Ineffective capital structure of Ninh Van Bay Joint Stock Company

Abstract

The main problem is inefficient capital structure by increasing debts over the period 2013 to 2015. In which, total debt to total equity increased from 46.60% to 52.68% that leads to profitability decrease from 4.83% to -14.71% of ROE. Financial ratios are calculated from company’s financial and accounting reliable sources as NVT had listed in the Ho Chi Minh Stock Exchange over the period 2013 to 2015. The ratios are also in comparison with other corporates in the industry associated with deep interviews of company’s leaders in order for trustable findings. The main causes of the problem are high debts on total projects and financing interest cost of debts. NVT has to borrow different resources of debts to finance the projects and operation, especially the contract of issuing 230 billion VND of bonds. Using financial leverage sometimes is good. However, using that method in a wrong time when the difficulties of the economy plus the difficulties of the corporation in implementing projects may led to exhaustion of funds. Continuing to borrow to maintain operating can be a temporary solution, but if it lasts, causing serious consequences. There are two solutions for company’s activities. Firstly, NVT should reduce overinvestment and increase cash by reselling the project Six Senses Saigon River and transferring and withdrawing the investment in Tan Phu JSC. Secondly, the company should increase sales in the control of expenses to get profits for financing current debts.