Luan van PREFACE Vietnam's economy has been recovering strongly in recent years, creating favorable conditions for the stock market to develop. However, the size of the market is still relatively small and there is a lot of potential for a future boom. In order to create a healthy competitive market, specialized analytical studies are required, especially studies on market volatility, changes in business lines, price fluctuations of the stock, the risks of investors when entering the stock market. Recognizing this, I decided to choose the subject: “ALTERNATIVE METHOD TO DETERMINING INTRINSIC VALUE: THE CASE OF PINACO – DRY CELL AND STORAGE BATTERY COPORATION”.
PAC shares are one of the stocks that have received a lot of market attention, including individuals and organizations. However, there are still not many in-depth reports from financial institutions, besides the information about PAC still asymmetric information phenomenon in the market. So, I make this report with the aim of providing the most objective, unbiased information about the PAC stock code combined with the investment advice of the clients of the internship-company and small investors in the market. In addition, the report also shows a part of the process of securities investment analysis and securities dealing at the company, thereby helping the company to perfect these processes.
The content of this report mainly focused on analyzing performance of PINACO over years, combine with the fluctuation of macroeconomic and industry, so that can release assumptions to build a pricing model for PINACO stock and give results at last. The report also consults information and calculation of the other pricing report of securities companies to have an objectivity look about PINACO stock. I have tried to be extremely meticulous in preparing this report despite the various limitations faced as very limited information about surgical industry. Objectives of the study and research question Research on a number of theoretical issues on company value and valuation, methods of company valuation and application of those methods to valuation of PINACO JSC.
It then draws on the experience of the analysis and valuation to be able to properly value the value of the business Suggest solutions to perfect valuation methods that are close to the value of the business Witch those objectives, the research question of thesis is: “Identify the fair value of PINACO JSC” 2. Subjects of study scope The thesis focuses mainly on the application of valuation methods to PINACO Joint Stock Company, which originated from the research of business activities of the company from 2015 – 2019, with the company's future plans to assess its financial position and determine its value through future cash flow projections and comparisons with other peers. Research Methodology To clarify the research topic, the thesis mainly uses the following methods: comparison method, synthesis method, descriptive method, analytical method, predictive method. The analysis will follow the general theories of enterprise analysis and valuation.
Detailed of methods applied will be presented in Chapter 1. Structure of the thesis In addition to the table of contents, preamble, conclusion, list of references and annex tables, the thesis consists of three chapters: Chapter 1: Literature review Chapter 2: PINACO financial analysis 3 Luan van Chapter 3: Valuation and some recommendations for PINACO JSC stakeholders 4 Luan van CHAPTER 1: LITERATURE REVIEW 1. Stock A stock (also known as equity) is a security that represents the ownership of a fraction of a corporation. This entitles the owner of the stock to a proportion of the corporation's assets and profits equal to how much stock they own.
Units of stock are called "shares". Stocks are bought and sold predominantly on stock exchanges, though there can be private sales as well, and are the foundation of many individual investors' portfolios. These transactions have to conform to government regulations which are meant to protect investors from fraudulent practices. (Investopedia, 2020) Stock is a type of securities, issued in the form of a certificate, or book entry, confirming the lawful rights and interests of investors when engaging in business activities of the enterprise.
The stockholder becomes a shareholder and at the same time they become the owner of the issuing company. Some stocks are paid monthly, quarterly or annual dividends. In Vietnam stock market, a stock represents 10,000 dong of charter capital of enterprises. There are two common types of stocks: common stock and preferred stock.
Shareholders owning common stock are often allowed to freely transfer and vote on the company's decisions at the General Meeting of Shareholders, to receive dividends according to the business results and the value of the shares they are holding. In contrast, the shareholders holding preferred stock have limited powers and responsibilities such as: fixed income, no right to vote or stand for election. However, shareholders who own preferred stock always receive the dividend at first, and when the company goes bankrupt, they are also the ones paid by the company before the others. Stock market A stock market is a collection of people who buy and sell stocks (or securities), which represent their ownership of a company; they may include stocks listed on a public stock exchange, or shares publicly traded, such as shares of a private company are sold to investors through community fundraising platforms.
The investments in the stock market are mostly made through stock brokers and online trading platforms. (Hayes, 2020) In the stock market, there are many large companies listing their shares on a certain stock exchange. This makes their stocks more liquid and thus attracts more investors. The exchange also acts as a guarantor for the trading.
Other stocks can be traded "over the counter" (OTC), meaning through agents. Some big enough companies even list their stocks at more than one exchange in different countries to attract investment from abroad. There are three biggest securities trading markets in Vietnam today include: HNX, HOSE, UPCoM and OTC decentralized stock market. Business analysis Business analysis is a research process to assess the entire business operations of the enterprise in order to clarify the quality of business operations: influential causes, potential resources should be exploited.
Therefore, proposing measures to improve business efficiency in the enterprise. There are some main roles of business analysis: It is a tool to detect potentials; improve management regulations in business. The basis for making the right decision in the functions of managing, inspecting, evaluating and operating business activities. Allowing businesses to recognize properly their capabilities, strengths and limitations to identify the right business objectives and strategies.
An important measure to prevent risks. Through analyzing the business activities of external entities, enterprises have made the right decision in cooperating with enterprises. Valuation In finance, valuation is the process of estimating the present value (PV) of an asset. Valuations can be done on assets (for instance, investments in marketable securities such as stocks, options, business enterprises, or intangible assets such as patents and trademarks) or on liabilities (e., bonds issued by a company).
There are many reasons are needed for valuation such as investment analysis, merger and acquisition transactions, capital budgeting, financial reporting, taxable events to find out the proper tax liability, and in litigation. Valuation models: are models created by investment analysts for the purpose of determining the value of financial assets. These models have inputs that are collected from available information sources about assets such as financial reports, information on similar products, market movements, and so on. Then, this information is processed through calculations and analysis combined with the subjective judgment of the user model, and then the output is the intrinsic value of the financial asset.
Intrinsic value The intrinsic value can be interpreted as the true value of a security, a company, real estate or any kind of asset, which is different from the market value or book value of those assets. It could be calculated or perceived by using fundamental analysis, including both tangible and intangible factors. Intangible elements such as brand, trademark, copyright, etc., which are difficult to quantify, sometimes not accurately reflected in market prices, so the intrinsic value may or may not be the same as the current market value. Intrinsic value is ordinarily calculated by summing the discounted future income generated by the asset to obtain the present value.
(Bodie, 2013) Intrinsic value exists objectively, no one can impose it, even its owner. The objective value of intrinsic value is the total value of tangible and intangible assets that are working at the issuing organization. Therefore, intrinsic value also reflects 7 Luan van the potential of businesses and is the economic basis of market prices. Market prices are always volatile, but often revolve around intrinsic value, cannot escape too far, too long intrinsic value.
Factors affect the intrinsic value: - Business results. If the business is profitable, a percentage of the profits is reinvested, the tangible assets will increase, the intrinsic value will rise accordingly. On the other hand, if a loss happens, the tangible asset will fall, and the intrinsic value will decrease. These increases and decreases are the consequence of changes in assets, owners' equity in the books of account and financial statements.
- The formation of intangible assets (trademarks, patents, inventions, human resources, prestige of enterprises. This element appears in the form of business, but is difficult to calculate in cash as a tangible asset. Thus, it is often not reported or reflected incorrectly in the financial statements. However, it has a very strong impact on business results.
Main methods to analyze company Company analysis is a process that includes analysis of the company's financial situation, products, services, and competitive strategy (the company's plan to deal with threats and opportunities from external environment). This analysis takes place after the analyst understands the external environmental impact on the company, macroeconomics, demographics, government, technology and society affecting the competitive structure of the industry. Present accurate and specific results: The analysis of a company, whether by top- down or bottom-up, is intended to determine the investment opportunity. However, if only based on the indicators in the reports, investors can hardly make the most accurate decision.
Company valuation is an option that summarizes the company analysis process, providing the most practical basis for comparison in investor decision-making. Comparative method The comparative method of enterprise financial analysis is quite popular and widely used not only in financial analysis but also in the field of economic analysis. The comparison aims to highlight the differences and characteristics of each business. Through this it is possible to find out trends and laws of market fluctuations.
Entities, individuals or groups can rely on it to make the right choice. Briefly, by comparing two or more things you have a scope of discovering something unknown about either one of the products which are compared. Based on that, the types of the comparative method including: Relative comparisons: Managers will understand the relationship, structure, fluctuation trends, growth rates as well as the laws of fluctuations of economic indicators. There are several types of relative figure that are often used by financial analysts.
Absolute comparison: This method of comparison reflects the size of the research criterias, financial analysts can clearly see the fluctuation in the size of the mid-term research criteria with the original. Advantages of comparative method: - Comparative method is widely used in many countries around the world when there are the differences in core values, dimensions, products of the company, etc. This method does not have a fixed model or formula, but based on the information market to analyze the business. - This method illustrates an appreciation of market value, hence having a solid basis for being recognized by customer and recognized by legal authorities as well.
- It is the basis for many other valuation methods. The analyst often uses a direct comparison method in combination with other methods to determine the company’s position in the market. 9 Luan van Disadvantages of comparative method: - Having more accurate information is essential. If the market information is not correct, comparative method cannot be used.