Running head: Novaland

GROUP ASSIGNMENT COVER SHEET

STUDENT DETAILS

Student name: Nguyễn Thị Lâm Anh Student ID number: 31151021295

Student name: Nguyễn Đức Hoàng Student ID number: 31151023131

Student name: Mai Thị Kim Hằng Student ID number: 3115102393

Student name: Vương Tuấn Lâm Student ID number: 31151020479

Student name: Trần Huỳnh Hoàn Khôi Student ID number: 31151021521

Student name: Phạm Quang Nhật Student ID number: 31151021198

Student name: Đặng Hà Anh Thư Student ID number: 31141022981

UNIT AND TUTORIAL DETAILS

Unit name: Financial Accounting Unit number: ACC301

Tutorial/Lecture: Class day and time:
Lecturer or Tutor name: Huỳnh Thị Ngọc Anh

ASSIGNMENT DETAILS

Title: COMPANY FINANCIAL ANALYSIS

Length: 2000 words Due date: 2 Dec 2018 Date submitted: 2 Dec 2018

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I hereby certify that no part of this assignment or product has been copied from any other student’s work
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(previous or current) assessment, except where appropriately referenced, and with prior permission
from the Lecturer / Tutor / Unit Coordinator for this unit.
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Running head: Novaland

Student’s signature:
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Note: An examiner or lecturer / tutor has the right to not mark this assignment if the above declaration has
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Running head: Novaland

NOVALAND
Nguyen Thi Lam Anh
Nguyen Duc Hoang
Mai Thi Kim Hang
Vuong Tuan Lam
Tran Huynh Hoan Khoi
Nhat Pham Quang
Dang Ha Anh Thu
Financial Accounting
Huynh Thi Ngoc Anh
International School of Business
01/12/2018

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TABLE OF CONTENT

I. QUESTION
A. Describe the differing perspectives of investors and lenders when using published financial
statements for assessing performance, identify FOUR key by EACH group (eight measures in
total)
B. Clearly explain the significance of each ratio or measure for an assessment carried out by the
relevant group. The role of each ratio in explaining the picture of investors/lenders view why
we choose that ratio (the significance).
C. Calculate each of the ratios for a selected company in Vietnam (All calculations must be
clearly shown in the appendix)
D. Based on the ratios you have identified and calculated, and other relevant information, assess
the performance of the company from the perspective of both investors and lenders.
1. Investor: Roe, Earnings per share, Price-earnings ratio, Payout ratio
2. Creditor: Debt to equity, Gross profit margin, Current ratio, Interest Coverage ratio
E. Explain the limitations of the ratio analysis above.
II. APPENDIX
1. APPENDIX QUESTION D
- Roe
- Earnings per share
- Price-earnings ratio
- Payout ratio
- Debt to equity
- Gross profit margin
- Current ratio
- Interest coverage ratio
2. APPENDIX QUESTION E
- Profitability
- Efficiency
3. APPENDIX FOR KEY FINANCIAL RATIO
III. REFFERENCE

QUESTION A

Relying on financial statements helps both investors and creditors to gain general insight into
company financial health and the risk of operation. With financial statements, they can receive
accurate and comparable information. However, the way creditors and investors utilizing the
financial statements is different due to the variety in perspective and needs of information. A creditor
is a person or an entity who gives other entities permission to borrow money with intention to
receiving repayment in the future. Investor is a person or an entity providing funds or capital in order

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to gain the appreciation of the investment in the future. The interest of both creditors and investors
can conflict to each other. For example, as an investors, they can desire to maximize the equity value
rather than both value of firms and debts. This is called “agency conflict of debt”. (Casino S.,
Clatworthy M., Osma B. G., Gassen J.,Imam S. & Jeanjean, 2015)

For the creditors, financial statements are important during the time provision borrowings and
subsequent renegotiation and supporting in generating appropriate covenant. Firstly, creditors can use
financial information to predict the financial distress relating to existing debts in balance sheet and
company performance in income statement. Secondly, they can use to evaluate the credit rating of
company. In term of credit ratings, they can consider information about liquidity, cash flow, leverage
and overall solvency. Also, they need to evaluate the cash conversion cycles to gauge the risk of
defaulting due to the situation of cash outflows exceeding the resources. (Casino S., Clatworthy M.,
Osma B. G., Gassen J.,Imam S. & Jeanjean, 2015)

For the investors, they utilizes financial statements to gain understanding about forecasting.
Accounting information is based on past performance which can facilitate predicting future cash flow,
earnings and stock returns and assessing the risk of investing through the past data. So, investors will
find information relating to performance in both income statement and cash flow statement and
dividend payment. (Casino S., Clatworthy M., Osma B. G., Gassen J.,Imam S. & Jeanjean, 2015)

Our group decides to use ROE (Gross profit margin), P/E, Cash conversion cycle, Dividend yield or
Dividend payout ratio for analyzing investors perspectives and use D/E, Interest coverage, Gross
profit margin, Current or Quick ratio for analyzing creditors viewpoints.

QUESTION B

INVESTOR

Return on Equity (ROE): ROE reveals how much profit a company earned in comparison to the
total amount of shareholder equity found on the balance sheet. Generally, for ROE, the higher the
better. The ROE will reflect the performance of investing activity inside the company using equity,
increasing ROE is a company that knows how to reinvest their earnings, in contrast whenever a
company is retaining those earnings but their return on equity (ROE) is really small that is not a good
sign for investors, it is symbolic of management that does not know how to reinvest their capital in

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successful assets, they also should be paying out all their money and dividends because they don't
know how to reinvest it themselves.

Price to Earning (P/E): P/E ratio is the current market price of the stock over the earnings per share
(EPS). Investors may consider the potential growths of the company with a really high P/E ratio, they
might be asking question how quick the growth as a result that speculators are driving up the price of
the business because they expect the earnings to be significantly higher next year if they see a
business with a very low P/E ratio, they might try to understand the future risks or lack of sales
growth therefore they can account for any potential troubles into the future.

Dividend Payout ratio (DPR): the dividend payout ratio measure how much profit a company return
back to shareholders as dividends. Company with low payout ratio can either need to retain more of
their earnings to reinvest in and grow their businesses. However when the dividend payout ratio
increase quickly, it means that the company is paying out more money to investors than retaining for
future investment. This should be taken as a sign that dividend payments will likely to slow down in
the future. The change in dividend policy can question the investors in making the appropriate
investment decision.

EPS (Earning per Share): is the company’s distributable profit which is divided by each share
outstanding (common share). Profit alone can be limited in expressing how much enhancement in
benefit the shareholders can receive from the company performance. While taking into account all the
effects of issuance of new shares can give the clearer picture of profitability of a company which is
significant for investors. The higher EPS, the more it can indicate that the earning power of the
company has improved vice versa.

CREDITOR

Debt / Equity ratio:

DE ratio is the ratio indicating well the financial status of a company. If DE ratio is high, It means
that they use much debt to finance for their operating; it may lead to the unstable income when they
have to pay many interest expense incurred. With lenders, they use D/E ratio as the measurement of
creditability to evaluate the capability of firms whether they can pay off the debt when it comes due or
not.

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Current ratio:
Current ratio is a measurement of liquidity indicating whether a company is working well or not to
pay their short-term or long-term obligations on due. Lenders consider current ratio of a company to
have an overview of financial status of the firm. Current ratio can be a protection for the creditors to
guarantee the borrower have capability to make the interest payment.

Interest Coverage Ratio

Interest coverage ratio determines the ability of company to pay interest on their debt. High ICR (3 or
above) means that the company have good financial health that creditors expects. This ratio of 2 or
above is considered as minimum acceptable amount. A declining figure is a signal of instability that
firm is vulnerable to volatile interest rate and affect the lenders’ decision of investing or disinvesting.

Gross Profit Margin Ratio

Gross profit margin ratio is one of the profitability ratios which measures the income of the business
during a define period of time. If this ratio is high, the firm is utilizing well enough their cost and have
enough solid cash. Creditors are not uncommon to use gross profit ratio to assess the financial health
of a company. If gross profit margin ratio is lower than “maintenance covenant”, the company will not
meet the debt obligations and lenders are able to demand redemption of their bond.

QUESTION C

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Investor 2014 2015 2016 2017

ROE 5.43% 10.08% 20.56% 17.69%
P/E - - 21.27% 19.07%
1, 1, 1,
Cash Conversion cycle (days) 417 848 149 115
EPS (VND) 781.29 1,374 3,396 3,210
Payout Ratio - 47% 3% 1%
Lenders
D/E 4.77 3.36 2.64 2.71
Interest Coverage
Gross profit margin 16.96% 20.08% 21.51% 28.00%
Current Ratio 1.44 1.36 2.02 1.83
Quick Ratio 0.62 0.82 0.97 0.63

QUESTION D

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INVESTOR

ROE

ROE 2017 got 17.69%, which means that shareholders saw a 117.69% return on their investment. In
other words, for every dollar of common shareholder’s equity, $1.17 will be earned.

From 2014-2017, NVL ROE grew rapidly from 4.15% to 17.69% (increase 3.26 times), which
showed that NVL is showing a profitable picture to investors. In fact, the period of 2014-2015
witnessed a booming in growing speed of real estate industry, making most of the real estate
companies earn extremely higher profit than previous years, resulting in higher ROE.

This spectacular comeback is the result of proving their real ability and quality in products during the
recession period in 2013. In details, the 2013 has made the real estate industry a super risky
investment, freezing all the projects, but NVL chose to continue the Sunrise City, which opened the
very first type of residential area and put their first feet on this model. Moreover, by strongly
enhancing Merging and Acquisitions in 2014, with most of the projects located in main areas, NVL
officially became the leader in real estate industry.

Revenue and Cash flow Discrepancy:

The nature of Revenue of real estate industry- Unearned revenue also needs to be considered.
Had it been recorded as revenue during the financial year, ROE should be higher (Appendix)

EARNINGs PER SHARE

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2014 2015 2016 2017

Earnings per
share 433 1,260 2,815 3,207

From 2014 – 2017, Novaland’s EPS showed a positive trend of growing. To be

specific, in 2017, the EPS of NVL was 3,207, which means that if NVL allocated all of its
income to shareholder, each share would receive VND 3,207. This, compared to 2016,
increased 14%. This was a result of its sustainable performance during the year as Novaland
continued to do business in a stable way, ensuring the commitment of the project progress
with customers, gradually completing the plan.. In fact, NVL’s income increased 24% to
VND 2,061,643 million in 2017, greatly from the handover of projects including Lucky
Dragon Residence, Orchard Garden, Lakeview City, Gardengate Residence, Kingston
Residence, and Lucky Palace. (Novaland, 2017). Especially, Lakeview City was a typical
project to be launched in 2016. With about 60% of 1,000 apartments and villas sold for $
400,000 per unit, this project accounted for a significant proportion of revenue in 2017.
(novaland,n.d) Although the EPS of NVL was still lower than the real estate Industry
average, this could be understandable as being the leader in this industry, NVL has to split its
earning amongst many more shares of stock compared to the remaining companies.
2012 2013 2014 2015 2016
Industry EPS -18% 168% 33% -37% 33%

PRICE - EARNINGS RATIO

2016 2017
PRICE – EARNINGS RATIO 21.35 20.30

NVL’s P/E in 2017 was 20.30, slightly decreased from 21.35 in 2016. Compared to
the industry average which is 20-25 times earnings (Investopedia, n.d), this 2017 P/E of NVL
was acceptable. Apparently, this reduction was due to its well performance in 2017.
Moreover, the price per share of NVL in 2017 increased 8% compared to 2016. This came
from the great expectation of investors of of revenue growth in 2018. Indeed, after stabilizing
the legal status of the old projects, the company would quickly deploy new projects, because

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the land fund was quite large. In 2018, Novaland was expected open 4 new projects,
including Phase 2 of the Victoria Village project (1,209 apartments), Water Bay (4,613
apartments), F projects (2,165 apartments), Harbor City (3,995 apartments). Another factor
was the issuance of preferred stocks and convertible bonds to increase authorized capital
boosted share prices ([Link], 2018). With good business results as well as PE was at a
reasonable level compared to industry average, investors can believe in the worthwhile
investment in Novaland.

PAYOUT RATIO

NVL tend to cut down dividends paid out from 2016 (from 47% to 3%), which is a signal that they
want to retain funds for investing in upcoming projects to expand the company. (There are other
options for paid out dividends, see Appendix)

NVL main focus during 2015-2017 is construction, which was completed by many potential projects
with huge quantity. Therefore, a substantial amount of capital is required by paying less dividends to
investors and using funds to run those projects. Moreover, with the knowledge and skill of
management, those projects came out with profitable results, making NVL stock price increased and
ROE also increased. The period of their construction may take about 3-4 years, some are still being
launched in 2018 & 2019, therefore the payout dividend ratio in 2016-2017 was low to fund for those
upcoming projects. (Appendix

CREDITOR
DEBT TO EQUITY RATIO

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In case of Novaland, their D/E from 2014-2017 increased from 1.33 to 1.6 (increase by 21%). For
example, in 2017 their D/E ratio is 1.6, which means that for every dollar in asset, 0.61 cent is
financed by debt and 0.39 cent is financed by money of shareholders. However, NVL’s D/E ratio is
not as high as industry’s D/E, which is an indicator that NVL is not relying on debt as much as
industry average. And base on this, we can assume that in creditor’s view, lending to NVL is less
risky. (Appendix)

We also need to consider the nature to understand why the D/E ratio for this industry is higher
(Appendix).

INTEREST COVERAGE RATIO

Interest coverage 2014 2015 2016 2017

ratio 1.80 2.11 0.9 1.93

The interest coverage ratio is a long-term solvency ratio used to determine how well a
company has its interests obligations covered. It is measured by dividing earning before interest and
taxes (EBIT) to interest expense. The lower the entity’s interest coverage ratio is, the more debt
burden it has to suffer. In general, 1.5 is considered a bare minimum acceptable ratio for the entity.
The company with interest coverage ratio below this tipping point, its capacity to meet interest
expense may be questionable, which would increase the company’s risk for default. As a result,
creditors will more likely to refuse to lend the company more money. Moreover, an interest coverage
ratio below 1 indicates that the company is unable to satisfy its interest payment obligation as its poor
financial health. As a result, even if the issue only lasts for a single month, the company risks falling
in to bankcruptcy (Investopedia, n.d).

The interest coverage ratio of NVL in 2016 was alarmingly low, which was just 0.9 – really
far from the tipping point and even lower than 1. In fact, in 2016, the short-term debt of the company

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Running head: Novaland

was VND5, 596 billion with borrowing cost ranging from 11% to 13% per annum while the long-term
debt reached VND11.469 billion. As a result, Novaland had to incur the interest expense up to VND
863 billion, which was 2.5 times higher than in 2015. This can be explained because Novaland needed
a large capital to supplement financial resources in the simultaneous development of more than 40
projects, M & A activities, increase of land funds for a sustainable development strategy. In 2017,
thanks to the significant earnings from projects, circumstance was much better as the interest coverage
ratio reached 1.93, increased 114% compared to 2016 and much higher than the acceptable level.
From the perspective of creditors, it is still quite risky to lend the company more money as its high
debt. However, this could be compensated by the company’s well performance in business.

GROSS PROFIT MARGIN

Gross Profit Margin

40.00%
35.00%
30.00%
25.00% 28.00%
20.00% 21.51%
20.08%
15.00% 16.97%
10.00%
5.00%
0.00%
2014 2015 2016 2017
Gros s Profit Margi n

The detail information extracted from NovaLand’s financial statement has shown that
the gross profit margin has increased steadily from 2014 to 2016. From 2016 to 2017 the
gross margin of NovaLand experience a sharp rise (21.51% - 28%) (Appendix), the reason
behind this increase is that NovaLand enjoy the benefit of the growth of the industry,
furthermore the rise indicate that NovaLand keep track with the construction progress,
NovaLand has completed, handed over and being handed over 15 Project (Novaland, 2017).
(Appendix)

From the perspective of the creditor, the rise of the gross profit margin of the
company maybe a good sign of efficiency performance of the company. However, Gross
profit margin is a not a perfect ratio for the creditor to rely on. To sum up, revenue to

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Running head: Novaland

calculate gross margin of Novaland can be higher than in the financial statement. Gross
margin is just one of the ratio that creditor can follow, they will need to look up other
financial information and ratio to come up with the decision of lending money to the
company.

CURRENT RATIO

Current ratio
2.5

2
2.02
1.82
1.5
1.44 1.36
1

0.5

0
2014 2015 2016 2017
Current ratio

The current ratio of NovaLand in 2017 is 1.82 .This ratio measures the case
company’s general financial stability indicating the case company has the ability to pay its
current obligations. We can see there is a slightly decrease in current ratio from 2016 and
2017. The reason behind this decrease is from 2016 to 2017 the total current liability was
notably increase (from 15,011,224 million VND to 22,658,196 million VND), the story
behind this increase was from 2016 to 2017 the Short-term borrowing and Deposits and down
payment from customers remarkably increase (47.7% and 39% increase respectively)
(Novaland, 2017). (Appendix)

From the perspective of the creditor, they would prefer the company to pay them on
time, so they look for those company with high current ratio, the general current ratio that is
acceptable is 1.5 (Bpp Learning Media, 2016). In the case of NovaLand, although their
current ratio slightly decrease from 2016 to 2017, it still higher than 1.5 (1.82). The essential
point that creditor will consider within the short-term debt item in the financial statement of
Novaland is that how much Novaland borrow and how can they repay to the current creditor
within 12 months with the current performance. Base one the financial statement of
Novaland, the highest amount of short-term debt (include bank and third-party, exclude

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subsidiaries and incorporated companies) within 12 month is about 451 billion VND, with the
secure like mention in the note. With the information above plus the growth of revenue of
NovaLand (Table in Appendix), short-term creditor will more likely to lend the money to
Novaland.

QUESTION E
The variation of VAS from IFRS may affect mainly the profitability and efficiency ratios
1. Profitability.
The differences between VAS and IFRS in recognition of Revenue and Cost of goods sold
may give rise to the difference in interpretation of the profitability ratios. In this group of
financial ratios, it’s most necessary to look at Gross profit margin, since operating expenses
are similarly treated under the two standards. (Appendix)

The efficiency ratios mainly are derived from the association between profit and assets
accounts. It also includes the changes in working capital. Thus, it can be said that current
assets and liabilities, together with non-current assets, play an important role in
comprehending those ratios. (Appendix)

APPENDIX
APPENDIX QUESTION D
ROE:
The average ROE for real estate industry from 2014-2017 deviates from 8%-12%, and NVL got a
higher ROE compared to industry average, which is a good indicator. Moreover, NVL take the base
over competitors to become the leader in this industry, keep growing in later years, resulting in
17.69% of ROE in 2017.

Revenue and Cash Flow Discrepancy:

According to Circular 200, real estate companies can only record revenue when property is completed
and handed over to the buyer. Any prepayments before property’s completeness will not be allowed to
record as revenue. In nature, this change in rule will not affect the cash flow of company but it will
have negative impact on income statement. In case company has no other income except for selling
properties, the income statement would have a high probability to record a loss at the end of year.
Moreover, because there’s no revenue or low revenue recorded while costs still incurs, the operating

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performance will be poor on financial statements, which affect heavily on listed companies, making
their stock price decrease and raising funds activities from external sources more difficult.

That’s the reason why the account Unearned Revenue on Balance Sheet of those real estate companies
tend to be higher than other industries, it took 2-4 years for a projects to be completed. When
investors look on financial statement to get a picture of company’s current performance, they would
take into consideration the unearned revenue to have a true and precise perception of company’s being
because had it been for unearned revenue included, the ROE would be much higher.

However, there’s one advantage based on the nature of industry, it may take a few years to complete
the construction, buyers are required to make several payments in advance whereas revenue is not
recorded, the tax shield will therefore be bigger to decrease tax liability that firm need to pay to tax
authority.

EARNING PER SHARE

Earnings per share (EPS) is the proportion of an entity’s profit attributed to each share
of stock outstanding. This market value measure serves as an indicator for the entity’s profit.
However, other than absolute profit, the EPS takes into account of the addition consideration
used to generate profit (financial investment from stock issuance). Therefore, EPS is often
said to be the more accurate in reflecting the company performance than the trend of profits.
A company with high EPS indicates that it is a potentially worthwhile investment, depending
on the market price of stock.

PRICE - EARNINGS RATIO

The price - earnings (P/E) ratio (or multiple ratio) is one of the most common valuation
measures used by investors. It is the ratio for valuing an entity that measures the current price
share relative EPS. In other word, it shows us how much investors are willing to pay per
dollar of current earnings. Higher PEs are often taken to mean that the firm has significant
prospects for future growth. Lower PEs can either speak for the undervaluation of a company
or exceptionally well performance of that company relative to its past trends.

INTEREST COVERAGE RATIO

The interest coverage ratio is a long-term solvency ratio used to determine how well a
company has its interests obligations covered. It is measured by dividing earning before

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interest and taxes (EBIT) to interest expense. The lower the entity’s interest coverage ratio is,
the more debt burden it has to suffer. In general, 1.5 is considered a bare minimum acceptable
ratio for the entity. The company with interest coverage ratio below this tipping point, its
capacity to meet interest expense may be questionable, which would increase the company’s
risk for default. As a result, creditors will more likely to refuse to lend the company more
money. Moreover, an interest coverage ratio below 1 indicates that the company is unable to
satisfy its interest payment obligation as its poor financial health. As a result, even if the issue
only lasts for a single month, the company risks falling in to bankcruptcy (Investopedia, n.d).

PAYOUT RATIO:
Dividend payout ratio showed how many percentages of earnings are distributed to
shareholders in form of dividends. A firm can choose to distribute all of their earnings under
dividends or distribute only a portion and keep a portion for reinvest, pay off debt or fund
operations with the purpose of expanding and growing, or firm can choose not to pay any
dividend at all.
Investors tend to look at this ratio based on the consistency rather than the high or low,
because consistent ratio shows a stable stream of dividends, which indicates the overall
effectiveness and how probable they will receive something in return. A suddenly high ratio
in one year is not meaningful to investors as the following years may be on downtrend, and if
this is the long-standing case, it could be a poor indicator of operating performance and the
company can no longer afford to pay high dividends.

As the option of cutting dividends paid out to reinvest and grow company is applied by many
companies, especially start-up and small companies that need more capital during their first
stages, this option still has drawbacks as it will drive the stock price down (usually affect big
companies) and indicate that management’s ability is poor. However, in the long-term, this
would be compensated by higher return by succeeding in projects that have positive NPVGO.

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DEBT TO EQUITY (D/E):

Debt to equity ratio is measured by total liabilities to total assets, it shows the leveraged level
of the company and is an indicator of how many percentage of assets are financed by debt
(creditors) and by financing (investors). A lower D/E ratio is more favourable because it
indicates company relies less on debt from external lenders whereas a higher ratio indicated a
higher risk, along with a higher interest payments. If D/E ratio equals to 0.5, it means that the
portion of debt to equity is 50%, in other words, for every dollar of assets – investors own
0.66 cent while creditors own 0.33 cent. A ratio equals to 1 means that investors and
creditors have an equal owning portion in company’s assets.

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Running head: Novaland

And the reason for an increase in D/E of 21% is reasonable because NVL has more projects
to be funded as they are increasing in quantity and quality (targeting in luxury apartments and
high-end residential areas). The merging & acquisition activities also increase, all of these
would require a larger capital.
A higher debt would imply that investors haven’t funded the company as much as creditor,
which could be a result of poor performance of operations. Therefore, investors don’t want to
pour their money, making company to seek out extra debt financing from creditors.
However, each industry is differed by its nature, one benchmark cannot be applied to all
industries to make comparison. For real estate industry, companies tend to rely more on debt
financing than others, as they need more funds to run projects and make investments,
therefore D/E ratio for real estate company tends to be higher as compared to manufacturing
company.

GROSS PROFIT MARGIN:

Gross profit margin, also known as gross margin, is the ratio of gross margin expressed as a
percentages of sales. The gross profit margin determine how much profit the company can
generate to cover its Cost of Goods Sold. In other words we can say that it is a measure of the
company’s efficiency when it uses the raw materials and labor during the production process.

Real Estate is a special industry in the recognition of revenue. To comply with VAS 14,
enterprises investing in the construction of projects and apartments, the revenue can only be
recognized when the construction is completed and the minutes are handed over to the
customers. . At that time, it was enough to conclude that the business transferred most of the
risks and benefits to the buyers. Prepaid funds are only credited to "prepaid buyer accounts"
or "unpaid revenue".

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In realistic, to see whether the company performance is good or not, creditor usually make
comparison between the company and its competitors, the limitation to make compare of the
gross profit margin between company in same industry is that they must have the same
revenue. The revenue of a company is also another story, it base on the strategy of the BOD
of the company. For instance, the company can sacrificed the revenue, lower the price of the
product to catch the attention of the customer, so lower the revenue mean the also sacrificed
gross profit.

CURRENT RATIO:
The current ratio measures a company’s current assets against its current liabilities. The
current ratio is also considered as “standard” test of liquidity of a company, it determines that
the company can pay off its short-term liabilities in an unexpected situation by liquidating its
current asset.

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APPENDIX QUESTION E:

1. Profitability:

Revenue

NOVALAND incurs income from 2 main activities: sales of real estate and services provided.

For sales of real estate, the company recognises revenue in accordance to VAS 14 (p.10), which is
when the entity transfers significant risks and rewards of ownership to the buyers. Meanwhile, IFRS
15 allows the revenue to be recognised only when transfer of control is made. Nevertheless, this
variation does not impact remarkably on sales of real estate, since the sales may be made in a short
time (or in a point of time).

For sales of services (sales over a period of time), things are a little more complicated when IFRS 15
defines 2 new terms: contract asset and contract liability. IFRS takes a more serious look at the right
and obligation to the exchanged consideration to be paid or received by the entity, while VAS seems
to ignore this one. It may lead to the higher or lower of assets and liabilities under IFRS 15 in
compared to VAS 14. Under IFRS 15, recognition and measurement of revenue is conducted through
a 5-step model, in which performance obligations are separately identified. However, the
measurement of completed work is quite similar under the 2 standards. In compliance to IFRS 15,
entity has to re-assess whether contracts with customers exist and in some cases, it may have to alter
the timing and amount of revenue being recognised under VAS.

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Running head: Novaland

COGS:

Since the accounting standards treat inventory and its measurement in the same manner, it’s not
expected much variation in reporting inventory and COS. However, there is only one noteworthy
point that under IAS 2, LIFO is prohibited, while VAS 02 still allows business to apply. In case the
entity does apply LIFO in inventory valuation, gross profit may be higher.

2. Efficiency:

Non-current fixed assets

The recognition of fixed assets under IAS 16 and VAS 03 is similar to each other. However, two
significant differences worth noting are the scope of application and subsequent measurement models.

As for the scope, IAS 16 excludes some certain areas including agricultural. However, VAS until now
hasn’t had any specific standard on agricultural, thus it includes in the scope such matter. Since
Novaland is operating in real estate, it is not impacted by the difference.

The other variation between the two is about the subsequent measurement, where IAS 16 allows to
use revaluation model to re-assess the fair value of the assets. On the other hand, VAS only requires
cost model. In some cases, especially for property items, this (under VAS) may not reflect fairly the
value of assets. And thus, such asset turnover ratios will become confusing.

Accounts receivable and payables

As mentioned above, two most important aspects in determining efficiency are net working capital
and cash conversion cycle, which are reflected mainly through accounts receivable, inventory, and
accounts payable.

Accounts receivable and payables are treated as financial asset and liability under IFRS 9. Yet VAS
doesn’t establish a separate standard on this subject. Vietnamese entities follow the accounting
practices in accordance to Circular 200, together with other Circulars and Decrees.

Under the two standards, receivables and payables are similarly recognised. However, in relation to
recognition of revenue, according to IFRS 15 (contracts from customers), the consideration due by
customers are split into receivables (where invoice is issued) and contract assets (where the receipt is
conditioned on something other than passage of time). The reverse scenario also applies the same
logic here in which case the obligation of the entity to deliver the job is divided into advanced
payment from customer (credit of receivable account) and contract liability. VAS doesn’t define such

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Running head: Novaland

terms. Thus under IFRS, accounts receivables may be different, which in turns leads to a different
output for cash conversion cycle.

APPENDIX KEY FINANCIAL

RATIO
YEAR 2014 2015 2016 2017
Net Income (million VND) 99,505 441,761 1,659,351 2,061,643
Shareholders' Equity (million
VND) 3,362,346 6,095,209 10,046,890 13,256,391
Return on Equity = Net 4.15% 9.34% 20.56% 17.69%
Income/ Shareholders' Equity

230,000,00 350,465,76
Number of Share Outstanding 0 1 589,369,234 642,828,788
EPS = Net Income/ Number of 433 1,260 2,815 3,207
Share Outstanding (VND)
Price as 30 December - - 60,100 65,100
Price to Earning (E/P) = 21.35 20.30
Price/EPS
Payout Ratio - 47% 3% 1%
Total Debt 4,470,930 9,561,322 17,029,251 21,273,773
D/E = Debt/Equity 1.33 1.57 1.69 1.60
Interest Expense 134,769 351,425 863,073 1,205,387
EBIT 243,000 741,000 776,000 2,322,000
Interest Coverage =
1.80 2.11 0.9 1.93
EBIT/Interest Expense
Gross Profit 475,371 1,339,863 1,583,080 3,256,831
Net Revenue 2,801,811 6,673,435 7,359,181 11,632,336
Gross profit margin = Gross
16.97% 20.08% 21.51% 28.00%
Profit/Net sales Revenue

Current Assets 14,353,287 18,133,290 30,288,729 41,165,966

Current Liabilities 9,953,544 13,354,624 15,011,224 22,658,196

Current Ratio = Current
1.44 1.36 2.02 1.82
Assets/Current Liabilities
8,151,0 7,158,8 15,789, 27,128,
Inventory 85 28 642 797

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Running head: Novaland

Quick Ratio = Current Assets -

0.62 0.82 0.97 0.62
Inventory/ Current Liability
Cash Operating Cycle
COGS 2,326,440 5,333,572 5,776,101 8,375,505
Trade Receivables 2,287,315 6,058,946 9,635,748 5,998,165
Net Credit Sales 1,859,345 4,131,399 5,807,037 10,552,891
Inventory turnover =
0.33 0.70 0.50 0.39
COGS/Average Inventory
Receivable turnover = Net
Credit Sales/Average 1.04 0.99 0.74 1.35
Receivable
Payable Turnover =
8.90 8.62 4.96 4.03
Purchase/Average Payable
Days of inventory on hand 1,097 524 725 935
Days of sales outstanding 351 369 493 270
Days of payable outstanding 40 42 74 91
Cash conversion cycle 1,408 851 1,144 1,115

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