Liabilities of Saigon VRG Investment Joint Stock Company (Stock code: SIP) as of December 31.12.2023, 17.044 recorded 11 billion VND, an increase of 4.038% compared to the beginning of the year. Meanwhile, the enterprise's equity (VCSH) only reached 2023 billion VND. SIP's liabilities at the end of 4 are XNUMX times higher than equity.
Similarly, liabilities at Tin Nghia Corporation Joint Stock Company (Stock code: TID) are also 2,8 times higher than equity, recording VND 11.486 billion at the end of 2023, an increase of 8% over the same period. last year. Meanwhile, TID's equity only reached 4.076 billion VND.
By the end of 2023, liabilities at Van Phu Investment Joint Stock Company - INVEST (Stock code: VPI) reached 8.553 billion VND, an increase of 16% over the same period last year, while equity at this enterprise was only 3.919 billion VND. billion.
These businesses all have liabilities 2-4 times higher than equity.
What ratio is safe?
According to Dr. Nguyen Tri Hieu, finance - banking expert, the ratio of liabilities/equity according to the financial leverage ratio is 1/1 which is considered normal, meaning for 1 VND of liabilities, the VCSH also is 1 dong. Even a 2/1 ratio is not too risky, an alarming situation is a ratio of up to 3/1.
However, this expert also said that to evaluate whether a business has solvency or not, it is necessary to consider the business's cash flow. If we only talk about equity and total debt, it is only a temporary picture. For example, at this time, the leverage ratio is 1/1 or 2/1, but it does not say whether the cash flow will come in the future or not.
A business's cash flow is money coming in from profits, from investors contributing, or borrowing from other places, selling assets, selling inventory... and this number must be greater than liabilities to be safe.
The expert also said that it is necessary to consider the industry, because each industry has a different leverage ratio. For example, in the banking industry, the K coefficient is about 8%, divided by leverage ratio of about 11/1; or for the construction industry group, the acceptable ratio is 2/1; In the wholesale industry, equity is often very thin and debt is high. In this case, the ratio of wholesale businesses can be up to 5/1 or 6/1; For the service industry group, the acceptable ratio is 2/1...
Dr. Nguyen Tri Hieu analyzed that there are two possible scenarios when businesses have liabilities/equity up to a ratio of 2/3, which is at an alarming level. Accordingly, the equity of an enterprise can decrease very deeply due to loss of assets of the enterprise, such as customers not paying debts, damaged inventory, damaged fixed assets... which will reduce the equity of the enterprise. enterprise.
When equity decreases, this ratio will no longer be 3/1, but will increase to 4/1, 5/1... At that time, businesses can easily go bankrupt because their equity is too low to can bear a large debt load.
In addition, with thin equity, businesses often have to borrow. In case the business is not doing well and has to borrow a lot to bear financial debt or to develop, the leverage ratio will be very high, potentially can put a business into bankruptcy.
