BANKING ACADEMY ADVANCED PROGRAM FACULTY OF FINANCE GRADUATION THESIS TOPIC: THE EFFECTIVENESS OF USING CURRENT ASSETS AT G&M INTERNATIONAL COMPANY LIMITED - CURRENT SITUATION AND SOL
THEORETICAL BASIS OF CURRENT ASSETS AND THE
Theoretical basis of current assets
Current assets play a crucial role in the stability and efficiency of commercial enterprises They are strategically allocated throughout various stages of operations to maintain a seamless business process, prevent wastage, and avoid production stoppages This careful management of current assets is essential for ensuring solvency and maximizing profitability.
Current assets are the assets of a company that are expected to be sold, consumed, or used within one year through normal business operations These assets are listed on the company's balance sheet, a key component of annual financial statements In production and business enterprises, current assets typically account for a significant portion, often between 25-50% of total assets The terms "current assets" and "current accounts" are often used interchangeably.
A current asset refers to a company's cash and other assets that can be converted into cash within one year, as indicated on the balance sheet If a company has an operating cycle exceeding one year, assets expected to convert to cash within that cycle are also classified as current assets Short-term assets are highly liquid, allowing for easy sale to recover funds Consequently, effective management and utilization of these short-term assets significantly influence a company's ability to meet its operational objectives.
Current assets include cash and cash equivalents, short-term financial investments, accounts receivable, inventory, and other current assets
Cash and cash equivalents represent the working cash on a business's current balance sheet, encompassing short-term, highly liquid investments that can be easily converted into cash with minimal risk of price fluctuations.
Short-term financial investments allow businesses to utilize idle funds on their balance sheets, effectively minimizing opportunity costs By investing unused money in options like mutual funds or demand deposits, companies can engage in various short-term projects, ensuring that their capital is actively working for them.
- Accounts receivable: reflects receivables from customers, prepayments to suppliers, internal receivables, receivables according to the progress of contract plans or other receivables calculated at the reporting time
- Inventory : shows the full present value of inventories in stock during the production and business activities
- Other current assets: reflects short-term prepaid expenses, tax receivables or other short-term amounts at the time of reporting
Current assets undergo continuous transformation during the production and business processes As short-term assets, they can be converted between monetary and physical forms Additionally, various types of businesses exhibit distinct forms of current assets, each with unique characteristics.
- Current assets have high liquidity and fast turnaround times
- Current assets quickly adapt to fluctuations in production and sales The reason is that investments in current assets can be canceled at any time without spending too much money
- During the production and business process of the enterprise, current assets are always mobilized and transformed continuously to help the production to be carried out stably without interruption
Current assets play an important role in the entire business process
Firstly, current assets are prerequisite for an enterprise can go into normal business In order to successfully conduct these activities, enterprises need to spend
6 a certain amount of money on purchasing goods, raw materials, Therefore, this will be a prerequisite for an enterprise can go into normal business
Current assets serve as essential indicators for evaluating an enterprise's production, procurement, storage, and consumption processes The inventory levels at various stages highlight the working capital requirements, while the speed of asset movement indicates material efficiency and waste By analyzing current assets, businesses can effectively assess their consumption patterns, product stock levels, and working capital utilization.
Thirdly, current assets determine the size of the business of each enterprise
If a company wants to expand business scale, they need more materials to produce or store, and cash capital also helps them create a competitive advantage
Operators should be well-acquainted with the components and systems involved in managing current assets These assets are classified based on their movement and management criteria, typically falling into two categories: their scope of use and their liquidity, or ability to be converted into cash.
Based on the scope of use
- Current assets used in core businesses: Including raw materials, work in progress, tools or packaging materials,
- Current assets used in sub-businesses: Often used in regular repairs or itinerant repairs Also used in service delivery
Current assets play a crucial role in enterprise management, encompassing both administrative and business functions These assets include three primary categories: materials for vehicles and offices, tools and stationery, and advances for guest receptions and training activities.
Based on the ability to convert into money
According to this criterion, short-term assets are divided into cash, cash
Short-term financial investments, accounts receivable, inventory, and other current assets are key equivalents that enable companies to assess their inventory reserves, solvency, and liquidity of investment assets This classification is essential for effective financial evaluation and management within a business.
Theoretical basis the effectiveness of using current assets
1.2.1 Definition of managing current assets efficiency
In a market economy, enterprises must prioritize efficiency, particularly in the utilization of current assets, to ensure their survival and growth.
Effective management of current assets is crucial for reducing production costs and enhancing profitability By closely monitoring all operational expenses, businesses can maintain a balance between revenue and expenditures, ensuring they can meet their debt obligations promptly.
The efficiency of utilizing current assets in a business is a key economic indicator that demonstrates the organization's ability to effectively leverage these assets in its production and operational activities The primary goal is to optimize benefits while reducing costs.
Current assets are crucial for commercial and manufacturing enterprises, necessitating effective management by leaders Economic efficiency reflects the relationship between the outcomes achieved and the costs incurred in production and business activities A greater result relative to the costs indicates higher economic efficiency.
1.2.2 Indicators for evaluating managing current assets efficiency a Liquidity Ratios
Current assets are highly liquid, making their efficient use a balance between profitability and liquidity Liquidity ratios assess a company's ability to meet its short-term debt obligations without needing to secure additional funding These ratios provide key metrics for evaluating financial health.
8 current ratio, fast ratio, and operating cash flow ratio to determine a company's ability to pay debt obligations and its margin of safety
Current Ratio = urrent ssets urrent Lia ilities
The ratio assesses a firm's capacity to meet its debt obligations by comparing current assets to current liabilities It indicates the amount of short-term debt that can be swiftly converted into cash to settle outstanding debts.
A decrease in the current ratio compared to the previous year indicates a decline in the enterprise's solvency, signaling potential financial difficulties Conversely, a high current ratio suggests that the business is well-prepared to meet its debt obligations However, an excessively high ratio may negatively impact performance, as it implies that the business is over-investing in current assets.
Quick Ratio = urrent ssets - nventory urrent Lia ilities
The quick ratio assesses a firm's ability to meet short-term liabilities by converting assets, excluding inventories, into cash A ratio greater than 1 indicates that the business can comfortably cover its short-term debts without relying on inventory sales, suggesting a strong solvency position For a more precise evaluation, it is essential to also consider the quick ratio of the company.
Quick Ratio = ash ash equivalents urrent Lia ilitiesThe quick ratio indicates how many currencies and cash equivalents are a short-term debt of the business
Analysts and managers typically assess a business's performance using financial ratios Ideally, the current ratio should be around 2, the quick ratio at 1, and the cash ratio at 0.5 However, these benchmarks can vary based on the company's characteristics, industry, structure, and the quality of its current assets, leading to different interpretations of whether these ratios are considered high or low.
Accounts Receivable Turnover = Net ales verage ccounts eceiva le
The accounts receivable turnover ratio reflects a company's ability to collect payments from clients, calculated by dividing total credit sales by the average accounts receivable balance over a specific period A low turnover ratio may signal issues in the client selection process.
Days Sales Outstanding (DSO) measures the average time a company takes to collect payment after a sale It is calculated by dividing the total accounts receivable by the total value of credit purchases for a specific period and then multiplying by the number of days in that period DSO is commonly assessed on a monthly, quarterly, or annual basis.
DSO = days ccounts eceiva le Turnover
Inventory Turnover = ost of oods sold verage ost of nventory
Inventory turnover measures the frequency at which inventory is sold during an accounting period It is calculated by dividing the average inventory by the cost of goods sold A higher turnover rate suggests that a company is able to sell its inventory quickly.
Besides, the days of inventory on hands (DOH) is a financial ratio that indicates the average number of days a company takes to turn its inventory,
10 including work-in-progress items, into revenue
DOH = days nventory Turnover c Profitability Ratios
Return on Current Assets = Net rofit verage urrent ssets
The current assets profitability ratio indicates the after-tax profit generated from each unit of current assets over a specific period It is calculated using the average of current assets reported on the balance sheet at the beginning and end of the period A higher ratio signifies greater profitability for the firm.
1.2.3 Factors affecting managing current assets efficiency a Objective factors
Objective factors significantly influence businesses, often beyond their control, necessitating that companies adapt to these external conditions.
In the marketplace, various types of businesses operate, each with unique characteristics and functions All enterprises must adhere to the legal regulations established by the State throughout their lifecycle, from formation to operation, and even during dissolution or bankruptcy Compliance with these legal frameworks is essential for all production and business activities.
Overview of related researchs
Ghosh and Maji (2003) analyzed the asset management performance of the Indian cement industry over the period from 1992-93 to 2001-02 They employed performance, utilization, and overall efficiency indices, moving beyond traditional current asset management ratios to assess the efficiency of current assets.
During the study period, the management assessed the speed at which individual firms in the Indian Cement Industry could reach their performance targets The findings revealed that the overall performance of the industry was subpar during this time.
A study by Gill, Biger, and Mathur (2010) examined the link between current asset management and profitability among 88 American firms listed on the New York Stock Exchange, using data from 2005 to 2007 The findings revealed a statistically significant relationship, indicating that effective management of current assets can enhance company profitability Notably, a negative correlation was identified between the average days of accounts receivable and profitability, while a positive correlation was observed between the cash conversion cycle and profitability The authors suggest that managers can boost profitability by optimizing the cash conversion period and managing accounts receivable effectively.
Nguyen Thuy Duong (2013) emphasizes that current assets are essential for every business Effective management and utilization of these assets enhance financial management, ultimately boosting the efficiency of the company's production and business operations.
Nguyen Thi Phuong Anh (2015) examined the efficiency of current asset utilization in a construction industry company The study concluded that ineffective management of current assets can result in business stagnation, jeopardizing all enterprise activities.
Chapter 1 of the thesis gives an overview of current assets of an enterprise including definition, characteristics, function and classification of current assets; definition of managing current assets efficiency, how to evaluate the effectiveness of current asset managing, and the factors that influence it
The above theories are the basis for analyzing the short-term efficiency of G&M Co., Ltd in the period of 2018 - 2020
EFFECTIVENESS REALITY OF USING CURRENT ASSETS
Overview of G&M International Company Limited
2.1.1 Specifies business of Flavors and Fragrances Industry
The Flavors and Fragrances industry primarily focuses on food and cosmetic flavorings, with products tailored to meet diverse customer requirements Most offerings are sourced from reputable international suppliers, resulting in a limited number of domestic producers The manufacturing and selling processes are distinct, and the quality and origin of products are crucial factors in assessing their value, given the industry's rich and diverse scent profiles.
In the Flavors and Fragrances industry, companies primarily serve the food and cosmetic sectors, making it essential for managers to understand the specific needs, psychology, and business objectives of their clients to provide optimal service However, not all managers possess this capability Identifying the most popular and profitable customer segments is crucial for effective targeting and overall business success.
Successful business activities hinge on managers' ability to leverage current consumption and food trends Creativity and a growth-oriented mindset are crucial for success Employees in the Technical Department must possess knowledge of the food industry As science and technology advance and human needs escalate, managers must identify optimal resources and innovative products to foster development.
2.1.2 Formation and development process of G&M International Company Limited
- Other name: G&M International Co., Ltd
- Abbreviated name: G&M Co., LTD or G&M
- Type of enterprise registered for establishment: Limited liability company
- Head office address: No 8, Sai Dong Street, Sai Dong Ward, Long Bien
- Line of business: Supplying food and industrial flavoring product
Established in 2003, G&M International Company Limited is a supplier of food flavoring and food industry products imported by manufacturers mainly from France, USA, Australia, UK, Singapore, Hongkong, etc
G&M International Company Limited serves as the exclusive representative and distributor of Ungerer in Vietnam, a leading multinational company renowned for its production of aromatherapy, essential oils, and flavoring chemicals Ungerer caters to major consumer goods manufacturers, including Coca-Cola, Pepsi, Colgate, and Unilever Additionally, G&M exclusively supplies sweet flavors from Creative Flavors & Fragrances.
VK Creative brand (Singapore) in the domestic market
G&M offers over 10,000 flavorings, juices, stabilizers, additives, and food ingredients, focusing on high-quality products at competitive prices The company promotes product development tailored to the unique characteristics of each customer's offerings.
2.1.3 Organizational structure of G&M International Company Limited
Diagram 2.1: The organizational structure of G&M
The organizational structure of the company is arranged according to each function and task, including 30 employees
- Board of Directors, CEO, Chairman: making decisions and orientations on the company's business activities; building and managing the organizational structure of the company
- Development and Strategy Department: counseling corporate executives on business strategy; developing company plans and strategies; ensuring quality and efficiency of business
- Financial and Accounting Department: counseling corporate on financial, accounting, cost management, and economic activity analysis
The Administration and Human Resources Department is responsible for organizing and training personnel, managing all company activities, and planning workforce arrangements to align with the tasks required at each stage This department also oversees the management and storage of all employee-related information.
19 company's seals, signatures, administrative documents, and legal documents; Participating in the hiring and selection of employees
- Sales Department: the department is responsible for building and developing customer sources; promoting the consumption of goods; researching and developing the company's sales policy
The Import-Export Department plays a crucial role in coordinating and overseeing supply chain activities Its responsibilities include effective communication with suppliers, placing orders, and monitoring both import and export operations Additionally, the department collaborates with customs to ensure the timely clearance of goods.
- Technical Department: taking responsibility for the quality management of the goods, and customizing the product according to the needs of the customer
- Shipping Department: is responsible for transporting goods from docks, seaports to the company's warehouse, from the company's warehouse to the consumer
- Cashier and Warehouse Department: taking responsibility for inventory management, storage, delivery scheduling, and budget management
2.1.4 Business process of G&M International Company Limited
Food is a fundamental necessity for humans, and while fresh produce is vital, flavoring plays a crucial role in enhancing our culinary experiences The Flavors and Fragrances industry in Vietnam, though established, remains underappreciated by many who are unaware of its significance G&M Co., Ltd is a key player in this sector, specializing in the supply of stabilizers and food flavorings for various food manufacturers, including those producing yogurt, milk, jelly, and canned goods.
The company's business process begins when consumers express demand by signing a contract for specific products The sales staff then quotes a price, which must receive approval from the company's Directors and the Accounting Department Once the customer agrees to the quoted price, the contract is signed, and the warehouse manager takes over the next steps in the process.
The sales staff is responsible for checking the availability of goods and ensuring that products are in stock If the quantity is insufficient, they will place an order and forward it to the Shipping Department for customer delivery coordination In cases of stock shortages, the Import-Export Department must order from the supplier with the sales manager's approval For high-value orders, the company typically requires customers to make an advance deposit.
The company's order operation process reveals that while long-term assets like machinery and warehouses are limited, they possess a long service life The primary focus is on efficiently managing current assets, which include cash for purchasing goods, employee wages, substantial finished goods inventory, and high customer receivables Consequently, current assets constitute a significant portion of the company's asset structure Effective management of these current assets is crucial, as it allows the company to optimize reserves and maximize benefits, ultimately enhancing overall efficiency.
2.1.5 Business situation of G&M International Company Limited
The income statement provides a summary of a company's financial performance over a specific period, detailing the revenue generated and the expenses incurred in the process.
Table 2.1: Income Statement of G&M in the period 2018-2020
Sales from goods and services sold 50,902,839,727 65,175,687,121 49,729,207,988 14,272,847,394 28.0 (15,446,479,133) -23.7
(Source: Income Statement of G&M, self-synthesized)
The summary table of G&M Co., Ltd's business results from 2018 to 2020 reveals fluctuations in the company's profits over time, highlighting both increases and decreases in sales.
Chart 2.1: Sales from goods and services sold of G&M in the period 2018-2020
Sales from goods and services
The company's revenue from goods and services has shown significant fluctuations over the years In 2018, the revenue was 50,902,839,727 VND, which increased by 28% to 65,175,687,121 VND in 2019, indicating a positive business trend However, by 2020, net revenue fell by 23.7% to 49,729,207,988 VND, largely due to the impact of the Covid-19 pandemic on the global economy, which affected various industries, including aromatherapy This decline in sales reflects the challenges faced during a difficult year, as some customers postponed orders.
24 compared to previous years However, the good thing here is that the Company's sales in 2020 are quite similar to 2018
Between 2018 and 2020, G&M's sales deductions primarily stemmed from trade discounts, with a noticeable decline in deduction values over the years In 2018, the company implemented discounts on most orders to attract new consumers, resulting in a revenue deduction of 749,880,750 VND However, by 2019, this figure decreased to 543,336,600 VND as the company began to refine its discount policy The varying discount rates based on order values were not optimally applied, as customer evaluations were not considered; for instance, discounts differed for new versus repeat customers despite identical order values By 2020, the sales of goods and services further declined, leading to a sales deduction of 277,917,750 VND.
Table 2.2: Expenses of G&M in the period 2018-2020
Value % Value % Value % Value % Value %
(Source: Income Statement of G&M, self-synthesized)
Effectiveness reality of using current assets at G&M International Company
2.2.1 Current assets structure of G&M International Company Limited in the period 2018-2020 a Scale and structure of assets of G&M International Company Limited in the period 2018-2020
Chart 2.4: Assets structure of G&M in the period 2018-2020
From the chart, it is evident that between 2018 and 2020, current assets consistently represented a larger share than long-term assets, with a noticeable increase in their proportion over the years, while long-term assets showed a declining trend.
In 2018 and 2019, current assets consistently represented over 80% of total assets, specifically 81.9% and 81.4%, respectively Notably, in 2020, the share of current assets surged to 96.3%, indicating a significant increase This rise was primarily due to the liquidation and sale of fixed assets, which resulted in long-term assets totaling only 603,840,362 VND.
Current AssetsLong-term Assets
Table 2.3: Assets of G&M in the period 2018-2020
Value % Value % Value % Value % Value %
(Source: Balance Sheet of G&M, self-synthesized)
Over the past three years, the company's current assets have seen a proportional increase, yet their quantitative value has declined In 2019, current assets amounted to 17,814,674,296 VND, reflecting a decrease of nearly 5 billion VND from 2018 By 2020, current assets further dropped to 15,740,756,783 VND due to a reduction in orders compared to previous years This decline in order volume led to fewer goods being imported, resulting in an inevitable decrease in current assets.
Between 2018 and 2020, the Company's total assets experienced a significant decline, with both current and long-term assets decreasing Total assets fell from 27,863,907,069 VND in 2018 to 21,897,528,367 VND in 2019, marking a 21.4% drop, and further decreased to 16,344,597,145 VND in 2020, a reduction of 25% from the previous year While the decrease in assets was similar in 2019, 2020 saw a notable difference due to a substantial decline in long-term assets, resulting in current assets becoming the majority With the epidemic under control, current assets are likely to remain the largest component moving forward.
32 b Scale and structure of current assets of G&M International Company Limited in the period 2018-2020
Table 2.4: Current assets of G&M in the period 2018-2020
Value % Value % Value % Value % Value %
(Source: Balance Sheet of G&M, self-synthesized)
As analyzed earlier, the current assets of the company tend to decrease over the years The factors in current assets also have certain changes
In 2019, current assets declined compared to 2018, primarily due to a notable decrease in accounts receivable, despite increases in cash and cash equivalents, inventory, and other current assets.
In 2019, there was a notable increase in financial metrics, with total assets rising by 119,754,392 VND, reflecting a 5.6% growth compared to 2017 Inventory also saw an increase of 196,716,051 VND, approximately 3.4% higher than the previous year Additionally, other current assets nearly doubled from 2018, driven by a significant rise in sales from goods and services, which boosted the value-added tax deductions However, this growth was overshadowed by a substantial decline in account receivables, which fell by 35.7%, decreasing from 14,907,978,831 VND in 2018 to 9,582,042,320 VND in 2019.
In 2020, current assets experienced a decline compared to 2019, primarily due to reductions in cash equivalents, inventory, and other current assets Cash and cash equivalents plummeted from 2,249,610,519 VND to 600,671,412 VND, marking a significant decrease of 73.3% Inventory also saw a reduction of 196,716,051 VND, which is an 8.8% drop from the previous year Additionally, other current asset indicators were no longer present Conversely, short-term receivables showed a slight increase of 1.4%, rising from 9,582,042,320 VND to 9,712,009,879 VND in 2020.
The data indicates that account receivables represented the largest share over the three years, comprising 65.4%, 53.8%, and 61.7%, respectively This suggests that the company has adopted a strategy to allow customers to utilize capital, thereby attracting more consumers and increasing orders Additionally, inventory holds the second-largest proportion in the financial structure.
The percentage of goods backlogged for sale has increased from 25.2% in 2018 to 34.5% over the next two years, indicating a rise in inventory levels Meanwhile, cash and cash equivalents have shown significant fluctuations, representing 9.3%, 12.6%, and 3.8% over the three years This variability can be attributed to factors such as the company's spending levels, operational policies, and customer solvency, which result in other current assets comprising small and insignificant proportions.
Between 2018 and 2020, the absence of temporary financial investment indicators suggests that the Company lacks a risk prevention policy and does not have a strategy for utilizing idle funds to generate profit and enhance income.
2.2.2 Usage reality of current assets of G&M International Company Limited in the period 2018-2020 a Cash and Cash equivalent
Cash and cash equivalents are crucial assets for business operations During this period, the focus is solely on cash and bank deposits, as cash equivalents are not present The company has established contracts and transactions with foreign suppliers and partners, necessitating bank deposits in foreign currencies This strategy enables the company to facilitate transactions smoothly with international partners and customers.
Table 2.5: Cash and cash equivalent of G&M in the period 2018-2020
Value % Value % Value % Value % Value %
(Source: Balance Sheet of G&M, self-synthesized)
Over a three-year period, the company's cash holdings have experienced notable fluctuations The cash amount, which is relatively small compared to bank deposits and does not include foreign currencies, is primarily used for routine expenditures of limited value In 2018, the cash balance was 204,430,625 VND By 2019, this amount decreased by 14.8% to 174,209,105 VND, followed by a 13.6% increase in 2020, bringing the total to 197,876,206 VND Nevertheless, the cash levels in 2019 and 2020 remained below the 2018 figure.
The company's bank deposits serve two primary functions: facilitating business operations and covering internal expenses Deposits in Vietnam Dong are predominantly utilized for employee salaries, bonuses, and transactions with domestic clients, while foreign currencies are reserved for dealings with international suppliers Bank transactions have become increasingly routine, with a notable 7.79% increase in deposits in 2019, totaling 2,075,401,414 VND, driven by higher revenue and order volume However, in 2020, deposits plummeted by 80.59% to just 402,795,206 VND due to a decline in transaction value caused by the pandemic This trend highlights that Vietnamese currency constitutes the majority of bank deposits, reflecting similar fluctuations to the overall deposit amounts.
As technology advances and living standards rise, banking transactions are increasingly favored for their convenience and speed G&M primarily utilizes these transactions to address urgent needs, ensuring seamless business operations.
The company utilizes a transfer method for salary payments, which not only saves time but also minimizes the risks associated with handling large amounts of cash.
Table 2.6: Accounts receivable of G&M in the period 2018-2020
Value % Value % Value % Value % Value %
Shortage of assets awaiting resolution
(Source: Balance Sheet of G&M, self-synthesized)
Evaluating the effectiveness in using current assets at G&M International
The Covid-19 pandemic has significantly transformed global socio-economic landscapes, including in Vietnam The country's effective anti-epidemic measures have successfully controlled the virus, fostering an environment conducive to socio-economic recovery and growth As a result, the company is experiencing steady growth, with business targets set higher than the previous year Despite the economic fluctuations between 2018 and 2020, the company has achieved positive outcomes.
Despite a decrease in net revenue compared to 2019, the company demonstrated resilience by achieving encouraging revenue levels amidst the challenges faced by many businesses due to Covid-19 The company met its tax obligations promptly, without any delays, and reported a profit before tax that exceeded previous years Additionally, the narrowing gap between cost of goods sold (COGS) and net revenue indicates improved management of COGS.
Secondly, the company started implementing credit policy, having customer
To mitigate risks associated with customer receivables, the company has implemented 52 policies that limit the amount owed by customers This strategy aims to prevent issues related to uncollected debts and overdue payments, which can lead to increased storage costs Additionally, these measures help ensure the effective utilization of current assets.
The company's liquidity and activity ratios, derived from its current assets, are stable and at a commendable level This reflects effective debt management policies and a well-maintained inventory strategy.
Between 2018 and 2020, the company's asset structure revealed that current assets consistently comprised over 80% of total assets, despite a decline in value This indicates a heavy reliance on current assets, with insufficient investment in long-term assets, which is crucial for modernization and innovation As technology advances, companies that neglect to invest in upgrading their machinery risk falling behind competitors The company's focus on immediate gains, such as increased orders and revenue, may hinder its long-term growth and sustainability.
The evaluation of current assets reveals a consistent decline over the years, accompanied by a persistently low return on these assets This trend is primarily attributed to the inefficient and unclear allocation and utilization of items within current assets.
The company's cash reserves are suboptimal, leading to frequent production shortages due to insufficient funds As a result, the company often resorts to high-interest borrowing, despite having excess cash available at times.
The company has failed to invest in more profitable opportunities, leading to capital stagnation and a significant amount of idle cash It is essential for the company to reassess its cash utilization to address these drawbacks.
Accounts receivable represent the largest share of current assets, leading to significant capital being tied up while the company's own capital remains limited This situation arises from the company's inability to effectively leverage appropriated capital, resulting in high levels of capital stagnation Furthermore, the growth of accounts receivable has outpaced sales increases, leading to a decline in the receivables turnover ratio The company focuses on rapidly boosting revenue without implementing a stringent commercial credit policy for customers, which compromises financial safety.
The company's accounts receivable currently lack a provision for doubtful debts, which poses a risk of bad debt if customers are overdue or if new customers prove unreliable To mitigate this risk, it is essential for the company to establish a provision for receivables.
Ineffective inventory management can lead to increased costs, reduced revenue, and slower inventory turnover To achieve growth in revenue and sales, a company must ensure high-quality products to build customer prestige and drive success Additionally, the lack of material provisions can hinder operations; proper storage of materials is essential to maintain goods circulation and prevent unnecessary costs during disruptions.
A company's performance is influenced by various internal and external factors Depending on its objectives, the company strategically allocates and utilizes its current assets Limitations faced by the company arise from both internal constraints and external influences.
Most of the objective causes are factors from the environment outside the business Enterprises cannot control the change of these factors and often, it is the
54 business person who must change to be able to respond and become suitable for that context
Impacts of the Covid-19 pandemic
The Covid-19 pandemic has significantly impacted global trade, leading to heightened trade protectionism and increased financial risks As household and business incomes decline, domestic consumption remains low, resulting in rising unemployment and business closures Consequently, many domestic customers have either extended or canceled orders, leading to a decrease in the company's revenue compared to previous years.
Inflation, along with unpredictable fluctuations in interest and exchange rates, significantly impacts a company's operating costs These variations can lead to sudden changes in import and export expenses, as well as the cost of goods sold, directly influencing the company's profits and altering financial indicators and asset management efficiency.
Competition among businesses in the same industry
Amid the ongoing epidemic, competition in the Flavors and Fragrances industry is intensifying, prompting the company to focus on maintaining a steady customer base and ensuring year-round orders while minimizing work disruptions for employees To achieve this, the company has relaxed its commercial credit policy, leading to a gradual increase in receivables from new customers over the years.
The development of Vietnam's financial market