Group 3 - Assignment 3a - Understanding Financial Statements and Annual Report-1
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RMIT International University VietnamAssignment 3aUnderstanding Financial Statements and Annual ReportCourse code: ACCT2105 – Accounting in Organisations & SocietyCampus: Rmit Vietnam Saigon CampusLecturer: Hiep Hoang Word count: 1133Number of pages: 10Student nameStudent IDPart contributedContribution %SignatureLe Minh Bao AnhS3926348Task 2100%AnhNgo Quang LocS3914570Task 2100%LocLe Hoang QuanS3891723Task 2100%QuanLe Nguyen Phuong UyenS3914399Task 1100%Uyen1
Table of ContentsTask 1: Company overview......................................................................................................3Task 2: Understanding financial statements and annual report...............................................31......................................................................................................................................................32......................................................................................................................................................43......................................................................................................................................................44......................................................................................................................................................55......................................................................................................................................................76......................................................................................................................................................7References:.............................................................................................................................92
Task 1:Company overviewAccording to Masan's latest financial report, Masan Group is the leading consumer-focused business group in Vietnam who has developed a consumer ecosystem that consists of home and personal care, consumer retail, meat and fresh produce, packed food and beverage, mobile telecommunications and financial services. Key brands of Masan including Masan Consumer Holding, WinCommerce, MEATlife, Mobicast, Crown X and Phuc Long Heritage (Masan 2021). The core principle of Masan Group is the “Masan Way '' which is segmented into Grocery Life, Digital Life and Financial Life (Masan 2021, p.25). The report also clearly mentioned that the principal activity of Masan Group is investment holding. Its three subsidiaries including Masan Horizon Corporation with principal activity is “investment holding”, Masan MEATLife with principal activities is “investment holding and animal protein trading”. Finally, the SHERPA Company limited with principal activities is “investment holding” (Masan 2021, p.110). The accounting period of Masan Group is from 1 January to 31 December (Masan 2021, p.122). The Board of Directors of Masan Group consist of seven members, including “one executive member and six non-executive members” (Masan 2021, p.200). The Board is chaired by the Chairman and 2 out of 7 members are independent members. Chair of the board is Dr. Nguyen Dang Quang, chairman of Masan Group. The board composition including 2 foreign members – Mr. David Tan Wei Ming and Mr. Wocheol Park while the rest are Vietnamese. The board also has one female member Ms. Nguyen Thi Thu Ha and the rest are male members. Task 2:Understanding financial statements and annual report1.In accordance with Annual Report (2021), the firm recognizes the products sold based on the following criteria. Revenue is recorded into the income statement when the buyers receive the significant risks and rewards of the ownership. For revenue from services, it is recognized in the income statement when the service provided is completed to the buyers. Moreover, no revenue is recognized into the consolidated income statements in the case of having a significant uncertainty in terms of recovering the consideration because of possible return of products and services.The revenue growth rate of Masan Group in 2021 compared to 2020 = (VND 89,791,619 million – VND 78,868,319 million) / VND 78,868,319 million = 13.85%3
The contribution to the high revenue growth rate in 2021 is that the company has experienced a strong business performance in its business segmentations such as The CrownX, Masan Consumer Holdings, WinCommerce, Masan MeatLife and Masan High-tech Materials. The major drivers for the strong financial performance of the company come from the innovation, suitable business strategies, new partnerships with Lazada, scaling up online channels, the increasing synergies with WinCommerce and others.2. Masan Group’s profit before tax is VND 11,488,784 million in 2021.Net cash flow from operating activities equals VND 1,143,913 million in 2021.Masan’s net cash flow from operating activities is much lower than its profit before tax because profit before tax is a part of calculating the net cash flow from operating activities. The differences between these numbers are related to the adding depreciation expense and amortisation expense since these expenses are considered as non-cash expenses. They must be added in computing the net cash flow from operating activities. Next, the process of calculating the net cash flow from operating activities will deduct the increase in account receivables and inventories and the decrease in the account payable. Other items that lead to decrease the net cash flow from operating activities are interest payment, tax payment and others. These items will lead to cash outflows of the operating activities. This means that the net cash flow from operating activities is much lower than the profit before tax. 3.Figure 1: Consolidated statement of cash flows (Masan Group)4
Based on the Consolidated statement of cash flows of Masan Group (Masan 2021, p.105), the number of cash flows from financial activities have reached a very high value of 33,330,962 million VND in 2020, but this number was only 7,095,692 million VND in 2021 which mean the net cash flow from financial activities has decreased (78,71%) when compared in 2020 and 2021. Overall, Masan Group will still earn money from bonds and non-controlling interests in 2021. However,Masan Group spent money for share repurchases of a subsidiary and the company has to pay a lot of financial liabilities and this can also be seen as a main cause of the shortfall in net cash flow from financial activities in 2021.It is extremely important to provide information about cash flow from financial activities to stakeholders, as it helps stakeholders understand the company's cash flow plan. Specifically, they clearly represent all cash flows over a given period and make it possible for stakeholders to review and evaluate business activities.Therefore, the Negative cash flow in Masan's financial activities Group can show that the company is having problems and from there easily take measures to minimize losses as much as possible. 4.Figure 2:Accumulated amortisation of fixed intangible assets (Masan group)5
Figure 3:Long-term assets (Masan group)Based on Notes to the consolidated financial statements, the charge for the year is 142,705 then the amortisation of land use rights for 2021 is only 4,11% which seems quite small.The land use right is considered by Masan as an intangible fixed asset and based on the consolidated balance sheet, it can be seen that the total intangible fixed assets of Masan 2021 will decrease compared to 2020. And the reason for this decrease may be due to deconsolidation of MML’s feed segment and depreciation and amortization of fixed assets which makes Masan’s Group fixed assets decrease from 49,582 billion VND in 2020 to 42,654 bilion VND in 2021. 6
On the other hand, the relatively small charge for amortization of Masan land rights use compared to other assets could also be traced back to the nature of long-lived intangible assets (Kozlovska 2015). As Masan utilized straight-line amortization approach, assets’ useful life will heavily impact the periodical amortization (Jennings and Marques 2013). With up to 50 years of lifespan, land rights use ranks the highest regarding asset’s longevity (Arisandi etl al. 2019). As such, the annual amortization-to-net-value ratio of this asset is lower than the others.5. IAS 37 defines contingent liability as a potential debt that might result from past events, and whose existence will only be established according to probability of unknown future events that are not entirely under the entity's control (Bova et al. 2019). In Masan’s 2021 Annual report, this sector is disclosed with the occurrence of MONRE publishing a new decision, generating extra receivables for Masan. Nevertheless, as Masan has issued a revision on the value of MRF rate to the Prime Minister, MONRE, the final decision whether or not there exists additional MRF is to be made in the future. To disclose such information as contingent liability, the probability criteria is utilised relying on the preparers' reasoning, taking into consideration all existing evidence (Ferreira and Rover 2019). Furthermore, while contingent liabilities are not recognized liabilities (Lopes and Reis 2019), Masan must be wary in its reporting, as errors in the categorization of contingent liabilities could alter stakeholders' judgements (Duan and Huang 2020), whereas failing to record details on contingent liabilities provokes unfavourable market responses (Vallée 2019).6. It's crucial to establish acceptable performance standards for managers to connect their goals with those of the shareholders (Rozenbaum 2019). Accordingly, EBITDA is one of the indicators used the most frequently to assess a company's economic success (Sierpińska-Sawicz et al. 2020). Due to the fact that it doesn't include some costs, most notably depreciation, EBITDA does not take into account the cost of capital investments. Hence, the value of the EBITDA emphasises on the operating success of the company rather than the impact of financial, accounting, and tax decisions (Coronas et al. 2022). Focusing too much on EBITDA, however, leads to adverse impacts. Because the direct cost of leverage interest costs is also omitted from EBITDA, managers may use excessive leverage when evaluating strategic choices (Rozenbaum 2019). Additionally, since EBITDA does not account for the expenses of overinvestment, management may opt to overinvest in infrastructure, creating a serious risk in capital-intensive enterprises. 7
Subsequently, unless all pertinent information regarding the entity being assessed is available, this technique of assessment should not be employed alone (Lonergan 2016).8
References: Arisandi D, Elvitaria L, Hartati S, Trisnawati L and Nababan D (2019) 'Deprication Measurement on Computer Lab Inventory using Straight-Line Method', Journal of Physics. Conference Series, 1175(1):12087–, doi: 10.1088/1742-6596/1175/1/012087.Bova E, Ruiz-Arranz M, Toscani FG, and Ture HE (2019) 'The impact of contingent liability realizations on public finances', International Tax and Public Finance, 26(2):381–417, doi: 10.1007/s10797-018-9496-1.Coronas J, Martín H, Mesas JJ and Matas J (2022) 'Methodology for obtaining simplified models for the long-term energy management of renewable assets under a high degree of uncertainty', Energy Reports, 8:5764–5792, doi: 10.1016/j.egyr.2022.04.038.Duan GM and Huang Y (2022) 'Leverage of Local State-Owned Enterprises, Implicit Contingent Liabilities of Government and Economic Growth', Sustainability, 14(6):3481–, doi: 10.3390/su14063481.Ferreira J da S and Rover S (2019) 'An analysis of the relevant lawsuits in Brazilian companies: characteristics that influence the change in the probability of loss provision and contingent liabilities', Revista de contabilidade e organizações, 13:e155596–, doi: 10.11606/issn.1982-6486.rco.2019.155596.Jennings R and Marques A (2013) 'Amortized Cost for Operating Lease Assets', Accounting Horizons, 27(1):51–74, doi: 10.2308/acch-50278.Kozlovska I (2015) 'The impact of long-lived non-financial assets depreciation/amortization method on financial statements',Copernican Journal of Finance & Accounting, 4(2):91–108, doi: 10.12775/CJFA.2015.018.Lopes AI and Reis L (2019) 'Are provisions and contingent liabilities priced by the market? An exploratory study in Portugal and the UK', Meditari Accountancy Research, 27(2):228-257, doi: 10.1108/MEDAR-09-2017-0212.Lonergan W (2016) 'Problems with using EBITDA-based valuations in capital-intensive industries', The Journal of the Securities Institute of Australia, 2:24–29, doi: 10.3316/ielapa.219178085135803.Masan (2021)Annual Report 2021, Masan Group website, accessed 22 December 2022, https://www.masangroup.com/investor-relations.html Rozenbaum O (2019) 'EBITDA and Managers’ Investment and Leverage Choices', Contemporary Accounting Research, 36(1):513–546, doi: 10.1111/1911-3846.12387.Sierpińska-Sawicz, Sierpińska M and Królikowska E (2020) 'Where the EBITDA metric is used in coal companies',Gospodarka Surowcami Mineralnymi, 36(2):109–, doi: 10.24425/gsm.2020.132558.9
Vallée B (2019) 'Contingent Capital Trigger Effects: Evidence from Liability Management Exercises',The Review of Corporate Finance Studies, 8(2):235–259, doi: 10.1093/rcfs/cfz004.10