Luận văn solutions to improve working capital efficiency in hanoi transportation and goods services jointstock company

Therefore, improving the cfficicney of working capilal is always the target of every business To achieve that target together with to ensure good quality, reasonable price, stable develo

ae MANTIS AE

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UNIVERSITE DE NANTES:

MASTER THESIS

Master in Finance, Banking, and Insurance (Southeast Asia)

SOLUTIONS TO IMPROVE WORKING CAPITAL EFFICIENCY

IN HANOI TRANSPORTATION AND GOODS SERVICES JOINT-

STOCK COMPANY

Supervisor: Nguyen Phu Hung (PhD)

Student: Nguyen Thi Thanh Nga

September 2017

ABSTRACT

‘Title: Solutions to improve working capital efficiency in Hanoi ‘Transportation and Goods

Servi

2s Joint Slock Company

Program: Master Finance — Banking — Tusurance cooperated bebween Nalional University,

Hanoi (Vietnam) and Nantes University (France)

Time for graduation; 2017 - 2018

Student; Neuyen Thi Thanh Nga

Supervisor: Ngayen Plu Hung (PhD)

When conducting a business, entzrprisc must have a ccrtain amount of capital to cstablish the theilities comesponding to the selected business line That advance is calied business capital

in which there is a huge part of working capital Working capital is one of the two components

of productive capilal, In the process of production, working capital plays an important role in the business, Working capital usually accounts for a large proportion of capital in the enterprise Managing and using working capital directly affect the results of production and business activities of the enterprise Therefore, improving the cfficicney of working capilal is always the target of every business

To achieve that target together with to ensure good quality, reasonable price, stable

development in competitive environment, enterprises must constantly improve their production

and business activities in which managing and ulilizing working capital plays an imporlant rele and attects strongly to the production and business efficiency of enterprises

Improving working capital clficicney, espceially in production and business, is nol a now issue; however, it is always a matter of survival of any enterprise, Thus, for Hanoi

‘Transportation and Goods Services Joint Stock Company, finding solutions to improve working capital cfficicney is extremely essential Base on the analysis of cwrent usage and management

of working capital of the company, this thesis proposes specific solutions with the expectation of helping the company to maximize working capital efficiency

Keywords Capital, working capital, working capital efficiency

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ACKNOWLEGDEMENT First of all, T would like lo extend my sincers thanks lo my supervisor, Dr NGUYEN Phu Hung ISVNU’s lecturer for his useful comments, remarks and engagement through the learning process of this master thesis

Next, I would like to acknowledge and express my sincere gratitude to all the lecturers of

Nantes Universily and International School, Vietnam national University, Hanoi for providing,

iue the insight knowledge on all aspects of the major Finance, Banking, and Insurance

Futhermore, my deepest appreciation also goes to the managers and staffs working at Manoi ‘fransportation and Goods Services Joint Stock Company who helped me to collect data for this research It has been a pleasure working with them

Last bul not least, I would like lo give my deepes! and greatest thanks to my family, Their

Jove and support have kept me going this far

Student Nguyen Thi Thanh Nga

LIST OF ABBREVIATIONS Hanoi Transportation and Goods Scrvices Joint-Stock Company: HTGS

LIST OF TABLES Table 4.1: Business results of the Company in the period 2014 - 2016

‘Table 4.2: Financial indicators in term of profitability and growth

Table 4.3: Analysis of the siructwe of assets and capital of the company aver the years Table 4.4: Financing Model

‘Table 4.5: Working capital financing model of HIGS in 2016

Table 4.6: Situation on the Quctualion of working capital dimand in 2016

Table 4.6: Fluctuation in short-tarm assets of HTGS

‘Table 4.7: Volatility of cash and cash equivalents

Table 4.8: Indicalors reflecting the overall cfficicney of working capitat

Table 4.9: Fluctuation of receivables in 2016

Table 4.10: Indicators assessing speed of recovering receivables 2015-2016

Table 4.11: Company's debt situation in 2016

LIST OF FIGURES

Figure 1.2: Research process

Figure 4.1: The orgunivalional structure of the company

Figure 4.2: The organizational structure of accounting, divisions of the company

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1/63 Data Collection ccccecsessesenuaressnaeecssssseessnamecsassnenssnincsesssvasenssarecsaessnn 2

2.3.1 In term of form and liquidity sssennnenmnnenenmenenirniinenannsineseneneeeen

2.3.2 Intenm of role of working capital in business stages - - 18

2.3.3 in term of ownership relationship - ¬—

2.3.5 In term of time mobilising and using capital ccc cesses sieve vin seee 20 2.4 "The factors affecting working capital structure - - .20

2.4.1 Factors affecting working capital structure 20

2.4.2 The meaning of improving the efficiency of working capital sosscansansanneniee BD

2.5 Imdicators for assessing the working capilal effieieney ececceeeooee 75 2.5.1 Indicalors reflecling working capital efficiency - 25 3.5.2 mdicators reflecting the øverall efficieney of working capitd 26 2.5.3 Working capital turnover rate - TH se "¬ 27 2.54 Capilal savings duz to increasing speed of working capital circulation 28

2.5.5, Average working capital to nat sales ratio

2.5.6 Retum on average working capital rati

CHAPTER 3

RESEARCH METHODOLOGY

3.1, Description of research object ssnuenmminaneneamininninntneannine nen SL

3.3.1, Data collection mmethod à cnnieeeeeererrererrerrrreerrri.đđỂ

3.3.4 Analytic - synthetic method cciunenmnnennmnaeninmneanenienenmnnanannn 36

CHAPTER 4 RESEARCH RESULT

4.2, The coonornic and technival chaacteristics of the transpoctation service business 4l

4.2.1 General characteristics of the transport service business 4l

4.2.2 General information about the products of the Iransportalion sarvic business 13

4.3 Cuxent status of utilizing working capital at HTGS, óc ceooceeoee, 44

vì

43.1 General assessment of the company's production and business activities in the period

from 2014 to 2016 - - 44

433 Analysis of working capital efficiency at LIT]GS 45

4.3.3.3 Assess the situation and efficiency of inventory management 66

AA, An overview of the management and use of working capital in the company 64

44.2.1, Weakness in the management and use of vnpLling capHAÍ cceeeoecc.Đ7 44.2.2 Weaknesses in mobilising capital - - - 67 4.4.2.3, Management of receivables wo - 267

CUAPTER 5

SOLUTIONS TO IMPROVE WORKING CAPITAL EFFICIENCY IN HTGS

5.1 Business plan of HTGS in the future

5.2 Sclutions to improve working capital efficiency at ITTGS

5.2.1, Plan working capital cesencesssneseeree se "

5.2.1.1 Determine working capital demand to overcome the limitations in the management and

5.3.1.2 Strengthen management of the wse of capital intemporary idle cash 74 5.2.1.3 lmprov effectiveness in invenLory management, mrinirti2e ÌnvefLory cogks 2373

5.2.1.5 Apply measures to inanage current assets in a scientific way wD

6, Speed up working capital rotation

2 Search and select financial sources for working capital to overcame the limutations of Weakness in the maragemen! and use of working capital - - 3 5.2.3, Regularly monitor, evaluate and adjust dzbtswithin the implementing process 74

5.2.3.1 Monitoring, evaluating, regular adjustment of debt in the implementation process

76 5.2.3.2 Management according {ov business characteristics of the compare co oe FO 5.2.3.3.Improve the financial management capacity of the professional workforce 76

CONCLUSION

REFERENCES

viii

CHAPTER 1: INTRODUCTION

1.1 Prohlcm statements

Hanoi Transportation and Goods Services Joint-stock Company has been established over 50 years as a state-owned company with initial capital provided ftom the State budget HTGS specializes in investinents for goods transportation services, logistic service

businesses, leveling urban transportation construction, etc he HIGS’s total capital in 2016

was 23,281 billion VND, of which working capital is 7,026 billion VND

in recent decades, in times of persisting national budget deficits, issues of corporate finance for state-owned crterpri

become a hol lopie of reform, Many Governmental situties found that shortfalls in “soft” state financing are often one of the key factors forcing to start restructuring, and consequently the Government has to accept adopting a more economical approach to help state-owned cntcrprise with financial requirements through better ways to contiol costs to achieve sustainable financial viability

In the pariod 2014 102016, though the HTGS made profits in business, its managing, usages of working capital was assessed to not follow a really effective manner, affecting the company’s business operations in (ho incoming ycars, Working capitat (ic, three most important being accounts payable, accounts receivable and inventory levels) is essentially necessary for a company to maintain its operations on a day-to-day basis in a stable way Managing working capital is one of the most important financial management tasks for state cnfcrpriscs when Victnam moves toward a market cconomy from a command-and-control model, Efficient working capital management involves planning and controlling current assets and current Tiabilities so that ta @) respond to short term obligations and (ii) to avoid excessive investment in assets on the other hand Those that want to survive and prosper in the cuurent market mechanism must improve the efficiency of management and usage of

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1.2 Theratianale of the thests

The fisrt reason revived from the important role of warking capital for enterprises

Working capital is a part of business capital, which is the most important element in the production and business activitics, plays a decisive role in the pradnction and business efficiency, thus determining the existence and development of enterprises For each enterprise, working capital is required to renovate technology and equipment, increase production scale, improve product quality, and enhance competitiveness Therefors, in the

market economy, enterprises that want to survive must pay attention to the creation, management and usage of working capital, so that they can become the most effective in order to achieve prolil naximization

The second reason revived from ihe inefficient management of working capital in

Vietnamese enterprises

1n the context that the world economy and Vietnamese one have many fluctuations nowadays, Vietnamese enterprises have been facing difficulties in both managing and using

working capital effeolively, listed as follows

Efficient usage of working capital and reduced capital

According to a recent assessment of Vietnam Report, the ROE of 500 Viemnamese largest companics (VNRS00) is having the tondoney lo decrease steadily over the past Unce years, The decline in capital usage efficiency is the most severe in telecoms and shipping businesses (with a 50% reduction in capital efficiency according to the VNRS00 ranking chart from 2014 ta 2016)

Especially, while the usage efficiency of working capital and business capital has been decreasing recently, large Vietnamese enterprises still pay more attention to raising capitat and inoreasing the scale of enterprises, instead of emphasizing on improving the efficiency and yrottuctivily of capital al the enterprise

More than 60% of enterprises participating in a survey by Vietnam Report state that

“the difficulty to manage, mobilize and usc working capital as well as business capital” is in the top 3 biggest difficulties of enterprises in the recent years trom 2014 to 2016, Meanwhile, only less than 30% of enterprises think that “the lack of effactive investment projects" is a big difficulty for cntcrprises within the next two years

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Not only large and fast-prowing eorapanies ranked in the VNK.500 and EAST'500 have beon expericncing difficulties in working capital usage cfficicncy, bul small and medium

sized enterprises have also been experiencing similar problems,

According to VCCTS Annual Report on Sinall and Medium Enterprises in 2014, the working capital usage capacity of enterprises in all eight sectors, which include idecomumunications, insurance, cleotricily production and distribution, watorway transport, chemical manufacturing and chemical products, garments, rubber and plastic products, and construction, was studied to have a declining tendency ‘The sectors with the most decreasing tzend were telecommmunications and electricity production and distribution

Lack of strategy on working capital structure

‘An inherent weakness of Vietnamese enterprises especially for small and medium

is the view on the working capital struclure of the cnlorprise itself Accordingly, only

when businesses need to invest, they will begin to consider borrowing or issuing shares to mobilize their working capital, without taking long-term strategies to effectively restructure their existing capital This subjcetive perspective has caused Vietnamese businesses to miss many investment opportunities and directly affected their working capital structure’s safety

in fact, in the recent years, Viemamese enterprises have been heavily reliant on borrowing fimds ‘hey have not been able to contro! their cash flow, as they have gone after the income and uscd working capital for medium-term investment, which has led to the imbalance of working capital

in addition, a large number of enterprises have been using too much working capital, and have not actively borrowing and mobilizing from various sources, which has led to negative consequences in the production and business activities of enterprises These make il impossible to reach a large scale of capital, which leads to insufticient access to large projects, and subsequently no opportunity for breakthroughs and rapid growth

In the last few years, many businesses, especially those listed on the stock market, have been trying their best to increase their equity indefinitely, while not having a successful investment project There are companics that have increased their capital dozens of times over several years, This has led to increasing equity, but the ROH and EPS ratios have decreasing, which is not beneficial to the company’s long-term strategy

The thirrd reason rerived from market demand for efficient working capital usage

Increasing the efficiency of working capital is important for every business in particular and for the economy in general

First, improving the efficiency of working capital will ensure the financial scewity of

„ dircetly affecting their oxistenac and development Through [his, basi will

cnterpris

ensure the mobilization oŸ famding and solvency, as well as reduce business risks,

Second, improving the efficiency of working capital will increase business competitiveness In order lo meet the requirements of technological improvement, quality improvement and diversification of products, tha enterprise tush have working capital However, the capital is limited, thus it is essential to improve the efficiency of working

At the same time, it also increases the tax contribution for state budget

The fourth {this is the main reason) reason derived from the practical management and

usage of capital at ITTGS was assessed to not follow a really effective manner

IIVGS has been established over 50 years, is a state-owned company with initial

capital from the stato budget Al present, the Company's capilal in 2016 is 23,281 hillion

‘ND, of which working capital is 7026 billion VND The company specializes in investment for goods transportation services, logistic service businesses, leveling urban transportation constriction, cle In the period from 2014 102016, althaugh the company lad gained profil in

This is nat a new issuc, bul il has always been a big

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and usage for working capital in busines

question for enterprises and managers because of its vital importance determining business destiny

For HTO§, working capital is one of the most immporlant elements in the production and business activities, playing a decisive role in the production and businass efficiency, thus determining the survival and development of enterprises As for every enterprise, working capital is required to renovate tochnolugy and equipment, increase production scale, improve product quality, and enhance competitiveness, Therefore, in the market economy, HTGS must

pay attention to the creation, management, and usage of working capital, so that they can

become the most effective in order to maximize profits

fn the context that the global economy and the Viemamese one have many fluctuations nowadays, Viemamese state enterprises have been facing, difficulties in both managing and using working capital effectively So a research on this theme is very necessary

to Vietnamese state enterprises As of now, there has been lack of studies condueted upon the issucs of harricrs in working capilal management practices in Hanoi Transportation and Goods Services joint-stock Company By this study, I am looking for the optimal solutions to enhance the performance of working capital

1.3) Research Objectives

The overarching objeulive is applying the theory system on working capital, and its cfficioney in usage, inanagement and improvement into analycing the curent status of working capital efficiency of HTGS The outcome would propose practical and scientific solutions to improve working capital efficiency for the cormpany in the future

Specific objectives of thesis inctuds

+ Systematize the theoretical basics of working capital efficiency

* Analyze properly working capital usage and assess the working capital eflicisney for TTS

Propose measures fo create innovation in the usage of working capital at

HTGS

1.4 Research Questions

* What are overall challenges facing HT'GS?

+ —— WHmt arc the HTGS's wcakncssos in managig working capital? Has Íts working capital been used effectively and efficiently?

* What are the current barriers directly aftzeting working capital management practices in this company’?

* What can be done to relieve these barriers for higher business performance?

1.5 Objects anil scope of sturly

« Researching object: usage efficiency of working capital at HTGS

= Researching scope: The data for thesis covers only the period of 2014-2016 1.6 Research methodology

1.6.1 Researching Methods

Applying the method of dialectical materialism and histoucal materialism, combining

of tables

with other res ching motheds such as analytical statistics, cormpasison, synthesis

and generalization, secondary data collection and qualitative analysis

1.6.2 Research Desien

“This thesis use the steps below:

Figure 1.2 Research process

(Source: Author)

1.6.3.Data Collection

Data collection is a very important stage of research, There are a variety of ways of data collection depending on the research targets and objects In this thesis, we use the secondary data coltection from statistic reports of the company Besides, we study specialized articles and magazines, refaranee books on working capilal management, Secondary dala nol

only provides usefud information to resolve matters in the research but also helps us to understand and explain them thoroughly and comprehensively,

1.7, Values of the thesis

The thesis has brought some new contributions as follows:

Firstly, the thesis has fully and systematically compiled the most basic arguments on the working capital of enterprises In particular, the thesis has clarified the concept of working capital, syslematized working capital largets, generalived international and domestic experiences on solutions to increase usage efficiency of working capital, thus proposed

cfficicney of working capital in the dissarlation arc systematic, comprehensive and sci

and have formed a full and necessary theoretical framework

Sccondly, tuough the suvcy of indicators rclated to working capital at Hanoi transportation and goods services Joint-stock Company

‘Thirdly, in order to overcome the backlog in the management and usage of capital, solutions have been proposed to improve usage efficiency of working capital at IITGS

1.8, Thesis structure

Chapter 1: Introduction

Chapter 2: Literature review

Chapter 3: Research methodology

Chapter 4: Roscarch rusnÏls

Chapter 5: Solutions to improve working capttal cfiơienoy in HTG§

CHAPTER 2: LITERATURE REVIEW

2.1 Study overview

Working capilal has always boon the lop priority for any business in any country Therefore, the issue of efficiency and efficiency improvement for working capital in enterprises has always been a matter of special interest to international and national

roscarchers, and has bean studied from diffsrenl perspectives

21 Overview on international studies

- Studies on the business’s capital structure

A lot of sludics have been done worldwide concerning the capital structure of firms with different approaches and different levels of research, both theoretically and practically It can be seen that researching on the capital stracture in the world focuses on the following anain groups of issucs,

= The concapl of optirnal capital structure

+ Characlsristies of capital structure

- Components of capilat structure

Some research groups focus on clarifying theoretical grounding and empirical proofs

fo explain that firmus prefer debt financing rather than equity This perspective is evident in the studies of Sheridan Titman and Roberto Wessls (1988) in “The Determinants of Capital Structure Choice”, when they consider that the debt ratio has the only inverse relationship to the business sector of an enterpriss

Horvis's sludy in £991 also has domonstraled in theory and in practice that incrcasinys average margins would lead to increased risks in asset valuation models over time and eventually to an increase in capital expenditures

Some research proups have proposed research models to identify one or more single factors thal affect or are related to the capital structure of an enlerprise Typically, a study by Prot, Federick H Harris at Wake Forest University (1988), proposed a model for studying the relationship between asset structure, timover level, and capital structure to assess business porformance of entorprises

Meanwhile, a study by Williams Gentry (1988-1991) suggests that the higher the ratio

of fixed assels Lo lutl as:

hypothesis on the relationship between leverage and the dividend payout rate of American code share companies in the oil and gas exploration industry, Gentry (1994) found out that

the greater the usage of equity should be By examining the

from banks than those in tess developed regions Most slate-owned enterprises were heavily reliant on bank loans

+ Studies on capital usage efficiency

Rajan and Zingales (1995) have presented a very typical study om capilal usage

efficiency by enterprises in OECD countries and found a very strong negative relationship

‘between the book values of the stock and the financial leverage

The article "Effects of working capital management on SME profitability" by Pedro Juan Garcia - Ternel and Pedro Marniez - Solano (2007) was published in the Intemational Joumal of managerial Finance By investigating a sampic of 8,872 small and medium Spanish

firms in the period 1996-2002, the authors ran models to test the effects of working capital

inamagement on efficiency and profitabifity in small and medium-sived businesses Tl bas demonstrated that business managers can create values by reducing inventoties and inventory days, and, on the other hand, reducing cash flow cycle in order to help increase business profits

Another noteworthy research on management efficiency of working capital was by an American and a Nigcrian author, Odi Nwankwo Ebonyi and G Solomon Osho (2010), in his article on the topie "An Empirical -tnalysis of Corporate Survival and Growth: Evidence from

9

Efficient Working Capital Management" The authers have argued that all organizations, whether private or public, need sufficienl, working capilal to mcct daily business necds Their research objective was to consider whether management efficiency of working capital should

be considered as a prerequisite for business survival and growth, as well as what measures fo improve working capital’ s management efficiency

F W.Kasiran, N.Avhar Mohamad and al (2005) have a study on “Working Capital Management Efficiency: A Study on the Suull Mediums Enterprise in Malaysia” at the 7 Intemational conomics and Business Management Conference ‘This preliminary study was made with an aftempt to analyze the efficiency of working capital management in the selected

ondary dala was daived from Suruhanjaya Syarikat Malaysia Database of 24 companies are randomly selected from the stnall incdium cuerprisc companics in Malaysia The

SME Corp website for four years period from 2010 - 2013 In analyzing the efficiency of

working capital management three indexes was uscd in this current study namely, performance index of working capital management (PIWCM), ublization index of working capital managenen! (UPWCM), and sfficiency index of working capilat management (EIWCM) The results reveal that the selected small medium enferprise company was less efficient in managing their working capital during this study period

2.2 Overview on domestic studies

- Studies on capital structure of enterprises

Domestic researchers have done some researches related to the capital structure of firms The following typical case studies may be incinded:

The study by Nguyen Thu Thuy (2008) on “Capital Structure, Strategic Competition,

and Governance® Ws provided a modct to quantify the impact of factors the dogras of

financial leverage for enterprises

The article “dn empirical model of the capital siructure of countries worldwide" by Nguyen Viet Anh (2012) or the article "Fundamentals reasoning basis for Researching and Selecting Capital Sircture” by Do My Loan (2010) or "The Factors determining the choices for Capital Structure in Some ASEAN Countries" by Nguyen Manh Cuong, (2015) have alll focused on the question of capital structure In addition, a number of the projects have sludicd capital structure of specific firms, but those studies have only boon al the analysis

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level of existing capital structure in these particular firms Meanwhile, the qualitative proposal

fo renovate capital structure of such cntorprises has presented in the study by Bui Van Thi (2012) in her master thesis on "Renovation in capital structure of Hai Phong Shell Gas Company “and Le ‘Thu ‘Thuy (2013) with the theme " Renovation in capital structure of Lung

La Construction Company"

The article by Dam Van Hus (2015), which was publishad in the Journal of Reonornic Development on "“Conditiony to build optimal capital structure for Vietnamese enterprises", has analyzed some factors affecting the capital structure of enterprises as well as the conditions for building optimal capital structure for Vietnamese enferprises

The PhD thesis by Tran Thi Thanh Tu (2006) with the topic "Finalizing Capital

Structure in State-Owned Enterprises of Vietmam' has introduced the econometric model to

determine the influence of some basic and traditional factors for an enterprise, which are its

interest sates, asset structure, profitability, equity cost, industry tisk, tax rate, and capital structure Subsequently, solutions have been introduced to (i) ismovaic the pereeplion of business managers, (Ii) determine the basis for setting up optimal capital structure; (ii) diversify long-term debt financing channels and increase equity by issuing stocks; (Iv)

irprove facilities and teolmiques for management

Doan Tnong Quynh's PhD thesis (2010) on "Solutions to Restructure Capital af State Owned Enterprises in the current situation of Vietnam" has assessed the condition of capital

structure in state-owned enterprises of Viemam, factors affecting the capital and their impacts

on business performance and Gimancial stains af SOFs The author has proposed solutions to

promote the restructuring of capital and to strengthen the financial situation of SOEs

~ Rescarches on capital usage cfficicney

Nguyen Quoc Tuan (2012) in his doctoral dissertation on the topic “Research to improve capital usage efficiency of coal-mining enterprises in Quang Ninh province, with applications to Coal Thong Nhat One-member limited Hability company", bas presented the current status of capitat usage in some coal mining enterprises in Quang Ninh during 2006-

2010 period In addition, the author has analyzed the lessons for effective capital usage of coal-mining enterprises in China, In addition, the study also analyzed factors that affect capital usage cfficiency so as to proposc solutions for improvement in cfiicicncy for ccal-

11

mining enterprises in Quang Ninh province Moreover, the study has conducted a cass study

of Coal Thong Nhat Onc-member limited liability company the period of 2011-2015

Tran Due Loc's PhD thesis (2004) on "“inproving the efficiency of investment capital

usage far socio-economic development in the Red River Delia up until 2010" has established theoretical grotmding for the regional economy and the efficiency of investment capital usage

to develop the regional economy The stully has pointed several shortcarnings in the usage of investment capital for socio-economic development in the Red River Delta during 1995-2003 period

Vo Thí Thanh Thuy (2011) has done a research on the topic of "“dnalycing the efficiency of capital usage at Da Nang Faod Technology Jaint Stock Company" The scope of the study is from 2006 to 2010 By analyzing of the efficiency of using fixed capital, working capital and general capital (business capital), as well as by analyzing financial ratios such as profit over business capital ratio (ROA), profit over owners” capital ratio (ROE), profit over loaning capilal, ctv., tha author hes given assessments of the advantages and disadvantages of capital usage of enterprises, found out the causes for limitations and proposed solutions to improve the efficiency of using capital for enterprises

A review of literatures by national and international researchers has shown that capital and capital management are of particular interest because of ils mportanl vole Tlowever, the current reality in Vietnam shows that, according to a recent suvey by Viemam Report, ROE

of 500 largest companies in Vietram (VNR50Q) has the tendency to decrease steadily within

the last 3 ycars The decline in capital efficiency is the mosl severe in elecorns and shigpinys businesses (with a 50% reduction in capital efficiency according to VNR500 rankings from

2010 to 2013) It is noteworthy that although the efficiency of capital usage has been dectining recenily, large Victuamnese enterprises are still paying move attention to increasing capital anc business size, rather than to increasing efficiency and productivity of capital at enterprises This is also the current situation in small and medium enterprises As a result, many businesses have suffered losses, the rate of business bankruptcy has been increasing

because there is no effective capital management measure (incfficicnt capital management)

Because of this, researching is essential to propose solutions to improve working capital efficiency of enterprises Currently, there has been no topic that studies the solutions to improve the efficiency of working capital usage in Llanoi transportation and goods services

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Joint-stoek Company 'Thus, the study on the thesis topic 1s very urgent, can be used and inherit theories on working capital, usage and rumagement of working capital, as well as other existing research results, in order to apply into researching the topic in practice at Hanoi transportation and goods services Joint-stock Company

2.2 Definitions

2.2.1 Definition of capital

Invcstinent is the mobilization of resources to make expected benefits become reality

in a long enough time in the future An important resource that all investment projects have to

mobitive is capital

According to K Marx (1895), capital can bring surplus value, Thus, capital is considered in tems of value, as an input to the production process This point of view is highly generalized and has had practical significance till nowaday Liowever, it is limited to the idea that capital always produces surplus vatue and only in the produotion scelor can cxeate surplus value for the economy

After Marx, economists representing various schools of economics came up with

tana) Thus, the capital here is considered in the form of in-kind, fixed assets of the enterprise

‘Unlike Samuelson, in David Begp’s (2006) "Economics," the author gave two definitions of capital as physical capital and financial capital ‘he physcial capital is the goods stored in order lo produce other goods Finacial capilal is the money and other vatuable papors of the enterprise

in today’s market economy, capital is viewed as an input of not just a single

prodnetion process but of ¢ continuous production and reproduction process throughout the existence of the business Even if the business does not exist, its capital is transferred to other business processes In this point of view, capitals are all of the initial value and for the subsequent processes, which are expressed in both cash and material values, goods and assets

of the enterprise The capital horc is different from other conventional cunrencics, Moncy will

be considered as capital when it is put into production, otherwise it is not considered as capital when il is only used lo bay products for personal and social needs

13

‘This view inherits the previous views on capital ‘This view indicates that capital is the value invesied in production and business for the purpose of bringing profits, that is 10 bring the value of surplus Capital is formed as the inputs of production and business such as machinery, equipment, supplies as well as stock items, debts, cash (budget), etc Besides,

capital exists in the form of artifacts or non-artifacts

Capital is the advance value put into production and business, which helps formthe asseis of enterprises, Any production and business activities musi have capilal thal plays a very important role for enterprises, This requires enterprises to have a proper understanding of capital as well as basic characteristics of capital ‘This is the premise for effective usage of capital, Based on the above eonccpl, we can sce thal the capital has th following basic

© Capital is valuable in terms of time Generally, a capital today is worth more than that

of tomorow This has an important meaning in caleulating, choosing investment options and

assessing the effectiveness of capital use

© Capital umust be associated with a certain owner If the owner of the capital can not be clearly identified, the use of capital will be ineffective This feature requires the capital owner

to manage well the capital

© Capital is a special commodity First and foremost, capital is a commodity because it has use value, Capital is a special commodity because ownership and use righls can be

separated This means that capitals can be exchanged for use in the market (capital market) There arc Iwo approaches lo financial analysis as well as an analysis of corporate capital usc efficiency, which is the comparative method and the percentage analysis methods

‘The comparative method: in order to apply this method, it is necessary to ensure comparable conditions of financial indicators Gmiformily af space, time, content, witure and unit of calculation) } and for the purpose of analysis that determines the source of comparison, The comparator is chosen as the root of time or space, the analysis period is chosen as the reporting period or the planing period, the comparable vaine can be selected by absolute, relative, or average, Comparative content may be the comparison between the current year and the previous year, the comparison between the number of projects and the number of plans, the comparison of the number of enterprises and the average data of the industry

‘The percentage analysis methods: In analysing the corporate finance, the financial ratios are gtouped into specific interast_ groups, reflecting the basie content of the business objectives These are groups of solvency ratios, group of capital and capital ratios, group of operating, ability ratios, and profitability group Each rate group consists of multiple individual reflectivity ratins, cach of which is Gnamcially sound, in different casos, daponding on the anatytical perspective, the analyst chooses the different set of indicators

3.2.2 Definition of working capital

The working capital of an enterprise is the amount of capital supplied Lo form curent assets in order to ensure that the business process is carried out regularly and continuously Working capital circulates in full at once and is fully recovered, completing a rotation at the cnd of a business eyel

‘To comduct business, in addition to fixed assets, enterprises need to have curent assets Current assets of an enterprise include two parts which are curcnt asscts in production and

current assets in circulation

Current assets in production consist of assets at the stage of production reserves such

as fuels, primary raw materials, auxiliary materials, etc and assets at the stage of production such as being-tiannlactured products, semi-finished products, prepaid expenses,

Current assets in circulation of the enterprise inchide finished products waiting for consumption, capital in cash form, capital in paymient, expens

awailing for transfer, propaid

expenses, cle

Curent assets in production and current assets in circulation are always mobilized, replaced and transformed int the proc

of production and business to ensure the production

and business process is carried out continuously

Chracteristics of working capital

Working capital in the cycle process always changes the form

Working capital is uansferred in Gull at ence and is fully refunded afler cach business cycle

Working capital completes a rotation afler each business eycle

2.1.3 Definition of working capital efficiency

In order to improve the cfficicney of working capital, the first we nccd to find that how de to manage and preserve working capital

Derived fiom the characteristics of the method of transfor valuc (transfer all the costs of

product consumption) movement method of current assets and working capital (It has the

nature of repeating cycle, interleaving) and then jn the managernent of the use and

preservation of working capital, we should be paid atention to the following contents:

- Hs nói ssary lo delermine (estimate) the working capilal needed, al least in the

‘business period This will ensure sufficient working capital necdzd for the production and business process to be carried out regularly, avoiding stagnant capital (paying

interest on loans) speeding up the flow of capital leading to raising the efficiency of

capilat use

- Organizing the exploitation of working capital sources

\ First of all, on the process of exploiting capital sources, the company must make full

‘usc of internal capital sources and capital amounts which can be appropriated lawfully

and regularly

| In the case the working capital is not enough, enterprises continne to exploit outside sources such as joint venture capital, bank loans, fmaneial companies, oquily and hond capital and while exploiting the outside capital, most notable thing to consider is the

interest rate factor

- It nmust be measures to preserve and develop working capital always as well as fixed capital Preserving working capital means preserving the real value of capital or otherwise preserving

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the purchasing power of the capital that is not diminished from the beginning, ‘This is

reflceted in the ability lo purchase cesrent assets and solvency of enterprisy

in the production and business process

+ Tt is necessary lo carry out an analysis of the usz of working capital through financial indicators, such as rotation of working capital, efficiency of working capital, debt ratio

‘Thanks to these criteria, the financial manager can timely adjust the measures to improve the efficiency of using the capital Lo increase the profit

‘The issues mentioned above are only a matter of pmnciple In practice, management of working capital is very complex This requires managers nol only io have theoretical knowledge but also to have a practical mind and have “at” using capital

Probilems of using working capital effectively

Concept and meaning of use the working, capital etfectively

‘The starting point for conducting business activities of each company musst have a certain

amount of eapilal and corresponding source of funding Having “large capilat” and “strong capital" is a good premise for company but the use of such capital for efficiency is the decisive factor for the growth and development of each company,

The concept of use the working capital effectively

+ The cftet of using working capital is the cfficicncy gained efter specding up the flow of working capital through the stages of production The higher this zate, the greater the afficiency of working capital

+ The effect of using working capital is the most effective when the working capital needed for a rotation is the least This concept is more inclined toward saving as much working capital as possible for a rolation But in the case the goods produced by the company can nal

be sold, the efficiency of using capital is not high,

+ The efficiency of using working capital is the shortest time for working capital to be rotated ‘This concept can be said to be the consequence of the above conception

~ The efficiency of using working capital is the most cffeelive way of refleoting the lotat current liabilities against total working capital

‘The efficiency of using working capital is an effective reflection of the amount of profits camed when spending a working capital

‘The efficiency of using working capital is the efficiency gained when investing in working capital inere appropriately to expand the praduetion scale lo increase the sales volume with the requirement to ensure the increase of profit greater than the rate of increasing the working capital

In short, despite the different approaches to the efficiency of using working capital , but mentioning the efficiency of using working capital, we should have a more comprehensive view and can not separate it fiom a rational business cycle (the shorter the cycle of production, th more efficient the use of capital), high, reasonable use of inpuls, responsibte management of production, consumption and debt collection Therefore, it is necessary to address the criteria for effective use of working capital

2.3 Classification of working capital

2.3.1, interme of form and liquidity

Working capital is divided into two categorics

Cash and receivables includingmonetarycapital such as cash on hand, bank deposits, receivables of customers, advances to suppliers, etc

Capital on inventor

Jn production enterprises: Capital of goods and supplies including capital with specific forms such as main materials, auxiliary materials, fuels, spare parts, tools, prepaid expenses, finished products, ele

Jn commercial enterprises Capital on inventories is mainly the value of all kinds of reserve goods

2.3.2 In term of role of working capital in business stages

Working capital is divided into 3 categories:

Working capital in production stage includes capital of unfinished products, semi- finished products and capital for awaiting transfer Working capital in circulation stage includes capital of finished products, capital in cash, capital for paymeml, shorklemm

investment capital

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‘This olassification shows the role of each type of working capital in the produotion and business process, thereby sclocling and arranging # reasonable capital stractnre for cach item and each stage of business, As a result, there are grounds for determining the management focus for each stage of production and business activities of enterprises in order

to define the demand for working capital by the direct method

2.3.3 In term of ownership relationship

- Owner's capital: The working capital is under the ownership of the enterprise and the enterprise has foll rights with this type of capital such as the right to possess, use, dominate and dispose of There are many different, types of eqprily depending om the lype of enterprise, such as the private sector itself, from the state budget, shareholding in joint stock companies,

etc,

- Debts: The working capital is made up of loans from financial institutions or commercial banks, loans through the issuance of bonds, cutstanding loans from customers,

2.3.4, Jn term of capital formation

- Authorized capital is the working capital formed fiom the initial authorized capital used when the enterpris: is oslablishad or the additional authorized capilat in the process of production and business of the enterprise, This capital also differs among, types of enterprises

of different economic sectors

~ Self-snpplemented capital means the capital supplemented by enterprises themselves in the

process of production and business such as profits from enterptis:

- Joint venture capital is the working capital formed from the capital contributed by the parties

of the joint venture Join venture capital may be in cash or supplies and goods agreed by the

being reinvested,

joint venture parties

- Borrowing capital is loans from commercial banks or credit institutions, It also can be loans ram emiployses in enterprises or he borrowed fram other enterprises

- Mobilized capital from the capital maiket by issuing shares and bonds

Loans with deductible interest expenses help to inerease the value of the business, and value

of enterprise willl be maximized if 100% of loans is used In fact, no business will use 100%

of the loans bacausc in addition lo the interest, towns also bring a lot of potential financial tisks, It is the risk of bankruptcy if the interest is too large (especially when market interest

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rates fluctuate and the business does not have a buffer thaf is equity) Irom the perspeotive of financial management, every source of funding has ifs cost Therefore, enlerprises should consider the optimal funding structure in order to reduce their capital expenditures Firms

tnust decide on financial leverage on the basis of the balance between interests obtained from the loans and financial risks

2.3.5 In term off ume mobilizing and using capital

- ‘Temporary working capital: is capital of temporary nature, arising in the production and

business process such as shorl-term bank loans

- Regular working capital: is Stable capital to create liquid assets regulary

‘This classification shows the role of each type of working capital in the production and

process, thereby sclecting and arranging a toasonable capital struchure for cach ilơm

and each stage of business, Thereby, there are grounds for detemining the management focus for each stage of production and business activities of enterprises or organizations in order to determine the demand for working capital by the direct method

2.4 The factors affecting werking capital structure

LAL, Factors affecting working capital structure:

Factors affecting the efficiency of using working capital at companies include:

The extemal factors

(1) The economic policy of the State must first be mentioned This is @ factor that has

a preat impact on the efficiency of business production in general and the efficiency of using working capital in particular Depending on each development objective, depending on each dovdlopment objective, the State shall adopt preferential policics on lax capital and Lown inferest rates for each specific industry and branch, and adopt policies to encourage these industries but other professions ‘Therefore, when doing business, any business is interested in

and sđhore to the economic poticiss of the Parly and the State

(2) ‘The impact of the macroeconomic environment, such as inflation, can lead to the dopreciation of the cureney, which causes firms to lose eapilal in the face of the inflationary pressures of the currency or thetors that affect supply and demand If the demand for goods decreases, it will make the goods of the enterprises difficult to consume, and the backlog of capital and the efficiency of working capital will be reduced

“ The internal factors:

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(1) impact of the business cyclc: This is an important feahe that is directty related to the capital cflicicney of the business, If the eycle is shorl, znIerprisos will quickly recover capital

to renew and expand production and business In rewospect, if the production cycle is long, the business will bear a heavy burden of capital and interest on loans

(2) The impact of product technology: The product of the enterprise is the place where the cost and the sale of the product bring revenue to the enterprise

‘The position of the product on the market means that the product is competitive or exclusive, and consumers are favored to determine the volume of sales and unit price Because of the irapact on the volume of gaods sotd and their price, the product affecis profitability and sales This will affect the efficiency of capital use, Therefore, before deciding on products or business lines, enterprises need to carefully stady market demand and product life cycles So now business can expocl to profit

(3) ‘The qualification of human resources: ‘the human factor is the most decisive factor in cnsuring the efficient uso of capital in the enterprise The workers ars skilled, cxporioneod, able to absorb new technologies, promote creativity in work, have the sense of preserving and preserving reproduction in the process of labor, Savings in production, thereby increasing the efficiency of using capital The managerial level also has a great effect on the capital use cfficicney of enterprises Having good luman resourec management ensures that there is a qualified labor force to perform the tasks and arrange reasonable labor to avoid wasting labor This helps businesses improve the efficiency of capital use Financial management is very important, In the course of operation, the revenues and expenditures mmst be clear, thrifty and accurate at the right time in order to raise the efficiency of the use of capital of enterprises Management levet is also reflected in inventory mmmagemenl, production management,

consumption management

(A) The process of organizing production and business: This is a factor that directly affects the efficiency of capital use of enterprises, The business process of the enterprise has to go through 3 stages: supply, production and consumption

+ Supply is the process of proparing impuls for the production process as Taw materials, labor, it involves buying reserves In order to ensure business efficiency, the quality

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of goods must be ensured, the purchase cost of the image reduced to the optimal level ‘rhe objective of inventory is to cnsire the production proces

is not interrupted

| Production: In this stage, the production Line and the workers must be arranged in such a way that the most efficient machinery and equipment can be exploited lo maximize the capacity and working time of the machines for production planning

+ Product consumption is the decisive factor lo business performance Therelare,

enterprises must determine the optimal selling price and take appropriate measures to promote

the consumption of products quickly, This stage will decide the level of tumover, itis the base for reproduction

(5) The determination of capital structure and demand:

= The capital structure: the investment capital structure is subjective, affecting the efliciency

of capital use ‘'he highest proportion of capital invested in assets used and used in production and business activities is the oplimal capilal structure, Frisuro the balance between fixed capital and working capital in the total business capital; Make sure the appropriate ratio between positive fixed capital and non-aggressive fixed capital, Ensure consistency between

slages of the production process to maximize officieney of tire and quantity

Working capital structure reflects each component and the share of each component in the total working capital of dhe enterprise

An analysis of the working capital structure of an enterprisein accordance with different

suitable with specific conditions of the business

Because working capital is distributed in all three stages of the business process, the factors affecting the working capital structure are many, which can be divided into three main categories:

Group of factors in term of production:

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‘The production cycle has a great influence on the share of capital of in-progress products Long or short production eycle will dominaic the amount of capital, The longer the production cycle is, the greater the amount of capital is given to the in-progress product and vice versa

Characteristics of the technological process of the enterprise: if technology is applied with small amount of capital, the business performance will be increased; and the more complicated the products are, the higher the amount of capital is

Organizational characteristics affect the difference in the share of working capital that goes into prodnction and stockpiling Tf enterprises have synchrunous production and coordinale the supply and production process in a rational way,in-progress reserves will be reduced

Group of factors ix term of material procurement and consumption:

‘rhe looser the relationship between the enterprise and the supplier, between the enterprise and the buycris,the larger the storage of materials, finished products is

Conditions and means of transportation also have an impact on commodities, finished products If that condition is good, the reserve is less and vice versa

Market supply capacity: if the material is rare, iLis necessary to stockpile more and vies versa

‘The supply contiact or product consumption contract depends on the time of supplying and delivery, the quantity of inputs and outputs If the supply is regular, the reserve will be

Jess

Group of factors in term of payment:

‘The reasonable payment method and timely resolution will help to reduce the proportion of capital needed to be collected

‘The situation of managing the receivables of the enterprise and the compliance with the

~The determination of capitat demand:

‘The capital need of an enterprise at any given time is equal to the total amount of assets that the business needs to secure its business Identifying capital demand is very important

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Due to the quality of the determination of capital demand that it is inaccurate or accurate, cnough or nol cnough, exe

ive or not excassive for production and business avtivitics of enterprises, These are the causes or expressions of ineflicient use of capital, In contrast, identifying capital needs that are appropriate for the actual use of capital will contribute to improving the efficiency of capital use

(©) The level of management in using of capital resources is a direct factor affecting the capital efficiency of enterprises The main loot for monitoring and managing capital is the accounting and financial system Exellent accounting work will provide accurate data to help managers understand the financial situation of the business in general as well as the use of capital in particular and make the best decision On the other hand, the characteristics of accounting and internal accounting of enterprises are always associated with the organization

of production of enterprises, so also affect the management of capital ‘Therefore, through the accounting work with regular checking on the capital use of the business, it will help the enterprise to find out the shortcomings eaily and having the measures to solve

(7) Selection of investment options: Choosing an investment option is one of the most

imporlant factors affecting the efficiency of using capital in business Specifically, if the

enterprise knows the market, the consumer tastes on which to draw up the investment plan to create products that are widely available in the market, The revenue will be higher, the profit

will be higher, the cfficicncy of capital usc will incrcasc Conversely, if the investment plan is not good, the quality of the product is not suitable for the consumer's taste, it will not be able

lo consume the goods, which is stagnant, the capital turnover is slowed down, inevilably

these are bad indications of the efficiency of using business capital of enterprise

(8) Ruleprise’s relationships: they are the relationships between the enterprise and the customer, the supplier These relationships are very important, they afffect to the pace of production, distnbution capacity, consumption volume they are the issues directly affecting the profitability of the enterprise In the case the above relationships are going well, then the business proc

wiit new cusiomers Depending on the specific characteristics of your business, each enterprise will choose the appropriate measures: renew (he payment process [Dr cơnvenienee, expand the sales network and purchase raw materials, Apply tor economic measures to

increase sales, product diversification, deferred sales, discounts

2.42, The meaning of improving the efficiency of working capital

‘As mentioned above, to carry out any business activity, the indispensable condition is capital, Ones you have the capital in hand, another qugstion is how to use thal capital to make profit, which must be profitable is the decisive factor for the existence and development of the business, Business benefits require businesses to manage, use rational, effective capital, save cumulative capital lo make reproduction and expand yroduation scale is gelting targer

‘The effective use of working capital is one of the general indicators used to assess the quality of business management and usc of business capiiat in go

ral Through the criteria for assessing the efficiency of using, working capital, corporate finance managers can have an accurate and comprehensive view on the management and use of working capital of the unit

Measures, poticies and decisions arz appropriate and appropriate for the managernent and use

of capital in general and working capital in particular will be cffcctive in the future,

After all, improving the efiicieney of working capital is about raising the bottom fine

‘There arc profits we have accunniatad to reproduce more and morc

2.5, Indleators for assessing the working capital efficiency

2.5.1, Indicators reflecting working capital efficiency

in general terms, efficiency is a concept that reflects the capacity of using necessary

cloments to cngage in an activity for defincd purposes Thus, it is possible to understand

capital efficiency as ai economic category which assesses the capacity of utilizing material resources of enterprises to achieve the highest results in the process of production and

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‘The more efficient the company uses that capital, the more productive it can be Because of business benefits, it is required that enlerpnses need io use working capital reasonably and efficiently which make working capital each year can be used to buy more raw materials and fuel, produce more and sell more This also means that businesses are improving their working capital circulation (the number of working capital cycles within a year)

In order to cvaluate working capital cfficiency, many different criteria can be used;

but, the working capital rotation rate is the most basic and aggregate indicator reflecting the capacity in working capital management of the enlerprise

2.5.2 Indicators reflecting the overall efficiency of working capital

a Profitability of working capital by after-tax profit

b Profitability of working copital by net revere

Fomnila:

Profitability of working Net revenue

capital by net revenne — Average working capital”

The ratio of profitability of working capital by net revenue indicates how much net revene can be generated by one working capital ‘Ihe higher the profitability of working capital by net revenucis, the higher thy efficiency of working capital is

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2.5.3 Working capital turnover rate

The working capital tumover ral is a general indicator for assessing the working capital efticiency of enterprises The quick or slow speed of rotation of working capital indicates the organizing situation of all aspects such as procurement, production reserves, reasonable or unreasonable sales of enterprises, high or low cost of production, ete The analysis of working capital tumovcr rate can help enterprises accckcrate the specd of rotation, improve the working capital efficiency,

Working capital tumover rate can be measured by two indicators which are the workingcapital rotation and working capital rotation period

a Working capital rotation:

Formula:

Net revenue

Working capilal rotation =

‘Average working capital

‘This indicator states of the number of rotation of working capital in a given period (usually ơng ycar), This indicator cvaluates working cupilal cflicieney base on the comparative relationship between production output (sum of net revenue) and average working capital of the period ‘The higher the working capital rotation is, the better it is

b Working capital retation period:

Formula’

Working capital ‘Nunber of days in the period

dn which the number of days in the period is usually evened in away that a year is

360 days, a cuarter is 90 days, amonth is 30 days}

This indicator refers to the average Jenglh of a working capilat circulation or the number of days required for a working capital to carry out a rotation in a given period In

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contrast to the ratio of working capital rotation, the shorter the working capital rotation period

is, the more efficient the working capital is

2.5.4 Capital savings due to increasing speed af working capital circulation

Capital savings is an indicator reflecting the working capital that can be saved by increasing working capital circulation in this period compared to the previous period, Capital savings duc lo inereasing speed of working capital circulation are indicaled by two indicators

+ Absolute savings

By increasing the flow of working eapital, businesses can save some working, capital which can be used in other works In other words, with an unchanged capital circulation, by ineroasing the spced of working capital cireulation, enlorprises nocd less capilal and ean save

a certain amount of working capital so that they can use it in other works The less capital is the absolute savings of working capital

Absolute working capital savings are calcutated according to the formula:

Vang =H K, VIDLD, =VLBID VIDLD,

in which:

Vis: Absolute savings af working capital

VLDBQo, VLDBQ:: In tum are average working capital of report year and that of plan year

Mz: Tolal working capital tumover of the plan year

Ky: Time of working capital tumover in the plan year

* Relative savings

The essence of the relative savings is that by increasing the ciroulation speed of working capital, enterprises and organizations can increase the total working capital turnover (creating a larger net revenue) without increasing the sive of working capital

Relative savings are determined by following formula:

M Py= sơ Tan XI 2t x(K,—, — Kạ)

Ko, Ki: ‘Time of working capital tumover in the report year, plan year

2.5.5, Average working capital to net sales ratio

This indicator indicates how mmch average working capital will be needed in order to generate a net tumover

Average working capital to net sales ratio

Average working capital to Average working capital

Awerage working capital to net sales ratio reflects the amount of working capital required lo achicve a net tumover The sinter the ratio is, the highor the working capilal efticiency is,

‘This indicator, which reflects the effisctiveness of using the capital, will be used to analyze the effectiveness of eapitat uso of culerprises in the poriod (usually one your) We will compare these indicators with indicators in the years ago and compare with that of the industry and competitors If the indicator of the enterprise in the analytic period is better than the same index in the previous years or the general index of the industry, we can conclude that the capital efficiency of the enterprise is good

2.5.6, Return on average working capital ratio

Retum on average Profit before tax

working capital ratio

Average working capilal

‘This indicator reflects how much profit before tax (or profit after corporate income tax) can be generated from one working capital The higher this ratio is, the higher working capital efficiency is

With the study on working capilal, working capital eficicney and indicators for assessing working capital efficiency, the importance of working capital in the production and business activities of enterprises can be pointed out Working capital exists at all stages of the business cycle, from storing (reserve working capital), production (working capital in production) to circulation (working capital in circulation) and mobilize in rotations, The working capital tumover rate is the aggregate indicator assessing the working capital

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efficiency Increasing working capital tumover rate will ensure the working capital efficiency

of enterprises in term of saving working capital, raising the profitabitity of working capital Obviously, through these mentioned studies, we can see that it is needed to improve the working capital efficiency

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CHAPTER 3: RESEARCH METHODOLOGY This thesis paper applies the collection of secondary data for the calculation, analysis

and compurison of research indicators Based on the analysis of statistical indicators, the

author assesses the working capital efficiency of the company

3.1 Description of research abject

The research object of the thasis is lo study solutions to improve working eapilaL efliciency of Ha Noi Transportation and Goods Services Joint Stock Company (HTGS)

ATGS was eslablished on May 16, 1966 under the namic Ha Noi Goods Transportation

Company and was under the managcment of Hanoi Transportation Department The company

is currently owned by shareholders, established on the basis of equitization of state-owned enterprises ITTGS is a leading enterprise with a reputation for transportation transportation forms and other scrviccs relating to transportation, The company always develops all resources in order to build a scientific management system, strictly follow the transport quality basing on TSO 9001: 2000 with the purpose of affering customers services with high quality, safety, being on schedule and reasonable price

TITGS specializes in providing transporlation services, Ingislic service business,

leveling whan transportation construction, importing and exporting materials, specialized

equipment and means of transport, supplying electric equipment repair services, investing in

warehouge, loading and unloading goods, cooperating with vocational training institution in

driving vehicles to condusl vocational training and driving tests, clc

‘The company’s working capital has been characterized by a combination of chartered capital, self-financed capital and borrowed capital In particular, the charlzred capilal of HTGS was VNDI4A billion by the end of 2016 In addition, the company has relatively regular self-financed capital from the profits in the production process By December 31°2016, undistributed profit was approximately VND 1.29 billion which inercased 13% in

comparison with that by December 31°2015 With borrowed capital, in the year 2016, that of

TITGS has experienced considerable Muclualion This change was due to the substantial

reduction in short-term liabilities in which payables to sellers were the primary driver At the time of December 31st 205, the total short-term debt of the company was VND 6.6 billion, while that at December 31°2016 was only VND 5.047 bilion 'Thus in just one year, the

31

company's short-term debt was reduced by VND 15 bilion which was eqnivalent to 24, 'Nơnmily, a loan with a deductible inlerest expense witk increase the valuc of the business, bul

at the same time it also brings potential financial risks In this case, borrowed capitalof HTGS has changed due to the decrease of payables to sellers which did not bring to the company

large financial value These are urgent important reasons why it is nesded to study the solutions to improve working capital cfficicney at HTGS

3.2 Choice of research method

‘As the theoretical basis mentioned in chapter 1, my thesis with title "Solutions to

improve working capital efficiency in Ha Noi Transportation and Gaods Services Joint Stock

Company", the method of analysis and compare are applied in order to find out the current status of managing and utilizing working capital of the company, to study the factors affecting the effectiveness of managing and utilizing working capital, to develop indicators for assessing working capital cfficicney, fo calculate, analyze and evaluate statistical indicators which accurately reflect the status of managing and utilizing working capital of the company

On that basis, the thesis will provide feasible solutions with the purpose of improving

working capital efficiency at HTGS

3.3, Research process

For this topic, we apply the rescarch process as presented in the following diagram: