Improvement ò eficiency in capital use in thanh hoa medical materials equipment joint stock company

In which, efficient use of capital is one important part of the production and business efficiency, which is considered as the most important factor of all production and business proces

Thesis for the Degree of Master

Improvement of efficiency in capital use

in Thanh Hoa medical materials equipment

joint stock Company

June 2017

Department of Business Administration

Graduate School of Soongsil University

BUI XUAN TAN

Thesis for the Degree of Master

Improvement of efficiency in capital use

in Thanh Hoa medical materials equipment

joint stock Company

June 2017

Department of Business Administration

Graduate School of Soongsil University

BUI XUAN TAN

Thesis for the Degree of Master

Improvement of efficiency in capital use

in Thanh Hoa medical materials equipment

joint stock Company

A thesis supervisor : Professor Ho Chul-Shin

Thesis submitted in partial fulfillment of the requirement for the Degree of Maste

June 2017

Department of Business Administration

Graduate School of Soongsil University

BUI XUAN TAN

To approve the submitted thesis for the

Degree of Master By Tan, Bui Xuan

Thesis Committee

Chair Kim Kun Bae (signature)

Member Kwak Won Jun (signature)

Member Le Hoang Ba Hung (signature)

June 2017

Graduate School of Soongsil University

TABLE OF CONTENTS

ABSTRACT iv

CHAP TER 1: INTRODUCTION 1

1.1 Reason for choosing the topic 1

1.2 Objectives of the study 2

1.3 Object and scope of the research 3

1.4 Contributions……… 3

1.5 Project structure 4

CHAP TER 2 THEORETICAL B ACKG ROUND 4

2.1 Overview of business capital 4

2.1.1 Concept of business capital 4

2.1.2 Classification of capital of the business 6

2.1.3 The role of capital for business activities 15

2.1.4 Necessity to improve the efficiency in capital use in business 18

2.2 Efficiency in capital use of enterprises 20

2.2.1 Concept of efficiency in capital use of enterprises 20

2.2.2 The neccessity for improving the efficiency of business capital use 21

2.2.3 System of indicators to assess the efficiency of use of business capital 22

2.3 Factors impacting on efficiency of use of business capital 26

2.3.1 Objective factors 26

2.3.2 The objective factors 28

CHAP TER 3 RESEARCH METHODOLOG Y 30

3.1 Time and location of the research 30

3.2 Data collection 30

3.2.1 Primary data 30

3.2.2 Secondary data 31

3.3 Data analysis methods 32

CHAP TER 4 RESEARCH RESULTS 33

4.1 Situation of efficency of use of capital in Thanh Hoa Medical 33

4.1.1 Overview of Thanh Hoa Medical Materials Equipment 33

4.1.2 Situation of efficient use of capital in Thanh Hoa Medical 44

4.1.3 Evaluating the efficiency of capital use in Thanh Hoa 64

4.2 Some solutions to improve the efficiency of capital use in 70

4.2.1 Development orientation of Thanh Hoa Medical 71

4.2.2 Some solutions to improving the efficiency of capital use 73

CHAP TER 5 CONCLUSION AND RECOMMENDATION 88

5.1.Conclusion 88

5.2 Recommendations 90

REFERENCES 92

LIST OF TABLES

[Table 2-1] Flow method of capital ………11[Table 4-1] Movements in labor forces of the Company ……….….43 [Table 4-2] Asset structure of Thanh Hoa Medical Materials Equipment Joint Stock Company……… ……… 45 [Table 4- 3] Structure of current assets of Thanh Hoa Medical

Materials……… ……… 46 [Table 4-4] Structure of non-current assets of Thanh Hoa Medical Materials

Equipment Joint Stock Company……… ….…… 51 [Table 4- 5] Structure of fixed assets of Thanh Hoa Medical

Materials……….…… 52 [Table 4- 6] Movements in capital soruces during 2013-2015…… ……….….… 55 [Table 4- 7] Liabilities ……… 57 [Table 4-8] Equity……… 58 [Table 4-9 ] Items to asset efficiency of use of total business capital…… …….…59 [Table 4-10]Indicators reflecting efficiency in use of working capital

in Thanh Hoa Medical Materials Equipment Joint Stock Company……… 61 [Table 4-11] Items reflecting efficiency in use of fixed assets and long-term

investments in Thanh Hoa Medical Materials Equipment Joint Stock Company 63

LIST OF FIGURES

[Figure 4- 1] Organizational structure of Thanh Hoa Medical Materials

Equipment Joint Stock Company……….… 36

[Figure 4- 2] Size of cash and cash equivalents……… 47

[Figure 4-3] Size of short-term receivables……….…………49

[Figure 4- 4] Size of inventories……… 50

[Figure 4- 5] Movements in resources of Thanh Hoa Medical Materials Equipment Joint Stock Company in 2013-2015……… …56

ABSTRACT

IMPROVEMENT OF EFFICIENCY IN CAPITAL USE IN THANH HOA MEDICAL MATERIALS EQUIP MENT JOINT STOCK COMPANY

TAN, BUI XUAN

Graduate School of Soongsil University

Department of Business Administration

Improving business efficiency is always a top concern of businesses Enhancing business efficiency helps new businesses survive and grow, thereby expanding new production, improving the lives of officials and employees and make solid growth of the business In which, efficient use of capital is one important part of the production and business efficiency, which is considered as the most important factor of all production and business processes and is a prerequisite for the survival and development of the business Improving efficiency in use of capital is one of the key tasks in the financial management of the business Therefore, along with the development of the national economy and the rapid progress of science and

technology, fixed capital in the business keeps growing and increasingly accounting for a large proportion of business capital Based on the theory of efficient use of capital, analysis and evaluation of the factors affecting the efficiency of capital use

of Thanh Hoa Medical Materials Equipment Joint Stock Company, thereby offering solutions to improving the efficiency of capital use of Thanh Hoa Medical Materials Equipment Joint Stock Company Formalizing theoretical basis for effective use of business capital by analysis and evaluation of factors affecting the efficiency of capital use of Thanh Hoa Medical Materials Equipment Joint Stock Company and recommending strategic directions and some solutions to improve the efficiency of capital use of Thanh Hoa Medical Materials Equipment Joint Stock

This research and survey was conducted in Thanh Hoa Medical Materials Equipment Joint Stock Company from 2013 to 2015 In the course of the study, the

authors used the following analytical methods: Methods of collecting information,

Methods of synthesis and balance sheet, Methods of analysis and evaluation After

collecting the data, it is needed to conduct analysis, split the issues to be studied, so that

complex issues will become more simple, thereby having good judgment Through the

analysis, we will see the advantages and disadvantages of the management and use

of business capital in Thanh Hoa Medical Materials Equipment Joint Stock

Company, give comment and provide solutions for completion

CHAP TER 1 INTRODUCTION

1.1 Research background

Market commerce is the organization of the social economy based on a foundation of commodity production The market has always opened new business opportunities, but also contained the threats to businesses To be able to withstand before the harsh competition of the market economy, it is required that enterprises must always make efforts to explore all appropriate directions Therefore, businesses must pay attention to, find ways and means to improve the efficiency of their manufacturing business That is the way of survival and development of enterprises to avoid bankruptcy

Improving business efficiency is always a top concern of businesses Enhancing business efficiency helps new businesses survive and grow, thereby expanding new production, improving the lives of officials and employees and make solid growth of the business In which, efficient use of capital is one important part of the production and business efficiency, which is considered as the most important factor of all production and business processes and is a prerequisite for the survival and development of the business Improving efficiency in use of capital is one of the key tasks in the financial management of the business Therefore, along with the development of the national economy and the rapid progress of science and technology, fixed capital in the business keeps growing

and increasingly accounting for a large proportion of business capital Big or small capital size will affect the level of technical equipment, technology and production capacity of an enterprise and be decisive to labor productivity, quality of products

Stemming from the enormous role of business capital in the operation of enterprises in particular and the economy in general and over a period of study and research of the actual situation in Thanh Hoa Medical Materials Equipment Joint Stock Company, I would like to study in depth the topic: "Solutions to improving

efficiency of capital use in Thanh Hoa Medical Materials Equipment Joint

Stock Company" in the hope of contributing ideas to further improve the

efficiency of business operations at the company

1.2 Objectives of the study

Overall objective: Based on the theory of efficient use of capital, analysis

and evaluation of the factors affecting the efficiency of capital use of Thanh Hoa Medical Materials Equipment Joint Stock Company, thereby offering solutions to improving the efficiency of capital use of Thanh Hoa Medical Materials Equipment Joint Stock Company

Specific objectives:

- Formalizing theoretical basis for effective use of business capital

- Analysis and evaluation of factors affecting the efficiency of capital use

of Thanh Hoa Medical Materials Equipment Joint Stock Company

- Recommending strategic directions and some solutions to improve the

efficiency of capital use of Thanh Hoa Medical Materials Equipment Joint Stock Company in the near future

1.3 Object and scope of the research

Research subjects: In the thesis, a system of basic theories relating to capital use and indicators to assess capital use was presented The situation of the capital managed and used by Thanh Hoa Medical Materials Equipment Joint Stock Company was described Many measures were suggested to improve the situation

by the Company in the current conditions

Scope of the research: The study is implemented in Thanh Hoa Medical Materials Equipment Joint Stock Company with the data from 2013 to 2015

1.5 The structure of the subject

The thesis consists of five chapters In chapter 1, the author presents the overview of this research Next, in chapter 2, the author shows the theoretical background of capiatl, the efficiecy use of capital Then, the research methodology

is indicated Afterthat, in chapter 4, the author presents research results Final chapter is conclutions and implications

CHAP TER 2 THEORETICAL BACKGROUND

2.1 Overview of business capital

2.1.1 Concept of business capital

In order for businesses to operate, the prerequisite is to have capital Manufacturing and business capital is regarded as a precondition for any process of production and business of a business, it is the financial strength of a business Business and production capital has a lot of categories, physical forms, different measures scattered everywhere in the scope of business activities

According to, Author K.Mark, capital is capitalist, the value to bring surplus value, an input of the manufacturing process

According to David Begg: Capital is the category including physical

capital and financial capital of the enterprise Physical capital is the reserve of goods to produce other goods Financial capital is money and valuable papers of the business

These are the classic concepts of capital in economic theories These points of views, though expressed the role and effect of the capital in the specific historical conditions, in accordance with the requirements and research purposes, there are restrictions on the consistency between the capital and assets of the business Currently, there are several other concepts that are more specific and clearer:

- Capital is money so that businesses are engaged in the production of business or can be considered as the amount of advance for business

- Working capital of the enterprise is the entire assets of the enterprise existed in different forms to be used for the purposes of manufacturing and business to generate profit to the business Thus, it is seen as identical with the property to serve production and business of enterprises

- Capital is the amount accrued in the form of cash, but not yet used

- Capital is one of the basic material conditions combining labor and other factors as inputs for production and business processes Capital is involved in the whole process of production and business of enterprises, from the first production cycle to the final production cycle during the lifetime of the business

In short, the essence of capital is a most important input factor, used for investment in equipment, plant, machinery for enterprises to conduct business production If there is no capital, enterprises can not work

But we should not make mistakes between the concepts of capital and money Capital is money, but money is not necessarily the capital, the money will only become capital when it is participated in the process of production and business activities Capital of the business is often movable and shift from an initial form of money to a form of in-kind money and eventually returned to the original form of money Such movement is considered as capital circulation The process of production activities of the business takes place constantly Therefore, Such circulatin of capital keeps ongoing and in iterative cycles to create capital flow

In summary, there are many points of views on capital, but it can be generalized to give the simplest concept: Capital of the business is represented by money of all the mobilized property value, used to production and business activities for the purpose of profitability

2.1.2 Classification of capital of the business

To use capital efficiently, classification of capital is the most basic requirement Depending on the purpose of the management, capital is distributed in many different criteria Below are the simple classification according to 4 criteria: formation source, flow method, time of use, scope of use of capital

2.1.2.1 Classification of capital according to their sources of capital

Based on the source of formation, capital is classified into two categories: equity and loans Thanks to this classification, the management may seek to balance capital and choose the most optimal capital structure for the business

• Equity:

Equity is the capital of the owners, investors or formed as a result of business results The enterprise has no obligation to pay for this fund Equity is formed from three main sources:

- Initial capital: This is the source of major equity According to the Law

on Enterprises, if a business is established, it must have an fixed capital of owners

to conduct business and production activities, which is recorded in the charter capital of the business and must greater than or equal to the legal capital (the minimum amount of capital to established enterprises as specified by the State) Initial capital is contributed by the owners, investors when the enterprise is newly established and contributed more in the process of production and business For state-owned enterprises, this capital is supplied by the state budget or investments For the joint ventures, limited liability companies, partnerships, capital is contributed by partners For joint stock companies, capital is contributed by shareholders For private companies, capital is contributed by owners

- Capital from retained earnings : In the process of production and

business activities, if enterprises operate efficiently, they will have favorable conditions for capital growth A part of Profit after tax will be retained for reinvestment, expansion of production and business activities of enterprises This is

a method of creating an important and quite attractive source of finance

- Sources from the issue of shares : In the process of production and business

operations, enterprises can increase equity by issuing new shares This is a long-term

capital mobilization channel for enterprises through the stock market Enterprises can issue two basic types of shares: Common share and preferred share

+ Common share: It is the most common types of shares, which is issued to raise funds for the business Each share represents one stock in the enterprise, those who holds common shares called as shareholders of the Enterprise

+ Preferred shares: Only accounting for a fraction of the total number of shares to be issued The holder of this share can get dividend regularly, regardless

of the production and business activities of the enterprise and is entitled to payment before shareholders

- Other equity sources: This capital includes share premium, the

difference due to revaluation of assets and assessment of exchange rate differences, funded by state budget, paid by dependency units and specialized capital construction

Thus, equity is long-term, non-refundable and highly secure for enteprrises but risky to investors Consequently, the cost of use of equity is often higher than borrowing cost Issue of shares to raise capital for businesses is known as long-term financing of the business

Loan

- Equity plays an important role in production and business operations of the business, but only equity is not enough To meet the needs of capital, businesses can mobilize capital in many different forms from external sources, which is called as loans Loans are funds mobilized by enterprises on the basis of the policies of the state,

such as bank loans, loans from other credit institutions, trade credits For this capital, the enterprise can only allow to use use it within certain constraints Businesses are supposed to repay within a certain time The cost of capital is the interest paid for the loans Borrowing cost is calculated at a reasonable cost and not subject to corporate income tax Thus, compared with equity, loans can generate a savings thanks to taxes for enterprise, affecting the formation of the optimal capital structure for the purpose of maximizing the value of the owners This is called as tax shield of loans This capital is formed in many different forms: loan, joint ventures, commercial credit, bank credit, lease and other forms of ownership

- Bank credit capital: This is the most common sources of capital, one of

the most important sources for enterprises That may be short, medium and long term loan, depending on the needs of business and the agreements between enterprises and banks During the operation, the enterprises often have loans from banks to ensure core funding for production and business activities, especially the expansion project or depth investment of enterprises Although this kind of source

of capital has many advantages, it also has certain limitations, which are credit conditions, control of the banks and the cost of use of capital (interest rate) Hence, the small and medium-sized enterprises or enterprises with bad business situation are difficult to reach this fund

- Trade credit source : This is the capital that is formed naturally on sales

and purchase on credit, deferred sale or installment sale This capital has the advantage of cheap financing method, usability and flexibility in business

Moreover, it also makes it possible to expand the relationship in lasting business cooperation, the binding conditions are fixed when the two parties signed a sale and purchase agreement or economic contracts in general However, these funds are often small, not large-scale because of high risks Currently, all forms of credit have been increasingly diversified and flexible with a more competitive nature and businesses also have many opportunities to choose from funding for the operation

of the business

- Lease credit: It is a long-term form of credit that is implemented through

the lease of machinery, equipment, real estate and other properties at the request of the lessee and retaining ownership of the leased assets It helps enterprises which lack capital can still obtain the necessary assets for use in its business activities

- Issue of bonds: Enterprises often issue bonds (it is a long-term and

medium-term debenture) when a large amount of capital is required to conduct business expansion or investment in large projects If the business has good busienss results, prestige and profit, this form is relatively easy because the expectations of the population in these businesses is quite high The bond holders have priority of payment to shareholders and common shareholders Bond interest costs are also considered to be a pre-tax cost, so the busienss can save a large amount of tax expenses

- Joint-venture capital: This is the capital that parties are involved in

joint-ventures to cooperate with contribution businesses

2.1.2.2 Classification of capital under flow method

By flow method, capital is divided into two categories: fixed capital and working capital In today's enterprises, the two concepts are considered to be consistent with current assets and fixed assets, but capital is expressed in money and assets are expressed in artifacts

[Table 2-1] flow method of capital Assets Source of capital

Currenta ssets Working capital

Fixed assets Fixed capital

by the State in line with the economic situation of each period

Fixed capital is the initial advance in the process of production and

business to invest in fixed assets for the business In this process, the fixed capital may be increased or decreased due to investment in capital construction, major repairs or depreciation and fixed asset liquidation Because the fixed assets are involved in many business and production cycles, and its physical form does not

change, the value of fixed assets is shifted in part to the value of products and services, so fixed capital has the following characteristics:

- To be involved in many business and production cycles

- Fixed capital is moved in a portion to the production cycle, shifted partly and constitutes product manufacturing costs corresponding to the depreciation of fixed assets

- After several production cycles, fixed capital can complete a round rotation After each production cycle, the part of capital that is circulated in the value of the products is gradually increased, but the initial capital invested in fixed assets is decreased until the value of the fixed assets is moved out into the value of the product produced, which complete a cycle of flow

• Working capital: Working capital is expressed in money of the entire current

assets of the business to ensure that the process of production and business of enterprises to be continuous In the course of business, working capital is completely transferred its the entire value within a cycle and recovered all after the businesses received sales of goods Thus, working capital completes its business cycle However,

in a business cycle, the working capital is expressed in many different forms, we can image a movement cycle of working capital as follows:

- Money - reserves of commodity and materials for production - Production - Circulation - Cash (with higher value)

- To manage and use capital effectively, working capital is classified in a variety of criteria: under form of expression, its utility,

- According to form of expression: Working capital is divided into capital

in cash and capital in payment

+ Capital in cash: cash on hand, cash at bank, cash in transit

+ Capital in payment: Accounts receivable, advances and other receivables, capital of goods, prepayment capital

This classification creates favorable conditions for easy review of the solvency of the business

- According to its utility: Working capital is divided into three categories, including working capital in reserves, working capital in production, working capital in circulation

+ Working capital in reserve: is the value of raw materials, fuel

+ Working capital in production: is the value of unfinished products, finished products, allocated costs

semi-+ Working capital in circulation: is the value of finished goods purchased outside

- This classification enables the management to review the allocation of working capita l in the stages of the flow process within the enterprise

2.1.2.3 Classification over time of capital use

- Over time of capital use, corporate capital is divided into regular capital and temporary capital

- Regular capital: includes equity and long-term loans This capital is

stable and long-term, which is often used to purchase equipment, factory

investment in fixed assets and a part of current assets necessary to the business process

- Temporary capital: The capital is in the short term, including bank loans,

laons from credit institutions, other short-term liabilities…

This classification helps the management consider advantages in the form

of raising capital in consistent with the duration of use of the elements in production and business processes to have adequate capital for continuous operations, improving capital efficiency for businesses

2.1.2.4 Classification by scope of capital raising

Under the scope of mobilization, capital in business is divided into internal capital and external capital of enterprises

- Capital inside the enterprise: is a type of capital raised from the business

by itself: Depreciation of fixed assets, undistributed profits, funds created from profit, tax exemptions, tax reduction, reduced interest rates, debt write-off by the State for businesses

- Capital outside the enterprise: is a type of capital mobilized by

businesses from organizations and individuals outside the business as commercial banks, financial institutions, credit institutions and foreign and domestic individuals

This classification requires managers to consider, calculate carefully when conducting capital mobilization because each type has its own different advantages and disadvantages

2.1.3 The role of capital for business activities

In terms of legal issue: For every business to be established, the first condition is that the business must have a certain amount of capital (minimum capital prescribed by law for each type of business) Capital can be seen as an important basis to ensure the existence of legal status before the law of the business

Economically, any business that wants to grow and develop needs capital Capital is the most important factor in the growth strategy of the business, deciding the survival and development of enterprises A business that wants to stand in the market, it must have a certain amount of capital, which can not only ensure ongoing production and business activities of the business, but also be used to improve plant, equipment and modernization of technology The ultimate purpose

of business is to make a profit Profit is the difference between the amount of income and costs paid by businesses to gain income from business activities In the market economy, businesses are not only existed but also face a fierce competition with each other If it lacks capital, it will lead to low labor productivity, low income, the business will be more left behide, because the shorter the cycle of capital is, the smaller the size of the business is

Besides, if a business has a relatively large amount of capital, it will be more proactive in selecting reasonable manufacturing business, ensuring organization safety, high capital efficiency, easy financing, solvency guarantee, having the resources to overcome difficulties and some of the risk in the business

The capital is the decisive factor for the busienss to expand or narrow its scope of operation As such, when the capital of the enterprise can be proliferated, the enterprise will boldly expand the scope of operations in the potentials that cannot be previously accessed and vice versa

For companies receiving foreign capital, in addition to use of this capital, they can acquire the experience and skills, know-how and modern technology, daily updated information Moreover, they can shorten the initial accumulation time of capital and get a part of profits from the foreign company

In the enterprise, capital is the basis for the procurement of equipment, machinery, factories, creating jobs for workers, increase the income of workers In addition, capital is also used in the process of social reproduction in order to maintain the potential availability and create greater potential for production, business and services

The capital, with its characteristic of movement for profitability, therefore, once existed in the market, enterprises must increasingly develop, that is, the capital of the enterprise is increasing over manufacturing business time

From the above analysis, there are four major roles of capital to enterprises:

- Firstly: The capital is a prerequisite to the establishment of enterprises

- Second: For production and business activities, businesses need capital to

invest in fixed assets, current assets Capital is a decisive input affecting other inputs of businesses

- Third: The capital is a condition for enterprises to implement the project,

production plans, business opportunities to get profit

- Fourth: The capital is an important factor for businesses to expand,

enhance competitiveness in the market

However, not all business have enough capital to operate efficiently, capital is necessary condition, but how to use the capital to get the highest efficiency, highest profits for the enterprise is entirely dependent on corporate managers Therefore, the issue is what the efficieny of use of capital is and how to use to get the highest efficiency?

2.1.4 Necessity to improve the efficiency in capital use in business

Production and business performance of businesses is the overall results of

a series of measures of economic, technical and financial organization The organization and guarantee of adequate capital and improvement of the efficiency

of capital use is a target and an objective requirement for all manufacturing enterprises conducting business Thus, what is the efficiency in use of capital?

Efficiency in capital use is a general economic indicator that is expressed

by the economic indicators and technical characteristics, it reflects the level of

exploitation and use of resources in the production and buisness of enterprise [4]

Improving efficiency in capital use is pressing issues of the enterprises in its current condition The necesscity stems from the following reasons:

First, starting from the position and role of the business capital

In the market economy, there will not be any production and business operation without capital Capital is the premise, the starting point of all business activities, material background to turn any business ideas into reality Capital will decide investment scale, the level of facilities equipped and business opportunities

of the business The fact has shown that quite a few enterprises has human resources, investment opportunities but lack the financial capacity, so it has to miss business opportunities With that role, the organization of use and improvement of efficiency in capital use has become urgent requirement for all businesses

Second, starting from the purpose of business of enterprises

Each enterprise, when engaged in business activities, will aim to maximize the value of the assets of the owners based on improving profitability To this end, they must cooperate and implement synchroniously all activities in the field of production and business In particular, organization and improvement of efficiency

in capital use is decisive to production efficiency of their businesses

Improvement of the efficiency of capital use not only bring immediate benefits but also long-term significance for companies When the capital is used efficiently, it also means businesses get profit, preserve and grow capital It is also the basis for enterprises to reproduce both in width and depth

Third, it is derived from the management and use of capital in current

businesses

Currently, less healthy finance situation is happening in a lot of businesses, especially in state-owned enterprises It is the massive capital investment, not considering investment efficiency, causing loss to the state This imposes requirements on how to preserve and grow capital in enterprises

Fourth, starting from the current world trend

Today, the general trend of the world is accelerating economic restructuring in line with scientific and technological progress, promot ing joint-ventures with countries in the region and internationally to create competitive forces, dominating the market, paving the way for the development of production and business Therefore integration is the essential way and to be able to withstand

in the integration economy, it is required that businesses must make ongoing

efforts in the restructuring of management, science and technology applications into production

2.2 Efficiency in capital use of enterprises

2.2.1 Concept of efficiency in capital use of enterprises

Effective use of business capital is an economic category reflecting the level of exploitation and use of corporate funds in production and business activities aimed at maximum profitability with the lowest cost

In production and business activities, capital is used to obtain profits in the future In other words, the purpose of the use of capital is to get profit, so the production and business efficiency is often evaluated based on relative comparisons between profit and capital spending or capital use efficiency

Capital use efficiency is the economic category reflecting the level of extraction and use of capital in production and business activities of enterprises aimed at maximum profitability with reasonable costs

Improving efficiency in capital use is the top target of the enterprise Improving capital efficiency not only ensures financial safety for businesses, limited risks, increase in the income of workers and employees, expanding production and business, but also helps businesses increase prestige, improve competitiveness and position in the marketplace It can be said that efficiency in capital use is a measure of use of human resources, corporate finance, which is the

basic problem associated with the survival and development of enterprises

In the process of using the capital, in order to achieve high efficiency, businesses need to address some of the following issues:

First: To ensure economical nature, which means that business capital

must be used rationally for the proper purpose, to avoid waste of capital or which are not profitable

Second: To make investments, development in both depth and expansion

of the scale of production and business if necessary

Third: The enterprise must achieve the objectives set out in the business

plan, capital use efficiency is the most important goal to be reached by businesses

2.2.2 The neccessity for improving the efficiency of business capital use

When our country transforms into the market economy regulated by the State with a socialist orientation, enterprises must be accordingly transferred to survive and develop Competition is the rule of the market, it allows to take full advantage of all resources of the enterprises and the whole society because it makes business always innovate, lower costs, increase productivity, improve product quality models to be able to stand in the market and increase the value of the owner's property Therefore, improving the efficiency of capital use has a top important position and stems from the following main reasons:

First, coming from financial security for businesses: Improving efficiency

of capital use will ensure financial security for businesses

Second, coming from the competition in the market economy Improving

efficiency of capital use will help businesses improve their competitiveness

Third, starting from business goals and expanding production and business

activities of enterprises Improving efficiency of capital use will help businesses achieve its objectives of increasing asset values of the owners and other business objectives such as improving product reputation in the market, improving the living standards of workers…

Thus, improving the efficiency of business capital not only bring practical benefits for businesses and workers, but also affect the development of both the economy and society Therefore, businesses must always seek out appropriate measures to improve the efficiency of business capital

2.2.3 System of indicators to assess the efficiency of use of business capital

2.2.3.1 The criteria to assess the efficiency of capital use

This indicator shows that capital will create how much revenue is This indicator shows the efficiency of capital use depends on the increase or decrease in revenue and at the same time also,the increase or decrease of the capital If total capital keeps unchanged, revenue increased, efficiency will be increased If the revenue keeps unchanged, total capital decreased, efficiency increased So, if it is vital to improve capital efficiency, revenue must be raised and capital saved This indicator is as large as possible

Efficiency in use of business capital

Efficiency in use of business capital =

Net revenue Average business capital Efficiency in use of total capital shows that capital invested in assets can bring how much revenue is The higher the efficiency in use of capital is, the more the effciency in management of all assets is

Ratio of revenue over business capital

Ratio of revenue over business capital =

Profit after tax Average business capital This indicator shows how much profit is generated when capital is used The higher this indicator is, the more effective the use of equity is

2.2.3.2 The criteria to assess the effectiveness of use of working capital

This indicator represents the number of times of inventory rotation within a certain period The higher the rotation is, the more efficient the management of supplies and goods of the enterprise is

Number of rotations of inventories =

Cost of goods sold Average inventory Rotations of receivables:

Rotations of receivables =

Revenue Average balance of receivables Rotation of receivables reflects speed of conversion of receivables into cash

of enterprises The greater rotations is, the better the recovery of receivables is

• Average collection period:

Average collection period reflects the number of days needed to obtain receivables This indicator is as small as possible

Average collection period =

Receivables Average income per day Rotation of working capital:

This indicator reflects the number of rotation of working capital during the year The bigger the number of revolutions is, the faster working capital is, more efficient operations is

Rotation of working capital =

Net revenue Average working capital Level of working capital:

Level of working capital =

Average working capital Net revenue This indicator shows that, to create revenue, how much capital used The smaller this indicator is, the better for production and business activities of enterprises is

Rate of return on working captial:

Rate of return on working captial =

Profit after tax Average working capital Rate of return on working capital is a general indicator reflecting that capital is used in manufacturing business, how much profit is generated The higher this rate is, the better the efficiency in working capital is and vice versa

2.2.2.3 The criteria to assess the effectiveness of use of fixed capital

Fixed capital is advance capital of the fixed assets and to be recovered for a long time Therefore, the good use of existing fixed capital is an issue of great economic significance affecting the growth of the business To assess the level of organization and use of the fixed capital of the enterprise, it should use performance indicator of use of fixed capital Thanks to this analysis and assessment, managers will have legitimate grounds to make financial decisions on investment, production scale adjustment and work out effective measures to exploit available potentials, improve business efficiency The criteria used to assess the effectiveness of use of fixed capital are:

Efficiency in use of fixed assets

Efficiency in use of fixed assets =

Net revenue Average fixed assets used in period Avergage fixed assets used in the period is the average of the cost of fixed assets at the beginning and end of the period This indicator reflects an amount of fixed assets can generate how much revenue is The higher the indicator is, the higher efficiency of use of fixed assets is

Efficiency of use of fixed assets

Efficiency of use of fixed assets =

Net revenue Average fixed assets used in period

This indicator reflects an amount of fixed capital can guarantee how much revenue is The higher the indicator is, the better the Efficiency of use of fixed assets is

Level of fixed assets

Level of fixed assets =

Average fixed assets in period Net revenue in period This is the inverse quantity of the indicator of performance of fixed capital

It reflects an amount of revenue needs how much fixed capital is The smaller this indicator is, the higher the efficiency of fixed capital

Rate of profits of fixed assets

Rate of profits of fixed assets =

profit after tax Average fixed assets This indicator shows that fixed capital can generate how much profit is The greater this indicator is, the more efficiency of use of fixed capital is

2.3 Factors impacting on efficiency of use of business capital

2.3.1 Objective factors

This is a group of factors that is crucial to the effective use of business capital:

Method of financing: this factor is related directly to the cost of use of

business capital An optimal capital structure is an objective which businesses

pursue in order to maximize profit and minimize cost of use of and minimize financial risk, contributing to improve the efficiency of capital use

-Construction of capital structure: capital structure is the composition and

density of the types of capital in the business capital of the enterprise at a time A reasonable capital structure in line with production and business characteristics of the business, in line with the development trend of the economy would be a prerequisite to improve the efficiency of use of business capital And vice versa, an unreasonable capital structure will lead to wasteful use of funds, causing loss of capital, leading to the reduced efficient use of capital

Equipment and technological line: in the age of rapid development of

science and technology at present, investment in innovation of machinery and equipment, the production line is an indispensable requirement for companies The The leading in the fight for the application of science and technology advance in production and business will bring great profit to businesses

- Level of management of officials and employees and skill of workers

in the enterprise: this factor also contributes significantly in enhancing

efficiency of capital use Qualification of laborers impacts on efficiency in use

of assets, labor productivity, product quality, from which have a major impact on product sales operations and profitability, and at the same time, improve the efficiency of capital use

-Choice of investment plans, production and business plan: the essence is

the choise to a plan to use and invest capital If investment enterprises produce

products of good quality, reasonable prices, it will be definitely accepted by the market Conversely, products of these enterprise are not sold, causing stagnation and waste of capital

2.3.2 The objective factors

The objective factors include factors outside the enterprises but have significant impact on production operations of their businesses, including:

- The management mechanism and macro-economic policy of the State

In the market economy, the State allows enterprises free to trade but under the macro-management of the State and create a legal framework for enterprises to operate within the law Stable economic policies will help production plan of the businesses go smoothly and efficiently, and vice versa Economic policy of the State can increase or decrease the efficiency of capital use So, enterprises must be always be sensitive to the economic information, actively adjust its business activities in line with the management policy of the State

- Market and competition

If enterprises are highly competitive in the market, its products have large consumption, they will have greater revenue and profits from which will create high rate of return over capital and vice versa Aware of this problem, enterprises will set out measures to manage the most effective use of captial

-Characteristics of the business sector