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ED FINANCIAL MANA

[Bien Hoa
Suger]
Lecturer: PhD. Truong Hong
Trinh
Name: Pham Thuy Trang
Class: 37k16 CLC

Contents
I.

Company profile:..............................................................................................2
1. History:...........................................................................................................2
2. The Companys major business & production activities:.................................3

II.

Financial statement:......................................................................................4

1. Balance sheet...................................................................................................4
2. Income statement:............................................................................................5
3. Statement of cashflow:.....................................................................................6
III.

Valuation model.............................................................................................8

1. Evaluate Value of company:............................................................................8


2. Increase in free cash flow:.............................................................................10
3. Estimate investment budget:..........................................................................10
a. Assumption:..................................................................................................10
b. Investment budget:........................................................................................11
c. Assess the profitability of investment............................................................12
d. Payment for project initial investment:.........................................................12
4. Optimal capital structure:.................................................................................13
a. Optimal capital structure...............................................................................13
b. Corporate value for Wd = 20%......................................................................13

BIEN HOA SUGAR JOINT STOCK COMPANY


I.

Company profile:
Transaction name: BIEN HOA SUGAR JOINT STOCK COMPANY
Business registration certificate No.: 3600495818 granted for the first time by Dong
Nai
Department of Planning & Investment on 16 May 2001, and the latest amendment
on 16 May 2013.
Charter capital: VND 629,949,180,000
Address: Bien Hoa 1 Industrial Park, An Binh Ward, Bien Hoa
City, Dong Nai.
Telephone: 061.3836.199
Fax: 061.3836.213
Website: www.bhs.vn
Stock code: BHS
1. History:
In 1969, Bien Hoa Sugar Plant was founded with the capacity of 400 tones.
The key product then included yellow sugar, liquer and jute bags.
In 1971, the Plant was invested and upgraded to Refined Sugar Plant.
In 1994, Bien Hoa Sugar Plant was renamed to Bien Hoa Sugar Company.
In 1995, the capacity of Bien Hoa Refined Sugar Plant increased from 200
tonnes per day up to 300 tonnes per day. Simultaneously, Tay Ninh Sugar Plant
construction was commenced.
In 1997, Thanh Long Sugarcane Farm was established with the area of 960
hectares.
In 1998, Tay Ninh Sugar Plant (now known as Bien Hoa - Tay Ninh Sugar
Plant) officially stepped into operation with the processing capacity of 2,500 tonnes
of sugar per day.
In 2001, Tay Ninh Sugar Plant capacity increased to 3,500 tonnes of
sugarcane per day. Till present, the capacity has reached to 4,000 tonnes of
sugarcane per day.
In 2001, the company was transformed from state-owned company to joint
stock company. On 16 May 2001, Bien Hoa Sugar Joint Stock Company was
founded with the initial charter capital of VND 81 billion.

In 2006, additional shares were issued by the Company for capital


mobilization. The charter capital of VND 81 billion was increased to VND 162
billion. On 20 December 2006, the initial public offering of the Companys shares
was made at HCMC Stock Exchange under the code of BHS.
In 2007, Tri An Sugarcane Company was acquired by the Company to
establish Bien Hoa - Tri An Sugar Plant. After multi-upgrading and equipment
investment, Bien Hoa - Tri An Sugar Plants capacity currently reaches 2,500 tonnes
of sugarcane per day.
On 9 September 2013, Certificate on stock public offering No. 42/ GCNUBCK was issued by the State Securities Commission to the Company. Thereby,
the Companys stocks were issued to its existing shareholders to increase the charter
capital from VND 314,974,590,000 to VND 629,949,180,000.
2. The Companys major business & production activities include:
Produce sugar;
Planting sugarcanes;
Produce and wholesale other products from sugar,
sub-products, by-products from sugar;
Produce and sell fertilizer;
Provide agricultural materials.

II.

Financial statement:
1. Balance sheet
Balance sheet

2013

2012

2011

2010

1,396,74
8
238,292

1,454,28
1
98,524

752,872

618,030

178,778

58,759

44,240

16,500

Short-term Accounts receivable

698,450

285,117

234,744

254,984

Inventories

343,666

820,013

333,068

299,229

72,099

234,127

6,282

5,058

797,044

653,554

528,865

397,162

77,929

53,355

58,765

65,946

634,685

522,039

406,501

277,480

Long-term investments

63,770

43,473

30,776

29,218

Other long-term assets

7,026

18,872

14,827

4,341

2,107,83
5
1,535,111
1,427,67
6
107,435

628,125

403,366

Long-term liabilities

2,193,79
1
1,348,93
3
1,251,83
0
97,103

105,113

115,151

OWNERS' EQUITY

844,858

572,724

548,499

496,675

Owners' investment capital

629,949

314,975

299,976

185,316

39,817

39,817

39,817

154,477

105,139

87,752

65,414

43,083

Financial reserve funds

31,037

25,241

17,795

10,352

Retained earnings

38,916

104,939

125,497

103,447

2,193,79
1

2,107,83
5

1,281,73 1,015,192
7

SHORT-TERM ASSETS
Cash and cash equivalents
Short-term investments

Other current assets


LONG-TERM ASSESTS
Long-term accounts receivables
Fixed assets
Investment in properties

TOTAL ASSETS
LIABILITIES
Current liabilities

Share capital surplus (share premium)

1,281,73 1,015,192
7
733,238
518,518

Foreign exchange differences


Investment and development funds

MINORITY INTEREST
TOTAL RESOURCES

2. Income statement:
Income statement

2013

2012

2011

2010

2,930,013

3,045,798

2,566,008

2,007,501

1,973

1,552

1,386

2,983

Net sales revenues

2,928,040

3,044,246

2,564,622

2,004,518

Cost of goods sold

2,689,264

2,764,270

2,294,967

1,755,812

238,776

279,976

269,655

248,706

53,903

56,130

35,024

17,785

110,826

50,473

80,355

46,364

105,357

50,778

72,190

42,535

Selling expenses

91,069

72,410

32,744

26,003

Administration expenses

42,629

49,432

42,444

28,620

Net operating profit

48,155

163,791

149,136

165,504

844

2,307

10,881

163

165,667

Gross sale revenues


Less deductions

Gross profit
Financial income
Financial expenses
In which: loan interest expenses

Other profit
Profit or loss in associates

-186

Gross accounting income before tax

48,813

166,098

160,018

Net profit after tax

11,449

119,210

147,233

Earnings after tax

37,364

119,210

147,233

145,870

3. Statement of cashflow:
Cash flow (Indirect)

2013

2012

1. Net profit before tax

48,813

166,098

2. Adjustments

82,039

52,767

Depreciation and amortization

23,622

52,944

7,595

279

186

Unrealized foreign exchange profit(loss)

-451

-338

Profit(Loss) from disposals of fixed assets

-430

Profit(Loss) from investing activities

-2,692

Profit from deposit

-1,847

-9,648

Interest income

-49,300

-41,248

Interest expense

105,357

50,778

3. Operating profit before working capital changes

130,853

218,865

Increase/decrease in receivables

-251,380

-273,801

Increase/decrease in inventories

476,347

-242,551

-121,585

-69,023

2,023

-7,218

-105,552

-50,571

-18,077

-15,943

5,134

2,826

Other payments from operating activities

-11,561

-15,345

Net cash flow from operating activities

106,202

-452,761

-135,822

-164,184

726

422

-44,240

-16,500

16,500

-23,692

-35,528

I. Cash flow from operating activities

Provisions
Net profit from investment in joint venture

Increase/decrease in payables
Increase/decrease in pre-paid expense
Interest paid
Business income tax paid
Other receipts from operating activities

II. Cash flow from investing activities


1. Purchases of fixed assets
2.Proceeds from disposals of fixed assets
3. Purchases of debt instruments of other entities
4. Proceeds from sales of debt instruments of other entities
5. Investment in other entities

6. Proceeds from disinvestment in other entities

23,795

32,805

21,758

-153,723

-170,237

314,975

3. Proceeds from borrowings

3,833,399

2,141,032

4. Repayments of borrowing

-3,898,095

-1,504,153

6. Dividends paid

-62,988

-94,135

Net cash flow from financing activities

187,290

542,743

Net cash flow of the year

139,769

-80,255

98,524

178,778

238,292

98,524

7. Dividends and interest received


Net cash flow from investing activities
III. Cash flow from financing activities
1. Proceeds from issue of shares
2. Purchase issued shares from other entities

5. Repayments of financial leases

Cash and cash equivalents at the beginning of year


Effect of foreign exchange differences
Cash and cash equivalents at the end of year

III.

Valuation model

1. Evaluate Value of company:


Two types of assets that companies hold:
operating assets
- Operational assets include intangible and tangible assets, such as buildings,
machinery, tools and raw materials, inventory, patents of inventions, computer
software
- Operating assets are expected to grow in the future

VOp
t 1

FCFt
(1 WACC ) t

The present value of cash flows

are discounted by the average cost of capital WACC, this is also the VOP value
activities

Non-operating assets (financial assets)


- These include financial assets such as transferable securities
- Market value of non-operating asset which is its present value on the balance sheet
should not be measured.
The total value of the firm = value of operating assets + value of non-operating
assets
Free cash flow is the cash flow goes into the company in a given year minus
the amount of money needed to invest in new assets. The cash inflows of the
company's operating income minus income taxes (NOPAD) plus any non-cash
expenses (such as depreciation), also need to invest more assets in the year in which
the costs to value increased working capital, we have the formula:
FCF=NOPAT + Depreciation/ AmotizationNet changeWCNet Invest asset

We have the average indicators for last 3 years to calculate average FCF o:
mil. VND
Tax

mil. VND
25% Net Invest in fixed asset

EBT

135,096

48,813.00 Net change in WC

Interest expense

105,357.00

EBIT

154,170.00

NOPAT

115,627.50

Depreciation

-101,704

23,622

Average FCFo

105,857.50

- Calculate WACC

Debt
Equity

Percentag
e
61%
39%

Cost of funds
8%
20%

Then, WACC = Kd x (1- t) x

D
D+ E

+ Ke x D+ E

= 12.67%

Value of operations of BHS (2013) = Total asset - short term investment + MVA
Vop = 1,646,665.41
Using excel Goal seek, we have g2= 4.347%
From 2014, the income tax rate is 22%
Then, if company grew with g1= 11% in first 3 years and then grew with g2:
g1

11%

g2

4.347%

WACC

12.67%
2013

2014

2015

2016

2017

FCF

105,857.50

117,196.72

129,750.57

143,649.17

149,993.85

PV

105,857.50

104,336.24

102,836.83

101,358.98

1,338,133.37

10

Vop

FCFi
i
=
i=1 (1+WACC )

FCF 3 x (1+ g 2)
(WACC g 2)
(1+WACC )3

= PV= 1,646,665.41

2. Increase in free cash flow:


Assume the growth rate of DBH for the first 3 years is g1 = 11% and for the
following years is g2 = 4.347%, WACC = 12.67%. Price of each product unit is 43
and COGS is 25 in 2014 and increase depended in growth rate of this company.
Depreciation cost is 5% of revenue. And Income tax is 22%.
The expected free cash flows for the next four years are calculated as follow:
201
3

2015

2016

2017

837393

1591801

2271448

2528861

43

48

53

55

25

28

31

32

1,800,395

3,798,834

6,017,101

6,990,216

Revenue

36,007,903

75,976,676

Total cost

20,934,827

44,172,486

120,342,01
3
69,966,287

139,804,31
1
81,281,576

2014

2015

2016

Revenue

36,007,903

75,976,676

COGS

20,934,827

44,172,486

120,342,01
3
69,966,287

139,804,31
1
81,281,576

1,800,395

3,798,834

6,017,101

6,990,216

13,272,681

28,005,356

44,358,626

51,532,519

2,919,990

Depreciation

10,352,690.
84
1,800,395

6,161,178.3
2
21,844,177.
68
3,798,834

9,758,897.6
6
34,599,728.
07
6,017,101

11,337,154.
25
40,195,365.
07
6,990,216

Operation cash
flow

12,153,086.
00

25,643,011.
46

40,616,828.
72

47,185,580.
62

Sale

2014

Price (x 1000
VND)
COGS per unit
Depreciation

Operation cash flow


201
3

Depreciation
EBIT
Tax (22%)
NOPAT

2017

3. Estimate investment budget:


a. Assumption:
BHS wants to invest to new project to improve their capacity. The Initial investment
is 100 billion VND. In which, 80 billion is used to buy new machines and
equipment for new factory and 20 billion is used to invest in NWC. Company uses

11

straight line depreciation method, and at the end of the project, the fixed assets are
expected to disposal with 18 billion VND.
Assume that the price and COGS will stay stable during the project.
Initial investment
Investment in fixed asset
NWC
Tax
Salvage value of fixed asset

100,000,00
0
80,000,000
20,000,000
22%
18000000

Forecasting for the project:


2013
Sale
Price
Cost (exclude
depreciation)
Depreciation

2014
700000
43
25

2015
2000000
43
25

2016
3200000
43
25

2017
1700000
43
25

20,000,00
0

20,000,00
0

20,000,00
0

20,000,00
0

2014

2015

2016

2017

700,000

2,000,000

3,200,000

30,100,0
00
17,500,0
00
25%
20,000,0
00
7,400,00
0
1628000

86,000,00
0
50,000,00
0
25%
20,000,00
0
16,000,00
0

137,600,0
00
80,000,00
0
25%
20,000,00
0
37,600,00
0

1,700,00
0
73,100,0
00
42,500,0
00
25%
20,000,0
00
10,600,0
00

3520000

8272000

2332000

b. Investment budget:
2013
I. Net investment
Invest in new fixed
asset
Change in NWC
Initial investment

II. Change in cash


flow
Sale
Revenue
Cost
Depreciation rate
Depreciation cost
Change in EBIT

Tax

80,000,000
20,000,000
100,000,00
0

12
Net income

5,772,00
0
20,000,0
00
14,228,
000

Depreciation cost
Change in cash
flow during project
III. Cash flow at the
end of project
NWC
Salvage value of
new fixed asset
Cash flow at the
end of project
IV. Net cash flow

100,000,0
00

14,228,
000

12,480,00
0

29,328,00
0

8,268,00
0

20,000,00
0
32,480,0
00

20,000,00
0
49,328,0
00

20,000,0
00
28,268,
000

49,328,0
00

20,000,0
00
14,040,0
00
34,040,0
00
62,308,
000

32,480,0
00

c. Assess the profitability of investment


Using IRR function in excel, we calculate:
- IRR = 16.974%: While WACC of this company is 12.67, IRR > WACC then the
projects rate of return is greater than its cost some return is left over to boost
stockholders return. This investment will increase the stockholder wealth.
- NPV = 27.539 bil. VND, because NPV is positive, company can get more than 27
billion VND from this investment.
- Payback = 3.063 years. It takes 3.063 years for this company to get the businesss
money back
Based on these criteria, BHS should accept this investment.
d. Payment for project initial investment:
d.1. Capital structure:
Initial investment: 100,000 mil.VND
Leverage ratio:
61%
Cost of debt:
11%
Pay in 4 years
Procedure cost:
8%
d.2. Capital demand:
Setting a is debt demand, and b is owner equity, we have

13

a
=0.61
a+b
a( 18 )+ b=100000

Solve it, we have:


Debt demand: 64130 mil. VND
Owner equity: 41001 mil. VND
d.3. Design payments process:
PMT1

1
( 1+11 )4

11

=64130

PMT = 20,671 mil. VND

The remaining
principal

Year

Payment for
principals

Payment for
interests

Total payments

64,129,520

-58,999,158.40

$50,513,132.99

13616387.01

7,054,247

20670634.21

$35,398,943.41

15114189.58

5556444.629

20670634.21

$18,622,192.98

16776750.43

3893883.775

20670634.21

$0.00

18622192.98

2048441.228

20670634.21

4. Optimal capital structure:


a. Optimal capital structure
Assume that rRF=6%, RPM=4%. Using excel to calculate, we have:
Wd

D/S
0%
10%
20%
30%
40%
50%
60%

Which:

Rd
0.00%
11.11%
25.00%
42.86%
66.67%
100.00%
150.00%

Rs
8.00%
8.00%
8.20%
8.60%
9.40%
9.80%
10.20%

9.84%
10.17%
10.59%
11.12%
11.84%
12.84%
14.33%

BETA
0.960000
1.043200
1.147200
1.280914
1.459200
1.708800
2.083200

D/S = Wd/(1 - Wd)


Rd : The Cost of Debt for BHS with different capital structures

WACC
9.84%
9.78%
9.75%
9.80%
10.03%
10.24%
10.51%

14

Beta = bU[1 + (1 - T)(D/S)]


Rs = rRF + (RPM)b
WACC = (1-Wd)Rs + Wd.Rd(1 - T),
Minwacc = 9.75%, when Wd = 20%. It means that when company uses 20% of debt
and 80% of equity, it reaches the optimal structure.
b. Corporate value for Wd = 20%
g1

11.00%

g2
WACC

9.75%

4.35%

Using excel, we have:


2013

2014

2015

2016

2017

FCF

110,482.60

122,635.69

136,125.61

151,099.43

157,668.18

PV

110,482.60

111,740.70

113,013.13

114,300.04

2,207,485.29

Vop = 2,546,539.15
With optimal structure, the value of company increases nearly 1,000 bil. VND