FIEs lead way on capital use

January 21, 2013 | 15:02

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Foreign-invested enterprises have reaped bigger profits than local ones due to their effective usage of capital, according to a pioneer Vietnamese ranking company.

Vietnam Report Joint Stock Company (VNR) last week reported that among Vietnam’s 500 biggest enterprises by revenue (VNR500) for 2012, foreign invested enterprises (FIEs) had a return on equity (ROE) ratio far higher than state-owned and private domestic enterprises thanks to their good use of capital.

Specifically, the FIEs’ ROE was 39.22 per cent, meaning that the FIEs could earn 0.39 unit of profit from using one unit of capital. Meanwhile, the respective ratios of state-owned enterprises (SOEs) and private domestic enterprises were 16.28 and 15.53 per cent, respectively.

“Because of FIEs’ good control of operational costs, their profit is also higher than domestic companies,” said a VNR press release.

Generally, according to the report, enterprises in VNR500 of 2012 performed relatively well. Their ROE ratio averages 20 per cent, meaning they raked in two units of profit from using 10 units of capital. VNR also noted that FIEs’ debt usage and management has also been better than other types of enterprises. Specifically, the total debt to total asset of FIEs was 0.5, lower than the 0.7 of SOEs and 0.8 of private domestic enterprises.

These figures meant that most of local enterprises were operating based on banks’ loans. And while the annual lending rate in 2011 mounted to 25 per cent, enterprises’ paying capacity would be reduced undoubtedly. This at the same time would affect enterprises’ borrowing costs and profits, said the report.