毕业论文样本参考
Shanghai Finance University
Niels Brock Copenhagen Business College
Final Project Work
Project Title：
Major：International Finance
Name：Tao Liangyan
Student No.：2003175208
Guidance Teacher：Tao Lingyun
Danish Supervisor: Jens Borger
Company:Shanghai Dow Corning Company
May 10th 2006
Executive summary:
Shanghai Dow Corning Company was set up in Shanghai in 1995. It is a wholly owned subsidiary corporation. Its parent company is Dow Corning Corporation in America. The corporation opened in Shanghai builds its business around silicone. As a SME, the company‘s business also meets its financial difficulties in its growth like other SMES.
There are a number of indicators that highlight when business growth has stagnated. The following three aspects will be discussed in this composition in the hope that there will be something helpful to the research on the corporation‘s financial difficulties during its growth:t he company‘s structure, the industry where Shanghai Dow Corning Company is in, the corporation‘s life cycle and its financial condition. The corporation‘s growth power and its financial condition is very important factor to decide whether it can raise funds.
Now that the corporation has its problems, it had to take some effective measures to solve the difficulties. There are several ways for Dow Corning to finance. First, Shanghai Dow corning can raise money by issuing stock. Second, it can borrow the money from its parent company or sister company. Third, it can make a loan to some commercial banks or some financial institutions. Of course, bank will lend some funds according to the company‘s financial situation. But it is not eas y to raise the purposeful funds that it needs. Fourth, Shanghai Dow Corning must break its growing bottleneck. That‘s the way the company should do if it wants to develop well during its growth. I think it is the best way for Shanghai Dow Corning to break its own growing bottleneck to solve its difficulties. I hope these suggestions can help the corporation be in a good business cycle and have a good future.
Table of Contents
Part I. Problem of Statement (3)
1. Introduction (3)
1.1 Introduction of Shanghai Dow Corning Company (3)
1.2 In troduction of the financial policies in Shanghai Dow Corning (3)
2. Problem formulation (4)
2.1 Issues (4)
2.2 Problem formulation (5)
2.3 Interpretation of the problem formulation (5)
Part II. Methodology (6)
Part III. Analysis (7)
1. Company Structure analysis (7)
2. Analysis the industry that the corporation is in (8)
2.1Product characteristics (8)
2.2Market share (9)
3. Corporation‘s life- cycle Analysis (12)
3.1 Initial period of the enterprise (12)
3.2 Growth period of the enterprise (14)
4. Financial condition Analysis (16)
4.1 Analysis of balance sheet (16)
4.2 Analysis of some financial ratios (19)
4.3 Analysis of statement of income (21)
Part IV. Suggestion for solution (25)
1. Find a Chinese Partner and issue stock (25)
2. Direct finance (26)
2.1 Borrow the money from its parent company (26)
2.2 Borrow the money from subsidiary (27)
3. Indirect finance (28)
3.1 Make a loan to some commercial banks or other financial institutions (28)
4. How to break the enterprises‘ growing bottleneck (29)
4.1Improving the business credit profile (30)
4.2New products development (32)
4.3 Establish smooth marketing channel (32)
4.4Improve growth rate (32)
Part V. Evaluation (34)
Part VI. Conclusion (35)
Bibliography (35)
Table of source (36)
Enclosures (37)
PART I. Problem Statement
In this part, I will give an introduction of Shanghai Dow Corning Company and financial policies in Shanghai Dow Corning Certainly; the problem formulation is the most important one I want to discuss.
1. Introduction
1.1 Introduction of Shanghai Dow Corning
Shanghai Dow Corning Company was set up in Shanghai in 1995. It is a wholly owned subsidiary corporation. Its parent company is Dow Corning Corporation in America.As a part of the parent co mpany‘s investment plan in China, the new Application Center represents Dow Corning‘s latest contribution to global R&D excellence and strengthened customer collaboration in developing innovative applications and technology solutions
Shanghai Dow Corning Company opened in Shanghai to serve electronics, textile and plastics sectors in China. Its plant initially manufactured silicone emulsion and sealant. In 2002, Shanghai Dow Corning Company established a technology service center.
Shanghai Dow Corning Cor poration‘s synergistic products and solutions are designed to give Chinese companies a competitive advantage in the international marketplace. They also serve to spur growth of many of China‘s pillar industries – electronics, energy and power generation, automotive, aviation, petrochemicals, infrastructures development, and other industries where silicon-based products, technology, ideas and services can enhance the performance of a wide range of products, making them last long and work better.
Now Shanghai Dow Corning Company prepares to spend 24 million RMB on enlarging the technology service center In order to develop more kinds of new productions. But in fact the company is not in a good condition on its finance.
1.2 Introduction of the financial policies in Shanghai Dow Corning
There are some real challenges that SMEs often encounter when they wish to expand its business. Of course, Shanghai Dow Corning also encounters its difficulties. The company should take an objective assessment of its business performance when it has hit a growth plateau. An important part of growth is to ensure management team has the operational capacity to grow.
1.2.1 Introduction of the mix of financial instruments
Definition of financial instruments: Financial instruments are defined as cash, evidence of an ownership interest in an entity, or a contract that both:
1.2.2 Introduction of the aggregate amount of financing
Shanghai Dow Corning Company meets its financial difficulties. The company‘s liquid funds are not enough. So the Company must raise its funds in order to develop well. The aggregate amounts that the corporation needs is that the investment amounts deduce its liquid funds that the company holds now.
2. Problem formulation
2.1 Issues
Dow Corning set up its first mainland office in Shanghai in 1995, making it the first wholly owned subsidiary opened in Shanghai to serve electronics, textile and plastics sectors in China. Its plant initially manufactured silicone emulsion and sealant. In 2002, Shanghai Dow Corning Company established a technology service center. In order to develop more kinds of new productions, the company prepares to spend 24 million RMB on enlarging the technology service center. But in fact the company is not in a good condition on its finance. Net sales of productions in 2005 are 14.82% higher than net sales of productions in 2004. At the end of the year in 2004, the company‘s net income is about
76.25 million RMB. The company‘s liquid funds are not enough to invest in t he expansion project. Although the bank can offer some funds, in fact it is not enough. As a result, Shanghai Dow Corning meets the financial difficulty.
2.2. Problem formulation
How can Shanghai Dow Corning Company solve financial difficulties during its growth?
2.3. Interpretation of the problem formulation
2.3.1. Demarcations
From 1st JAN, 1999 To 1ST DEC,2005
2.3.2. Interpretations
Now, I have made this problem formulation. If the company can solve the financial difficulty, it is very beneficial to the company. After finishing the project, the company will research and develop more new products. Those new products will have a large market.
Part II. Methodology
I will use the enterprise‘s life cycle to explain to the difficulties of rai sing funds. I will also interpret the financial statements to analysis the corporation‘s current financing condition.
I will get information from Internet (information about the company‘s products, industry) and also go to the company to visit the workers.
Part III. Analysis
1. Company structure analysis
Shanghai Dow Corning Company is a wholly owned subsidiary corporation.. Its parent company is Dow Corning Corporation in America. To maximize its shareholder, Dow Corning Corporation set up its subsidiary in Shanghai to explore its market in China even to Asia. A subsidiary is that a company for which a majority of the voting stock is owned by a holding company.
Shanghai Dow Corning Company prepares to enlarge the technology service center in order to develop more kinds of new productions. But the company is not in a good condition on its finance. As we all know, many firms would be allowed to issue stock in order to raise funds for short-term needs.As businesses grow, the demand for funds to spur growth and development often grows, too. Many entrepreneurs borrow money, but another option is available. It is really a good way for a majority-owned foreign subsidiary to go public and issue stock. With the development of stock in China market. Many people are willing to buy common shares. Although it has some risk. But In China the laws prescribes that a majority-owned foreign subsidiary can‘t be go public and sell stock .In fact, as a small and medium - sized enterprise, Shanghai Dow Cor ning Company can‘t easily issue stock because of its own scale except the factor which it is a wholly owned subsidiary. Going to public needs to meet many qualifications.
2. Analysis of the industry where Shanghai Dow Corning Company is in
2.1 Product Characteristic
Dow Corning, a leading silicones supplier, uses using the most modern technology to produce many silicone-based products. So as his subsidiary company Shanghai Dow Corning also produce silicone-based products.
Current Silicon-Based Applications
Because of the unique properties of volatile siloxane fluids, they have numerous uses in a variety of industries. Their low heat of vaporization and smooth, silky feel make them especially attractive for use in personal care products.
Additional technical professionals will be recruited to serve customers in the textile, personal and household care, construction, rubber, plastic and other processing industries.
Beyond Personal Care
Many of entrepreneurial customers outside of the personal care areas have found unique ways to use our rheology modifiers to thicken products and utilize the unique sensory benefits. There are specific uses in:
1Textile treatments
2Coatings
3Leather/synthetic leather treatment
4Polishes
5Plastics modification
Shanghai Dow Corning Company anticipates even more applications as product offerings expand. In order to develop and research more new products, Shanghai Dow Corning Corporation prepare on an expansion of its Shanghai Application Center, increasing the company‘s ca pability to provide innovative solutions for customers in China even to Asia.
Silicon, the second most abundant element on earth, is a fundamental building block of today‘s technology. It is found in every computer and is processed into thousands of products that have made our lives easier—from lubricants, sealants and adhesives to building materials. Dow Corning Corporation (Dow Corning) has built its business around silicon. Of course, it is obvious that Shanghai Dow Corning Company also run the business around Silicon.
As the main composition of new chemical materials industry, the new chemical materials business holds a leading position and enjoys a competitive edge in the market. Because Silicon is a second most abundant element on earth, this industry must a competitive industry. There must be many firms in this industry.
There are several big foreign corporations in China market such as GE Company and Wacker Company. Shanghai Dow Corning Company had to improve its competition ability to face such severe environments.
2.2 Market Share
Most commercial bank generates the loan to a subsidiary according its market shares. So market share is a very important factor for Shanghai Dow Corning that whether can borrow its money. Shanghai Dow Corning Company was established in 1995 specifically to explore the potential of silicones. Today Shanghai Dow Corning provides many silicone-based products and services in China. Shanghai Dow Corning has sales offices, manufacturing sites well as science and technology laboratories, and enjoys a 15% market share of silicone in China
Although Shanghai Dow Corning faces substantial competition for its products and is at risk for product substitution with silicon and non-silicon products, its sales are still growing stable. Now the target of the corporation is to increase revenue by continuously creating innovative, performance-enhancing materials at prices that help drive the growth of its customers in order to face more and more competitive market. The company must provide more innovative products to enlarge its market in China.
Shanghai Dow Corning Company is a manufacturing enterprise. The manufacturer was able to expand its market share by meeting customer demands for are liable supply of a wider range of products from a single supplier. Dow Corning‘s exceptional responsiveness also enabled the manufacturer to quickly scale-up and deliver a new product just in time to take advantage of a pivotal application trial opportunity. In fact, commercial bank loan to a subsidiary according to its marker shares.
2.3 compare with other companies with the same business
3. Life –cycle Analysis
……
3.1 The initial period of the enterprise
Everything in this world must have a beginning, a purpose and finally an ending. An enterprise also has this process. Shanghai Dow Corning Company is a small and medium - sized enterprise of science and technology. In fact, Micro, small and medium-sized enterprises are socially and economically important, since they represent 99 % of all enterprises in China and provide jobs and contribute to entrepreneurship and innovation. However, they face particular difficulties, which Chinese legislation tries to redress by granting various advantages to SMEs. A difficulty of raising money is one of the particular difficulties for SMEs in China.
Each enterprise must be independent - i.e. 25 % of the capital or the voting rights may not be owned by one enterprise, or jointly by several enterprises, falling outside the definition of an SME or a small enterprise. This threshold may be exceeded in the following two cases:
if the enterprise is held by public investment corporations, venture capital companies or institutional investors, provided no control is exercised over the enterprise;
if the capital is spread in such a way that an enterprise can legitimately declare that it is not owned up to 25 % by one or more enterprises falling outside the definitions of an SME.
The present recommendations give the following definitions:
Small enterprises have between 10 and 49 employees. They should have an annual turnover not exceeding RMB56 million or an annual balance-sheet total not exceeding RMB40 million.
Micro-enterprises are enterprises that have fewer than 10 employees.
Shanghai Dow Corning Company has 40 employees in its initial period. The turnover is from 43 million to 76 million. Now the employees are double in its growth than in its initial period.
As a small and medium - sized enterprise of science and technology, its cash flow has a close relationship with this enterprises‘ life cycle. Cash is the ki ng. When Shanghai Dow Corning is in its initial time, the company has enough cash flow because abundant cash has put into.
The enterprise has less asset and liability in the initial period. At that time this enterprise was in this situation that it has a high cost of products. Shanghai Dow Corning Company doesn‘t have much profit because the enterprise payout the expense of R&D and salary in order to make the enterprise develop well. In fact, the enterprise hasn‘t got stable sales revenue.
……
3.2 Growth period of the enterprise
……
Product has its life cycle. The theory of product life cycle explains changes in the location of productions. So a corporation also has its life cycle. Growth of a corporation means a potential ability to grow in its productivity. The enterprise's growth, in short, the enterprise has the latent capacity of value productions which were continually get to by using resources, is a future development exception
on the enterprise according to enterprise's existing development condition and interior&exterior impersonality factors. When the commercial bank generates its loan, it can‘t easily judge on its financial condition. The commercial bank should consider SME‘s potential ability grow. SMEs that have a wide developing space and have lasting a period are called growing SMES.
Shanghai Dow corning Company also wants to expand its business. This corporation introduced many advanced equipments and improve its service. Besides these, the corporation also increases its labor. And its product sales are growing stability
Let‘s look at the difference between its initial period and growth period
Now Shanghai Dow Corning is in its growth .So its products sales grow a lot comparing the period in its initial time. For example, in 1999 its sales income is only about 4,300,000. Now its sales income is closely 7,600,000
Identifying the business has hit a growth plateau requires taking an objective assessment of business performance. There are a number of indicators that highlight when business growth has stagnated. Shanghai Dow Corning‘ reason is as the following:
Banks generally have been reluctant to offer long-term loans to SMES, if a corporation has no obvious characteristics for a growth business. I believe no investors want to invest in the corporation, which has no stable ability to grow.
4. Financial Condition
……
4.1 Balance Sheet Analysis
……
The balance sheet is an accountant‘s snapshot of the firm‘s accounting value on a particular da te, as though the firm stood momentarily still. The balance sheet has two sides: on the left are the assets and on the right are the liabilities and stockholders‘ equity.The balance sheet states what the firm owns and how it is financed. The accounting definition that underlies the balance sheet and describes the balance is
Assets =Liabilities +Stockholders‘s equity.
The assets in the balance sheet are listed in order by the length of time it normally would take an ongoing firm to convert them to cash. The asset side depends on the nature of the business and how management chooses to conduct it.The liabilities and the stockholders‘ equity are listed in the order in which they must be paid.
The liabilities and stockholders‘ equity side reflects the types and proportions of financing, which depend on management‘s choice of capital structure, as between debt and equity and between current debt and long-term debt
Table1 The Balance Sheet of Shanghai Dow Corning Company
Shanghai Dow Corning Corporation
Balance Sheet
2004 and 2005
(in RMB millions)
Asset 2004 2005 Liabilities (Debt) 2004 2005
Current Assets:Current Liabilities
Cash and 11,211,505 11764510 Accounts payable 23785776 20153239
Equivalents
Accounts r
Receivable 13,748,538 14253189short -term credit ____ ____
Other 5,775,800 5,997,800
stock 3128870 2543832 Other 4033004 4531997
Total current Assets 3386471334559331Total current liabilities 19920419 21599581
Fixed assets: Long term liabilities:
Property, plant, 24498508 24520732
And equipments Long-term debt _____ _____
Total liabilities: 19920419 21599581
Less accumulated Owner?s equity:
Depreciation 1037656 1237903 opening balance 25810278 23294956
Total fixed Assets: 23460852 23282829 Added profit 11594868 12947623
Total Assets57325565 57842160 Total liabilities and equity 57325565 57842160
From this table, we can see that current asset in 2004 to 2005 has no obvious increase. As we all know, current assets are short-term assets which are expected to be liquidated in the near future and so any loss arising from a fall in values below their original cost is shown
So, the big problem to Shanghai Dow Corning has enough fixed assets. But it can‘t be turn into cash . Asset-based financing is a way for rapidly growing, cash-strapped companies to meet their short-term cash needs. In general, companies can tap their assets to generate cash flow through asset-based loans or through factoring. The drawback of asset-based loans and factoring is the expense. Using assets to generate cash flow increases cost of funds and cuts into profits. The corporation should need to weigh the situation carefully and determine whether this type of financing is necessary to expand company or keep it afloat. So it is not the best way to apply assets-based loan.
4.2 Analysis of some financial ratios
……
Short-term solvency—the ability of the firm to meet its short-run obligations.
Short-Term Solvency
Ratios of short-term solvency measure the ability of the firm to meet recurring financial obligations (that is, to pay its bills). To the extent a firm has sufficient cash flow, it will be able to avoid defaulting on its financial obligations and, thus, avoid experiencing financial distress. Accounting liquidity measures short-term solvency and is often associated with net working capital, the difference between current assets and current liabilities. Recall that current liabilities are debts that are due within one year from the date of the balance sheet. The basic source from which to pay these debts is a current asset.
The most widely used measures of accounting liquidity are the current ratio and the quick ratio. Current Ratio To find the current ratio, divide current assets by current liabilities. For the
Shanghai Dow Corning Company, the figure for 2005 is
Total current assets
In 2005, Current ratio= ___________________________=34559331/21599581=1.6
Total current liabilities
Total current assets
In 2004, Current ratio= ___________________________=33864713/19920419=1.7
Total current liabilities
Operating cash flows to maturing obligation s, this ratio compares the operating cash flows to the current liabilities of the business. It provides a further indication of the ability of the business to meet its maturing obligations. The ration is calculated as follows:
Operating cash flows
__________________==
Current liabilities
The higher this ratio, the better the liquidity of the business. This ratio has the advantage that the operating cash flows for a period usually provide a more reliable guide to the liquidity of a business than the current assets held at the balance sheet date. Shanghai Dow Corning Company for the ended
31.Dec 2005 is:
11764510
____________==0.54 times
21599581
This ratio indicates that the operating cash flows for the period are not sufficient to cover the current liabilities at the end of the period.
Many commercial bank will consider the ratios to decide whether they should generate its money .If the commercial bank agree, these ratios will be the criterion that how much they should generate the cash. So these rations are also very important.
4.3 Analysis of statement of income
The income statement measures performance over a specific period of time, say, a year. The accounting definition of income is:
Revenue - Expenses =Income
If the balance sheet is like a snapshot, the income statement is like a video recording of what the people did between two snapshots.
The income statement usually includes several sections. The operations section reports the firm‘s revenues and expenses from principal operations. One number of particular importances is a earnings before interest and taxes (EBIT), which summarizes earnings before taxes and financing costs. Among other things, the no operating section of the income statement includes all financing costs, such as interest expense. Usually a second section reports as a separate item the amount of taxes levied on income. The last item on the income statement is the bottom line, or net income..
It is often useful to think of all of future time as having two distinct parts, the short run and the long run. The short run is that period of time in which certain equipment, resources, and commitments of the firm are fixed; but the time is long enough for the firm to vary its output by using more labor and raw materials. The short run is not a precise period of time that will be the same for all industries.
However, all firms making decisions in the short run have some fixed costs, that is, costs that will not change because of fixed commitments. In real business activity, examples of fixed costs are bond interest, overhead, and property taxes. Costs that are not fixed are variable. Variable costs change as the output of the firm changes; some examples are raw materials and wages for laborers on the production line
The profit and loss account, on the other hand, is concerned with the flow of wealth over a period of time.