Luận văn improving the efficiency of using capital at baoviet group

Nguyen Thi Hai Duong Keywords: Business Capital, Bao Viet Group, improving efficiency ‘This paper focuses on analyzing, evaluating and offering solutions to overcome shortcomings, and to

VIETNAM NATIONAL UNIVERSITY, HANOI

INTERNATIONAL SCIIOOL

Phan Dinh Tam

IMPROVING TIE EFFICIENCY OF USING CAPITAL AT

BAOVIET GROUP

MASTER THESIS

Ha Noi - 2020

VIETNAM NATIONAL UNIVERSITY, HANOI

INTERNATIONAL SCHOOL

PHAN DINH TAM

IMPROVING THE EFFICIENCY OF USING CAPITAL AT

BSTRACT

‘Yhesis ‘Title: Improving the efficiency of using capital at Hao Viet Group Pages: 100

University: Vietnam National University

Graduate School: Intemational School

Date: Octorber, 2019 Degree: Master

Graduate Student: Phan Dinh Tam Supervisor: Dr Nguyen Thi Hai Duong

Keywords: Business Capital, Bao Viet Group, improving efficiency

‘This paper focuses on analyzing, evaluating and offering solutions to overcome shortcomings, and to contribute to improve and bring better efficiency for using capital at Bao Viet Group in the periad of 20162018 The researcher will study the system and theoretical basis of the organization of capital use, do research and evaluate the status

of the organization of using capital in enterprises in general and the status of organization using, capital at Bao Vict Group, and provide recommendations and basic conditions to improve the efficiency of capital use at the 3ao Viet Group ‘he research uses following methods: Statistical methods, synthetic methods, analytical methods and comparison

methods to clear the research objective Thereby, the research recommends financial

solutions: Adjust capital structure in a more reasonable way; Strict management and

improve the profitability of capital in cash; Focus on investing in architectural houses,

means of Ianstmission and improving the officieney of using exisling fixed capital, Determine the Group's need for regular working capital appropriately, Regularly monitor,

analyze and evaluate the efficiency of capital use; Periodically conduct financial analysis

and evaluate the performance of the company, and nceds to build and train high quality

shaman resources.

ACKNOWLEDGEMENT

1 would like to send my sincere thanks to my supervisor: Dr Nguyen ‘I'hi Lai Duong whose kind support and continued advices helped me with the completion of iny thesis

T would like te send my great thanks 10 professors, lecturers and stalls at the VNU - International School for the knowledge and experience that have been shared through their lectures during the master program,

My thesis was also completed with the help from my superiors and colleagues

al Bao Viet Group

Tast bul not least, T would like to express my gratitude to my friends and family for giving me encouragement and supports during my studying time and completion

of my thesis

Thank you!

Phan Dinh Tam

CHAPTER II: THEORETICAL BACKGROUND AND LITERATURE REVIEW

xe TỔ

1, CONCEPT AND CLASSIFICATION OF BUSINESS CAPITAL 10

1.3.1 Based on the Source of Capital Formation - 11

1.3.2 Based on the characteristics of capital rotation - 12

1.3.3 Based on the scope of capital mobilization - 13

2, EFFICIENCY OF USING CAPITAL IN ENTERPRISE 14

2.1 The concept of efficient use of Business Capital " Ö„14 2.2 Indicators for evaluating the efficiency of using Business Capital .15 2.3 The necessity to improve the efficiency of sing business capital of

3 FACTORS IMPACT ON THE ETTICIENCY OF USING BUSINESS

CIIAPTER III: DATA ANALYSIS AND SOLUTIONS TO IMPROVE THE

3

1 8ITUATION OF USING CAPITAL AT BAO VIET GROIIP (2016-2018)

1 Business performance of Bao Vict Group

1.1 History and Development ot Bao Vivt Group

1.2 Management Organization of Bao Viet Group

1.3 Results of Business Performance of Bao Viet Group

2 Using Capital at Bao Viet Group

ASSESSMENT ON TIE ORGANIZATION AND EFFICIENCY

USING CAPITAL IN BAO VIET GROUP

1 Bao Viel group’s development orientations Lowards 2025

1.1 Socio-cconomic context al home and abroad

1.2 Developmental orientations

2 Solutions to improve the efficiency of capital usc at Bao Viet Group

2.1 Financial solutions

2.1.1 Adjust capital structure in a more reasonable way

2.1.2 Strict management and improve the profitability of capital in cash

2.1.3 Focus on investing in architectural houses, means of transmission

improving the efficiency of using existing fixed capital

91

2.14, Determine the Group's need for regular working capital “appropriately 94

5 Regularly monitor, analyze and evaluate the efficiency of capital use 95

221 Periodically conduct financial analysis and evaluate the performance of

2.2.2 The company needs to build and train high quality b human resources

3 Conditions lo implement recommendations

3.1 For the slate

3.2 Kor the Group

2.1 | Some frumeial information of Bay Viet Group (2016-2018) 35

2.2 — | Assets structure of Bao Viel Group (2016-2018) 40

2.3 — | Structure of business capital of Bao Viet Group (2016 — 2018) 44

54 _ | Some targets on the structure of eapital sources of Bao Viet Group] „„

~ (2016-2018)

2.5 | Capital financing model of Bao Viet Group (2016 2018) 4

2.6 | Working capital structure of Bao Viet Group (2016 2018] 49-50

2.7 — | The solvency assessment criteria of Bao Viel Group in 2016-2018 %4

ag _ | The average receivable and receivable tmnover oycle of Bao Viet] 5

~ Group in 2016-2018

39 (2016-2018) compare the appropriated and occupied capital of Bao Viet Group] „o„

Some indicators cvaluate the cfficioncy of using working capital of

2.11 | Long-term assets structure of Bao Viet Group (2016 - 2018) 67

2.12 | Fluctuation of tangible fixed asseis of Bao Viel Group it 2018 7

2a | the situation of depreciation of fixed assets of Bao Viet Group] 5,

(2017, 2018)

3414 | Héfective use of business capital of Bao Viet Group (2016-2018) 7

2.15 | Business plan of Bao Viet Group in 2020 85

FIGURE 22 | Market share of non-life insurance in Vietnam in 2017 37

Mazket share of new life insurance revenue in Vietnam

CHAPTER 1: INTRODUCTION

1 The necessity of the research

Globalization is an indispensable end now, which is taking place strongly TL is creating a link and increasing exchange between countries, organizations or individuals in all angles: Culture, economy, politics Considering the economic perspective in general

and finance im particular, il can be seen tal {i compelilion ig increasing among countries in general and domestic enterprises in particular An enterprise that wants to

survive and develop must have the qualifications, knowledge and management capacity

Tn particular, capital is an important factor affecting the business performance

indeed, any business that wants to scale up or restructure the industry must have a stable source of capital After that, enterprises must know how to preserve and develop

iheir capital to improve their financial capacity Tn the current economic context, Bao

Viet Group is a special-class enterprise, which is allowed by the Government to pilot the

equitization to establish a Group operating under the model of Parent Company and

Subsidiary Company Aller more than 10 years of cquitization, wilh the technical

support of HSBC strategic partner and Sumitomo Life, the Group has achieved quite

good results in core business seclors (insurance) and other financial sectors such as

Banking, Sccuritics, Fund Managemont Strictly controlling investment management and cash flow management has helped the Group effectively to manage capital use,

thereby contributing significantly Lo the Group's business results it the paslL 1Ô yeara

However, in the process of implementing the investment, the management and use of capital in Bao Viet Group still has certain limitations and shortcomings, so | choose the

topic: “Improving the efficiency of using capital at Bao Viet Group” to analysis of

the Group's business capital efficiency, as well as some comparisons in the Group's core

business: Bao life insurance and non-life insurance

- Study the system and theoretical basis of the oreanization of capital use,

- Research and evaluate the status of the organization of using capital in

enterprises in general and the status of organization using capital at Bao Viet Group,

- Provide recommendations and basic conditions to improve the efficiency of capital use at the Bao Viet Group

3 Research Scope

‘The thesis is in-depth research on the use of capital at the Hao Viet Group, The

research period is from 2016 to 2018

4, Research Methods

‘The research uses following methods: Statistical methods, synthetic methods,

analytical methods and comparison methods to clear the research objective

The topic of systomatizing, analyzing and claritying theoretical issues about the

use of capital of Bao Viet Group in the period of 2016 2018 ‘The efficiency of using the

Group's business capital in the subject of research

‘Assess and analyze the current situation of using capital at Bao Viet Group in the following aspects: Bfficiency and not really effective, urgent contents to improve the

efficiency of the Group's capital use

The thesis proposes research theorems, scientific points as (he basis for solutions

to improve the efficiency of the Group's capital use, and provides and clarifies the

solutions especially Mlesible capilal raising solutions operating and using capital

effectively at the Group, With thesc solutions, the thesis clarifies qualitatively and especially quantifies the benefits of the Group's capital efficiency

5 Structure of the thesis

In addition to abstract, conclusion, appendices, table lists, tables, catalogs of

references and indexes, the dissertation is divided into 3 chapters:

- Chaplor 1: Ttroduction;

- Chapter 2: Theoretical background and Literature review,

- Chapter 3: Data analysis and Solutions to improve the efficiency of capital use at

Ban Viet Group

CHAPTER IH: THEORETICAL BACKGROUND AND

LITERATURE REVIEW

1 CONCEPT AND CLASSIFICATION OF BUSINESS CAPITAL

1.1 Concept of Business Capital

Production and business activitics arc fundamental activities of enterprises The

prerequisite for forming a busmess is business capital, businesses that want to register their business as well as carry oul business aclivitics need capital In order to carry oul the process of production and business, enterprises need to have the following basic

elements: Labor, labor and labor materials In order to get these three factors, businesses

must apply a certain amount of capital called business capital (business capital)

According Bui Van Van and Vu Van Nink (2013) “Business capital of the

enterprise is the entire amount of advance that businesses spend to form the necessary

đãi

Is for production and business activities of the enterprise”

1.2 Characteristics of Business Capital

To manage and use business capital effectively, businesses must be aware of some

characteristics of business capital,

- Business capital is expressed as the value of assets of the enterprise In other

words, capital must represent a certain amount of asset value Therefore, it is impossible

to have capital without assets or vice versa,

- Capital must be mobilized to earn profit Capital is expressed in money but

money is not necessarily capital To hecome capital, money must be mobilized for profit

Tn the business process, capilal can be transformed through many different fous, but the starting and ending points of the cycle must be the monetary form with a value greater than the original value, ie business profitable This requires businesses to manage the use

of business capital so that the circulating capital is not stagnant

- Capital must accumulate, focus on a certain amount to be effective im business,

which shows that to be able to use capital effectively requires businesses to calculate

accurately the amount of capital to be used to avoid the shortage of capital, businesses

will fall into a passive or excess capital which will cause capital stagnation, increase

1a

opportunity costs during the process of using capital, and reduce use efficiency Therefore, businesses must not only rely on their available potential but also seek to attract capital from various sources

- Capital is valuable in terms of time, ie the value of the same amount of capital at different times is not the same This feature requires businesses in the process of using capilal lo make capital move conslanlly, nol Lo "die" capital

- Capital associated with one or more certain owners This feature requires

businesses to choose capital mobilization ta balance between profit and cost ta mobilize

capital

- At one time, capital can exist in many different forms, which can be in the form

of specific material such as cash, inventory, machinery, vehicles or no morphology

Specific material such as Jand use rights, trademarks This feature helps businesses have

a comprehensive view of business capital, thereby having appropriate solutions to promote the strength of business capital

1.3, Classification af Business Capital

in order to classify business capital, we can consider many different criteria such

as capital formation, capital transfer characteristics, capital mobilization scope

1.3.1 Based on the Source of Capital Formation

According to capital formation criteria, the enterprise's business capital includes equity and habilines

a) Equity: Equily is the source of capital owned by the business owner and members of the joint venture company or shareholders in joint stock companies

Equity = Total asset value - Total lial

ties With different types of businesses, equity is also formed from different sourecs In Vietnam tođay there are the following types of equity:

- For state-owned enterprises: Owner's cquily is capital operated by the state or invested Iherefore, the owner is a state

- For limited liability companies (limited liability companies): Capital is formed

by the wembers participating in the establishment of the company Therefore, these members are capital owners

11

- For joint stock companies: Equity is the capital formed by shareholders

Therefore, the capital owner here is the shareholders

- For partnerships: Capital contributed by the members involved in establishing

the company ‘these members are capital owners A partnership is an enterprise that must have at Jeast two partners and may have capital-contributing members

- For private enterprises: Fnlerprise's capital is contrilated by the business

owner Theretore, the owner of capital is, of course, the business owner The owner of a

private enterprise must be responsible for all his assets

- For joint-venture enterprises (which may include joint ventures or joint venture enterprises): Joint ventures may be conducted between domestic enterprises or

domestic enterprises or foreign enterprises

b) Liabilities must pay: Liabilities are debls arising in the course of production and business activities that businesses must pay, must pay to creditors, including loans, debts and payables for sellers, for the State, for employees and other payables

1.3.2 Based on the characterislics of capital rotation

Jased on the capital turnover criteria, capital of enterprises is divided into two types: fixed capital and working capital Specifically:

a) Fixed capital: Fixed capital is the value of fixed assets (fixed assets) ‘These types of assets are assets of great value, the duration of use lasts through many business

cycles of the business From the above definition, fixed capital has characteristics:

- Firstly: Rotate through many production and business periods of enterprises due

to fixed assets and long-term investments involved in many production and business cycles of enterprises

- Secondly: Whon participating in the business process of business, the fixed

capital invested in production is divided into 2 parts A fixed capital component

form of residual value of fixed assets,

In enterprises, fixed capital is an important part and accounts for a large proportion

in the structure of investment capital in particular, production capital in general Fixed

12

capital scale and fixed capital use management is a key factor affecting the efficiency of using business capital of enterprises

b) Working capital: Working capital is expressed in cash of short-term assets so the movement characteristics of working capital are always influenced by the

characteristics of short-term assets From the above definition, working capital has

specific characteristics:

1 Fast traffic

ii, Move once into the production and business process

iii Complete a cycle afler completing 4 business process

iy The movement of working capital is a closed cycle from one form to another

and returns to the original form with a value greater than the original value The

mobilization cycle of working capital is the basis for assessing the solveney and business and production efficiency of enterprises and the efficient use of capital of enterprises

The biggest difference between working capital and fixed capital is: fixed capital gradually transfers its value into the product through depreciation, while working capital transfers its entire value into the product value according to production and business cycle

1.3.3 Based on the scope of capital mabilization

According to the standard of capital mobilization, the business capital of the enterprise is classified according ta two sources: the internal capital source of the enterprise and the capital outside the enterprise Specifically

- Internal capital of the enterprise: The enterprise mobilizes the use of the idernal capital of the enerprise with the advantage thai the enerprise is entitled to autonomy to use for the purpose of the business without having to bear the pressure of use costs capital With the above characteristics, many businesses easily fall into the case

of inefficient use of capital

- Capital source outside the enterprise: it is an enterprise's capital source that

can be mobilized from outside to meet the demand of using capital for production and business aclivilics pf enterprises There are many sources (or businesses to mobilize such

as bank Joans, loans from other financial institutions, issuance of debiting instruments

With the above characteristics, the external capital mobilization channel of enterprises is

13

very wide If businesses build a reasonable business plan, the mobilization plan from

outside will help businesses thrive Ilowever, with capital mobilized from outside,

enterprises will be subject to pressure to pay interest on debt as prescribed If the business does not have a reasonable business plan and repayment, the enterprise will be exposed to

great risks

Thus, with the characteristics of the capital mobilizaien mentioned above, the

combination of internal capital and external capital sources will bring about efficient use

of capital for businesses and reduce risks when mobilizing capital

2 EFFICIENCY OF USING CAPITAL IN ENTERPRISE

2.1 The concept of efficient use of Business Capital

In a market economy, the biggest purpose of an enterprise is business and

production activities that bring about high economic cfficiency This means businesses must take advantage of all capital to develop production and business, bring high

economic efficiency and facilitate the expansion of production scale Business capital

helps businesses operale continuously, stably and collectively Corresponding to cach production scale requires a certain amount of capital However, it is only a necessary condition, iL is imporlant thal the enterprise uses thal capital Lo bring the tnghest efficiency, not only to preserve capital but also to develop capital and bring the offect Llighest business results ‘I'he effect is the economic benefit gained after compensating for the expenses for production and business activilies

‘thus, the efficiency of using business capital of enterprises is an economic category reflecting the quality and usefulness of the use of input cost factors in the production process, determined by term The relation between the output and the input cost of an economic system in a certain time so that the profit achieved by the enterprise

is the highest with the lowest total cost At the same time, it is possible to create capital for its business and production activili

expansion of enterprises in the future (Bui Van Van and Vu Van Ninh, 2013

, ensuring the investment and production

In a market economy, every business wants ta survive and grow, it must have a required amount of monclary capilal, However, with the same amount of capital, the profits of businesses are different The main reason is due to the efficiency of capital

utilization of each enterprise and different Effective use of capital ensures the safety of

14

businesses, affecting the existence and development of that busiess Therafore, improving the efficiency of organizations using business capital in enterprises is an objective requirement for the production and business process of enterprises

2.2 Indicators far evaluating the efficiency of using Business Capital

When studying to find out measures to improve the efficiency of capital of enterprises, we need to assess the current stale of usmg business capilal of enlerprises through analyzing the criteria of evaluating the efficiency of using capital business Basis

for evaluating the effectiveness of capital use, including the criteria considered as

follows

1.2.2.1 Performance indicators for using business capital of enterprises

a) Performance of business capital:

Circle of money: This indicator refleets in the period, how many rounds of business capital of the business turn Or in the period of 1 dong, the capital is spent on production and business

Net revenue

Circle of money= — ap erage business capitat —

b) Performance using working capital:

When considering the use of working capital, people often consider the circulation rate of working capital according to the following two criteria:

- Working capital turnover: This indicator reflects lhe period of working capital, how many rounds or } dong of working capital will be gencrated

Net revere

Working capital unover Average working capital in the period

Working capital tumover cycle, the more revs, the more effective the working capital is used

- Circulating working capital: This indicator reflects the average number of days required for working capital to execute a rotation (or the length of time a rotation of working capital in the period)

Number of days in the period

15

Circulating working capital = Working capital rotation

The shorter the rotation periad the faster the working capital is circulated, and the higher the effective working capital

c) ‘Larget savings of working capital

This indicalor reflects the working capital thal car be saved by increasing the speed of circulating working capital compared to the original period

‘M,: Total amount of circulating working capital in comparison period

KI, KO: The circulating period of working capital in the comparison and original periods

LI, LO: Number of times of circulation of working capital in comparison period, original period

Tf the working capital Lumover period is longer than the previous perind, the enterprises will have wasted working capital

) Content of working capital:

This indicator refleels lo erate a nel revenue thal requires how much working capital,

Average working capital in the period

Content of working capital — Net revere

In addition ta assessing the efficiency of using working capital, people also use a number of other criteria such as: inventory tumover, accounts receivable tumover, average collection period

The study of the above indicators helps businesses improve capital efficiency If

the business strives to shorten the capital rolation cycle by saviryy reasonable working

16

capital, raising the total capital turnover, it will increase the working capital tumover Trom there, contributing to increase profits, increase business efficiency of the business

¢) Inventory turnover:

Inventory turnover is a ratio showing how many times a company has sold and replaced inventory during a given period A company can then divide the days in the period by the imventory tumover formula to calculate the days it takes to sell the inventory on hand Calculating inventory tumover can help businosscs make better

decisions on pricing, manufacturing, marketing and purchasing new inventory

Sales Inventory Tumover = “Average Inventory

The higher the inventory tumover coefficient, the more quickly the business sells and the inventory is not stagnant ‘his means that the business is less risky if the

inventory items in the financial statements have decreased over the years

D The average collection period

The average collection period is the amount of time it takes for a business ta

receive payments owed by its clients in terms of accounts receivable (AR) Companies calculate the average collection period to make sure (hey have enough cash on band lo

meet their financial obligations

If the turnover of receivables increases from year to year, it shows the weak ability

of debl management in a company (and view versa)

8) Fixed use of capital

When considering fixed capital usage, people ofien base on the following specific

criteria

- Fixed capital use performance: Reflecting a fixed capital to create net revenue in the period

Net revenue

Kixed use of capital = Average fixed capital

- Fixed capital content: is the inverse quantity of the fixed capital use efficiency

index lo cereale a net revenue (hal needs how mich fixed capital

Average fixed capital

- Usage efficiency Fixed capital and other long-term capital: ‘hus indicator reflects

a fixed capital and other long-term capital (long-term total assets) involved in the period

of how much revenue 1s generated

Net Sales Revenue + Financial Revenue Usage efficiency Fixed 9 = —r oar tixedt capitatand other long-rom ——

capital and other long- capital on average

term capital

After calculating the above indicators, people compare them between years to see

if the fixed capital (or fixed assets) is uscd effectively or not It is also possible to make

comparisons between Enterprises in the same sector or an area to consider whether their competitiveness, use status and business management are effective

h) Coefficient of fixed assets

‘This indicator reflects the level of wear and tear of fixed assets in the enterprise

compared to the initial investment time

Cocificient of Accumulated depreciation amount fixed assets Historical costs Fixed assets at the time of

evaluation

This higher coefficient indicates that fixed assets are old and need to be renewed

investment, on the contrary, the lower this coefficient, indicales thal enterprises always

pay attention to investment in equipment and machinery innovation

i) Number of days of moncy transfer

18

‘This index is a useful way to assess the company’s cash flow because it measures the amount of time invested in working capital The cash conversion eycle (CCC) is

caleulated by the following formula:

CCC = RCP + ICP - PDP

with:

RCP: Receivable Collection Period,

ICP: Inventory Conversion Period

PDP: Payable Deferral Period

Thus, Ihe cash cycle can be shorloned by redusing inventory conversion time by faster handling and sales of goods or by reducing customer collection times by speeding

up debt collection or by how to extend payment time by delaying repayments to suppliers

1.2.2.2 Indicators to evaluale the efficiency of using business capilal of

enterprises

a) Indicators reflect the profitability of business capital

} The ability to profitability of all business capital

- Basic earning power (BED) ratio is a measure that calculates the eaming power

of a business before the effect of the business’ income taxes and its financial leverage lt

is caloulated by dividing earnings before interest and taxes (EIT) by total assets

BEP Farmngs Before Interest anh Taxes (EBIT)

‘otal sets

This index is very significanl in comparing the situation of company operations with the common ground of the industry The higher the BEP, the better the business performance of the Company

- Return on assets (ROA) is a profitability ratio that provides how much profit a company is able to generate from its assets In other words, retum on assets (ROA) measures how efficient a company's wanagement is in generating carnings from their economic resources or assets on their balance sheet ROA is shown as a percentage, and

19

the higher the number, the more efficient a company’s management is at managing, its balance sheet to generate profits

Net income

ROA=

Average Total Assets

A high and stable ROA (or a Tong Lime is a positive sign thal the company is using its assets more and more effectively and optimizing the resources available

- The return on equity ratio (ROE) is a profitability ratio that measures the ability ola firm to generale profits from ils sharcholders investments in the company Tn other words, the return on equity ratio shows how much profit each dollar of common stockholders’ equity generates

ROE is also an indicator of how cffective management is at using cquity financing

to fund operations and grow the company

Net Income

ROE

Sharcholder’s Equity

The higher thia indivator, the grealer the profilability of equity, the mere ca-equity

a co-owner generates after-tax profits,

- Return on sales (ROS) often called the operating profit margin, is a financial

ralio that caleulates how efficiontly a company is al generating prafils from ils revenue

In other words, it measures a company’s performance by analyzing what percentage of tolal company revenues are actually converted inlo company profits

Operating Profit

ROS=

Net Sales

This larger indicator shows the higher the efficiency of the business

> Profitability of working capital

- Working capital return: This indicator reflects in the poriod, one dong of

working capital participating in the business process creates how much profit before tax

(after) tax It has a proportional relationship to the profitability of the business and can be used to see how efficient it is to use working capital compared to the cost of financing it

(This indicator reflects in the period, how many dongs of working capital involved

in a business process generate profits before (after) the tax can be used to see the working capital efficiency versus funding costs for it.)

Working capital rate of rctum — Profit before (after) tax

‘Average working capital in the period

> Profitability of fixed capital

iNixed copital rate: ‘This indicator reflects a fixed amount of capital involved in the

period, which can generate as much of the previous (after) tax profil

Fixed rate of return on capital = Profit before (after) tax

Average lixed capilal in the period

b) Indicators reflect the level of business capital safety

® Frequent working capital also known as Net working capital (NWC) is a liquidity calculation that measures a company’s ability to pay olf its current liabilities with current assets This measurement is important to management,

vendors, and general creditors because it shows the firm’s short-term liquidity as

well as management’s abilily to usc ils assets efficiently

Much like the working capital ratio, the net working capital formula focuses on currant liabilities like rade debls, accounts payable, and vendor notes that must be repaid

1m the cunent year It only makes sense the vendors and creditors would like te sec how

much current assets, assets that are expected to be converted into cash in the current year, are available to pay for the liabilities that will become duc in the coming 12- months

‘Net Working Capital = Current Assets — Current Liabilities

or, Net Working Capital = Current Assets (less cash) — Current Liabilities

{less debt)

or, NWC = Accounts Receivable + Inventory — Accounts Payable

If long-term capital is larger than long-term assets, the enterprise has regular working capital ‘This is a sign of safety for businesses because it allows businesses to cope with risks that may cocur as far as bankruptcy of large customers, credit cuts of

suppliers including losing temporary hole

In case of long-torm capital source is smaller or equal to long-term assets, it means

that the enterprise has no warking capital regularly The fact that long-term capital is

smaller than Sixed assets and long-term assels means that the crlerprise has used a shorl- term part of its capital to finance long-term assets Hven if the long-term capital is equal

to long-term assets, that means: long-term capital of the enterprise is enough to finance Jong-lerm assets, financial balance in this case, although it still achieves stable propertics

‘the decision is not high, the risk of violating the financial balance principle 1s still potential This is a sponsorship policy that does not bring stability and safety to

‘businesses,

} Debt ratio: [t is a very important financial factor for business managers, with creditors as well as investors For corporate managers, through debt ratios,

financial independence, financial leverage and financial risks can be encountered

from which to adjust financial policy appropriate main For oreditors, by

considering the debt ratio of the business, it is possible to see the security of the

loan la make Joan decisions and debt recovery decisions Investors can assess the

level of financial risk of the business, based on that to consider the investment

The capilal siructure coefficient is expressed mainly Lirough debt ratio Debt ralio yopresents the use of corporate debt in the organization of capital and it also shows the level of using leverage of enterprises

- Current solvency coefficient: Also known as the ability to pay short-term debt This coefficient reflects the ability to convert assets into money to cover short-term debts

raGos of the banking industry It should be noted that there are dilferences between (hese

coefficients in different business sectors An important basis for evaluation is to compare with the current solvency coefficient at the previous points of the business

Nonmally, when this ratio is low (especially when i is less than 1), il is weak and

is also a sign of potential financial difficulties that businesses may encounter in debt

repayment This high coefficient indicates that enterprises are highly capable of being

willing to pay duc debis However, in some cases (his eoo!icient is Loo high to reflect the payment capacity of the business as well

In order to better assess the solvency of the business, we use the ability to pay

quickly

- Quick payment coefficient: Is a criterion to assess more closely the solvency of

enterprises This coefficiewt indicales how much VND) short-lerm debi is guaranteed by

short-term assets after clininating low liquidity assets is inventory

Short-term assets - inventory

Quick solvency coe! ficient

Short-term debt

This indicator is high, indicating that NNH of enterprises is well guaranteed with high liquidity assets However, in difficull coonomic conditions, short-term receivables of

enterprises may not be fully recovered, affecting the solvency of the company Therefore,

in order to further assess (he solvency, we use the abilily of instant solvency.

- Instant payment ratio: Reflecting a short-term debt of the enterprise guaranteed

by how many coins and cash equivalents

Instant payment ratio = Money + Cash equivalents

Short-term debt

Money includes cash, deposits and money in transit Cash equivalents are short-

term investments in seowrities, other short-term investments that can be casily converted

into cash for a period of 3 months and without significant risks This coefficient is

particularly useful to assess the solvency of an enterprise in the perind when the economy

is in crisis when inventory is not consumed and many bad debts are difficult to recover

- Loan interest payment coefficient: Reflecting the profit before interest and tax

of the business im the period Lo ensure the payment of inferes|-bearing obligations

Loan interest payment Profit before interest and taxes

coefficient loan interest payable during the period Loan interest is the cost of using the loan that the business is obliged to pay on

time to creditors A business that owes a lot of debt but does business badly, the

profitability of the capital is too low or it is unprofitable, it is difficult to guarantee payment of interest on time

This coefficient is calculated based on the data of the business results report and reflects the level of risk that may be encountered for creditors This indicator is one of the

criteria thal banks arc very interested in cvaluatmg customer loans Therefore, this

indicator greatly affects the credit rating and interest rate of enterprises

- Ratia to ensure payment of interest [rom the net «perating cash flow: This coefficient is used to assess the ability to create money from production and business activities that meet the requirements of payment of interest or not

How to determine this mdicalor is as follows:

Ratio to ensure payment Net cash flow from business activities +

of interest from the net = ———Payable-te Jend-interest ——— operating cash {1 ow Payable to lord intorest

- The cocfficient of assessing the ability to pay debts of active cash flow: ‘This

indicator is used to consider the ability of enterprises to pay short-term debts through a

24

net operating cash flow Thereby, assessing the ability to create money from business operations of the enterprise is enough to pay the debt or not

The coefficient of assessing Net cash flow from business activities

the ability to pay debts of © = —————+otabcurrenttiabititiese ————

active cash flow

1.2.2.3 The relationship between the efficiency of capital usage and business

capital efficiency

The profitability of equity of enterprises is the result of a series of measures and

iamagemerit decisions of enlerprises To sce (he impacl of the relationship between the level of management and use of capital to the profitability of the owner of considered are

a) The interaction relationship between the rate of after-tax profit on business capilal with the eflicioncy of using the enlire capital and the ral of aller-tax profit on

revenue ‘his relationship is established as follows:

As mentioned above, the ratio of after-tax profit to business capital is determined

as follows:

Profil after tax

Rate of after-tax profit

on business capital

Average business capital in the period

Profit after tax Net revenue

Net revenue Average business

capial in the period

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b) ‘The interaction relationship between the rate of after-tax profit on equity and the efficiency of using the whole capital, the rate of after-tax profit on revenue and the coefficient of capital on equity (or the level financial leverage.) This relationship is

Total business capital “Average Shareholders’ Equity

In the above formula’

Average Shareholders’ Equily 1 —Debt ratio

It is called the coefficient of capital on equity and is shown as the level of financial leverage of enterprises From that

Net revenue ‘Total business capital 1- Debt ratio

‘Through the above formula, there are three main factors affecting the rate of return

of equity in that period:

- Rate of afler-tax profit on revenue: Reflecting the level of waragement of revenue and expenses of enterprises

- Asset turnover (Total capital turnover): Reflecting the level of enterprise's

exploitation and use of assets

- Capital ratio on owners’ equity: Reflecting the management and organizational level of capital for the operation of the enterprise

On the basis of identifying the factors that will help business managers identify and find ways to exploit potential factors to increase the rale of equily retum of

enterprises

2.3 ‘The necessity to improve the efficiency of using business capital of

enterprises in market economy

With the diversified and complex movement of the market mechamsm leads to

fierce competition among businesses, contributing to promoting the progress of

‘businesses mm both width and depth However, in order to create the existence and

development of the business, it is necessary for businesses to identify for themselves a way of operating, developing strategies and business plans in a suitable and effective way frut

improving the efficiency of capital use is a basic basis to ensure the existence and development of enterprises The existence of enterprises is determined by the presence of enterprises in the market, but the efficiency of capital use is a direct factor to ensure this existence, and the goal of enterprises is always existed, and develop firmly Therefore,

improving capital efficiency is an indispensable requirement for all businesses aperating

im the ctztent market mechanism Duc to the requirements of the existence and

development of each business, the income of the enterprise must constantly increase But

in terms of capilal and technical factors as well as olher factors of the production process only change within a certain framework, to increase profits requires businesses to improve the efficiency of capital use Thus, capital use efficiency is a very important condilion in ensuring the existence and development of enterprises

3 FACTORS IMPACT ON THE EFFICIENCY OF USING BUSINESS CAPITAL

In the production and business process, business capital is affected by many factors In order to achieve high results in the use of business capital, businesses need to

consider factors affecting the efficiency of business capital use including:

bà a

3.1 External factors

Management mechanism and macro policies of the state: Tax policies,

investment policies of the state will directly affect the business activities of enterprises

to change the efficiency of business management

The level of inflation of the economy: Inflation makes businesses have no stable

measure of money for each investment project, making a slong impacl on the price of inputs, making businesses have to change price the output elements accordingly

Characteristics of the business sector Comparison of indicators reflecting the efficiency of capital management of enterprises with the industry average is cssential lo properly assess the advantages and disadvantages of enterprises in managing and using capital

Market interest rates: Affecting the cosL of borrowing, bigh interest rates will increase debt repayment pressure, increase capital use costs, thereby reducing profits

Business risks: Fires, storms, floods, natural disasters, market fluctuations, etc.,

make businesses’ assets damaged, Icading to a decrease in investment capital of enterprises

Progress of science and technology: Science and technology are both

opportunities and challenges for businesses Currently with the rapid progress of science and technology has led to the invisible wear and tear of machinery and equipment

increased faster, requiring businesses to use reasonably efficiently and quickly to invest

in public innovation technology

3.2, Internal factors

Management skills and skills of employees: Good management, creativity, skilled

workers, cxperionce will help businesses use business capital cffectively, high labor productivity,

The reasonableness of assol siructure and business capilal sources in crilerprises:

‘The unreasonable use of loans by enterprises or inadequate investment in assets not only

does not promote the effect of capital but is also lost loss, loss, create risks for

businesses

Development policies of enterprises in each period: Kor new market penetrating businesses, it is necessary to set policies to reduce prices and promotions so there will be low profits so the efficiency of capital use will be reduced short-term

Choice of investment plans: If businesses choose to produce products with high quality, suitable for consumer tastes, it will bring great economic efficiency

Salary and incentive mechanisms for employees: The altitude and awareness of employces have a direct impact on productivity, product quality, thereby affecting the

efficiency of capital use

CHAPTER ITI: DATA ANALYSIS AND SOLUTIONS TO IMPROVE THE EFFICTENCY OF CAPITAL USE AT

BAO VIET GROUP

I SITUATION OF USING CAPITAL AT BAO VIET GROUP (2016-

2018)

1 Business performance of Bao Viet Group

1.1 Ilistory and Development of Bao Viet Group

Bao Vict is the first enterprise to provide nomlife insurance, life insurance and

securities services in Vietnam market Bao Viet's predecessor today is Vietnam Insurance

Company established under the Decision No 179/CP dated December 17, 1964 The

company officially went into operation on January 15, 1965 with only 16 employees

On the first day of operation, ao Viet has only its Llead Office in Ilanoi and a

branch in Hai Phong Business activities of the Company only in the field of import and

export goods insurance, ship insurance ‘fhe company’s revenue at this time only reached

800 thousand VND with total assets af 900 thousand VND Since 1975, Bao Viet has

started to develop its business network to the southern provinces During this period, the brand "Bao Viet" was known as the largest and only state-owned insurance enterprise in the whole territory of Vietnam

By 1989, Vietnam Insurance Company was converted by Vietnam Goverment

into Vietnam Insurance Corporation under Decision No 27-TCQD-TCCE issued by the

Ministry of Finance on February 17, 1989 Total revenue of Bao Viet reached VND 78 tithon, tolal assets reached VND 73 lillion, profil was VND 6.6 lillion Tn 1996, Bao

Viet's sales reached VNL 970 billion, of which non-life insurance revenue reached VND

882 billion, financial investment reverse reached VND 80 billion The government has

rated Bao Vict as "Special Slate-owned Enicrprise”, one of the 25 largest state-owned enterprises in Vietnam

On November 28, 2005, the Prime Minister signed Decision No 310/2005/QD-

TTg approving the Scheme on Equitization of Victnam Insurance Corporation and

piloting the establishment of a inance Group - Bao Insurance Vietnam On May 31,

3a

2007, Bao Viet officially issued its fist public shares On September 13, 2007, the

Minister of Finance issued Decision No 3083/QD-BTC on adjusting the scale of

chartered capital and equity structure of Bao Viet Group, according to which chartered

capital of Bao Vietnam is identified as VND 5,730,266,050,000, of which: the state holds 77.54% of charter capital, Shares sold to foreign strategic investors (ISIC Insurance)

account for 10% of chart capital

January 23, 2008: Bao Vict Group officially lamched; at the same time announced

the re-establishment of subsidiaries invested by Bao Viet Group: Bao Viet Insurance

Corporation, Bao Viet Tale Corporation, Bao Viel Fund Management Company

1n March 2008: Bao Viet and HSBC Insurance signed an agreement on training

cooperation and technical assistance under the witness of Prime Minister Nguyen Tan Dung, including a very important content to suppor! carefully Art of establishing Tnternal

Audit of Bao Viet Group

Time 25, 2009 Bao Viet [loldings (Stock code: BVII, Authorized capital: VND

7,008,.864,340,000) was officially listed and traded on Ho Chi Minh City Stock

Lxchange

2012: Bao Viet Group Developed the project of Enterprise Restructuring and was approved by the Ministry of Finance leaders in 2013 Also, in 2012 Sumitomo Life

bought back 18% of LESBC’'s shares and became an investor Bao Viet's strategy

Currently, Bao Viet - through its member units - is providing comprehensive

financial services including insurance, barking, securities, fund management and investment with a wide distribution network province across the country, serving tens of

1millons oÍ customers

1.2 Management Organization of Bao Viet Group

From July 1, 2008, new organizational model has been applied at the Group,

imeluding: General Mecting of Shareholders, Board of Directors (with funchonal help

committees); Control Board and forming, functional blocks This govemance model is built on the objectives of developing the Group's business strategy; corporate governance standards of domestic and forcign economic groups; comply with the provisions of the

law of Vietnam and the provisions of the charter of Bao Viet Group

31

FIGURE 2.1: ORGANIZATION MODEI OF BAO VIET GROUP

‘Source: from website baviel.comye}

Thị organizational model defines a clear governance structure, applies governance standards, defines the responsibilities and relationships of the parent

company and its subsidiaries, Thereby, corporate governance will be both tight and

effective, but not administrative This is an important milestone contributing to the

gradual integration of the Group into the regional and global financial and insurance

iurkets, erihancing the Group's position and image, in order to contribule to the development of Bao Viet is to become the leading Financial - Insurance Group in Vietnam

- General Meeting of Shareholders: is the highest authorily of the Group

inchiding all shareholders entitled to vote The General Meeting of Shareholders is

responsible for discussing and approving annual audited financial statements , reports of the Board of Directors and the Board of Supervisors of the company on business performance, deciding plans and short and long-term plans of the company, conducting

discussions through, supplementing and change the charter of the company elect and

dismiss members of the Board of Directors, Supervisory Board and other duties in

accordance with the charter of the company.

- Board of Directors (BOD): is the body with full authority to perform all rights

on behalf of the Group except for the authority of the General Meeting of Shareholders

The BOD decides the medium-term development strategy, plan and annual business plan

of the Group and makes timely adjustments appropriate to the market situation ‘The Board approved the key issues related to the Group's development strategy such as the issues of corporale governance, investment, and construction in accordance with the development orientation of the Group, deciding development solutions market, marketing

and information technology towards centralized management model

- Members of the Supervisory Board: arc clecicd by resolution of the General Meeting of Shareholders by the method of cumulative voting with a specific number

decided by the General Meeting of Shareholders from 3 to 5 people

- The Supervisory Board is the aullorized body on behalf of the General

Meeting of Shareholders to supervise the activities of the Board of Directors and the General Director in the management and administration of the Group's business activities The Board of Supervisors operates independently of the Board of Directors and

the General Director, conducts the review of the Group's annual business and financial

statements, and considers the management letter of the auditor independence and reporting of the Group on internal control systems, as well as proposing to the General Meeting of Shareholders the selection of an independent auditing company, audit fees

and any issues related to the withdrawal or dismissal of an independent auditing firm;

report to the General Meeting of Sharcholders on Ihe teasonubleness, legality, honesty

and the degree of caution in the management and administration of business activities, in

the orgamzation of accounting, statistical work and making financial slalements main

The Board of Supervisors meets at least twiec a year and must have at least three-fourths

of members participating in a meeting of the Board of Supervisors

- The Audit Committee is a Commiltce under Ihe Board of Directors, funclioning,

to advise and assist the Board in ensuring an effective system of internal control and legal compliance; fully meet the requirements for external financial reporting, including the requiremonis applicable lo listing on the stock markel in accordance with the law and the charter of the Group ‘he Audit Committee is responsible for inspecting and monitoring

the truthfulness of the financial statements related to the business situation of the Group

33

before submutting to the Board of Directors; inspect and supervise the internal audit plan,

the effectiveness of internal audit activities and the cooperation between the Internal

Audit Board and the independent auditing organization; review and assess the current

status of financial and accounting regulations of the Group; supervise the independence, objectivity and requirements of the independent auditing organization and other activities stipulated i the Regulation ou functions, duties and organivalional structure of the

Committee

- The Strategy and Investment Committee is a committee under the Board of Tircelors, functioning to develop development strategies, assessing the resulis of implementing business strategies and proposing changes in the business strategy of the

Group, promote the implementation of the Group's strategy and development plan,

planning imvestinent siralegies, developing policies and principles for shorl, medium and long-term investments, Research, appraisal, evaluation of investments under the authority

of the Board

- The Remuneration and Appointment Committee is a committee under the Board of Directors, functioning to advise and advise the Board in planning, promoting and evaluating the implementation of the Group's strategy and human resource development plan; research, appraise and evaluate proposals of the General Director, Members’ Council of subsidiaries invested by the Group with 100% charter capital, Chairman of the Committees under the Board and managers to propose to the BOD ta consider and approve the basic issues in he corperale govenwmee model, the management of labor and wages of the Group and its subsidiaries invested by the Group; develop and implement management policies related ia the organizalion and personnel of the Group

1.3 Results of Business Performance of Bao Vict Group

Bao Viel was estabhshed on 15 January 1965, und is the leading financial-

insurance group in Vietnam It has been accredited as one of the top 25 enterprises in the country by the State Government

The Group is headquartered in Hanoi wilh a widespread nelwork af more than 188 branches across 63 provinces nationwide Bao Viet was the first insurance company

incorporated in Vietnam,

34

Bao Viet was granted the First-Class Labour Medal by the Party and the State on the eve of its 50 years establishment, in January 2015, BVQI (UK) accredited Bao Viet with the quality management ISO 9001:2000 certification in August 2001, and ISO 9001:2008 certification in 2009

The company was listed on the IIo Chi Minh City Stock Exchange in June 2009

Toray, the group provides a comprehensive range of financial services, including insurance, banking, fund management, sccuritics and investments

35

Tabic 2.1: SOME FINANCIAL INFORMATION OF BAO VIET GROTP (2016 — 2018)

(Source: Bao Viet Group's separate fincuscial statements)

36

#rom Lable 2.1, it can be seen that: Net revenue of the Company in the

period of 2016-2018 is above VND 1,300 billion to VND 1,100 billion, this is

a fairly average level of the market However, the profit hefore tax of the

Company is quite high, reaching over VND 1,000 billion ‘This is the specific

characteristics of the Parent Company due to the business activities mainly from finanetal investment, the cost is largely the maternal management cost of the Company

- In 2016, the Group completed 100% of the revenue plan and

completed 102.3% of the plan [or 2016 sfler-tax profil, The rate of rectum on

charter capital reached 14.7%

-In 2017, the Group completed the 2017 business plan assigned by the

General Meeting of Sharcholders with a total revenue of VND 1400 bithon,

completed 100% of the plan, grew 6.3% compared to 2016, profit before tax

was 1,043 billion dong, 3.8% higher than the plan, 2.2% higher than 2016,

Profit after tax reached VND 1,022 billion, exceeded 1

increased 1.9% compared to 2016 Profit rate on charter capital reached 15%

wy 4

sector is shown in FIGURE 2.2, the market share of new revenue from life insurance is shown in FIGURE 2.3