FINANCIAL STATEMENT ANALYSIS

MID-TERM
ASSIGNMENT
Company : HOA BINH CONSTRUCTION
(HBC)
Item : Accounts Receivable

TEAM 11
Bui Viet Anh - 1913380702
Vu Quang Huy - 1913310159
Dang Kim Ngan - 1913380019
Do My Ha Trang - 1913380029
Table of contents
I. Introduction
01
1. Overview of the industry

2. Overview of HBC

3. Reasons to choose HBC

II. Analysis

02
1. Accounts receivable of HBC
and Construction industry
(2016-2020)

04
2. The impact of HBC's
significantly high accounts
receivable

05
3. Conclusion
I. INTRODUCTION

INDUSTRY
The Vietnamese construction market is
segmented by industry (commercial
construction, residential construction,
industrial construction, infrastructure
(transport) construction and energy
and utility construction) and by region.

HBC
The company was established in 1987. By
2006, HBC shares were listed and traded
on the Ho Chi Minh City Stock Exchange
(HOSE). HBC stock price when market
closed (as of Dec 3, 15:46 GMT+7) is 24000
VND. HBC operates mainly in the fields of
Civil and industrial construction; Ground
filling; Construction consulting.

WHY HBC?
Receivables is the item that accounts for the largest proportion in the asset
structure of Hoa Binh Construction Group Joint Stock Company (HBC), in which
the two main items are Short-term receivables from customers and Receivables
under schedule of construction contract. This is considered a sensitive point of
the Company in the eyes of investors.
Furthermore, HBC’s lawsuit against FLC Group has been a controversial issue
regarding the state of finance in Vietnam. In 2014, Hoa Binh and FLC Group
signed contracts to construct the Fusion and Alacarte areas of the FLC Sam Son
eco-urban project. Hoa Binh has implemented this contract since 2014, ended at
the end of 2015 and now this project has been put into use. However, so far, Hoa
Binh said that FLC has not yet paid the debt, so they filed a lawsuit in court.

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II. ANALYSIS
1. Accounts receivable of HBC and Construction industry (2016-2020)

With Hoa Binh Construction Group, Accounts receivable account for the largest
proportion in the asset structure. From 2016-2019, Accounts receivable over total
assets rose from 59.5% to 71%. In 2020, the number slightly reduced to 69%. That
means though Accounts receivable have been on an upward trend in recent years,
the growth has declined. However, the value of HBC's Accounts receivable is still
alarming when the number of accounts receivable in 2020 is 1.5 times that in 2016.
In the period of 2016 - 2020, Allowance for bad debt also increased nearly 1.5 times
from 280 billion VND to 403 billion VND. This increase was due to the sharp rise in
Accounts receivable from customer.

When it comes to Accounts

receivable/Total assets ratio,
the figures for HBC was also
higher than that of the
industry. In other word, total
asset of HBC has depended too
much on Accounts receivable.
As a result, it has lead to a lot of
impacts which will be
discussed more in the second
sector.

 In terms of Accounts receivable

structure, it can be seen that
accounts receivable from customers
and receivables on the construction
contract schedule made up most of
Account receivables.
According to international
accounting standards ISA 11,
Vietnamese accounting standards
(VAS), "Receivables according to
construction contract progress" is
recognized at the same

time as revenue. This entry is used to record the percentage of work that HBC has
completed and verified by a third-party consultant, but has not yet invoiced the client.
Although the receivables are large, the quality of HBC's receivables has improved
slightly when the receivables on schedule (not yet invoiced) have decreased in both
value and percentage in 2020.

To understand how many times per year that HBC collects its average accounts
receivable, the Accounts receivable turnover ratio is looked deeply into. Generally, the
higher Accounts receivable turnover ratio is, the more efficient your business is at
collecting credit from customers. These numbers of HBC are very low from 1.95 in 2016
decreasing to just 0.99 in 2020. That means in 2020, Accounts receivable turnover was
up to nearly one year. HBC is probably not effectively collecting debt payments with
regard to its sales. This could indicate a few possibilities: HBC's collections policies may
not be effective or it gives credit too leniently.

 Comparing to the Industry, both

Accounts receivable turnover ratio and
average industry Accounts receivable
turnover experienced a downward
trend. This is due to the fact that the
state of being heavily indebted reflects
the general picture of Vietnam's
construction industry. Receivables of
many businesses are becoming larger
each year. However, comparing to the
industry, Accounts receivable turnover
of HBC is still lower. That means the
problem of HBC is bigger than most of
the companies in the industry.

2.2. The impact of HBC's significantly high accounts receivable

- Impact on cash:
Cash flow to the business is like blood to the body. However, the cash flow from
HBC's business activities have been deeply negative in recent years, resulting in the
constant amount of cash and cash equivalents of HBC decreasing, by the end of
2020, cash and cash equivalents of HBC have decreased to only 244 billions,
accounting for nearly 1.6% of total assets. The low proportion of cash will make it
difficult for the company to access new projects and at the same time implement
existing projects, thereby leading to an increase in debt.

- Impact on expenses:
High receivables force businesses to make provision for bad receivables and
increase costs, thereby significantly reducing HBC's net income. Assessing this item
of HBC, the provision for bad debts has continuously increased in recent years,
causing this business to incur a significant additional expense, strongly affecting its
business results.

4
 After all, HBC needs to pay their bills, and

III. CONCLUSION keeping accounts receivable high may

not seem like a big deal.
When a business lets this happen, it can
lead to unnecessary financial costs and, in
some severe cases, tight cash flow that
may force the company to close.
LIQUIDITY RISK
Compared to other companies in the same industry, HBC's accounts receivable is
much higher than the average
Receivables that are not collected also delayed receivables, AR are generated
more and more while cash is not much.
Understand that high AR is characteristic of real estate and construction
companies, but it is dangerous to have high AR and high provision for bad debts
and HBC has a high provision for short-term bad debts, increasing the risk and
this is very dangerous for a business. The sharp increase in this account is a sign
that the company is providing credit to customers with higher risk.

CUSTOMER'S ASPECT
Accounts Receivable of HBC is high mainly because of customers’ pessimistic
delays to pay up after task’s completion.
HBC needs to be careful, check customer's financial health initially, and make
sure their customers are of good quality. Additionally, the company should limit
providing services to customers who have a history of poor debt repayment, or
the company's background is not good.

COMPANY'S ASPECT
The company has poor debt managing skill
The lawsuit case between FLC and HBC concerned 2 contracts since 2014 is typical
evidence to show the company’s modest competence in controlling Account
Receivables after having completed the projects for clients.
It is highly recommended that the company manage Accounts Receivable by
applying a customer diversification method. The more customers you work with,
the smaller debt is divided.

*RECOMMENDATIONS
Make upfront payments policy.
Offer incentives for early payers.
Stay in touch.
.

5
REFERENCES
1. 2021. [online] Available at: <https://finance.vietstock.vn/HBC/tai-chinh.htm?tab=LC>
[Accessed 6 December 2021].

2. (2021). Retrieved 6 December 2021, from https://finance.vietstock.vn/HBC/tai-

chinh.htm?tab=LC

3. Tập đoàn Xây dựng Hòa Bình: Dấu hỏi về tính chắc chắn của doanh thu và chất l.
ượng của tài sản. (2021). Retrieved 6 December 2021, from
https://vietnamfinance.vn/tap-doan-xay-dung-hoa-binh-dau-hoi-ve-tinh-chac-
chan-cua-doanh-thu-va-chat-luong-cua-tai-san-20180413175512807.htm

4. (2021). Retrieved 6 December 2021, from http://s.cafef.vn/HBC-299963/khoan-phai-

thu-hon-10000-ty-dong-cua-hoa-binh-co-dang-lo-ngai.chn

5. CTD: CTCP Xây dựng Coteccons - COTECCONS - Tài chính | VietstockFinance. (2021).
Retrieved 6 December 2021, from https://finance.vietstock.vn/CTD/tai-chinh.htm?
tab=LC

6. VCG: Tổng Công ty cổ phần Xuất nhập khẩu và Xây dựng Việt Nam - VINACONEX.,JSC
- Tài chính | VietstockFinance. (2021). Retrieved 6 December 2021, from
https://finance.vietstock.vn/VCG/tai-chinh.htm?tab=LC

7. (2021). Retrieved 6 December 2021, from https://finance.vietstock.vn/PHC/tai-

chinh.htm?tab=LC
APPENDIX
Accounts receivable and ratios relating Accounts receivable of other competitiors,
including:
1. Coteccons Construction (CTD)
2. FECON Corporation (FCN)
3. Phuc Hung Holdings (PHC)
4. Vinaconex Corporation (VCG)