UNIVERSITY OF ECONOMICS AND LAW Socialist Republic of Vietnam

INTERNATIONAL ECONOMIC RELATIONS Independence – Freedom – Happiness

FACULTY ---o0o---

ACADEMIC YEAR: 2020 – 2021 – SEMESTER: 02 – CLASS CODE: 202IB9501

Subject: Multinational Corporation Financial Management – Exam: End term

Name : TRẦN NHƯ HẢO ……………………. Class: K18408CA… Student ID: K184081102………

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Mark Signature of examiners

In number In word Emxaminer 1 Emxaminer 2

Notes:

1. Students use this file to do essay.

2. After completing the essay, students send it to the lecturer's email at the address:
thanhpt@uel.edu.vn

3. How to name the file and name the email subject:

CLASS – STUDENT CODE – STUDENT NAME

4. Deadline to email submissions to lecturers: 23 h 59 min on July 28, 2021

5. Students who submit late will not be counted.

6. Do not plagiarize or copy other students' work, if detected, the same works will be deducted
points depending on the evaluation level of the lecturer.

ESSAY

Sentence 1: A multinational company is facing difficulties because of spreading investment leading to a

bad business situation, there are currently three markets where production bases are affected due to the
appreciation of that national currency. In addition, two newly expanded consumer markets also failed to
attract customers. In this case, how should the company handle it and briefly explain it? (Write up to
1,000 words)

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Sentence 2: Indicate and briefly explain the duality (benefits and limitations) of extending sale credit
policy. Give a specific example. (Write up to 1,000 words)

Sentence 3: List and briefly explain the four main sources of repayment of a loan or a sale credit. Give a
specific example. (Write up to 1,000 words)

Sentence 4: Analysis of financial ratios within 3 years of one of the companies listed in VN30 on HOSE.
(Write up to 2,000 words)

ANSWER

Sentence 1:

It is obvious that multinational company operting globally in many countries will be suffered by economic
exposure. The production markets place in countries that differ from countries that the consumer markets
located in. As a result, the extremely unpredictably of exchange rate or inflation rate has a significant
effect on the profitability as well as the cost of a company due to different currencies in several countries.
The change in the value of the local company's currency value against the parent company's currency
sterling will have a significant effect on total profits.

In case of the national currency appreciation, it means that the production cost is increasing in three
production markets. The higher the cost of manufacturing is, the more company’s profit losses.
Additionally, this could lead to the change of product prices whether increase or decrease depend on the
exchange rate between different countries. Moreover, in such a situation, the company is facing with
failure of attracting customer in two newly expanded consumer markets. This unpredictable situation will
deal a heavy blow to the company's finances, so that there are some suggestions which company should
consider.

In three production markets where its currency’s value is increasing, the multinational company ought to
put all effort to reduce the manufacturing’s cost. Firstly, the company can deduct labor cost as well as
improves production efficiency through mechanization and high automation of production process. It is a
transition from working mostly or completely by hand to doing so with machinery. In another words, the
evolution and invention of advanced technologies contribute significantly to the reduction of industrial
complexity. Precision machining equipment is used to meet the large-scale need for mass-produced items
that are created at a cheap cost with a minimal workforce. For example, in tea industry, to reduce the
expense of plucking, tea firms have been made to employ alternate methods such as automated harvesting
equipment. The major benefit of replacing hand plucking of tea with machine plucking is an increase in
volume and a low in cost. Secondly, company can transform production markets into consumer markets to
avoid the influenece of exchange rate risk. It means that firm should boost sales in three countries where
they produce its product instead of export to other consumer markets. By which the appreciation or
depreciation of local currency can not affect on the profit and price of products. Company can convert
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factory production prices through production increases in countries where the currency is depreciated,
whereas production reduction in countries where prices rise. Thirdly, company should have a plan for
placing production markets in other countries where there are low-wage labors such as developing
countries or look for other source which provide materials with lower price to reduce input cost. Finally,
company can negotiate with their employees in manufacturing markets to temporarily reduce wages
during tough economic times and promise to compensate them or provide additional benefits. This
approach can temporarily reduce the burden of cost to business, but not in a long term. Because when the
currency appreciates, the cost of living of a labour in these countries also rise, so that quitting or going on
strike are very likely problems of business.

In two newly expanded consumer markets where the multinational company customers can not gain
market share as well. To resolve this problem, company should firstly put more effort to support their
marketing strategies in each market through carefully researching and analysing market demand. The
marketing is a difficult challenge for a multinational company since different countries have different taste
and need. So, company should reposition their brand in which this usually entails a change in the brand’s
promise, its personality or slogan make customers associate with their brand and increase sale volume.
Targeting specific market segment helps company easily serve customer’s need. Secondly, company can
change their product strategies in two consumption markets. They can introduce a new product with
unique features or improve product’s line which help it differ from competitors’s products. This allows
company to attract much more customer, especially curious people. Finally, company should manage their
pricing strategy. It is very important in customer’s making purchasing decision, particurlaly sensitive-
price customers. Furthermore, they ought to weight their market share in these two markets and calculate
profit margin to set a suitable price which attract enough target customers and improve their total revenue.

Sentence 2:

Extending sale credit policy brings several benenefits:

 The first one is increasing customer loyalty. Because the way in which company offer customers
credit and believe in them make customer feel that they are very important and valuable. They
could believe that they are assisting in growing company’s business, company are giving them
with the choice of credit so that they may be flexible with their own cash flow without sacrificing
what they require. Therefore, company would increase customer goodwill and establish better
relationships with customers. By extending credit, company have made them feel as if company’s
connection with them is more about trust than supply and demand, a crucial component of
contemporary buyer’s selection.
 The second one is gaining a competitive edge. By extending sale credit to customer, company is
giving themshelve an edge, because not every business is willing to do this. Customer likely prefer
the convenience of controlling over their cash flow when they want to buy something and how

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 they pay for it. Whenever customers have a choice, they are more likely to be drawn to the supplier
who offers them this flexibility. Therefore, company gain a significant business edge if its
competitors do not offer payment alternatives and extending sale credit to their consumers.
Customers are more inclined to prefer this company over others.
 The third one is boosting sale as well as opening doors to new revenue sources and profit. Because
of all the benefits stated above, extending sale credit to consumers can help company attract more
prospects and close more sales. Additionally, customers are frequently less concerned with pricing
when they know they may buy now and pay later, and more focused on the services company
offer. The clients have whatever they need to buy more from company, thanks to extended
payment periods and increased purchasing power. If competitors do not provide credit terms,
giving credit terms will increase company’s sales since consumers would buy from them instead of
paying cash to their rivals.

Othervise, this policy also brings several drawbacks to company:

 The first one is risk of delayed payment. Company can believe that most of their credit clients will
be wonderful customers who pay on time; but there may be a few persons that cause problems in
the form of late or overdue payment. There will be a time lag between when company sell products
and services and when they get paid, depending on the payment conditions. If their normal terms
are Net 30, this may be as long as 30 days. To avoid this late payment, company may go to an
invoice factoring business to acquire the cash to alleviate this payment delay, but company must
evaluate the expense against the advantages to determine whether it is worth it.
 The second disadvantage is impact negatively on business cash flow. Because when company ask
consumers to pay in advance, company will be immediately receiving their money, but in case of
selling on credit, things become a bit more difficult. As previously said, most customers will pay
on time, some may be a bit late, and others may become significant difficulties. So that, the
company may loose the opportunity to reinvest in their business.
 The third one is risk of not getting paid or bad debts. Despite how thoroughly company examine a
customer's credit rating and references, there will always be someone who does not pay or are not
able to repay. Whenever this problem occurs, company will incur costs if company turn the
account over to a collection agency. If collection attempts fail, the receivable must be written off
as a bad debt.
 The fourth one is account receivable management. It means company have to spend time to stay on
top of unpaid invoices. When it comes to handling company’s accounts receivable, they will need
to be more organized than when it comes to cash sales. This requires company a significant
amount of time and effort to do it correctly and avoid bad-debt write-offs, invoicing disputes, and
late payments. Company may even believe that they need to recruit another staff to keep up with
everything. This is not always the case; there are several techniques, tools help company to keep
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 up with it such as  asking for payment via email, by telephone and, if necessary, by sending a
collection letter by mail. This risk can let to a shortage of cash and company may need to use a line
of credit with a bank or ask their suppliers to extend better credit terms.

Example: CellphoneS sells its products to a customer on sale credit and that customer agrees to pay in 3 or

6 months, then CellphoneS is effectively providing the consumer with an interest-free loan in the amount
of the purchase. The deal of installment with 0% interest make customer to have more incentive to buy
their products and pay later. After finishing deal, CellphoneS would be better off attempting to collect
payment from the client as quickly as possible. Therefore, CellphoneS would offer a discount to the
purchase price for early payment. For example, CellphoneS may offer its customers a deal like 2/30, net
90. This deal states that the customer gets a 2% discount if they pay within thirty days, otherwise they pay
the full amount in ninety days ~ 3 months. When computed as yearly savings, the 2% discount turns out to
be a considerable discount and a strong incentive for the client to pay early. Besides, CellphoneS give
customer a flexible payment method, they can pay through associating with financial company (FECredit,
HomeCredit, HDSaiSon), MPOS (Support 20 banks, no need for approval), payment via Bank (Citi,
Shinhan, Sacombank,...) or Alepay Online (Visa, MasterCard, VPBank, TechComBank, TPBank,...)

Sentence 3:

There are four main repayment cash flow that includes four main information:

The first repayment cash flow is collected from debt itself. Customer must have evidence about source of
cash which come from their business plan in short term or investment project in long term. Another is
customer can show their economic contract represents the assurance of the input and output of the
business plan. The business plan help customer to display a guarantee of the revenue and cost of their
current project. All of these is needed to ensure the ability of customer to pay back.

The second repayment cash flow is come from the debtor itself. It is from other ongoing business
activities shown through financial statements of all kinds This can include 4 main boards: the balance
sheet, income statement, cash flow statement and the statement of shareholders’ equity in three most
recent years. They stand as one of the more essential components of business information, and as the
principal method of communicating financial information.

The third repayment cash flow is generated from collateral which is property committed to secure a loan;
the lender obtains a lien on that property as a result. The collateral is usually in type of mortgage, pledge
or guarantee or in the form of hard assets, such as real estate and office or manufacturing equipment.
Besides, accounts receivable and inventory can be pledged as collateral. When customers do not have
ability to pay debt, a creditor such as a bank or a supplier has a claim on a company's assets, any cash
collected or generated from the sale of assets is considered cash collateral. The collateral issue is more
difficult for service firms since they have fewer physical assets to pledge. As additional security, a director
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 might pledge his shares or personal assets. Alternatively, the major owners may provide personal
guarantees, or a well-wisher could provide one.

The fourth repayment cash flow is collected from borrowing debt to pay debt or refinancing. It is from
procuring a second loan out of which the existing loan is repaid. Firm can take another loan to repay their
current debt. Besides, they can consider the plan to issue bonds of the business in the coming years.
Because issuing bond is one way for business to raise money. Furthermore, the form of bond issuance is
still preferred by businesses because of its ability to quickly finance and meet the needs of debt
restructuring. borrow in a longer-term direction to match cash flow. This is especially necessary for
businesses that do not have collateral and have difficulty accessing loans from banks. Additionally, this
source has the advantage of offering the borrower some time to organize company’s finances.

 When doing yearly reviews, it is a good time to evaluate and confirm that the initial source of
repayment remains the same or, if it has changed, to appropriately handle it. If the initial source of
repayment has deteriorated and company is now depending on new sources of repayment, this
should be explained.

Example:

Mobile World Co. Ltd is a reputed company in the field of buying, selling and repairing mobile phones,
digital devices and fields related to e-commerce. With the goal of wanting to serve more customers better
and bring quality products at good prices, company plan to open new super cheap phone stores along the
country. Their credit demand is 30 million VND, needed over the next 6 months. During this time, they
have to acquire new ground and capital for day-to-day operations like cost of premises, electricity, staff
salaries, advertising costs, etc. To make sure the ability of repayment, Mobile World Co. Ltd can province
their future revenue generated from the sale of products or services provided by the company. Moreover,
the collateral which company provide in the event of default is their products, along with multiple
Thegioididong stores in prime locations. Additionally, detailed financial reports would be provided and
published by company on all key metrics related to the business’s operation, revenue, or profit.

Sentence 4: CTCP Khoáng sản Bình Định (HOSE: BMC) - Binh Dinh Minerals Joint Stock Company

1. Trend analysis

Based on the BMC's financial statements over the years, from 2018 to 2020, the table below shows the
following financial ratios:

2018- 2019-
Unit 2018 2019 2020
2019 2020
Liquidity Current ratio Time 3.57 7.78 6.55 118% -16%
ratio Quick ratio Time 1.17 1.89 0.16 62% -92%
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 Instant payout
Time 1.17 0.23 0.16 -80% -30%
ratio
Interest
Time - - 54.18 - -
coverage ratio
Account
Receivable- Turn 73.43 84.54 6.87 15% -92%
turnover ratio
Inventory
Turn 1.24 1.50 1.94 21% 29%
turnover
Account
Efficiency Payable Turn 83.44 107.02 123.41 28% 15%
ratio turnover
Fixed-assets-
Turn 2.19 3.69 5.01 68% 36%
turnover ratio
Total-assets-
Turn 0.56 0.82 1.00 46% 22%
turnover ratio
Equity
Turn 0.68 0.96 1.12 41% 17%
performance
Debt-to-assets
% 19.98 9.12 11.54 -54% 27%
ratio
Total -debt
Solvency % 93.05 89.48 95.53 -4% 7%
ratio
Debt-to-equity
% 24.97 10.03 13.05 -60% 30%
ratio
EBIT % 12.76 10.98 9.18 -14% -16%
Gross Profit
% 31.02 23.71 24.16 -24% 2%
Margin
Profitabilit Net profit
% 10.18 8.42 6.60 -17% -22%
y margin

Return on
% 6.93 8.10 7.39 17% -9%
equity (ROE)
Return on
% 5.72 6.90 6.62 21% -4%
assets (ROA)
Market Earnings per VN
1,087 1,297 1,202 19% -7%
value share (EPS) D

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 Price-to-Book
Time 0.85 0.86 0.87 1% 1%
ratio (P/B)
Market price to
earnings ratio Time 12.42 10.71 11.82 -14% 10%
(P / E)
Price/Sales per
Time 1.27 0.90 0.78 -29% -13%
share (P/S)
Source: Data from BMC's financial statements
- Liquidity analysis: Almost payment ratios of enterprises are at safe levels, low interest rates, low
debt burden, high debt repayment capacity. Enterprises do not have bank loans in the first two
years, interest coverage ratio is quite high that can prove the ability of company to pay interest in
2020. In the first two years, the quick ratio of BMC relatively increased by 62% while the cash and
cash equivalents level were sharply decrease by 80%. Althought the quick ratio was higher than 1
and increase in both years, this ratio was still much smaller than the current ratio, it means that the
short-term assets of the business depend too much on inventory. Moreover, cash ratio was
significantly going down, it means that the ability of company paying off its debts was slowdown.
In constrast, BMC’s cash and cash equivalents level were continously lower than 1, decrease to
0.16 in 2020 showing that the enterprise's ability to pay debts is weak, is a sign of potential
financial difficulties that the enterprise may face. There is the same downward trend in both quick
ratio and current ratio. Therefore, company need to reconsider the use of their financial resources.
They can increase the source of short-term loans to achieve better business performance.
- Efficiency analysis: Performance in recent years has not been satisfactory. In the first two years of
2018 and 2019, the receivables turnover ratio was quite high, which showed that the business was
quickly repaid by customers. But in 2020, this index dropped significantly, about 92% compared to
the previous year, which shows that the credit policy that businesses apply to customers is not
effective. While the inventory- turnover is quite low, not over 2, it means that the business is not
selling as well, and inventory is stagnant in the business. This ratio slightly increased during the
period can be a positive signal for BMC. By constrast, the payables turnover ratio increases year
by year, which shows how well the Binh Dinh Minerals Company has made good use of the
supplier's credit policy. Total asset turnover, fixed assets turnover and equity performance have
continuously increased over the years, however, the total asset turnover index and equity
performace is not high, reaching the highest value of 1 and 1,12 respectively in 2020 and only
around one-fifth of the fixed-assets turnover. This means that a business's ability to generate
revenue from its investment in total assets and total share capital (including common shares and
preferred shares) is not effective.

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- Solvency analysis: The data show that the proportion of debt used in the total capital structure and
equity of the company is not too high and tends to decrease over the years. That shows that the
company is less risky in debt management. While long-term debt ratio is low, short-term debt is
mainly debt with no costs. Thus, the funding structure is solid for the asset structure
- Profitability: Profitability of BMC in the last 3 years is quite high but slightly decreased due to
the influence of the national economy. The efficiency of managing all operating expenses,
including COGS and selling expenses, and administrative expenses are decreasing, resulting in
EBIT Margin falling to 9.18% in 2020. The ratio of ROE and ROA represents a relatively low
return for shareholders and business owners with the highest level in 2019, about 8.1% and 6.9%
respectively. There is a signal that BMC can face with some financial troubles due to the falling of
ROS. The year 2020's product sales and sales decreased to a large extent compared to the year
2018 and 2019, with the decreasing of 17% and 9%. The sales revenue increased insignificantly,
while purchasing and selling costs and expenses increased slightly. Other expenses increase at a
high rate, which leads to a decrease in profit after tax. As a result, the product sales and
consumption targets are too low. To improve this situation, businesses need to pay attention to
measures to reduce costs and increase revenue in the future next time.
- Market value: In 2018, EPS reached 1087 dong/share, in 2019 increased to 19% and reached
1297 dong/share and slightly decrease with 7% in 2020. The P/E ratio over the last 3 years is over
10, it means that current share price is over 10 times higher than stock earnings. In the first two
years, BMC’s market price is down from 12.42 to 10.71, decreasing about 14%, while the
increasing of EPS is around 10%. Thus, BMC’s market price had a falling trend from 2018 to
2019. But there is a opposite trend in the next two years when P/E ratio increased about 10%,
while the EPS decreased by 7%. This means that BMC’s market price was increase. The BMC’s
P/B less than 1 in all three years means that company is selling shares for less than its book value.
The company's asset value has been overstated or the company's return on assets is too low.
Otherwise, the price-to-sales ratio decrease over three years.

2. Comparing BMC vs Industry average

The table below shows the financial ratios of BMC comparing with their industry average in 2020:

BMC Industry Average

P/E 11.82 26,23
P/B 0.87 1,92
P/S 0.78 0,66
Gross profit margin 24.16% -42,11%
ROA 6.62% 4,18%
ROE 7.39% 13,84%

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Quick ratio 0.16 2,86
Current ratio 6.55 3,24
Debt-to-equity ratio 13.05 1,94
Source: Data from BMC's financial statements and Stockbiz website

 About ROA and ROE, it’s shown that return-on-asset of BMC is higher than industry average’s
ratio, while the return-on-equity is only around a half of average. In this case, company is taking
on financial leverage, because its ROE was higher than its ROA. This statement can be proved by
the significant level of deb-to-equity ratio equal to around 6 times comparing with the ratio of
industry average. By taking on debt, a company increases its assets thanks to the cash that comes
in. Meanwhile, a lower ROE might indicate a less efficient usage of equity capital of BMC
comparing with average industry and a higher ROA might indicate that BMC effectively manage
their assets to generate profit in recent years.
 As above analysis, there are a fluctuated of BMC’s P/E and P/B for three years. When comparing
with the industry average, both of ratio is lower than a half of industry average. Subjectively, it is
observed that firms with low P/E and P/B ratios will be deemed appealing when compared to the
industry average ratio since the market undervalues these companies. However, it should be
emphasized that this is not always the case, a low P/B ratio might also indicate that the firm is
experiencing financial or business troubles, resulting in a bleak business future.
 Although BMC’s current ratio was about double the industry average, quick ratio of industry
average was much larger than the same ratio of compay. So, it can be suspected that in recent year,
especially in 2020, the inventory level of company was too high compared with average level.

3. Comparing BMC vs TNT (TNT Group JSC)

The table below shows the financial ratios of BMC comparing with their competitor over three years.
TNT is a group in the Mining/Mining (except oil and gas)/Metal ore mining industry with an equity of
268 million VND, while BMC’s equity was 202 million VND in 2020

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 TNT BMC
2018- 2019- 2018- 2019-
2018 2019 2020 2018 2019 2020
2019 2020 2019 2020
Current ratio 3.05 5.21 2.77 71% -47% 3.57 7.78 6.55 118% -16%
Liquility
Quick ratio 2.63 4.38 2.47 67% -44% 1.17 1.89 0.16 62% -92%
Account Receivable- 107.0
0.76 1.01 0.09 33% -91% 83.44 123.41 28% 15%
turnover ratio 2
Efficiency
Inventory turnover 3.04 4.46 0.47 47% -89% 1.24 1.50 1.94 21% 29%
Equity performance 0.19 0.38 0.05 100% -87% 0.68 0.96 1.12 41% 17%
10.9
Debt-to-assets ratio 24.30 23.99 -55% 120% 19.98 9.12 11.54 -54% 27%
2
Solvency
12.2
Debt-to-equity ratio 32.10 31.57 -62% 158% 24.97 10.03 13.05 -60% 30%
5
Return on equity -0.70 1.08 -0.99 -254% -192% 6.93 8.10 7.39 17% -9%
Profitability
Return on assets -0.52 0.88 -0.81 -269% -192% 5.72 6.90 6.62 21% -4%
Earnings per share
-76 115 -105 -251% -191% 1,087 1,297 1,202 19% -7%
(EPS)
Price-to-Book ratio
Ratio of 0.23 0.15 0.18 -35% 20% 0.85 0.86 0.87 1% 1%
(P/B)
market value
Market price to
13.8
earnings ratio (P / -33.15 -17.60 -142% -227% 12.42 10.71 11.82 -14% 10%
6
E)

Source: Data from BMC's & TNT’s financial statements

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 Liquility: There are not a significantly difference between the current ratio trend of two companies
with the increase in the first two years and fall after that in 2020. But BMC experienced the larger
of increasing and, smaller of decrease than TNT at the same time. Otherwise, the quick ratio of
BMC for three years was lower than their competitor, just equal to a half. It is claimed that the
liquility or ability of two companies to pay all its debt is similar, however, BMC might be difficult
to repay as quickly as TNT due to the highly dependece of short-term asset on their inventory.
 Efficiency: In the first two years, the number of inventory turnover of TNT was about double
BMC. It means that the organization and management of the BMC's reserves was weaker than its
rival. This can be proved by the above liquility analysis. However, in the next year, BMC’s
inventory turnover continously increase and improved their inventory level, while there was a
crisis in TNT's inventory management, resulting in a significant decrease in the company's
inventory turnover of about 89% year-over-year. It is a considerable diference between account
receivable turnover of two companies over period. The average number of days that BMC collects
customer funds was much lower than TNT, more than 100 times in 2019 and 2020. This shows
how efficient that BMC was in granting credit. for customers and BMC's ability to collect short-
term debts is better than their competitors
 Solvency: Both companies had a relatively low debt-to-asset ratio which means the proportion of
debt used in the total capital structure of these firm was small. However, BMC’s ratio was lower
than their rival and had a decline trend in recent years. It seems that BMC have managed debt risk
well.
 Profitability: Based on the above data, it is easily recognized that TNT's return on equity and
return on assets reached negative values in 2018 and 2020, possibly because the company's
business was not profitable, lead to negative profits. Meanwhile, with the same indicators, BMC
has achieved better results, with an increasing trend in both ROA and ROE.
 Ratio of market value: In consequence of losses in profit, TNT's earning per share also reached a
negative value, even though there was a sudden increase in 2019, it continued to plummet 191% in
2020. BMC has done much better than its competitors, with an earning per shares of more than
1000 times, and continuously growth. Although in 2019-2020, the company's EPS has a slight but
not significant decrease. As for the PE ratio, it is difficult to compare the stock prices of the two
companies, because TNT's EPS is negative, so its PE is meaningless. However, in 2019, TNT's P/E
ratio was slightly better at 13.86 compared to 10.71 of BMC. This was year BMC’s P/e at lowest
level over three years.

– END –

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Lecturer’s Signature

Phùng Tuấn Thành

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