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Table 2.3: Size, structure and fluctuation of capital structure from fiscal 2013 to 2015.

Table 2.3: Size, structure and fluctuation of capital structure from fiscal 2013 to 2015.

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Final thesis



Academy of finance



Overview of situation of capital:

Acorrding to table 2.3, we can see the influction of capital in Thang

Long mechanical four and construction joint stock company from fiscal 2013

to fiscal 2015. From year 2013 to year 2015, total capital or total assets of the

company increased very quickly. At the end of the year 2013, total capital

was 290.569 million VND, this item increased to 6.558 million VND in the

end of the year 2014, corresponding with 2,26%. On 31 st December 2015,

total capital of the company went up to 378.595 million VND compared to the

same time in 2014, which was a 81.468 million VND growth corresponding

with 27,42% . The great increase in total assets or capital from 2013 to 2015

shows that the company is expanding the operation quicklier, which makes

the company have more opputunities to make profit in the future.

More detailed

About liabilities:

- Liabilities at the end of the year 2014 had an 4.485 million VND

increase with growth rate of 1,73% compared to the same time in year 2013.

This situation was caused by the increase of 6.979 million VND in short term

debt and the decrease 2.491 million VND in long term debt. On 31 st

December 2015, total liabilites of the company went up to 316.913 million

VND, which is equal to an 53.865 million VND increase, corresponding with

a 20,48% growth compared to the same year 2014. Because of the 28.195

million decrease in short term debt ( a 11,07% decrease) and the increase of

82.059 million in long term debt ( an 989,02% increase) in the fiscal 2015,

total liabilities of the company still had an quite great increase. This situation

happened because in short term debt decreased in revenue deferred and

account payable when it started to finance some long term loans from the

banks. In 2015,the company completed a part of projects such as Rach Chiec

Bridge and Lao Bridge, this means that the company can record revenue of

this finished part of work and reduce revenue deferred. Fiscal 2015 is a year



Tran Thi Minh Nguyet



CQ50/11.18



Final thesis



Academy of finance



that the firm paid back account payable for surppliers from previous years.

This activity made this item in balance sheet decrease. The account payable

decreased quickly, deferred revenue also decreased quicklier. That can cause

trouble in rasing capital for the company. Cash had a great decreased while

account payable had the same situation. It shows that maybe the reputation of

the company affected by the too high gearing. The growth in liabilities can

bring more resources for the company to expand the business or finish the

projects in work progress. But this situation also makes the risk in finance or

payment of the company increase, too. Another way, if a company uses too

much liabilities, it is possible not to be able to pay for its loans within

required period. That may affect badly to reputation of the company in the

market. Because the company operates in construction industry, it needs the

very large amount of capital to build projects. So it is too difficult for the

company to only use the owners’ capital. However, it is necessary to control

the debts to avoid the risk of payment.

- Debt structure of the company is very important to study carefully. On

31st december 2014, the proportion of debt in capital structure was 88,53%,

which decreased 0,45% from the end of year 2013. On 31 st december 2015,

this proportion was 83,66%. It means that the gearing of the company is going

down slowly from fiscal 2013 to fiscal 2015. Short term debt in 2013 made up

95,83%, it means that long term debt made up very small proportion. At the

end of year 2014, there was a very small fluctuation of proportion of short

term and long term debt. That means from 2013 to 2014, the company mainly

raised short term debt. This makes the cost of capital decrease because the

cost of short term debt is lower than long term debt.However, this can result

in payable pressure for the company. In fiscal 2015, the proportion of debt

decreased from 88,53% in 2014 to 83,71% while the percentage of short term

debt was 71,49%, decreasing of 25,40% compared to the same time in 2014.

It means that the proportion of long term debt increased from 3,15% to



Tran Thi Minh Nguyet



CQ50/11.18



Final thesis



Academy of finance



28,51%. So as we can see, the company is promoting the raising long term

debt, almost long term loans from the commercial banks. This may make the

cost of capital higher and more financial risk because long term debt is mainly

riskier than short term, morever, it also has the higher cost of raising. The

company has to borrow money from long term loan inspite of short term

because the account payable and deferred revenue decreased and it needed

money to conduct operation. The managers should have the solutions to

control financial risk and the ability to borrow money of the company.

About owners’ equity:

- Owners’ equity comes mainly from the capital invested by the owners

or shareholders. From fiscal 2013 to 2015, equity has continued increasing.

The increase in 2014 was 2.073 million VND, corresponding with 6,48%. It

almost came from retained earning of previous years. In 2015, equity of the

company had an great increase of 27.603 million VND compared to the same

time 2014. The rate of growth was 81,30%, which was as a result of issuing

new shares to raise fund for investment in a factory and an equipment in fiscal

2015. This activity made the gearing and financial risk of the company

decrease. It means that the company depends fewer on outside.

- Owners’ equity had the proportion of 11,01% in fiscal 2013, and it

increased to 11,47% in fiscal 2014. At the end of year 2015, the company

used a mix of more equity in capital structure, this was expressed through the

proportion of 16,29% in capital structure, corresponding with an increase of

4,87% compared to year 2014. The raising more equity mabe make the

WACC higher than before, but it helps the gearing go down, that means the

financial risk and payable pressure are lower. So it is sensible to use more

equity in capital structure while the gearing currently very high..





Gearing and debt/equity ratio.



Tran Thi Minh Nguyet



CQ50/11.18



Final thesis



Academy of finance



TABLE 2.4: GEARING AND DEBT/EQUITY OF THE COMPANY FROM FISCAL 2013 TO FISCAL 2015



Difference



31/12/2013



31/12/201

4



31/12/201

5



Million

VND



Million

VND



Million

VND



1. Total assets



290.569



297.127



378.595



6.558



2,26%



81.468



27,42%



2. Liabilities



258.563



263.048



316.913



4.485



1,73%



53.865



20,48%



3. Owners'

equity



32.006



34.079



61.682



2.073



6,48%



27.603



81,00%



Item



2013-2014

Strict

number

Rate of

(Million

growth

VND)



2014-2015

Strict

Rate of

number

growth

( Million

VND)



Evaluating

4.Gearing(2/1

)

5.Debt/equity

ratio(2/3)



0,8899



0,8853



0,8371



-0,0045



-0,51%



-0,0482



-5,45%



8,0786



7,7188



5,1379



-0,3598



-4,45%



-2,5809



-33,44%



(Source: Balance sheet of the company from 2013 to 2015)



Tran Thi Minh Nguyet



CQ50/11.18



Final thesis



Academy of finance



As we can see from table 2.4, we can see the flutuation of

gearing and debt/equity ratio from year to year. This is a sensible

fluctuation when the company has a high gearing.

About gearing:

The gearing is a comparison of how much of a firm's activities are

funded by borrowed funds as compared to owner's funds.

The gearing of the firm decreased from 2013 to 2015. It means

that the company used fewer debt in its capital structure. In fiscal 2015,

the company has a lower gearing which had a decrease of 0,0482 times,

from 0,8853 to 0,8371 correspondng with 5,45% at the same time in

2014. So on 31st 2015, to invest 1 VND in assets, the company had to

borrow 0,8371 VND while at the same time in 2014, this figure was

0,8853 VND. The gearing of the company is at high level compared to

the others. Because the projects are mostly constructions like bridges,

roads, highways, factories,… So it has to finance from another surces.

One of those sources is liablility. This source helps the company make

up difference but it also causes the increase in financial risk and

payable pressure. In fiscal 2015, the company started to build some

projects: Bo Ao Brigde with the value of 18 billion VND, Rach Chiec

Bridge with the value of 127 billion VND and Chain bridge of

mountain regions with many others. To have money for working

theseprojects, the company had to borrow from Sea Bank and Agribank

in long term. This activity made long term debt increase quickly.

Although the company is using more equity by issuing new shares to

provide more money for its operation, its gearing reduced from 2013 to

2015 but it is still at high level compared to others. However, it

decreased gearing by reducing misappropriation of account payable and

deferred revenue and decrease the proportion of debt in its capital



Tran Thi Minh Nguyet



CQ50/11.18



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Table 2.3: Size, structure and fluctuation of capital structure from fiscal 2013 to 2015.

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