i

The Impact of Globalization on Vietnamese company’s financial
performance: A Case Study of Lang Son Cement Company (LCC)

BY
TA THI PHUONG THU
E0700062

Graduation Project Submitted to the Department of Business Studies, HELP
University College, in Partial Fulfillment of the Requirements for the Degree of
Bachelor of Business (Accounting) Hons

APRIL 2011
ii

Declaration of Originality and Word Count
the project and give so much instruction and support.
TA THI PHUONG THU
iv

Abstract

THE IMPACT OF GLOBALIZATION ON VIETNAMESE
COMPANY’S FINANCIAL PERFORMANCE: A CASE STUDY
OF LANG SON CEMENT COMPANY (LCC)
BY
TA THI PHUONG THU
March 2011
Supervisor: Dr. Dao Thi Thu Giang
Globalization is not new trend in the world but is still new in Vietnam. Vietnam is
one of the developing countries, so the impact of globalization on Vietnam‟s
economy has many things to discuss. The objective of the research is to assess the
understanding of globalization trend and its effect on Vietnamese company‟s
financial activities. Besides, the research also wants to show the role of the financial
analysis in its investment strategies and good financial planning of the board of
management. In this research, Lang Son Cement Company is taken as a typical case
study that goes through my study.

v


CHAPTER IV: ANALYSIS……………………………………………………….28
4.1 Results Analysis…………………………………………………………….29
4.2 Discussion………………………………………………………………… 34

vi

CHAPTER 5: CONCLUSION…………………………………………………….36
5.1 Implication of research…………………………………………………….36
5.2 Conclusion………………………………………………………………….36
Bibliography……………………………………………………………………… 38
Appendices………………………………………………………………………….39


viii

LIST OF ABBREVIATIONS
LCC Lang Son Cement Company
WTO World Trade Organization
BEP Breakeven point 1

To begin my task, I will talk about the meaning of globalization. Globalization is
considered as “a process of interaction and integration among the people, companies,
and governments of different nations, a process driven by international trade and
investment and aided by information technology. This process has effects on the
environment, on culture, on political systems, on economic development and
prosperity, and on human physical well-being in societies around the world.”
1

Globalization has a strong effect on the Vietnamese company‟s financial
performance. As you can see, companies should prepare their annual financial
statements in order to measure the benefit rate after each financial year. Reviewing
and assessing financial information bring about an understanding of a company‟s
strengths and weaknesses, how its annual plan has been carried out and what
investment effect level its plan implementation results in. This activity will make an
impact on its investment strategies and good financial planning.
As can be seen, the financial statement of a company is based on financial facts but
can be influenced by its management and may cause misstatements or fraud in them.
Therefore, the purpose of this paper is to revise and reanalyze the 2007 and 2008
financial statements of Lang Son Cement Company (LCC) in order to assess and
make a comparison of financial activities between 2007 and 2008. From this analysis
of financial statements, suggestions and proposals about investment, financial
statements can be submitted to LCC to have an improvement of financial statement
preparation.
1

3


Globalization is the great trend of economy in all over the world. It takes an
important role in the economy development in almost countries in the world. In my
task, I will give the details of financial statement analysis and the impact of
globalization on financial activities in Vietnam in general and in LCC in particular.

1.6 Plan of presentation
My research is organized in five chapters. In chapter II, the literature will be
reviewed on the general look at financial statement, the general approach applied in
analysis of financial statements, the nature of globalization, and the impact of
globalization on the financial statement of Vietnamese‟s company; a typical example
is LCC‟s financial statement. Then, in chapter III, I present methodology that shows
the description of my research data, hypothesis, variables‟ measurement and
limitations. Next, in chapter IV, I analyze results of the statistical estimation, and a
discussion. Finally, in chapter V, I summarize my findings and the study implications
for future research. 5

CHAPTER II: LITERATURE REVIEW

2.1 A general look at financial statements
2.2 The general approach applied in analysis of financial statements
2.3 The nature of globalization
2.4 The impact of globalization on the financial performance of Vietnamese‟s
company; a typical example is LCC‟s financial performance


decision-making by management and by investors. The way financial data is
presented for such decisions may be quite different from the way data is presented to
fulfill legal requirements that satisfy tax authorities and other regulators. Thus,
companies have increasingly produced more than one financial statement, each
intended for a different audience. The "pro forma" financial statements which
emerged from the bull market of the 1990s are the most notable example of an
investor-directed statement.”
3 2

3

7

2.2 The general approach applied in analysis of financial statements
The general approach applied in analysis of financial statements will be used in this
thesis, presented as follow:

2.2.1 Ratio analysis: is a financial technique that involves dividing various financial
statement numbers into another
Ratios are computed by dividing one number or data on the financial statements into
another. And the results of these calculations are percentages. Ratio analyses permit
the manager of the company to determine business trends and compare its ratios to
average ratio of similar businesses in the same industry. Ratios are important devices
because “they standardize balance sheet and income statement.”

2.2.1.3. Industry – comparative analysis is used to compare a firm‟s ratios
against average ratios for other companies in the same industry.
Industry – comparative analysis can be considered as “Just as important as trend
analysis is industry analysis. It's very important, particularly in today's economic
climate, to know what your industry is doing as compared to your company. For
example, if your industries ratios are much different than your firms, you want to
examine why and perhaps take action.”
72.2.2 Types of financial ratios
There are many types of ratios which can be calculated from financial statement data;
however, it can be grouped in five main categories such as liquidity ratios, asset –
management ratio, financial – leverage ratio, profitability ratio, and market – value
ratio. They will be illustrated in the following paragraphs.
2.2.2.1. Liquidity ratios:
a. Liquidity refers to how quickly a firm can turn its assets into cash.
Liquidity ratios indicate the ability to meet short – term obligations to creditors as
they mature or come due. Any firm must have responsibility to pay financial
obligations when needed. If they cannot pay financial requirement, they will be

6

7

9

bankrupted. Almost firms want to convert assets into cash with little or no loss in
value
b. The net working capital of a firm is its current assets minus current

accounts payable amount by the firms average cost of goods sold per day
Average payment period =
365 / sold good ofcost
payable accounts
=
dayper sold good ofcost
payable accounts

10

Year 2007: average payment period:

365/784.268,919,62
283.716,473,1
8.5 per day
Year 2008: average payment period:

365/692.544,009,107
417.773,331,1
4.5 per day

2.2.2.2 Asset – management ratios: indicate the extent to which assets are
used to support sales. These are sometimes referred to as activity or utilization ratios,
and each ratio in this category relates financial performance on the income statement
with items on the balance sheet.
a. The total – assets – turnover ratio is compared by dividing net sales
by the company‟s total assets
Total assets turnover =
assets total
salesNet

it reports the number of days it takes, on average, to collect credit sales. The average
collection period measures the days of financing that a company extends to its
customers. Obviously, a shorter average collection period is usually preferred to a
longer one.
d. The receivable turnover is computed by dividing annual sales,
preferably credit sales, by the year – end accounts receivable
Average collection period =

365 / salesnet
receivableaccount
(account receivable/net sales per
day)
Year 2007: average collection period:
365/234.292,174,73
738.593,914,8
= 44.5 days
Year 2008: average collection period:
365/786.728,739,131
111.893,344,9
= 26 days
- The inventory turnover is computed by dividing the cost of goods sold by the year –
end inventory
Inventory turnover =
inventory
sold goods ofcost

Year 2007: inventory turnover:
537.852,327,12
784.268,919,62
= 5.1 times

total debt or total liabilities of the business by its total assets. This ratio shows the
portion of the total assets financed by all creditors and debtors.
b. The total – debt – to – equity ratio shows a firm‟s total debt in relation
to the total dollar amount owners have invested in the firm
c. The equity – multiplier – ratio provides another way of looking at the
firm‟s debt burden
Equity multiplier =
equity total
assets total

Year 2007: equity multiple:
745.686,971,41
804.794,163,103
= 2.45
Year 2008: equity multiple:
605.655,153,47
955.873,433,102
= 2.17
13

d. The interest coverage or times – interest – earned ratio, is calculated by
dividing the firm‟s operating income or earnings before interest and taxes (EBIT) by
the annual interest expense.
Interest coverage =
expenseinterst
taxes&interest before earnings

Year 2007: interest coverage:
417.462,464,1
745.686,166,3


b. The net profit margin: a widely used measure of a company‟s
profitability is calculated as the firm‟s net income after taxes divided by net sales.
Net profit margin =
salesnet
incomenet

Year 2008: net profit margin:
234.292,174,73
745.686,166,3
= 0.043 = 4.3 %
Year 2007: net profit margin:
786.728,739,131
605.655,348,4
= 0.033 = 3.3 %
In addition to considering operating expenses, this ratio also indicates the ability to
earn a return after meeting interest and tax obligations.
c. The operating return on assets is compared as the earnings before
interest and taxes divided by total assets. Notice that this ratio focuses on the firm‟s
operating performance and ignores how the firm is financed and taxed.
Operating return on assets =
assets total
taxes&interest before earnings

Year 2007: operating return on assets:
804.794,163,103
745.686,166,3
= 0.0306 = 3.1 %
Year 2008: operating return on assets:
955.873,433,102

745.686,166,3
= 0.075 = 7.5 %
Year 2008: return on equity:
605.655,153,47
605.655,348,4
= 0.092 = 9.2 %

2.2.2.5. Market – value ratios: indicates the willingness of investors to value a
firm in the marketplace relative to financial statement values.
A firm‟s profitability, risk, quality of management, and many other factors are
reflected in its stock and security prices by the efficient financial markets. Financial
statements are historical in nature, but the financial markets look to the future. We
know that stock prices seem to reflect much of the known information about a
company and are fairly good indicators of a company‟s true value. Hence, market
value ratios indicate the market‟s assessment of the value of the firm‟s securities.
a. The price/ earnings ratio, or P/E ratio, is simply the market price of the
firm‟s common stock divided by its annual earnings per share.
Sometimes called the earnings multiple, the P/E ratio shows how much investors are
willing to pay for each dollar of the firm‟s earnings per share. Earnings per share
come from the income statement, so it is sensitive to the many factors that affect net
income. Though earnings per share cannot reflect the value of the firm‟s patents or
16

assets, human resources, culture, quality of management, or its risk, stock prices can
and do reflect all these factors. Comparing a firm‟s P/E relative to that of the stock
market as a whole, or the firm‟s competitors, indicates the market‟s perceptions of
the true value of the company.
b. The price – to – book – value ratio measures the market‟s value of
the firm relative to balance sheet equity.
The book value of equity is simply the difference between the book values of assets

as “the expansion of global linkages, the organization of social life on a global scale,
and the growth of a global consciousness, hence to the consolidation of world
society. Such an ecumenical definition captures much of what the term commonly
means, but its meaning is disputed. It encompasses several large processes;
definitions differ in what they emphasize. Globalization is historically complex;
definitions vary in the particular driving force they identify.”
9

Globalization is not a new trend because it has a long history process, for thousands
of years, people have been buying from and selling to each other in lands at large
distances, such as through the famed Silk Road across Central Asia that connected
China and Europe during the Middle Ages. Similarly, for centuries, people have
invested in enterprises in other countries. Actually, many of the characteristics of the
current wave of globalization are similar to those existing before the outbreak of the
First World War in 1914.
Globalization is strongly controversial, however. Proponents of globalization argue
that it agrees to poor countries and their residents to develop economically and raise

8

9