ASSIGNMENT 2 FRONT SHEET
Qualification BTEC Level 4 HND Diploma in Business
Unit number and title Unit 5: Accounting Principles (5038)
Submission date 10th August Date Received 1st submission 10th August
Re-submission Date Date Received 2nd submission
Student Name Nhieu Nhu Y Student ID BS00696
Class MA6101 Assessor name Ms. Tran Thi Huyen Tran
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I certify that the assignment submission is entirely my own work and I fully understand the consequences of plagiarism. I understand that
making a false declaration is a form of malpractice.
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Introduction
I. Financial Statement
Trial balance
Transaction 1
Unpaid employees for two week ($700/day). $700*10=$7000
Transaction 2
Provided training services to a client for a fixed fee of $6,000 for 30 days ($200/day). All services
were to be completed by 14/1/2021, and the client would pay in full at that time.
15th December to 21st December, there was a total of 17 days of providing service. Therefore, the
company earned $200*17=$3,400.
Transaction 3
Purchased equipment $16,900 in cash on 1st December. After 36 months, the company would sell it at
$7000 in cash.
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So, the depreciation per month: (16,900-7000)/36 = $275.
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Income Statement
Table 1: Adjustment
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Table 2: Income statement
Table 3: Equity end
ABC, Capital 90,000
ABC, Withdrawal (50,000)
Net income 64,625
Equity end 104,625
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Table 4: Balance Sheet
II. Financial Ratios
In this section II, Vietnam National Petroleum Group (abbreviated as Petrolimex) will be informed and
discussed about formly about its recent financial strengths based on some financial ratios calculation
including 4 sectors Profitability, Efficiency, Liquidity and Solvency.
Before taking into its main part, it’s necessary to overview this company generally. As stated on its
official website Petrolimex (n.d), Petrolimex's primary business activities include the import, export, and
trade of petroleum, petrochemical refining, capital investments in businesses that operate in Petrolimex's
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industry, and additional business lines as permitted by law claused in the legislation. It is known that
Petrolimex owns 2,400 petrol stations out of a total of more than 14,000 petrol stations nationwide.
(Statista, 2021)
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The chart of petrolium market share in Vietnam in 2020 has illustrated that Petrolimex was heading to
be ranked 1st in this bussiness activity among other huge companies. Its marketshare statistic was 49%,
which was twice time compared to PV Oil and much far away from Saigon Petro, MipecCorp and Thalexi.
Through these statistics of market share in 2020, it illustrated that Petrolimex operated smoothly in
Vietnam and might also gain a huge amount of revenue for its Parent company.
After overviewing the financial statement and its position in Vietnam through the market share
chart in 2020, now the financial analysis is particularly conducted by its financial ratios seperated by 4
sectors, Profitability, Efficiency, Liquidity and Solvency.
Raw data
raw data 2021 2022
Revenue 169,105,701,481,340 304,171,606,608,893
COGS 156,385,701,253,224 291,744,174,805,176
Gross profit 12,622,903,813,991 12,319,636,621,265
Operating profit 3,789,339,721,584 2,270,127,396,278
Net profit 3,517,193,962,030 1,942,127,776,454
Total asset 64,791,240,989,120 74,475,615,486,233
Total equity 28,260,191,572,059 27,782,610,644,219
Inventories begin 35,399,675,141,414 35,207,086,754,200
Inventory end 35,207,086,754,200 45,694,575,928,857
A.R begin 5,814,401,998,738 7,599,775,659,236
A.R end 4,626,930,801,113 12,673,687,965,547
Current asset 208,939,719,036,653 362,539,870,503,297
Current liability 20,920,779,684,340 45,694,575,928,857
Prepaid expenses 88,723,079,083 268,643,157,597
Depreciation 2,248,265,002,591.00 2,168,347,034,003.00
Total Liability 20,920,779,684,340.00 46,693,004,842,014.00
Total interest payment 602,527,447,452.00 644,056,268,958.00
EBIT 4,391,867,169,036 2,914,965,888,782
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Table of calculation ratios of Petrolimex
difference
2021 2022 difference
in percent
Gross profit 4.05
7.46% -0.03 -45.74%
margin %
margin Operating profit 0.75
2.24% -0.01 -66.69%
ratio margin %
0.64
Profitabilities Net profit margin 2.08% -0.01 -69.30%
%
2.61
Return on Asset 5.43% -0.03 -51.96%
return %
ratio 6.99
Return on Equity 12.45% -0.05 -43.83%
%
Profitabilities ratios
Despite the fact that the Covid-19 pandemic continued to have an impact on the global economy in
2022, the Group's business performance has greatly improved since 2021 mainly to the rise in oil prices and
sensible management measures. However, the signals aren’t all good for Petrolimex, Profitability ratios in
2022 all decreased compared to 2021. In which, the Gross profit margin reached 4.05%; a decrease of 3.41%
compared to 2021; the Operating profit margin reached only 0.75%; a decrease of 1.49% compared to 2021;
also, the Net profit margin reached about 0.64%; a rather decrease of 1,44% compared to 2021. Following
the next section, the Return ratio. In that, the return on equity (ROE) reached 6,99%, a decrease of 5.46%
compared to 2021; The return on assets (ROA) reached 2.61%, a decrease of 2.82% compared to 2021.
Through these statistics, it could be seen that Covid 19 had affected harshly to the general economy
of Vietnam, not even excepted for Oil and Gas area. Since during the pandemic quarantine for months,
nobody was allowed to go outside or travel somewhere, which significant led to a huge decrease of profit for
the company due to the lack of customers and demands across the country.
Liquidity ratio
2021 2022 difference difference in percent
Current ratio 9.99 7.93 -2.05 -20.56%
Liquidity
Quick Ratio 8.30 6.93 -1.37 -16.53%
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The liquidity ratio index is used to assess a company's financial capacity to meet short-term
obligations and sustain operations. Petrolimex has a current ratio of 9.99, decreasing from 1.00 in 2021 to
2.06 in 2022, as can be shown. The quick ratio also had the same issue, falling 1.37% from 8.30 in 2021 to
6.93 in 2022.
The current ratio is a ratio that measures a company's ability to pay current liabilities with current
assets. Despite Petrolimex being lower than in 2021, the liquidity ratios in 2022 are all over the safe level
(current ratio > 1, quick ratio > 0.5, and interest coverage ratio > 2). This demonstrates the Group's ability
to meet its short-term debt obligations and the effective use of borrowed funds.
Solvency ratios
2021 2022 difference difference in percent
Solvency ratio 0.28 0.09 -0.19 -68.06%
Interest Coverage
Solvency 7.29 4.53 -2.76 -37.91%
ratio
Debt-to-Equity ratio 0.74 1.68 0.94 127.03%
Not only being affected by the Covid 19, but also, due to the impact of the Russia-Ukraine
conflict, the price of oil climbed significantly, coupled with the shortage of commodities, which raised the
value of inventory and required more capital, resulting in a fall in the Solvency ratio of about 0.9
compared to 2021. A safe and low equivalent debt-to-assets ratio of 0.63 times in 2021, which translates
to 37% of assets being funded by owner's equity, demonstrates the Group's capital structure at a level that
is suitable and safe.
As of December 31, 2022, the ratio of Debt to Equity was 1.68 times (below the maximum
permitted level of 3 times) and was 0.94 times greater than in 2021.
Efficiency ratios
difference in
2021 2022 difference
percent
Efficiency Inventory Turnover
4.44 6.38
ratio 1.94 43.74%
Account Receivable
0.76 0.15
ratio -0.61 -79.84%
Asset turnover ratio 2.61 4.08 1.47 56.48%
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Day sales inventory 82.17 57.17 -25.00 -30.43%
The inventory turnover ratio for Petrolimex has slightly risen from 4.44 in 2021 to 6.38 in 2022, a
change of 43.76%. Additionally, the asset turnover ratio climbed to 56.48%, a difference of 1.47 from the
prior year. The index of receivables dropped from 0.76 in 2021 to 0.15 in 2022, a difference of 0.61, a loss
of more than 70%. In addition, the Day Sales Inventory Index for 2022 was lower than it was for 2021,
falling from 82.17 to 77.17.
The increase in inventory turnover ratio in 2022 suggests that Petrolimex had a smooth transaction
with consumers and that their products were effectively sold. The corporation may consume items quickly
and does not hold inventory for a long time, as evidenced by the decline in the Day Sales Inventory Ratio.
These are encouraging indicators for the company's inventory control. Petrolimex's account receivable
turnover ratio decreased, indicating a slower rate of cash withdrawal from customers. However, given the
challenging economic climate, they also realized that a low credit policy would benefit customers and
make them feel more at ease about making payments. The speed of supplier debt repayment is indicated
by the account payable turnover ratio.
In conclusion, according to the analysis, the factors that support the growth in ROE and ROA
profitability tend to increase. For example, total asset turnover increased by 63%, and financial leverage
increased by 29%, which resulted in a decline in the profitability of owner's equity and total assets
compared to 2021. This decline was primarily brought on by a drop in return on sales (ROS), which fell
by 66%. ROS fell as a result of the oil market's unforeseen changes in 2022, when a limited supply raised
oil prices and pre- and supply costs. There are instances where demand floods into Petrolimex's retail
system as a result of numerous dealers and distributors stopping or limiting their sales due to the zero
discount. The efficiency of the Group has been further impacted by Petrolimex's need to maintain sales
(and even expand the number of gas stations for 24/7 sale) in order to stabilize the market.
III. Cash Budgeting
Loan Payment
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Income Statement Budget
Cash Budget
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3.1. Benefits and drawbacks of Budgeting
3.3.1. Benefit
According to Antoniya Baltova (2023), most significantly, budgeting aids businesses in outlining
their short- and long-term goals. It is referred to as an organization's "business compass" by certain
experts for this reason. In a sense, the Budget is what transforms corporate strategy of businesses into
precise goals. Thus, budgeting is the tactical application of a company's strategic objectives. In other
words, it's a company's future strategy stated in numbers.
Budgeting is also a fantastic tool for setting goals. People can find the anticipated sales growth
rate, the anticipated net profit amount, and the net cash flows that the company anticipates generating
in the annual business plan of an organization. All too frequently, managers' pay is determined on their
capacity to achieve or surpass the predicted results. Some workers argue that unforeseen
circumstances could lead to a considerable difference between the actual numbers and the budgeted
ones. However, in the absence of extraordinary occurrences, management of a company should be able
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to make reasonable predictions, and most businesses believe that performance-based bonuses are
reasonable and appropriate.
3.3.2. Drawback
The usage of budgets within a command-and-control management system, as well as specific
issues related to capital budgeting, are covered in this sections that follows accorded to Bethany
O’hoyt (2014).
Inaccuracy, a budget is founded on a set of hypotheses that, in most cases, aren't too dissimilar
from the operational circumstances in which it was created. If the business climate changes
significantly, the company's revenues or cost structure can be drastically altered, which would cause
immediate deviations from the budgeted results. When there is a rapid economic downturn, this
circumstance is especially problematic since the budget authorizes a certain level of expenditure that is
no longer feasible given the abruptly falling level of revenue.
Secondly, rigidity in judgment. Only at the budget formulation phase, which is close to the
conclusion of the fiscal year, does the management team's focus on strategy come under the purview
of the budgeting process. There is no formal commitment to revise strategy the rest of the year. As a
result, there is no framework in place to properly analyze the situation and make changes if a
fundamental shift in the market occurs soon after a budget has been prepared. This puts a company at a
significant disadvantage to its nimbler competitors. Lastly, blame for results. Any other departments
that supply services to a department may be held accountable by the department manager if the
department does not meet its budgeted outcomes.
In conclusion, a budget is a business's road map. They can forecast their cash flow, pinpoint
functional areas for development, and efficiently manage their business. Realistic budgets are
something that successful organizations spend a lot of time and energy developing since they're an
effective tool to gauge how far the company has come in reaching its objectives. For new businesses,
creating a budget can be a bit overwhelming because there are no prior numbers to inform their budget
estimates. However, with some estimates based on competitors' performance and a knowledge of a
budget's components, they can complete their first budget and have a good road map for future
budgets.
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