is high. Debt repayment

9
 refers to the retained earnings of an enterprise used to pay off corporate debt.
The lower enterprise’s repayment capacity, the higher the risk of falling into
financial distress. (Beaver, W. H. (1966), ‘Financial ratios as predictors of
failure’, Journal of Accounting Research).
e/ Corporate Governance Capability: The relationship between board
ownership and financial distress is counter-trend. Corporate governance
capabilities reflect the management capabilities of the board of directors, the
level of management and control of the board of directors and the board of
directors. The higher the equity ownership ratio of the board of directors, the
lower the representation cost, the less the risk of financial exhaustion for the
business. (Chen, L., & Sun, J. (2005), ‘Corporate Governance and Financial
distress: Evidence from Shanghai security Market’, Journal of Southeast
University Philosophy and Social Science). A researcher named Hanifah
(2013) study examined the influence of corporate governance structure and
financial indicators on financial distress condition. The result showed that the
size of the board of directors, managerial ownership, institutional ownership,
leverage, and operating capacity have a significant influence on financial
distress. Furthermore, the variable of ownership concentration, managerial
ownership, the proportion of independent directors, the managerial agency
costs, and audit opinion, have a significant effect on the likelihood of
financial distress while government ownership variable has no significant
influence (Fadhilah, F.N. (2013). Analiss Pengaruh Karakteristik Corporate
Governance Terhadap Kemungkinan Financial Distress. Diponegoro Journal
Of Accounting,2(2).). Otherwise other researcher named Anggraini has
researched 42 listed companies on Kompas 100 index from 2011- 2013
proved that managerial ownership has no significant influence on financial
distress like that of institutional ownership has (Anggraini, D. (2015).
Financial Distress Model Prediction for Indonesian Companies. International
Journal of Management and Administrative Sciences (IJMAS),3(4):74-84.).
2/ Market factors: The relationship between stock price and financial exhaustion
is the opposite. The transparency of the business information helps investors
to trust their finances in the business and motivate the business to perform
better for business results. All market reactions to business information are
focused on the volatility of corporate stock prices. Corporate stock prices rose
sharply as investors rated good prospects for the business, and corporate stock
prices fell sharply indicating signs of business failure in the future. The higher

10
 the transparent information factor, the lower likelihood of the business falling
into financial distress. (Black, F., & Scholes, M. (1973), ‘The pricing of
options and corporate liabilities’, Journal of Political Economy,)
3/ Micro-economic factors like risk-free rate (government bond interest rate),
inflation rate. The relationship between government bond yields and financial
distress is the same trend. When risk-free interest rates increase, or inflation
increases, the cost of corporate capital increases the risk of financial distress.
(Christidis, A. C. & Gregory, A. (2010), Some new models for financial
distress prediction in the UK, Center for Finance & Investment)
4/ Macro-economic factors: In the late of 20 century, about the side of non-
financial indicators into the financial distress prediction model. Marquette
(1980) suggested introducing macro- economic indicators into the establish
of model, such as interest rate, inflation rate, indicators of changes in
economy and so on. A researcher named Izan (1984) introduced the relative
percentage of industry into the model and found that it had a great effect on
telling the difference between financial distress companies and health
companies. Other researcher named Mohmad Isa on his research in Malaysia
(2004) added macroeconomic variables and found that the Gross Domestic
Product (GDP) serves as a significant variable in predicting financial distress
in Malaysia. The result showed that except the micro-economic indicators,
the macro-economic factor could explain the company’s financial distress.
IV. Definition of variables
This study is conducted on a dataset which covers approximately 120 listed
firms in Hanoi stock exchange (HNX) and Ho Chi Minh stock exchange
(HOSE) for the period from 2015 to 2018.
1/ Accounting variables
a) Cash to total asset: It measures the portion of a company's assets held in cash
or marketable securities. Although a high ratio may indicate some degree of
safety from a creditor's viewpoint, excess amounts of cash may be viewed as
inefficient.
Cash to total asset= Cash/Total asset
b) Debt to total asset: a leverage ratio that defines the total amount of debt
relative to assets. This metric enables comparisons of leverage to be made
across different companies. The higher the ratio, the higher the degree of
leverage and, consequently, financial risk. The total debt to total assets is a

11
 broad ratio that analyzes a company's balance sheet by including long-term
and short-term debt (borrowings maturing within one year), as well as all
assets – both tangible and intangible, such as goodwill.
Debt to total asset=(Short-term Debt + Long-term Debt)/ Total asset)
c) Sales to total asset: The sales to total assets ratio measures the ability of a
business to generate sales on as small a base of assets as possible. When
the ratio is quite high, it implies that management is able to wring the most
possible use out of a small investment in assets.
Sale to total asset= (Gross sales - Sales allowances and deductions) ÷
Aggregate book value of all assets.
d) Retained Earning to total asset: The ratio of retained earnings to total
assets helps measure the extent to which a company relies on debt, or
leverage. The lower the ratio, the more a company is funding assets by
borrowing instead of through retained earnings which, again, increases the
risk of bankruptcy if the firm cannot meet its debt obligations.
Retained Earning to total asset= Retained Earning/ Total asset
2/ Market variable: the price indicates for the market base which is calculated
as the average price of the stock price of that firm in one year. Another
variable is the size of the firm. Storey (1994) also stated that the factors that
affect the bankruptcy of one of them is the size of the company. Companies
that have a larger size tend to avoid bankruptcy. The size of the company can
be seen from the total assets. This is in line with the definition of financial
distress that by Kahya and Theodissiu (1999) that one of the characteristics
of companies experiencing financial difficulties is a decrease in total assets,
or in other words, a decrease in the size of the company (Kahya and
P.Theodossiou. 1999.Predicting Corporate Financial Distress: A Time Series
CUSUM Methodology.)
3/ Macroeconomic variable: The effect of the macroeconomic environment on
the default model is very significant. The higher value of Treasury bill leading
to interest rate climb sharply, the bankrupt rate will hike.
In summary, the combination of the accounting-based, market-based and
macroeconomic variables impacting on the financial distress is used to cover
various aspects of the default risk, which is a signal of financial distress.
CHAP 2: DATA & METHODOLOGY
I. Scope

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 To calculate the financial ratios, data was collected from the annual reports
published by State Bank of Vietnam (SBV) and State Securities Commission of
Vietnam (SSC). SSC regulates and monitors the financial and governance
matters for the listed companies in Vietnam. Sample period for the study
is from 2015 to 2018 for the 120 manufacturing firms. The study has excluded
those firms having data for less than 5 years. Firms are considered as distressed
if the firm is quoted below the 50 percent of its face value in the market or any
firm with negative book value of equity. We use the panel data methodology to
control for unobservable heterogeneity, as well as of the cross-sectional
estimation to incorporates the specificity of each company
II. Method
1. Descriptive analysis
The research design applied was a descriptive study and Data analysis used the
following ratios: Working Capital/total assets (liquidity), retained
Earnings/total assets (earned surplus, leverage), earnings before interest and
taxes/total assets (earning power), Market value equity/book value of total
liabilities (solvency), sales/total assets (sales generating capability). The study
was descriptive with secondary data obtained through review of literature
including articles, journals and published financial reports. The study
examined some financial ratios in the financial reports of both sound and
financially distressed firms for the period between 2015 and 2018 .The aim was
to determine the most reliable and significant ratios that can be used for the
prediction of company financial distress. The study drew the sample from
companies listed in the HOSE and HNX in the non-financial sector from 2015 to
2018 which came to a total of 120 companies. After the ratios were selected, they
were analyzed using the backward stepwise method to determine the statistically
significant ones. Discriminant analysis method was used to estimate the model
that predicts financial distress. Statistical models were then used to test the
predictive power of the ratios which led to the conclusion that the variables
that reveal financial distress are those related to profitability, leverage and
operational efficiency. The study also confirms that financial ratios can predict
financial distress for non-financial listed in HOSE and HNX. According to the
study, the best predictor ratios were net income to total assets, total liabilities
to total equity, and total liability to total assets and current assets to sales.
Profitability, liquidity, leverage and operational efficiency were therefore seen
as crucial the determination of the financial health of a company and even though

13
profitability ratios are the most significant, it is of much more importance to have
a combination of ratios since it gives a more accurate model.
2. Logistic regression model
In this paper, the Logistic regression model is mainly adopted In this section we
develop a model that provides an relationship between independent variables.
This model in line with the seminal studies such as Binary logistic regression
(Logit), logit model of Ohlson(1980), Pindado and La Torre (2008), Campbell
RN, et al. (2011)
The analysis of this study is carried out in two parts. In the first part, we
estimate the logit model for Vietnam listed firms by using the financial ratios.
These financial ratios are selected on the basis of their significance in prior
literature. Data from 2015 to 2018 is used to estimate the model. The next
part of the study, we run a regression on the hold-out sample using the data set
from year 2015 to 2018 to check the accuracy rate.
Statistical equation for logit model is as follows: β0 + βi. Xit-1’ + µi + Uit-1
Log (P0/(1-P0)) = Log {P(Y=1)/P(Y=0)} = β0 + β X ’ + µ + U
P = (e β0 + βi. Xit-1’ + µi + Uit-1) / ( 1+ e β0 + βi. Xit-1’ + µi + Uit-1)
Where:
-P (Y=1) = P0 is probability of distress of year t
-P (Y=0) = 1 – P0 is probability of not distress of year t
-Odds is a ratio measure exactly probability of distress Odds= P0/(1-P0)
-βi is a vecto (1*n) involve coefficient of regression in proportion to
independent variable of the model
- X ’ (1*n) presents the value of vector of independent variable of year t-1. It
incuding:
CASH/TA: cash to total asset
DEBT/TA: debt to total asset
SALE/TA: sale to total asset
RE/TA: retained earning to total asset

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 Ln_TA: size of the firm
Ln_price: stock’s price of the firm
Gov_Rate: Coupon rate of Treasury bonds
Own_Manager: proportion of Owner’s Equity
III. Sources of data
Research using data of financial statements of 120 joint stock companies are industry
enterprises listed industry, enough continuous data for these model variables in the
period 2015 - 2018. To reduce the distance between values, the independent
variables in the study are the active capacity dynamic according to size and stock
prices are measured by taking logarithms, in which the property takes the application
VND million, stock price taken in VND units. Scale of the business variable taken
by VND million unit. This variable is understood as the value of owner equity over
the years from 2015 to 2018. Cash to total asset, Debt to total asset, Sale to total
asset and Retained earning to total asset ratio are taken by percentage.
With the research data set, by scale, in this time period, there are 45 big business
(capital ... billion copper), abc medium-sized enterprises (with numbers capital
greater than .... billion VND. The number of enterprises capable of financial
exhaustion under the classification ranges from 5 to 15 businesses.
The study uses STATA 14 software to conduct a correlation analysis between
variables, build regression models and test models. The study explains the degree of
impact of independent variables on variables depending on the research results.
Finally, a model for forecasting the financial exhaustion of industry enterprises is
estimated and the forecast level of the model from the research sample is assessed.
CHAP 3: DATA ANALYSIS
I. Analysis
1. Cash to total asset

15
 Cash to total Asset
1.000

0.800

0.600

0.400

0.200

0.000
21

51

81

111
1
6
11
16

26
31
36
41
46

56
61
66
71
76

86
91
96
101
106

116
-0.200

-0.400

2015 2016 2017 2018

2015 2016 2017 2018

Mean 0.088799 0.101301 0.087143 0.08017

Standard Error 0.011138 0.010776 0.011041 0.008202
Median 0.053062 0.060699 0.058612 0.047254
Mode 0.07 0.04 0.19 0.01
Standard Deviation 0.122005 0.118042 0.120944 0.089854
Sample Variance 0.014885 0.013934 0.014627 0.008074
Kurtosis 4.216008 7.760103 14.77572 2.505307
Skewness 1.547836 2.388061 3.105783 1.522746
Range 0.7782 0.7896 0.9796 0.5219
Minimum -0.2182 -0.0596 -0.1796 -0.0619
Maximum 0.56 0.73 0.8 0.46
Sum 10.65594 12.15611 10.45721 9.620373
Count 120 120 120 120

Mean of Cash to total Asset is the highest among 4 years, which is 0.1 (10%). It
means that the percentage of cash over total asset is not significant. The standard
deviation is highest in 2015 (0.122) which means that the differences in cash to total
asset among 120 businesses in 2015 are highest in the 4 years period. The mean of
cash to total asset fluctuate throughout 4 years, which increased In 2016 and
decreased in 2017 and 2018. Mean Cash to total asset is from 8% to 10%, it shows
that the companies didn’t keep much money in cash.

16
 2. Debt to total asset

Debt to total Asset

0.800
0.700
0.600
0.500
0.400
0.300
0.200
0.100
0.000
31

96
1
6
11
16
21
26

36
41
46
51
56
61
66
71
76
81
86
91

101
106
111
116
2015 2016 2017 2018

2015 2016 2017 2018

Mean 0.272248 0.278977 0.271287 0.261269

Standard Error 0.016605 0.016731 0.016162 0.015693
Median 0.2408 0.2733 0.2608 0.2432
Mode 0 0.4994 0.0613 0
Standard Deviation 0.181899 0.183276 0.177044 0.171903
Sample Variance 0.033087 0.03359 0.031345 0.029551
Kurtosis -0.91071 -0.89665 -0.98721 -0.82167
Skewness 0.346749 0.328228 0.280662 0.293767
Range 0.704 0.6793 0.6515 0.6619
Minimum 0 0 0 0
Maximum 0.704 0.6793 0.6515 0.6619
Sum 32.6697 33.4772 32.5544 31.3523
Count 120 120 120 120

The highest mean of debt to total asset is in 2016, which accounts for 0.28. Mean of
Debt to total Asset had fluctuated throughout 4 years period which increased in 2016
and decreased in 2017 and 2018. However, the differences among four means debt
to total asset throughout 4 years are not significant (less than 0.01) and it indicates
that the companies keep the proportion of debt around 0.27 so that they can control
the debts and will not let it become higher. In comparision with Cash to total Asset

17
ratio, the percentage of debt to total asset is higher. Furthermore, the standard
deviation of debt to total asset has decreased from 0.18 to 0.17 during 4 years. It is
highest in 2016, which accounts for 0.183 and it demonstrates that the differences in
debt to total asset among 120 companies fluctuated the most in 2016.
3. Sales to total asset

Sales to total Asset

4.500
4.000
3.500
3.000
2.500
2.000
1.500
1.000
0.500
0.000
21

51

81

111
1
6
11
16

26
31
36
41
46

56
61
66
71
76

86
91
96
101
106

116
-0.500

2015 2016 2017 2018

2015 2016 2017 2018

Mean 1.037677 1.008582 1.001265 1.016161

Standard Error 0.075235 0.072788 0.069408 0.071784
Median 0.907147 0.845246 0.917804 0.900314
Mode #N/A 0.73 0.6 0.74
Standard Deviation 0.824154 0.797355 0.760326 0.78635
Sample Variance 0.679229 0.635775 0.578096 0.618346
Kurtosis 1.560264 2.062712 1.308685 1.238464
Skewness 1.275443 1.334199 1.114782 1.133916
Range 3.822672 4.005153 3.813318 3.743667
Minimum 0.031737 0.084082 -0.00321 0.016333
Maximum 3.854409 4.089235 3.810109 3.76
Sum 124.5213 121.0299 120.1518 121.9393
Count 120 120 120 120

In a 4-year period (2015 to 2018), mean of sales to total asset has been witnessed a
downward trend. In 2015, the mean sales to total asset is highest among 4 years,

18
which accounts for approximately 1.04 and it decreased slowly in 2016, 2017. From
2017 to 2018, it has increased by 0.015. However, in comparision with cash to total
asset and debt to total asset, the proportion of sales to total asset is significant, which
is above 1.03. However, the downward trend in this ratio demonstrates that there are
some company facing the problem in sales so the sales has decreased throughout 4
years, which can be the reason of financial distress. Moreover, the standard deviation
of sales to total asset is high (from 0.76 to 0.8), which means that the differences in
sales to total asset among 120 companies in each year are significant.
4. Retained earning to total asset

Retained Earning to Total Asset

4.000

3.000

2.000

1.000

0.000
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 101105109113117
-1.000

-2.000

-3.000

-4.000

2015 2016 2017 2018

2015 2016 2017 2018

Mean 0.07936743 0.07531981 0.05081864 0.04071357
Standard Error 0.02416977 0.02305614 0.03038315 0.04251805
Median 0.07095842 0.05968577 0.06973855 0.06452376
Mode 0.1 0.05 0.07 0
Standard
Deviation 0.26476651 0.25256738 0.33283077 0.46576195
Sample Variance 0.07010131 0.06379028 0.11077632 0.21693419
Kurtosis 47.3763419 42.5891587 25.8896778 30.8919166
Skewness 2.59374342 0.30601941 -0.8988425 -0.2779264
Range 3.7635162 3.59723956 3.95099581 5.96528997

19
 Minimum -1.541294 -1.6972396 -1.8259958 -2.7986233
Maximum 2.22222222 1.9 2.125 3.16666667
Sum 9.52409174 9.0383776 6.09823625 4.88562836
Count 120 120 120 120

The mean of Retained Earning to total Asset is the highest (0.07936743) in 2015. It
means that the percentage of Retained earnings over total asset is not significant.
The standard deviation fluctuates between (0.26476651) and (0.25256738) in 2015
and 2016. However, it is suddenly continuously increasing in 2017 (0.33283077)
and in 2018 (0.46576195). The minimum of Retained Earning to total Asset ratio is
dramatically decreasing from (-1.541294) in 2016 to (-2.7986233) in 2018. The
negative sign in the Retained Earning to total Asset ratio may indicates that there are
some companies having negative Retained Earnings. When you give dividends, you
have less to contribute to retained earnings. It's possible the accumulated deficit
results from too big a dividend and not retaining enough earnings. You may have to
cut back on future dividends to avoid it happening again. Some businesses have run
into trouble using borrowed money to pay dividends even when the company's
unprofitable.

5. Scale of the firm

20
 Scale of Business
120,000,000

100,000,000

80,000,000

60,000,000

40,000,000

20,000,000

0
1
5
9

49
13
17
21
25
29
33
37
41
45

53
57
61
65
69
73
77
81
85
89
93
97
101
105
109
113
117
2015 2016 2017 2018

2015 2016 2017 2018

Mean 1984658.892 2185311.958 2394690.36 3074059.96
Standard Error 445074.6567 476279.7609 532877.846 903910.568
Median 576525 701263 741964 841686
Mode 367200 507374 633425 721001
Standard
Deviation 4875548.585 5217383.375 5837384.33 9901844.16
Sample Variance 2.3771E+13 2.72211E+13 3.4075E+13 9.8047E+13
Kurtosis 31.02951441 41.91803312 48.0004388 76.1176811
Skewness 5.26015387 5.896189554 6.27864918 8.17808106
Range 37558877 45249478 52555400 99057592
Minimum 17966 16917 1610 1460
Maximum 37576843 45266395 52557010 99059052
Sum 238159067 262237435 287362843 368887195
Count 120 120 120 120

As we can see in the descriptive table, the mean of Scale of business in 2015 is the
lowest (1984658.892),whereas, the mean of Scale of business in 2018 is the highest
(3074059.96). The mean scale of business is annually increasing, which shows that

21
all the companies are likely to develop overtime. However, the standard deviation in
2015 is (4875548.585) and it continues to rise to ( 9901844.16). Moreover, the
minimum Scale of Business become smaller from (17966) to (1460) within 4 years,
and the maximum Scale of Business become larger from (37576843) to (99059052).
These number indicates that within 4 years ( 2015-2018) there is a growth in some
big company, which leads to the increase in the mean and the maximum of the
business scale. The minimum is decreasing and the difference between business’s
scale of some companies seems to be bigger and bigger, perhaps, it shows that some
companies are having some financial problems, distress, bankruptcy,…

6. Stock’s price of the firm

Stock Price
300000

250000

200000

150000

100000

50000

0
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 101105109113117

2015 2016 2017 2018

2015 2016 2017 2018

Mean 19401.1167 20186.6833 24239.0833 27521.1167
Standard
Error 2377.49153 1768.73223 2697.32635 2683.78194
Median 13512.5 14922.5 15174.5 18567.5
Mode 16499 10400 7180 9500
Standard
Deviation 26044.1148 19375.4908 29547.7297 29399.3581
Sample
Variance 678295915 375409643 873068330 864322258
Kurtosis 56.2234222 13.594948 16.3589292 4.04833792

22
Skewness 6.67206487 3.03259975 3.49645901 2.06768081
Range 251040 136782 206456 144700
Minimum 2700 2700 1200 1300
Maximum 253740 139482 207656 146000
Sum 2328134 2422402 2908690 3302534
Count 120 120 120 120

In a 4-year periods ( 2015-2018), the mean of Stock price is the lowest in 2015
(19401.1167) and the highest in 2018 (27521.1167). Although the maximum price
decrease from (253740) to (146000), and the minimum price decrease from (2700)
to (1300). When a stock price falls, that means the company must sell additional
shares of stock to raise the same amount of proceeds. That means when a stock price
is depressed, doing stock-based deals gets more expensive. These downward stock
price numbers may lead to the financial problems of some companies, especially
these small ones.

7. Coupon rate of Treasury bonds

Interest rate of T - Bill

6.2

5.8

5.6

5.4

5.2

4.8
2014.5 2015 2015.5 2016 2016.5 2017 2017.5 2018 2018.5

In a 4-year periods ( 2015-2018), the interest rate of T bill is the lowest in 2018
(4.98353) and the highest in 2016 (5.97295). When a interest rate of T bill falls,
interest rate also goes down and therefore industries and investors will borrow more
to invest in the stock market which replicates in a booming and growth economy. So
T bill rate have a negative relationship with stock market return but are not
significant

23
II. Run the model

CHAP 4: CONCLUSION
APPENDIX
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