OVERVIEW OF FINANCIAL SITUATION OF A COMPANY
Corporate finance and financial management
1.1.1 Corporate finance and financial decisions
A company is a legal entity focused on producing, buying, and selling goods or services to consumers for profit The business process encompasses a series of structured activities or tasks performed by individuals or equipment, aimed at achieving specific business goals for targeted customers Essentially, it involves the creation, distribution, and utilization of financial resources that drive the financial activities of companies.
In essence, the process of creating, distributing, and using monetary funds refers to the economic relationship between a company and other stakeholders. There are a variety of economic relationship, including:
(i) Relationship between a company and a government;
(ii) Relationship between a company and economic entities and other social organizations;
(iii) Relationship between a company and employees;
(iv) Relationship between a company and its owners;
Corporate finance can be defined as a set of economic relationships that are represented in value form, emerging throughout the processes of creating, distributing, and utilizing a company's monetary resources.
Corporate finance focuses on maximizing a firm's value through effective management of financial resources It encompasses activities related to the creation, distribution, utilization, and mobilization of funds, all driven by the strategic decisions made by financial managers.
Financial decisions are categorized into short-term and long-term strategies Long-term decisions encompass strategic areas such as investment choices, financing options, and profit distribution policies In contrast, short-term financial decisions primarily focus on effective working capital management.
Investment decisions, often referred to as capital investment projects, are crucial as they directly impact a firm's assets and overall value These decisions are vital for increasing shareholders' wealth, as funds are limited and involve costs that must be managed wisely A sound investment decision enhances a firm's value, while poor choices can lead to a decline in both firm and shareholder value Therefore, making informed investment decisions is essential for achieving long-term financial success.
Financing decisions are about which funds to be chosen for investment decisions Major financing decisions of enterprises include:
- Decisions on short-term capital raising: Short-term loan or commercial credit usage and short-term bank loan or corporate bills usage, etc.
- Decisions on long-term capital mobilization: Long-term debt or equity, long-term borrowing from banks or corporate bonds issuance, etc.
Financial managers need to thoroughly understand the pros and cons of various capital raising tools to make informed capital mobilization decisions Additionally, accurately assessing the current market situation is crucial before proceeding with any financial decisions.
The dividend policy of a company involves the decision on how to distribute profits, where the CFO weighs the benefits of paying dividends against reinvesting after-tax profits Additionally, the CFO must determine the appropriate dividend policy and assess its impact on the company's overall value and stock market price.
A financial manager must determine the appropriate dividend policy for a firm, weighing the decision to pay dividends against reinvesting profits By choosing not to distribute dividends, the company can allocate funds to successful investment opportunities, leading to business expansion This growth, driven by profitable projects, typically results in an increase in share prices Consequently, shareholders who forgo dividends may ultimately benefit from a higher valuation of their shares.
These are operational decisions, which do not significantly affect the existence and development of businesses.
Decision on reserve capital in cash:
Maintaining cash reserves is essential for an enterprise to meet its financial obligations and mitigate risks associated with operations However, holding capital in cash can lead to opportunity costs and increase the risk of devaluation due to inflation.
Selling can enhance a company's competitiveness, ultimately boosting turnover and profits However, the practice of selling on credit can lead to an increase in receivable debts, which may result in capital stagnation and put the business at risk of failing to recover these debts.
Implementing payment discounts can enable businesses to swiftly recover sales revenue and lower capital requirements, ultimately reducing capital costs However, offering discounts to customers may result in decreased profit margins for the business.
Maintaining stockpiles can help reduce the risk of disruptions in business and production activities; however, this practice also leads to higher opportunity costs of capital and increased storage expenses, ultimately diminishing the company's profits.
Other short-term financial decisions:
Decisions regarding the depreciation of fixed assets, provisioning, and payment consistently establish a balance between benefits and risks for businesses and their owners.
Financial managers play a crucial role in maximizing business value through strategic financial decisions Each decision involves a delicate balance between risk and profit, requiring executives to minimize risks while maximizing profitability The challenge lies in analyzing various factors to ensure that these decisions enhance the overall value of the business, making it essential for financial managers to navigate this complex landscape effectively.
1.1.2.1 Definition and the roles of financial management a The definition
Corporate finance management involves the collection, decision-making, and execution of financial strategies to achieve specific company objectives It encompasses the formation, allocation, and utilization of financial resources throughout the corporate life cycle, making it essential for overall business operations As the driving force behind a company's financial health, effective financial management can significantly impact all other departments within the organization.
Profit maximization is not the final goal of financial management Instead, maximizing sharehloders’ wealth is the final goal of financial management. b The roles of financial managent
Financial situation of a company
1.2.1 Definition of financial situation of a company
In an increasingly globalized economy, the continuous production and business activities of enterprises necessitate swift information capture and accurate financial forecasting These elements are crucial for identifying investment opportunities and formulating effective strategies for mobilizing, distributing, and utilizing monetary resources within the organization.
In today's business landscape, understanding corporate finance is essential for managers, as it serves as a foundation for effective financial planning and strategic investment decisions A company's financial health directly influences its objectives and resource allocation, ultimately impacting overall performance Whether the financial situation is strong or weak, the effectiveness of financial activities plays a crucial role in either driving or hindering production and business operations.
Financial situation is the status of the assets, liabilities, and owners' equity
(and their interrelationships) of an organization, as reflected in its financial statements.
Evaluating a company's financial situation involves a thorough analysis of corporate finance to ascertain whether its financial health is strong or weak This assessment identifies the underlying factors affecting financial performance and their implications, enabling management to make informed decisions aimed at enhancing the company's overall performance.
1.2.1.2 Objectives of financial situation of a company
Financial activities connect closely with the production and business activities of a company Therefore, assessing the financial situation of a company needs to achieve the following objectives:
To effectively evaluate a company's financial health, it is essential to analyze key components including capital structure, asset composition, liquidity, solvency, cash flow, operational efficiency, profitability, and associated financial risks This comprehensive assessment provides valuable insights for all stakeholders within the economy.
- Direct the decisions of the managers in the right way relevant to the actual financial performance of a company.
- Build a basic premise for financial forecasts, helping analysts predict the financial potential of the business in the future.
A performance measurement tool enables businesses to monitor their activities by comparing achieved targets with planned objectives This comparison highlights strengths and weaknesses in operations, facilitating informed decision-making for enhanced business efficiency.
1.2.2 Assessment of financial situation of a company
Asset Ratio: Refers to the amount of spending in company properties, including short-term assets and long-term assets.
The short-term assets ratio reflected in a business venture capital that the business spends is how much money is used to form short-term assets.
This index measures the amount of capital accumulated in long-term investments, which constitutes a percentage of the overall capital of the company.
It also represents the state of the art of engineering infrastructure, equipment infrastructure, current manufacturing capability and the long-term growth of the company in the future.
1.2.2.2 Sources of finance and capital structure
Capital structure ratios play a crucial role in evaluating a company's financial statements, reflecting the specific mix of debt and equity used to fund operations and growth Companies strive to identify the ideal capital proportion to reach their business goals, aiming for an optimal capital structure that maintains a balanced combination of debt and equity.
Is calculated by dividing total debt by total assets It measures the percentage of funds provided by creditors.
The debt ratio is a key financial leverage metric that indicates the extent to which a company's assets are financed through debt, categorizing firms as "leveraged" when this ratio is high While creditors often settle for lower returns in exchange for secure, fixed payments, shareholders typically embrace higher risks for the potential of greater returns However, when creditors provide a significant portion of a company's capital, they bear the majority of the risk, which can lead them to demand higher interest rates as compensation.
The equity ratio is a crucial financial metric that reflects the proportion of equity financing a company uses for its assets A higher equity ratio indicates strong financial self-sufficiency, suggesting that the company is less reliant on debt and is in a safer financial position.
The debt-to-equity (D/E) ratio measures a company's financial leverage by comparing its debt to shareholders' equity A lower D/E ratio signifies better financial health, indicating that a company relies less on debt to finance its assets.
When long-term debt is less than equity, it suggests that the company can effectively self-finance its growth and operations, indicating a strong financial position This scenario reflects low reliance on external financing for borrowers, highlighting the company's ability to sustain itself economically in its industry.
The equity multiplier, also known as the leverage ratio or financial leverage ratio, measures a company's total assets in relation to its shareholders' equity A higher equity multiplier indicates a more leveraged capital structure, reflecting the extent to which a company relies on debt financing, which encompasses all liabilities.
When businesses choose mobilization, usually concerned about the following issues:
• The amount of time needed for asset financing
• The objective of the financial structure, profitability of assets
• The cost of each source of capital
• The ability to mobilize for each source
The financial operation of the organization is measured by means of the major indicator called net working capital.
Net Working Capital = Long-term Capital – Long-term Assets
Net Working Capital = Current Assets – Current Liabilities
Net working capital serves as a crucial liquidity metric that assesses a company's ability to meet its short-term liabilities using its assets This indicator is vital for managers, suppliers, and investors as it reflects the firm's short-term financial health and the effectiveness of its asset management.
The net working capital formula emphasizes the importance of current liabilities, including commercial debt, accounts payable, and vendor notes due within the year A company with significant positive working capital is positioned for potential investment and growth Conversely, if current assets fall short of current liabilities, the company may face challenges in growth, repaying creditors, or could risk bankruptcy.
When a company is unable to fulfill its short-term obligations using its current assets, it may resort to liquidating long-term or income-generating assets, which can negatively impact operations and sales This situation may also signal deeper organizational and financial issues.
There are three cases of NWC that can be happen:
A positive Net Working Capital (NWC) indicates that a business possesses surplus long-term capital, as it demonstrates that equity and long-term debts sufficiently finance fixed assets and long-term investments This financial structure also partially supports short-term fixed and liquid assets, ensuring a balanced corporate finance situation Additionally, the returns from current assets and short-term investments allow the business to meet its due obligations while also allocating funds for discretionary spending, thus maintaining short-term financial equilibrium.
Determinants of Financial Situation of a company
Vietnam's legal system for business institutions comprises four primary structures: private corporations, associations, limited liability firms, and joint investment firms These organizational frameworks significantly influence corporate finance structures, shaping capital organization and allocation of revenues, while also determining the liability of stakeholders for the corporation's obligations.
- Economic services: as technology improves (transport infrastructure, power, oxygen, etc.), it would reduce the spending requirements of the industry whereas allowing companies to save on operating costs.
The market environment is currently characterized by industry expansion, creating increased incentives for innovation and production As a result, businesses are compelled to adopt aggressive capital-raising strategies to meet the demands of innovation.
In the other hand, the market is in crisis, so it is tough for the business to find suitable business opportunities.
High inflation can severely impact the consumer goods sector, making it difficult for companies to maintain a healthy financial position Without proactive measures, businesses may face decreased market income, and the demands for business financing will increase Ultimately, the financial sustainability of companies becomes jeopardized in an inflationary environment.
High competition in an industry necessitates that companies invest significantly in upgrading equipment and technology, enhancing product quality, and improving advertising, marketing, and sales strategies.
- Financial markets and the system of financial intermediation
The evolution of diverse market instruments and innovative capital-raising methods for businesses has significantly transformed the financial landscape, highlighted by the rise of various financial leasing options and the establishment and growth of stock markets.
The robust expansion of financial intermediaries is leading to a richer and more diverse array of financial services for businesses This includes the evolution of commercial banks, which now offer various payment options such as bank transfers, credit cards, and electronic transfers Additionally, the healthy competition among financial intermediaries enhances access to credit for enterprises, enabling them to secure funding at reduced costs.
An effective capital structure is crucial for optimizing the use of financial resources, as a well-balanced financial framework enhances capital efficiency Conversely, poor capital management can disrupt the equilibrium between current and fixed assets, resulting in either surplus or deficiency in specific asset types, which ultimately diminishes capital utilization efficiency.
Effective organization and project administration are crucial for the economic success of businesses A robust management structure, coupled with skilled leadership, significantly enhances a company's performance and profitability Conversely, weak management can hinder growth and financial success.
Enterprise relationships are crucial, encompassing interactions with both customers and suppliers, significantly impacting production efficiency, consumption levels, and overall profitability To cultivate these relationships, businesses should implement targeted strategies to strengthen ties with existing customers while actively seeking new ones Effective measures include expanding transaction networks, optimizing sourcing processes, establishing customer credit policies, streamlining payment methods for convenience, and enhancing promotional and advertising efforts.
Business expenses significantly impact capital efficiency, as rising costs lead to higher prices for goods and services, ultimately reducing consumption and capital utilization To enhance competitiveness and accelerate consumption, businesses focus on minimizing costs, which in turn increases capital turnover and improves overall business efficiency.
FINANCIAL SITUATION OF Viet Duc Phu Tho Co., Ltd
Overview of Viet Duc Phu Tho Co., Ltd
2.1.1 The establishment and development of Viet Duc Phu Tho Co.,Ltd
- Name: Viet Duc Phu Tho Co., Ltd
- Legal representative of the company: Mr Nguyen Hong Phuc
- Address: Administrative area, Lam Thao Town, Lam Thao District, Phu
- The time of operation of the Company commences from the date of establishment with a period of 21 years.
Viet Duc Phu Tho Co., Ltd is a limited liability company under theDepartment of Industry of Phu Tho Province (Formerly was Phong Chau
Packaging and Trading Service Enterprise) established in 1990 under the decision to change the name of the provincial People's Committee No 2402 / QD-UB dated 16/18/1998
Since its inception, Viet Duc Phu Tho Co., Ltd has navigated various challenges, but through the dedication of its management and the support from all team members, along with assistance from provincial agencies, the company has effectively overcome obstacles and steadily built a strong reputation.
Through dedicated research and innovation in the Board of Directors' management system, along with the commitment of all employees, the firm has seen significant success in sales and production operations This progress is complemented by enhancements in organizational structure, infrastructure, and staff development, as well as the formulation of strategic business directions Additionally, the firm invests in facilities and upgrades machinery and equipment to boost manufacturing capacity, while also overseeing electrical works and the installation of comprehensive construction equipment.
In response to the rapid growth and fierce competition in the packaging industry, businesses are reinventing themselves to meet evolving customer preferences both domestically and globally.
2.1.2 The business characteristic of Viet Duc Phu Tho Co., Ltd
Viet Duc Phu Tho Co., Ltd works primarily in the manufacturing industry, such as :
- Producing and selling of all sorts of PP, PE, Krach paper packages.
- Manufacturing and trading in electrical, electronic and refrigeration equipment.
- Installation of machinery equipment, electronic mechanics automation.
- Importing and exporting materials, production materials, consumer goods.
The corporation aims to efficiently manage resources while driving growth in development, industry, commerce, and investment operations to boost market performance and optimize profits Its mission includes creating productive job opportunities, improving the income and quality of life for workers, delivering shareholder benefits, meeting state obligations, and contributing to the nation's economic growth.
2.1.2.2 Product features and business processes
- PP bags are kinds of bags used in fertilizer, chemical, food, livestock, cement, rice, sugar, salt
PP bags are crafted from high-quality virgin PP plastic combined with various additives, utilizing advanced mixing technology honed over years of experience Our company offers a diverse range of models and sizes to cater to the unique preferences of our customers.
+ Type 2: printed bags with information (logo, company name, address, phone, fax and symbolic images, for example, rice bags with pictures of rice plants, rice fields, farmers…)
PP bags are increasingly popular across all provinces and cities, as well as internationally, due to their ability to efficiently hold products and facilitate long-distance transportation.
- PP bags are present in all fields: agriculture, industry, construction, animal husbandry, industrial electricity
PP bags are manufactured through a meticulous closed-loop process that begins with the creation of PP plastic beads This involves drawing threads into a shuttle and weaving the fabric, a critical stage closely monitored by skilled technicians Once the fabric is rolled, it is cut to meet specific order requirements, followed by precise bottom-to-mouth sewing to ensure high-quality finished products.
Business process is shown in the diagram:
Figure 2 1: Production process of Viet Duc
2.1.2.3 Technology process of manufacturing products
Figure 2.2: PP Packaging production process of Viet Duc
The spinning machine processes PP plastic beads by loading them into the fiber generator's hopper Utilizing a vacuum in the extruder, the beads are melted and extruded into a liquid plastic that is shaped according to specific length and thickness requirements This liquid plastic then passes through a cooling water tank to form a film, which is cut into yarn of 2-3 mm width by a knife blade Finally, the yarn is stabilized through a heating element before being spun into the final product.
Join our bag weaving workshop, where we utilize square knitting technology to craft a variety of PP blinds tailored to your specifications in size and color Our process involves feeding PP yarn rolls into a six shuttle circular loom, which expertly weaves them into durable PP fabric tubing, resulting in high-quality PP fabric.
- Sewing cutting workshop: When the bag is woven into rolling blinds, it will be cut to the required size and sew according to customers' specified specifications.
The Print Workshop serves as the crucial final stage in determining the quality of a product If the printed output fails to meet established standards, it renders all prior efforts ineffective.
+ PP woven bags, or PE bags, paper bags: flexo printing
+ OPP film coating is the most professional and beautiful, gravure printing technology on OPP film, then transplanting this film into PP woven fabric roll.
- Quality Control Board (KCS): Determines the quality of packaging products, determines the success of the whole manufacturing process.
- Product packaging team: Checking the final stage and packaging the product before warehousing Products after production is completed, checked and evaluated, classified and counted in bundles and then stored.
- Warehouse: A place to store products after they are ready for sale.
2.1.3 Organizational structure of Viet Duc Phu Tho Co., Ltd
2.1.3.1 General organization structure of management
Figure 2.3: Organization structure of management of Viet Duc
The company operates as a Limited Liability Company, with a board of members holding the highest authority and a director responsible for legal compliance Beneath the director, various departments, including Quality, Administration, Accounting, and Business, manage specific functions This tiered structure ensures a systematic approach to task deployment and organizational efficiency.
2.1.3.2 Organization of the financial - accounting management apparatus:
Figure 2.4: Organization of the financial – accounting management structure of Viet Duc
In the small company, there is currently no distinction between accounts and finance due to limited activities primarily within the province To reduce costs, the director primarily makes financial decisions with the chief accountant's support The accountants are responsible for data collection, recording, and preparing financial reports The chief accountant analyzes these reports to identify issues like bad debts and inventory shortages, which are then communicated to the director The director reviews the reports to select appropriate projects and mobilization sources that align with the company's financial situation.
2.1.4 The company’s advantages and disadvantages
- The Board of Directors of the Company is always concerned, directed closely; create all financial conditions to buy necessary tools and equipment.
-The company has a stable workforce, experienced, engaged and dedicated to the Company At the same time fully implemented the regimes and regulations of the State for employees.
The company consistently generates annual profits, ensuring adequate capital for its operations and earning the trust of partners while fulfilling its obligations to the state Additionally, it is actively expanding production capabilities and investing in the modernization of machinery and equipment This commitment to growth is complemented by a focus on developing a strong corporate culture and enhancing its brand presence in the market.
In the era of industrialization and modernization, Vietnam's plastic packaging industry faces intense competition and pressure, particularly during the 4.0 technology revolution Domestic companies are increasingly challenged by large international firms from countries like Thailand and Korea, as globalization and private investment create both opportunities and competitive challenges.
- Like most domestic plastic packaging enterprises, the company has to import most (over 80%) of input materials from abroad (which mainly comes from
Plastic material costs represent a significant portion of the company's production expenses in China, making the company's profitability highly susceptible to changes in plastic material prices.
- A small part of the labor force is still weak, unsuitable and involved in the production and supply of products for important and important projects.
- Expenses such as: financial expenses, administrative expenses, exchange rate fluctuations fluctuate affecting the determination of production costs, costs and affecting the efficiency of production business and competitiveness.
The financial situation of Viet Duc Phu Tho Co., Ltd
2.2.1 Viet Duc Phu Tho Co., Ltd’s assets and asset structure
Table 2 1: Assets and Asset structure of Viet Duc Phu Tho Co., Ltd in 2018,2019
Unit of measure: VND in thousand
ASSETS Amount Proportio n (%) Amount Proportion
II Long-term uncompleted assets 4,763,913 16.39% 5,237,219 16.64% -473,306 -9.04%
III Long-term financial investments 5,122,700 17.62% 5,122,700 16.28% 0 0.00%
(Source: Financial statement of Viet Duc Phu Tho Co., Ltd in 2018,2019)
Table 2.3 indicated that the total assets of the company fluctuate in a downward trend Total assets of the company at the end of 2019 were nearly VND
186 billion, down 0.9% compared to the beginning of the year with an absolute reduction of VND 1.6 billion.
The total volatility of the above assets is due to the decrease in long-term asset items (9,04%) This fluctuation is further analyzed and researched through the following items:
At the end of 2019, long-term assets represented 16.73% of total assets, a decrease from 18.89% in early 2018, reflecting a 7.63% decline This reduction is primarily attributed to a 9.13% decrease in tangible fixed assets, driven by a more rapid increase in accumulated depreciation compared to the rise in fixed asset costs During the year, the company invested over 1.4 billion in new machinery and equipment, yet the accumulated depreciation—largely from machinery, equipment, and vehicles—continued to rise Additionally, long-term unfinished assets saw a 9.04% drop, indicating a strategic reduction in construction investment and project management costs.
As of the end of the year, the company's current assets rose by over VND 700 million, reflecting a 0.45% increase, while short-term assets grew by 2.16% compared to the beginning of the year in 2019 This trend indicates the company's strategic focus on investing in short-term assets, particularly through inventory management, despite a decline in other asset categories.
As of the end of fiscal 2019, the company's inventory value exceeded VND 144 billion, representing 91.59% of total current assets and reflecting a 9.3% increase from 2018 This growth suggests a strategic focus on maintaining sufficient inventory to support smooth operations and future contracts However, it is crucial for the company to balance inventory levels to avoid excessive storage costs and potential inventory backlog.
In the recent financial analysis, short-term receivables have significantly decreased by over 10 billion, reflecting a 47.21% decline and a 6.86% drop in their proportion of total capital This indicates a reduction in the structure and amount of short-term capital allocated to other entities Notably, receivables from customers remain dominant, comprising over 94% at both the beginning and end of the year This shift underscores the company's efforts to implement preferential policies aimed at enhancing customer trust and boosting product competitiveness However, it is crucial for the company to manage its inventories diligently, ensuring appropriate usage to maintain schedules, uphold quality, and guarantee full capital recovery upon project completion.
In asset structure, short-term assets typically represent a larger share than long-term assets, which is a prudent strategy for companies, particularly in the manufacturing sector A high proportion of short-term assets enhances the company's solvency, allowing it to swiftly adapt to market fluctuations and seize favorable business opportunities.
To effectively evaluate an enterprise's self-financing capability, it is essential to analyze both the investment and capital utilization situation, as well as the methods by which companies raise capital during the period This comprehensive assessment of capital financing will provide insights into the financial health and sustainability of the enterprise.
Table 2 2: NWC of Viet Duc Phu Tho Co., Ltd in 2018,2019
Unit of measure: VND in thousand
The 2019 NWC worksheet for Viet Duc Phu Tho Co., Ltd highlights the company's net working capital (NWC) from 2018, indicating that the value of long-term assets consistently falls below the regular funds for the respective years, demonstrating a positive NWC (NWC > 0) This trend reflects the company's asset financing model effectively.
In 2019, the company demonstrated a solid financial structure by financing all long-term assets through equity, as it had no long-term liabilities This approach reinforces the principle of financial balance within the organization.
2.2.2 Viet Duc Phu Tho Co., Ltd’s sources of finance and capital structure
- Total capital: In 2019, total capital was 188,047,350 and in 2018 it was
186,350,679 The total capital in 2019 decreased by 1 billion 6 (equivalent to 0.9% reduction rate).
- In terms of scale: The total capital in 2019 was more than 186 billion
In 2019, the company's liabilities decreased to 1.6 billion VND, primarily due to a reduction in short-term debts, including customer prepayments, employee payables, short-term borrowings, and finance lease liabilities Meanwhile, equity saw a slight increase of 0.19%, largely attributed to a 12.01% rise in undistributed profits Additionally, the owner's equity remained stable at 97,363,195 VND from 2018 to the end of 2019.
The company's capital structure is characterized by an equity proportion exceeding 50% of the total capital, while liabilities comprise approximately 49%, all of which are short-term.
Table 2 3: Capital structure of Viet Duc Viet Duc Phu Tho Co., Ltd in 2018,2019
Unit of measure: VND in thousand
OWNER'S EQUITY 31/12/2019 31/12/2018 Change in 2019 comparing to 2018
3 Taxes and other obligations to the government
8 Short-term borrowings and finance lease liabilities 46,885,158 51.89% 54,549,631 59.14% -7,664,473 -14.05%
II Undistributed profits -1,367,421 -1.42% -1,554,043 -1.62% 186,622 -12.01% TOTAL LIABILITY AND
(Source: Financial statement of Viet Duc Phu Tho Co., Ltd in 2018,2019)
- Liabilities: In 2019, it was VND 90,354,905, accounting for
48.49% of the total capital, it has decreased by VND 1,883,294 compared to
2018, equivalent to a reduction of 2.04%, all of which are short-term liabilities.
Short-term liabilities are subject to fluctuations, with short-term borrowings and finance lease liabilities representing a significant portion at 51.89% This category experienced a decrease of VND 7,664,473 compared to 2018, indicating that the company has effectively reduced its short-term debt to alleviate pressure on its cash flow.
In 2019, short-term trade payables rose by 3,726,947, reflecting a 21.58% increase from 2018, primarily driven by businesses purchasing raw materials at year-end to secure low-cost capital This practice, akin to a trust-based loan, allows for easier negotiations with suppliers regarding debt extensions or deferred payments However, companies must remain vigilant about the origin and quality of the goods acquired to prevent any negative impact on their production processes.
Other short-term payables in 2018 increased by VND 3,510,000 compared to 2018 This proves that in the year the enterprise has not reduced the amount of short-term liabilities.
Prepaid customer orders experienced a dramatic decline, with a staggering 93.75% discount rate, indicating that most purchases were concentrated at the year's start Throughout the year, the company successfully produced and delivered products to customers However, by year-end, the number of new contracts had dwindled significantly, leading to a notable decrease in prepaid orders.
By the end of the year, the company's equity increased by over 186, resulting in a slight rise in the equity ratio from 50.95% to 51.51% This growth is attributed to the total contributed capital, maintaining a constant capital contribution ratio The company demonstrates its financial independence by prioritizing equity usage and minimizing liabilities, reflecting its proactive and prudent approach in navigating challenging market fluctuations.
2.2.3 Operating performance of Viet Duc Phu Tho Co., Ltd’s
Table 2 4: Operating performance of Viet Duc Phu Tho Co., Ltd’s in 2018,2019
Unit of measure: VND in thousand
CRITERIA 31/12/2019 31/12/2018 Change in 2019 comparing to 2018
1 Revenues from sales and services rendered 174,529,130 182,260,840 -7,731,710 -4.24%
3 Net revenues from sales and services rendered
5 Gross profit from sales and services rendered 9,895,813 11,660,385 -1,764,572 -15.13%
10 Net profits from operating activities -928,555 184,316 -1,112,871 -603.78%
14 Total net profit before tax 206,125 176,635 29,490 16.70%
15 Current corporate income tax expenses 0 15,478 -15,478 -100.00%
16 Profits after corporate income tax 206,125 161,157 44,968 27.90%
Cost of goods sold ratio =(4)/(3) 94.33% 93.60% 0.73% 0.78%
(Source: Financial statement of Viet Duc Phu Tho Co., Ltd in 2018,2019)
According to the Table 2.3: Operating performance, It is easy to realize that the company's performance in 2019 tends to go down compared to the year
2018 However, because of increasing financial income and other profit so the net profit after tax has increased by VND 44,798 thousands in 2019 This recorded an increase of approximately 27,9%.
In 2019, net sales of goods and services experienced a decline of 4.24% compared to 2018, while the cost of goods sold (COGS) decreased by 3.5% from 2018 levels This indicates that the drop in net sales was more significant than the reduction in COGS, resulting in a gross profit decrease of VND 1,764,572 thousand, or 15.13% The decrease in COGS can be attributed to the company's strategic purchase of raw materials at the beginning of 2019 to mitigate potential price increases, alongside efficient management of input materials during production to minimize waste However, despite these efforts, COGS remains relatively high, posing a challenge for the company and the plastic packaging industry, which relies heavily on imported raw materials.
Overall assessment of the financial situation of Viet Duc Phu Tho Co., Ltd
In the past year, despite many changes from economic situation, the production and business activities of the company have achieved some remarkable results as follows:
Firstly, the company tightened its selling policy of services, thus the company's receivables decreased, thereby reducing the amount of capital appropriated from others.
Secondly, the company’s profitability ratios (such as ROS, ROA, BEP) of
2019, has increase compared to 2017 This open a very potiential prospect for the firm to get more profit in the future.
Thirdly, the company has made efforts to reduce short-term loans. Specifically, in 2018, short-term borrowings and finance lease liabilities were 54,549,631, in 2019 this amount decreased to 46,885,158.
Fourth, the company always maintains a stable equity ratio, equity has increased from 95,809,148 in 2018 to 95,995,774 in 2019.
Fifthly, the company always maintains a stable working capital Besides, the fixed capital turnover was also increased in 2019.
Beside the achievement that the firm achieved in 2019, this financial year still had some shortcomings in operation.
Inventory remains a significant component of short-term assets, primarily due to the strategic accumulation of raw materials aimed at mitigating the risks of price hikes and shortages Additionally, the rise in finished product inventories at year-end contributes to this trend Consequently, the costs associated with storage and inventory management have escalated, ultimately driving up the overall production expenses for businesses.
The company is facing significant financial challenges, with its primary business operations generating losses Operating profit remains negative due to unchanged expenses, while the cost of goods sold accounts for over 90% of revenue Additionally, high interest and administrative expenses further erode the company's profit margins.
Thirdly, the interest payment the company has to pay is still relatively high.
Despite an increase in profitability ratios, the figures remain low, particularly in key metrics such as Return on Assets (ROA), Return on Equity (ROE), and Basic Earning Power (BEP), which are nearly zero This indicates that the company is likely not generating significant operational profits It is crucial for the firm's owners to focus on strategies to enhance these ratios for improved financial performance.
In conclusion, Viet Duc Phu Tho Co., Ltd faces several financial challenges that must be addressed to maximize the company's profits effectively.
The plastic packaging industry in Vietnam is transitioning into a 'Mature' stage, having experienced significant growth from 2015 to 2017 with an average increase of 11.62% Although 2019 saw a growth rate of only 6-7%, the sector remains a dynamic part of the Vietnamese economy, trailing only telecommunications and textiles However, the industry faces intense competition from foreign enterprises, particularly those from Thailand, Korea, and Japan, which dominate 90% of the market share Despite entering the market later than domestic companies, these foreign direct investment (FDI) firms benefit from superior management, financial expertise, and advanced production technology, including automated processes that lower costs and enhance productivity.
The Vietnamese plastic packaging industry faces a critical challenge due to a significant shortage of domestic raw materials, resulting in a heavy reliance on imports, primarily from China, which accounts for 70-80% of the materials used The cost of plastic materials constitutes a substantial portion of the production expenses for manufacturers, meaning that fluctuations in raw material prices directly impact their profitability Notably, between 2016 and 2018, the prices of plastic raw materials surged in line with rising oil prices, with polyethylene (PE) increasing by an average of 5%, polypropylene (PP) by 43%, and polyvinyl chloride (PVC) by 21%.
Domestic small and medium enterprises are facing significant challenges as they struggle to compete with foreign companies while also dealing with a reliance on raw materials and shortcomings in technology and machinery This dual pressure is leading to exhaustion among these businesses, highlighting the need for strategic improvements to enhance their competitiveness in the market.
The first reason is inefficiency in expenses control, great amount of doubtful debt leading to the fact that revenue cannot cover needed capital for new projects
The easing of the credit policy aims to facilitate the signing of new contracts with suppliers In 2019, the company faced numerous unfinished projects, resulting in significant debts to suppliers The lack of revenue from these incomplete projects left the company without a reliable payment source for its suppliers.
CHAPTER 3: FINANCIAL SITUATION OF VIET DUC PHU THOCO.,LTD
The Socio-economic context and development strategies of Viet Duc
3.1.1 Overview of the Socio-economic context
In 2019, the global economy experienced its slowest growth in a decade, dropping to 2.3% due to ongoing trade disputes and a series of unstable developments Major economies, including the US, China, and Japan, all faced declines in growth, leading to a state of "losing momentum." The IMF reported that nearly 90% of countries were experiencing simultaneous economic deceleration, marking the weakest pace of global economic development since the financial crisis of 2008-2009.
The global plastic industry is experiencing saturation, with production and consumption growth rates declining to approximately 4% between 2013 and 2019 This shift is particularly evident as production is increasingly moving towards Asia, especially China, while Europe and North America grapple with high per capita plastic consumption In contrast, Asia presents a unique opportunity due to its lower per capita plastic usage and a robust growth rate in plastic demand.
Asia, particularly China, is poised for significant growth in the demand for plastic products, driven by robust economic growth and a shift towards industrialization This trend is particularly evident in sectors such as automotive and electrical-electronics, which heavily rely on plastic components.
The transition towards eco-friendly plastic products is increasingly becoming a crucial factor in consumer trends within developed markets As a result, the global plastic industry is inevitably moving towards the production of high-quality biodegradable plastics.
In 2019, despite a global economic slowdown and rising challenges, Vietnam's economy demonstrated resilience with notable achievements Key economic indicators remained stable, including a high balance of payments and controlled public debt and budget balance The country's GDP growth was estimated at 6.8%, and public debt saw a significant reduction of nearly 8% of GDP compared to 2016, highlighting Vietnam's impressive economic performance amid international uncertainties.
The global plastic industry has reached a saturation point, experiencing a modest growth rate of only 3.7% to 3.8% annually from 2000 to 2017 In contrast, Vietnam's plastic industry has demonstrated robust growth during the same period, maintaining an impressive annual growth rate of 3.7% to 3.8% from 2000 to 2019 Furthermore, the output growth of Vietnam's plastic sector surged significantly, achieving a remarkable rate of 10.8% from 2010 to 2017.
In 2019, Vietnam's plastic industry experienced a growth rate of 6-7%, which was slower than the previous year, yet it remains a sector with significant development potential The plastic packaging industry is one of the fastest-growing sectors in Vietnam, trailing only behind telecommunications and textiles, highlighting its dynamic role in the economy However, this growth comes with challenges, as the industry faces intense competition from foreign enterprises manufacturing plastic products in Vietnam.
The Covid-19 epidemic has significantly affected the socio-economic landscape of numerous countries, including Vietnam Recent studies from organizations such as Goldman Sachs, Coface, and BNP Paribas Cadif predict that the pandemic could lead to a global GDP reduction of 0.3-0.7 percentage points in 2020, largely depending on the effectiveness of disease control measures However, the International Monetary Fund (IMF) highlights that Asia maintains a relatively optimistic economic growth outlook of 1% for the same year.
The COVID-19 epidemic has significantly impacted Vietnam's economy across multiple sectors, exacerbated by a global slowdown in economic growth This deceleration affects both general economic demand and Vietnam's trade and investment partners Additionally, COVID-19 has disrupted value chains, leading to production bottlenecks and connectivity restrictions aimed at controlling the spread of the virus Notably, Vietnam's manufacturing sector relies heavily on imported raw materials and fuels, with over 56% of its intermediate goods sourced from China, South Korea, and Japan.
2019 ) Due to supply disruption, the production lines of plastic packaging companies such as Viet Duc were severely affected.
The manufacturing industry is currently facing significant challenges, making it crucial for management to implement effective strategies to minimize costs and avert potential losses.
3.1.2 Objectives and development strategy of the company
3.1.2.1 Financial objectives of the company
In 2020, the company focused on enhancing its production and business operations following a loss in 2019 Despite the challenges posed by COVID-19, it dedicated all available resources, including labor and machinery, to ensure timely project completion.
- Inventory: reducing the remaining of work-in-progress
- Accounts receivable: enhancing the recovery of trade receivable, strengthen relationship with suppliers to reduce advanced to suppliers.
- Cash: ensuring the adequate of cash on hand and suitable cash in bank to meet demand of spending.
- Reserve enough Working Capital to meet demand in 2020.
The cost of goods sold (COGS) represents the direct expense associated with each unit sold Currently, the company's COGS remains excessively high, prompting the organization to focus on reducing these costs in order to enhance profitability.
In 2018, the economy and packaging industry thrived, leading to both achievements and challenges for the Company In early 2019, the director engaged with staff to address the shortcomings of the previous year Consequently, the board established goals and strategies for 2020, anticipating a challenging year ahead, particularly due to the significant impact of the Covid pandemic on economic conditions and production activities To navigate these challenges, the company implemented changes in financial management policies and marketing strategies aimed at boosting revenue in 2020.
The company remains committed to its core manufacturing of PP plastic packaging, which has been its strategic focus since its inception To enhance market competitiveness amidst a growing number of domestic and foreign packaging companies, the company prioritizes both pricing and service quality Recognizing the critical importance of these factors, the Board of Directors is dedicated to exploring innovative strategies and developing robust business plans to ensure the company's resilience in a highly competitive landscape.
To optimize cost efficiency, it's essential to diversify sources of raw materials, providing greater options and stabilizing supply chains Strengthening relationships with current partners while actively seeking new collaborations can enhance productivity Implementing an appealing and progressive commission system will further incentivize partners, driving mutual growth and success.
Continue to build and develop the company, taking economic efficiency as a measure for the stable and sustainable development of the company Continue investing in expanding the business scope.
Solutions for improving the Viet Duc Phu Tho Co., Ltd’s financial situation
During my internship at Viet Duc Phu Tho Co., Ltd, I gained valuable insights into the company's operational practices Through my observations, I identified both the achievements and challenges in the company's financial management With my current understanding, I propose several key solutions aimed at enhancing the company's financial performance.
3.2.1 Reduces store inventory in the company
In manufacturing companies, inventories constitute a significant portion of total short-term assets, making effective inventory management crucial Administrators must ensure that business operations run smoothly without interruptions while minimizing overall inventory costs.
At the same time closely monitoring the amount of backlog for the company to consume, handle
In order to reduce inventory and keep inventory costs at a low level while ensuring daily production of the company, the company also needs:
Properly determine the amount of raw materials and goods to be purchased in the period and regular stock of inventories.
Determining the appropriate supplier selection, we should choose the large suppliers capable of supplying raw materials quickly to reduce the stockpile of too much material.
Regularly monitoring the fluctuations of the market of supplies and goods, thereby forecasting and adjusting the inventory of goods and supplies appropriately
Well organize the storage and preservation of raw materials, materials and goods so as not to cause loss and damage causing waste to enterprises.
Regularly checking and mastering the situation of stockpiling inventories, finished products waiting for consumption, promptly detecting stagnant supplies and goods with measures to release stagnant capital.
The Economic Order Quantity (EOQ) model is an effective tool for forecasting inventory needs, helping companies determine the optimal order quantity to minimize costs associated with holding, shortages, and ordering By calculating the inventory reorder point, the EOQ model enables businesses to manage their stock levels efficiently.
3.2.2 Promote sales, cut management costs in the company
The Vietnam plastic packaging industry is poised for growth in 2020, presenting a promising outlook for the company After facing losses in the previous year, it is crucial for the company to implement strategies aimed at boosting revenue and ensuring a successful turnaround.
The Company has to eliminate its weaknesses in 2011̣9 to improve revenue in
In 2020, controlling costs became crucial for plastic packaging firms, as the cost of goods sold constitutes a significant portion of net sales A major challenge for these companies is the volatility in raw material prices, particularly plastics, which often exceeds their financial capacity According to StoxPlus, a leading financial and business information provider in Vietnam, profits for soft plastic packaging companies have been declining since 2016 Additionally, intense competition within the industry prevents manufacturers from increasing product prices, further exacerbating the financial strain.
To navigate current challenges, the company must optimize resource utilization, minimize material waste, and reduce product damage while carefully managing the procurement and processing of raw materials Additionally, diversifying the supply of input materials will enhance business flexibility To boost labor productivity, the company should implement measures such as increasing rewards for employees who exceed performance targets and maximizing machinery efficiency.
The expense of the company's corporate administration consists of executive compensation, depreciation of assets under control, vehicles- management means, refunds, etc With corporate management costs the company should:
The company needs to develop a specific cost plan, strictly manage the implementation of planned expenses, those expenses that exceed the plan must be approved by management.
In response to the evolving landscape post-Covid pandemic, it is essential to restructure the management framework to enhance accountability among all staff members This approach aims to streamline business operations, thereby reducing management costs and boosting company profits Additionally, it is crucial to prevent the misuse of company vehicles for personal purposes.
Good management of office assets and equipment to reduce repair and purchase costs At the same time, implement the government's electricity saving directive to reduce costs.
Avoid the use of public vehicles for the individual purpose of the company.
3.2.3 Adjustment of short-term debts, reducing debts
Capital is essential for companies to achieve their growth and development objectives, as its absence can hinder business processes Recently, the company's short-term financial debt has remained significantly high, comprising over half of its total short-term obligations To secure necessary capital, the company can implement various strategies to mobilize funds effectively.
To enhance debt recovery, it is crucial for the company to monitor outstanding debts diligently Many customers may no longer engage with the company, making immediate recovery essential to mitigate capital loss For those customers who maintain a relationship with the company, a rolling recovery method should be employed, which involves resolving old debts while actively pursuing newly incurred debts.
Implementing effective strategies can lead to a rapid return on investment, enhance operational efficiency, and enable the company to meet its financial obligations Central to this issue is the strategic allocation of capital resources in production and business operations.
To optimize capital resources, companies should leverage all available internal funding sources, including bonuses, welfare funds, and undistributed profits Additionally, mobilizing capital from employees through interest payments can be an effective strategy This approach not only addresses financial needs but also fosters a sense of responsibility and commitment among employees towards the company's success.
In response to the challenges posed by COVID-19, many banks are launching initiatives to lower lending interest rates, aiming to assist companies affected by the pandemic This support allows businesses to better utilize their resources; however, it is essential for companies to manage these loans wisely Despite the lower interest rates, companies must still repay these loans in installments, and the associated interest expenses can diminish overall net profits for business owners.
In 2019, the company allocated a significant amount of capital, primarily consisting of idle funds utilized for low-cost production and business activities, including payables to suppliers and employees To enhance the efficiency of this appropriated capital, the company must implement strategic measures.
Effective management of allocated capital for various types of debt is essential, particularly for large clients It is crucial to meticulously track liabilities associated with each contract and ensure that payment due dates are monitored closely This proactive approach not only facilitates timely payments but also helps maintain a strong reputation with suppliers.
When utilizing supplier commercial credit, companies must exercise caution due to the elevated interest rates associated with it It's essential to thoroughly evaluate the supplier's credit terms and the financial health of the enterprise to make informed financing decisions.
3.2.5 Improve the efficiency of using fixed capital :
Conditions for implementing the solution
To enhance production and business efficiency in 2020, companies should focus on strategic future planning and implement fundamental solutions Key recommendations include optimizing workflows, leveraging technology, and fostering employee engagement to ensure effective execution of plans and drive overall performance.
To support the recovery of manufacturing enterprises significantly impacted by the Covid-19 pandemic, the government is implementing measures such as reducing taxes and fees, extending tax payment deadlines, and exempting certain taxes With over 70% of raw materials for the plastic packaging industry sourced from China, disruptions have severely affected production By lowering taxes, the State aims to facilitate business recovery, boost profits, and encourage reinvestment The Prime Minister has endorsed the Ministry of Finance's recommendations on tax relief for businesses and business households to mitigate the effects of the pandemic.
In response to the challenges posed by the Covid-19 pandemic, the State Bank of Vietnam has implemented measures to reduce interest rates, aiming to support affected businesses This initiative includes exemptions and reductions in interest rates, alongside a directive for credit institutions to offer new loans to stabilize production and business operations As a result, banks have actively engaged in various substantial credit packages to assist these enterprises during this difficult period.
In response to the challenges posed by the Covid-19 pandemic, banks like Eximbank, Agribank, and VPBank are implementing supportive measures for customers facing difficulties in loan repayment Eximbank has allocated VND 4,000 billion for preferential loans aimed at small and medium-sized enterprises, offering fixed interest rates starting at 6.99% per year for certain short-term loans This initiative is part of a broader effort to assist businesses from February 2020 through the end of April.
On October 30, 2020, Vietcombank announced a reduction in interest rates, lowering rates for VND by 1-1.5% per year and for foreign currencies by 0.5 to 0.75% per year, depending on the loan terms Additionally, the bank decreased interest rates on new loans by 1% per year for VND and by 0.5% per year for USD.
Before the onset of the Covid-19 pandemic, the situation was already complex and showed no signs of improvement Epidemic diseases significantly impacted socio-economic life, prompting the State Bank to propose solutions aimed at alleviating challenges for production and business activities while stabilizing the market.
For Viet Duc Co., LTD
To build credibility with customers and partners, the Company must ensure the quality of its products and services, establishing a strong foundation for increased orders in the coming years.
The Board of Directors is urged to prioritize financial investments in acquiring new and advanced equipment to enhance operational capabilities and maintain competitiveness in the market.
Adhere strictly to the company's financial management rules, internal payment procedures, and regulations governing machinery and equipment management Follow the established work plan diligently and ensure timely reporting to staff for decisive action.
At work requires all employees to improve responsibility, closely work, creative research to improve labor productivity, ensure better and better product quality.
Strengthen foreign affairs to give the company a foothold in the block of competing businesses
Improving financial stability is a challenging yet essential responsibility for every business, particularly in Vietnam's increasingly competitive manufacturing sector For domestic companies, enhancing their financial situation is crucial for survival and success in the market.
My graduation thesis highlights the significance of financial management in enhancing profitability and minimizing costs, specifically analyzing Viet Duc Phu Tho Co., Ltd After a three-month internship, I assessed the company's potential and identified existing financial challenges While my theoretical knowledge was applied to real-world conditions, the thesis acknowledges certain limitations and shortcomings, suggesting that the proposed solutions remain largely theoretical.
In conclusion, I would like to express my heartfelt gratitude to my knowledgeable and passionate supervisor, Ph.D Tran Thanh Thu, a lecturer in the Faculty of Corporate Finance, as well as to all the managers and staff at Viet Duc Company for their invaluable support and guidance.