HANOI UNIVERSITY

FACULTY OF MANAGEMENT AND TOURISM

----***----

FINANCIAL MANAGEMENT REPORT

FPT Corporation
Tut 4_ Group 3
Students:
Vũ Thị Huyền Trang _1904000115
Văn Khánh Huyền _ 1904010047
Phạm Thúy Huyền _ 1904010045
Tào Quỳnh Hương _ 1904010052

Date: May 7 th, 2021

 TABLE OF CONTENT

1. Executive summary......................................................................................... 1
2. Introduction to the firm ................................................................................ 1
3. Ratio analysis ................................................................................................... 1
a. Strengths and weaknesses ............................................................... 4
b. Recommendation .............................................................................. 5
c. DuPont equation................................................................................ 6
4. Valuation ........................................................................................................... 8
a. Free cash flow .................................................................................... 8
b. WACC .................................................................................................. 9
c. Calculate DCF using FCFF and FCFE ........................................ 10
5. Recommendations ........................................................................................... 11

REFERENCES ..................................................................................................... 13

APPENDIX............................................................................................................ 14
1. Executive summary
The main purpose of our research is to provide some information about Financing
Promoting Technology (FPT) Corporation, one of the most popular and biggest
technology companies in Vietnam. In addition, this project is going to illustrate the
relationship of the company with the stock market, performance appraisal, valuation
by analysing ratio and figure from its financial statements and annual reports from
during the period from 2015 to 2019. Finally, we would like to give some
recommendations for both financiers and investors to sustain and strengthen the
development of FPT.
2. Introduction to the firm
On September 13, 1988, the director of the National Institute of Technology
Research signed a decision to establish The Food Processing Technology Company
(FPT's original name), beginning in the fields of drying technology, information
technology and automation technology. After that, in 1990, the company was
renamed The Corporation for Financing and Promoting Technology , specializing in
information technology. This is a multidisciplinary company with main focus on two
segments: technology and communication. The company provides customers with
outstanding technological innovations, with the desire to satisfy all customers , even
the fastidious ones, and contribute to the development of our country, and was able to
provide services to 63/63 provinces and cities in Vietnam. On October 24, 200 6, FPT
issued additional shares to two investors, Texas Pacific Group (TPG) and Intel
Capital. FPT received an investment of $36.5 million through TPG Ventures and Intel
Capital. The company whose code is abbreviated as FPT is listed on the stock
exchange of Ho Chi Minh City Stock Exchange (HOSE). The company's shares were
listed very first on December 13, 2006.

3. Ratio analysis
The first main part of this report is going to provide readers the financial
information of FPT Corporation from 2015 to 2019 during its development process.
By giving some practical financial ratios, our paper indicates the performance of the
company during the five-year period and carries out some detailed analysis. In
addition, it summarizes some of the weaknesses and strengths of FPT and
recommends few solutions for the current situation.

1
  Financial ratios from 2015 to 2019 to compare with the average industry (*)

Year 2015 2016 2017 2018 2019

R IA R IA R IA R IA R IA

Liquidity ratio

Current ratio 1.27 1.93 1.26 1.66 1.45 2.23 1.27 1.69 1.18 2.43

Quick ratio 0.91 1.02 1 2.26 1.35 1.51 1.18 2.43 1.1 1.61

Asset
Management

Inventory 7.35 12.1 8.88 9.93 42.44 6.16 17.35 6.25 21.64 6.89
turnover ratio

Days sales 42.7 35.81 45.13 48.51 43.88 47.62 84.6 88.82 74.89 80.79
outstanding ratio
(DSO)

Fixed assets 9.02 12.05 8.81 9.52 8.25 9.42 3.57 5.97 3.71 4.64
turnover ratio

Total assets 1.49 1.04 1.36 1.14 1.73 1.11 0.78 1.15 0.83 1
turnover ratio

Debt
Management

Total debts to 60.91% 45.00% 61.63% 46.00% 47.05% 53.00% 50.35% 49.00% 49.69% 47.00%

2
 total assets

Times interest 10.86 8.05 11.55 16.18 12.99

earned (TIE)

Profitability
ratio

Operating profit 7.37% -44.46% 7.45% 6.79% 9.83% 7.54% 16.59% 6.49% 16.78% 4.65%
margin

Profit margin 6.30% -45.14% 6.37% 3.90% 8.15% 7.23% 13.90% 5.87% 14.07% 4.09%

Return on total 9.36% 4.84% 8.63% 3.92% 14.11% 5.52% 10.87% 7.49% 11.71% 3.56%
assets (ROA)

Basic earning 10.95% 19.39% 10.10% 20.89% 17.02% 20.00% 12.96% 19.22% 13.97% 16.31%
power (BEP)

Return on 23.94% 9.63% 22.50% 7.81% 26.65% 13.01% 21.89% 14.39% 23.28% 6.41%
common equity
(ROE)

Market Value

Price/earnings 5.32 31.8 5.66 31.8 7.75 31.8 7.64 31.8 11.55 31.8
(P/E)

Market/book 0.79 2.24 0.89 2.24 1.39 2.24 1.24 2.24 1.97 2.24
(M/B)

 Average financial ratios during five-year period (2015 - 2019) (**)

3
 FPT Industry
Current ratio 1.28 1.99
Liquidity ratio
Quick ratio 1.11 1.83

Inventory turnover ratio 19.53 8.27

Days sales outstanding (DSO) 58.24 60.31

Asset
Management Fixed assets turnover ratio 6.67 8.32

Total assets turnover ratio 1.24 1.09

Debt Total debt to total assets 53.92% 48.0%

Management Times interest earned (TIE) 11.93

Operating profit margin 11.60% -3.80%

Profit margin 9.76% -4.81%

Return on total assets

Profitability 10.94% 5.07%
(ROA)
ratio
Basic earning power
13.00% 19.16%
(BEP)

Return on common equity (ROE) 23.65% 10.25%

Price/earnings (P/E) 7.58 31.8

Market Value
Market/book (M/B) 1.25 2.24

a. Strengths and weaknesses

The financial statement analysis above indicates the strengths and weeknesses of the
company over the time from 2015 to 2019. The most significant strength of the
company is the good asset management. Total asset turnover of FPT is higher than
the industry average in all five years, especially in 2017. This ratio is typically
calculated on an annual basis. Therefore, the ratio indicates that the company is
making a rational and effective use of its assets to generate revenue. Moreover, this
ratio also implies that the company is outperforming most other companies in the
same industry and has a high dominance in the marketplace and financial markets.

4
 Another FPT’s strength is the high profitability. The return on common equity ratio
of the company is higher than industry average in 5-year period. This is a valuable
way to measure the profitability of the company in relation to the stockholders’
equity. Therefore, this ratio shows that the company has effectively used funds from
stockholders to generate profits for the company as well as reinvestment. ROE is also
used to estimate the growth rates of the company, so this statistic indicates that FPT
can have stable growth rates in the future.
Although there are strengths to maximize profits from available capital and
resources, FPT also has weaknesses that need to be overcome. The first weakness is
the poor debt management. In the analysis above, the total debt to total assets of the
company is much higher than the industry average, especially in 2015 and 2016, the
ratio exceeded 60%, which is generally supposed to be a poor ratio, and the company
mightn’t be able to generate enough cash flow to service its debt . Moreover, there is
no year that the company had a ratio between 4% and 40% - which is considered to
be good, since if the company has a large debt, it has to use a significant part of its
total profit to pay interest, according to market researchers. This information may
reflect the firm's degree of financial stability. The higher the ratio, the more risky it is
to invest in the company. Therefore, companies may face more trouble during the
economic recession than companies in the same industry, or could not call many
shareholders in the stock market.
Furthermore, the price/earnings ratio of the company is lower than the industry
average in the both five years. This ratio values a company that measures its current
share price relative to its per-share earnings-the relative value of a company's shares.
This proves that the company's shares are undervalued compared to its actual
earnings, it also indicates that investors in the market are not optimistic about its
profitability and FPT’s ability to develop in the future.
b. Recommendation
For the weaknesses pointed out above, a financial management should offer a few
solutions. First and foremost, to lower the total debt to total assets ratio, investors and
creditors need to see subsequent figures to reduce debt. It is important to set the
benchmark by keeping the comparisons among competitors. If this ratio increases
significantly over the time, this can be an alarm bell for the company and investors,
helping them make the precise and appropriate decisions for the future. In addition,
the company should take action to raise their P/E ratio. The company should
introduce preferential stock policies to promote the demand in the stock market, or
promote the productivity of the company, reduce the debt so that investors can have a
more optimistic view about the development of the company in the future.

5
c. Dupont equation
To indicate several changes in FPT’s performance, we have broken down the return
on equity (ROE) by the DuPont equation. With three different drivers: profit margin,
total asset turnover and equity multiplier, we calculate the ROE of the company by
multiplying those all together. This equation shows the relationship among asset
management, debt management and profitability ratios.

2015 2016 2017 2018 2019

Profit margin 6.3 6.37 8.15 13.9 14.07

Asset turnover 1.49 1.14 1.73 0.78 0.83

Equity 2.56 2.61 1.89 2.01 1.99

multiplier

ROE 23.94 22.5 26.65 21.89 23.28

The return on equity ratio of FPT fluctuated from 21% to 23% during the period of
2015 and 2019. However, we find out that the average ROE in the technology
industry is 10.25%, meanwhile this ratio of FPT is much higher, even double to
compare with the industry average. And as mentioned above, ROE ratio indicates that
FPT’s performance during this period was quite good, the company can be expected
to have sustainable growth during its operation.

6
 In more detail, looking at three components of the ROE calculation by Dupont, we
can explain the fluctuation of the ROE during the years. The profit margin ratio
measures the after tax profitability, which means how much profit a firm can create
for every one unit of revenue it generates. For instance, the profit margin of FPT in
2019 is 14.07% and it can be also understood that the company created 0.1404 dong
for each dong of revenue it raised. The higher this ratio is, the better for a company.
As we can see from the table above, the profit margin ratio of the company has
increased during the year, especially since 2018. The performance can be considered
as good, because the amount of income for each dong revenue it gained increases
each year. By looking at the second and the last components of the Dupont equation,
we can find out the reason for the fluctuation of ROE ratio. The total asset turnover
ratio shows the level of effectiveness a firm uses its assets. This ratio of FPT had a
decrease of 0.35 in 2016 before it went up to 1.73 in 2017 and kept decreasing and
stayed at lower than 1 in the next following year. However, during the five -year
period, 1.24 of average was still higher than the industry average, which is only 1.09.
The last driver to be considered is equity multiplier. The ratio determines the amount
of assets that are financed by the shareholders. Conversely, it also shows the extent to
which a company relies on its debt financing. The equity multiplier of FPT from 2015
to 2019 was considered quite high, around 2, which means half of the company’s
assets are financed with debt, and the rest is financed with equity. And the change in
the equity multiplier is determined as the main factor of the fluctuated ROE during
the year.

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 4. Valuation
This part presents the calculation of FCFs of FPT Corporation for the 5 -year period
from 2015 to 2019. Besides, the intrinsic value of FPT is also measured by the DCF
model.
a. Free cash flow
FCF = EBIT(1-T) + Depreciation of Fixed assets - CAPEX - Change in NOWC

2015 2016 2017 2018 2019

EBIT(1-T) 2,438,084,765,165 2,575,690,845,279 3,528,113,914,381 3,233,997,141,045 3,911,712,166,873

Depreciation of
Fixed assets 732,880,119,304 933,439,677,116 1,039,416,768,342 1,164,692,003,074 1,354,613,458,881

CAPEX (2,090,200,759,463) (1,433,113,297,810) (1,104,370,928,512) (2,453,675,554,507) (3,233,069,745,365)

Operating profit 3,618,578,536,257 4,096,961,009,001 4,497,742,813,881 4,638,506,662,461 5,772,001,265,669

Net cash generated

from OA 1,155,885,029,814 4,311,658,493,292 1,988,183,664,915 3,588,320,092,336 (3,898,749,985,785)

Change in NOWC 2,462,693,506,443 (214,697,484,291) 2,509,559,148,966 1,050,186,570,125 9,670,751,251,454

FCF 2,798,472,137,489 5,156,941,304,496 3,162,342,462,269 5,802,178,128,501 (1,171,355,880,335)

Growth rate of FCF 84.28% (38.68%) 83.48% (120.19%)

AVGR of FCF 2.22%

It is obvious that the net income of FPT rises from 2,438 billion VND in 2015 to
3,911 billion VND in 2019, that makes an increase of more than 1,473 billion VND,
meaning that the net income in 2019 is about 1.6 times higher than 2015. However,
the changes in operating and investment activities through five years make the
improvement of FPT's free cash flow unstable, shown as the line graph below.

8
 The amount of FCF peaks at 5,802 billion VND in 2018, and rapidly falls to -1,171
billion VND in 2019. It is understandable that the FCF is not always positive, and a
negative FCF does not indicate that FPT is making a loss. A negative FCF also
illustrates that the company had more investments and operating activities, and the
company's profit will be proven in the future. In the case of FPT, it can be seen easily
that this casual decrease is caused by the change in working capital, which makes up
an enormous amount of 9,670 billion VND in 2019. Ultimately, the average growth
rate of FPT is still positive, at a rate of 2.22%, which can prove the development of
FPT for 5 years.

b. WACC
rD: the before-tax cost of debt 4.0%

WD: weights of debts 0.24

Rf 4.0%

Beta 0.74

Rm-Rf 8.21%

WE: weights of equity 0.76

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 Re: the cost of common stock 10.1%

WACC 8.5%

Although FPT's CF growth rate is 2.22%, to estimate the real value of an existing
business, the growth rate is assumed to be 0%.

c. Calculate DCF using FCFF and FCFE

 FCFF
Items 2020 2021 2022 2023 2024 2025 2026
(forecast) (forecast) (forecast) (forecast) (forecast) (forecast)

Net Income 3,538 4,752 5,347 5,929 6,521 7,092 7,650

Interest*(1-Tax) 155 214 215 213 210 207 202

Non-cash charge 822 1,030 1,157 1,222 1,293 1,368 1,447

Fixed capital (910) (882) (1,030) (1,157) (1,222) (1,293) (1,368)

investment

Working capital 1,874 671 912 1,016 472 503 530

Investment

Salvage value 99,378

FCFF 5,539 5,786 6,602 7,222 7,274 7,876 107,838

Discounted 5,539 5,332 5,607 5,652 5,246 5,235 66,060

FCFF

- Total discounted cash flow 2020: 93,122 billion VND

- Total shares outstanding: 783,987,464
- Share’s intrinsic value (VND per share): 89,277 VND

 FCFE

Items 2020 2021 2022 2023 2024 2025 2026

(forecast) (forecast) (forecast) (forecast) (forecast) (forecast)

Net Income 3,538 4,752 5,347 5,929 6,521 7,092 7,650

Non-cash 822 1,030 1,157 1,222 1,293 1,368 1,447

charge

10
 Fixed capital (910) (882) (1,030) (1,157) (1,222) (1,293) (1,368)
investment

Working 1.874 671 912 1,016 472 503 530

capital
Investment

Net borrowing 4.548 109 161 21 (127) (276) (419)

Salvage value 77,816

FCFF 9,932 5,681 6,548 7,031 6,937 7,393 85,657

Discounted 9,932 5,161 5,405 5,272 4,725 4,575 48,153

FCFF

- Total discounted cash flow: 73,289 billion VND

- Total shares outstanding: 783,987,464
- Share’s intrinsic value (VND per share): 93,481 VND

5. Recommendations
- Market price: 82,700 VND per share (on 5 May, 2021)
- Intrinsic value:
+ FCFF model: 89,227 VND per share
+ FCFE model: 93,481 VND per share
 From stockholders’ perspectives:
Through analysis of FPT’s annual reports, it can be seen obviously that FPT is
doing very well in its ability to generate profits for shareholders. Furthermore, the
analysis shows the growth potential of FPT in the future, as well as the intrinsic value
of FPT. Thereby, it is asserted that FPT's policies and development path are
completely correct, and these policies are contributing to the company going further
in the telecom service industry. In summary, the current holding of FPT shares is
absolutely valuable, and the current development path of FPT should be maintained
and optimized.
If the stockholders want to raise capital, issuing more shares during this period can
potentially cause some risks of lowering the stock price, because the intrinsic value of
the share is now higher than the market price, along with fluctuations due to disease.
Besides, the average ratio of total debts to total assets of FPT in the period from 2015
to 2019 is 53.92%, which is higher than the industry’s average ratio, then, this is also
a risk of creating a decline in stock value when issuing more equity. Therefore, the
issuance of shares in the current period is not recommended.

11
 From investors’ perspectives:
At present, the market price of FPT’s share is 82,700 VND per share, which is lower
than its intrinsic value. For the FCFF model, the FPT share’s intrinsic value is 89,227
VND per share, 8% higher than its market price. Similarly, for the FCFE model, the
FPT share’s intrinsic value is 93,481 VND per share, 13% higher than its market
price. Therefore, at this period, investing in FPT will be profitable for the investors,
and buying FPT shares is encouraged.

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 REFERENCES
https://www.fpt.com.vn/en/ir/information-disclosure/annual-
reports?fbclid=IwAR3BrugdROsgpF_NOaQyx63vgmr2Azm0zY7Lg25V8slosKbfZRS
Bpi2t6Jo
https://finance.vietstock.vn/nganh/6-cong-nghe-va-thong-tin.htm?fbclid=IwAR20S-
UJMNCdzew-rnrcAuEFXL-3bMW-dfT2h05ae_pezx69JD_c89uKr5c
https://www.stockbiz.vn/IndustryOverview.aspx?Code=9000&fbclid=IwAR3Jz6NN9E
DS3O1_U4LGcXQRzuBKnKW67Ya40EwyJidKdSF97--xa1sxRXQ
https://finance.tvsi.com.vn/tools/CompareIndustry?fbclid=IwAR0Gy-
WJlbUbiy6K5N_WULokX9KMKKU0EQj_yDjEgaFwYUuXIcBz885Z2Uo
http://www2.vcsc.com.vn/Modules/Analysis/Web/IndustryAnalysis.aspx?tab=3&MenuI
D=5&inTab=Tongquan&cat=0&lang=vi-vn&fbclid=IwAR20S-UJMNCdzew-
rnrcAuEFXL-3bMW-dfT2h05ae_pezx69JD_c89uKr5c
https://vfin.vn/cach-tinh-chi-phi-von-binh-quan-wacc-cua-doanh-
nghiep/?fbclid=IwAR3XHjCkRMNTFz2cawkbytRfxb66Esdu-
40FAHnEboF19H8SuAYODkzTK7s
https://s.cafef.vn/hose/FPT-cong-ty-co-phan-
fpt.chn?fbclid=IwAR2lBdownR97o6hBxuIHBCvYW7LgiYQ6ikLmu3lQ3oAA1K4vCh
6PLqqUSN8
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html?fbclid=
IwAR3zUQSWp0Mr3cIDqgPXHcye-sa6aeSD5czeyoW91oc8tQmEAB6TRiBitBk
http://vbma.org.vn/vbma/user_files/upload/file/Bond%20market%20report/Ban%20tin
%20trai%20phieu%202017/Ban%20tin%20trai%20phieu%20thang%2003-
2017.pdf?fbclid=IwAR0ZxGNs5hrsXMKexeD4NQDlX8wTIdnq7r5sMiN0oPqR1bEBy
PaUzy0jMB8
https://www.abc-amega.com/articles/dupont-
analysis/?fbclid=IwAR1lQXOsmMHM0cTJlZNwYaj4hq4L4NSOSgui-iQr-
_bKTvYYrMDShkhQO6s
https://www.investopedia.com/terms/e/equitymultiplier.asp
https://www.cophieu68.vn/?fbclid=IwAR20S-UJMNCdzew-rnrcAuEFXL-3bMW-
dfT2h05ae_pezx69JD_c89uKr5c
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
https://fiintrade.vn/#

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 APPENDIX
● Appendix A

2015 2016 2017 2018 2019

Total assets 26,045,588,544,428 29,833,261,814,151 24,999,676,895,866 29,757,067,149,568 33,394,164,263,694
Current asset 18,959,009,136,105 21,908,662,957,423 16,059,937,820,645 18,406,087,226,041 18,979,176,128,930
Receivables 5,534,209,011,621 6,640,135,921,823 6,151,782,399,408 6,426,946,279,074 6,536,251,148,622
Inventories 5,268,099,617,220 4,553,808,475,949 1,020,212,423,590 1,340,687,216,347 1,284,200,733,943
Net fixed assets 4,292,253,138,079 4,589,983,193,268 5,247,285,021,701 6,513,735,578,258 7,492,167,945,088
Total debts 15,863,302,791,405 18,385,186,549,332 11,761,300,662,093 14,982,096,384,457 16,594,874,862,688
Current debts 14,967,554,324,100 17,429,655,689,537 11,100,344,738,740 14,451,149,990,521 16,102,256,902,439
Common
10,182,285,753,023 11,448,075,264,819 13,238,376,233,773 14,774,970,765,111 16,799,289,401,006
equity
Sales 38,707,143,264,487 40,447,137,929,383 43,298,396,301,993 23,259,126,277,266 27,791,982,176,829
Interest
262,502,327,611 374,186,078,800 368,545,679,548 238,344,431,747 358,987,537,425
charges
EBIT 2,851,148,827,721 3,013,898,666,241 4,255,117,777,507 3,857,602,555,206 4,664,530,511,706
Net income 2,438,084,765,165 2,575,690,845,279 3,528,113,914,381 3,233,997,141,045 3,911,712,166,873
Earning per
3,811 3,925 4,457 3,903 4,220
share
Book value per
25,607 24,917 24,932 24,076 24,797
share
Price per share 20,270 22,210 34,550 29,810 48,730

14
● Appendix B
- Financial ratio

Ratio Formula

Current ratio

Liquidity ratio
Quick ratio

Inventory turnover ratio

Days sales outstanding (DSO)

Asset Management
Fixed assets turnover ratio

Total assets turnover ratio

Total debts to total assets

Debt Management
Times interest earned (TIE)

Operating profit margin

Profit margin

Return on total assets (ROA)

Profitability ratio

Basic earning power (BEP)

Return on common equity

(ROE)

15
 Price/Earnings (P/E)

Market Value
Market/Book (M/B)

- DuPont equation

Ratio Formula

DuPont analysis Profit margin x Asset turnover x Equity

multiplier

Equity multiplier

● Appendix C

Ratio Formula

WACC WDrD(1-TC)+Wsrs

FCFE FCFE = Net Income + Non-cash charge +

Net borrowing - Working capital Investment +
Net Borrowing

FCFF FCFF = Net Income + Non-cash charge +

Interest (1-T) - Working capital Investment -
Fixed Capital Investment

16