There are many things to do when it comes to improve the enterprises’ competitiveness but the thing which is regarded as one of the most important factors is to enhance the performance o
THEORIES OF ENTERPRISES’ CASH FLOW AND CASH
Enterprises’ cash flow
1.1.1 Definition and types of enterprises’ cash flow
1.1.1.1 Definition of enterprises’ cash flow:
Monetary circulation is a core issue in economic theory, as the functioning of money directly influences the development of the economic system Cash flows, formed by an essential component of the economic mechanism—money—play a vital role in maintaining economic stability and growth.
There have been various interpretations of the concept of "cash flows” and some typical opinions are listed in the table below
Table 1.1 Summary of cash flow definitions
Cash flow is defined as “the movement of money into and out of a business.”
(Bocharov, 2013, p 25) Cash flow is characterized as "a collection of cash that a company receives or pays during a certain period."
The term "cash flows" describes the process of cash flow and characterizing them as current and future receipts and expenditures of funds
(Coyle, 2000, p 49) Cash flow is characterized as “a process of receipt and expenditure of funds”
An organization's cash flow is defined as “a collection of time-allocated receipts and payments of cash generated by its economic activities.”
Cash flows depict the fluctuations in the amount of money a business, institution, or individual possesses In finance, this term specifically refers to the cash (currency) generated or consumed within a defined period, such as months, quarters, or years Understanding cash flows is essential for assessing the financial health and liquidity of an organization or individual These insights help in making informed decisions related to investment, spending, and financial planning.
There is a need in separating cash flow with the profit or loss recorded due to the using of accrual basis of accounting in the company Accrual accounting accruals for revenues and expenses, as well as for the delayed recognition of cash already received, can cause differences from cash flow Even if the company generates a profit, it does not ensure positive cash flow In that case, the company must take into consideration the way it manages its cash as well as minimizes the gap between cash outflow and cash inflow To sum up, good cash flow with inadequate profits means short-term survival but long-term problems and good profits without adequate cash flow means immediate trouble (Reider & B.Heyler, 2003, p 12)
1.1.1.2 Types of enterprises’ cash flow
In general, there are two types of cash flow, including cash inflows and cash outflows
Cash inflow refers to the money coming into a business from various sources, including sales, investments, and financing activities Key components of cash inflow include payments received from customers for goods or services, bank loans, interest earned on savings and investments, shareholder investments, and increased bank overdrafts or loans Understanding these revenue streams is essential for effective cash flow management and financial planning (South Tyneside Council, n.d.)
Cash outflow represents the money leaving a business and includes key expenses such as the purchase of stock, raw materials, or tools, as well as wages, rent, and daily operating costs It also encompasses the acquisition of fixed assets like PCs, machinery, and office furniture, along with loan repayments, dividend distributions, and income taxes Managing these cash outflows effectively is essential for maintaining financial stability and ensuring the company's smooth operation.
South Tyneside Council highlights that managing regular cash outflows like salaries, wages, loan repayments, and taxes—such as VAT and other taxes—requires maintaining sufficient cash reserves to meet fixed payment deadlines Ensuring adequate liquidity helps organizations avoid hefty fines and maintains employee satisfaction, especially when dealing with reduced overdraft facilities Proper cash flow management is essential for financial stability and operational efficiency.
A healthy business demonstrates positive cash flow, with inflows exceeding outflows, which enables the company to build cash reserves and pursue growth opportunities Managing cash effectively by accelerating inflows and reducing outflows reassures lenders and investors about the company's financial stability Ultimately, optimizing cash flow is essential for business sustainability and expansion.
In addition, there are other types of cash flows such as Owners’ cash profits, Free cash flow, etc
Owners’ Cash Profits represent the cash flow available for distribution to shareholders in the absence of expansionary capital expenditures Unlike Owners’ Earnings, which exclude changes in working capital, Owners’ Cash Profits include these adjustments by utilizing Cash Flow from Operations instead of Net Income This distinction emphasizes that Owners’ Cash Profits reflect the actual cash generated by the business, offering a clearer picture of distributable funds.
Free cash flow represents the cash generated by a company after deducting capital expenditures from its operating cash flow, indicating the cash available to both debt and equity holders It reflects the company's ability to pay dividends, reduce debt, or reinvest in growth opportunities once expenses and taxes have been settled Monitoring free cash flow is essential for assessing a company's financial health and its capacity to sustain operations and create value for shareholders.
Free cash flow is a vital metric that indicates how efficiently a company generates cash It helps investors assess the remaining cash after funding operations and capital expenditures, highlighting the company's ability to distribute dividends and buy back shares A positive free cash flow signifies that the company has sufficient cash inflows to support ongoing operations and shareholder returns.
A negative free cash flow indicates that the company is not generating enough cash from operations to meet its capital expenditure plans, requiring it to use cash reserves or raise funds through asset sales, stock issuance, or debt Sustained negative free cash flow over the long term raises concerns about the company’s viability and may signal potential financial difficulties.
Free Cash Flow differs from Owner’s Cash Profits because it deducts all capital expenditures, including extraordinary expenses aimed at growing the company, providing a comprehensive view of cash generated after investments In contrast, Owners’ Earnings and Owners’ Cash Profits only subtract the average or necessary capital expenditures required to maintain or sustain the company's current operations, reflecting the cash available to owners without factoring in growth investments.
1.1.2 Contents of enterprises’ cash flow
There are several ways to classify cash flows The classification is vital because it gives a deeper insight into understanding the operation of cash flow
Cash flows are predominantly classified based on a company's main activities, encompassing cash flow from operating activities, investing activities, and financing activities These categories are essential for understanding a company's financial health and are clearly detailed in the cash flow statement Proper classification helps investors and stakeholders analyze how a business generates and uses cash in its core operations, investment efforts, and financing strategies.
Cash from operating activities (CFO) appears at the top of the statement of cash flows and represents a company's core business cash flows, including inflows and outflows from buying, selling merchandise, and providing services It excludes cash flows from investing activities CFO is calculated based on four key factors: net income, depreciation and amortization, time adjustments, and changes in working capital (Tulsian & Bharat, 2016).
Cash Flow from Operations = Net Income + Depreciation & Amortization +/- Time Adjustments +/- Changes in Working Capital
Cash flow from investing activities (CFI) is a key component of a company's cash flow statement that reflects the cumulative changes in its cash position These changes result from investment gains or losses and fluctuations in the amounts spent on capital assets like plants and equipment Understanding CFI helps investors assess how a company manages its investments and capital expenditures, thereby providing insights into its long-term growth strategy.
The framework of enterprises’ cash flow management
1.2.1 Definition and objectives of cash flow management
Cash flow management can be understood from two perspectives: basic cash flow management and advanced cash flow management (Jose et al., 2008) It involves monitoring, analyzing, and optimizing the net cash inflows and outflows, which is essential for assessing a business's financial health (Ward, 2019) Effective cash flow management ensures that a company maintains sufficient liquidity to meet its expenses and supports overall financial stability.
Effective cash flow management ensures a smooth asset transformation process within a business To achieve this, companies must understand their cash management objectives, which are essential for maintaining financial stability and operational efficiency These objectives, outlined by Reider and B Heyler (2003), provide a strategic framework to optimize cash utilization and support overall business growth.
- Control and track cash flows
- Optimize sources and uses of cash
- Maximize revenues and minimize expenditure
- Collect for sales as quickly as possible
- Expend cash only where necessary (i.e for value-added functions and activities only)
- Pay creditors no sooner than necessary, and minimize the costs associated with vendor purchases and payments
- Provide for adequate external sources of funding
- Properly manage external short-term borrowing and/or investment activities
- Effectively utilize any excess differential cash generated
- Keep the cash conversion gap at a minimum
1.2.2 Cash flow management in an enterprise
Effective cash flow management varies across companies, requiring tailored systems that consider the unique financial and economic activities, as well as the external and internal environment Nonetheless, applying a core set of established approaches and methods—known as the cash flow management toolkit—is essential for optimal financial performance.
1.2.2.1 Cash flow management in 4 stages of company development
Effective cash flow management is essential for startups to cover initial expenses, manage limited funds, and establish a solid financial foundation During this stage, focusing on maintaining positive cash flow helps startups secure investments, sustain operations, and set the stage for growth Proper planning and monitoring of cash inflows and outflows are vital to ensure long-term stability and success in the competitive early market.
At this stage, a company is just getting started, and cash flow is often limited or negative The business is typically relying on personal savings, loans, or venture capital
• Raising Capital: The company needs to secure initial funding through loans, investors, or personal savings Cash inflows are typically minimal during this stage
• Cash Burn Rate: It's critical to track how quickly cash is being spent, particularly on product development, marketing, and operational setup
Effective expense control is essential for startups, especially when revenue is not yet consistent Prioritizing cost management helps keep operating costs low while supporting the company’s growth potential Carefully balancing expenses ensures sustainability without compromising future development.
• Build a detailed cash flow projection
• Prioritize essential spending and delay non-essential expenses
• Monitor funding needs and adjust as required b Growth Stage
As the business scales up and revenue grows, the company likely has a product or service established in the market However, despite this growth, cash flow can remain volatile due to rising operational costs and ongoing investments in expansion Effective cash flow management is essential to sustain business growth and ensure financial stability during periods of rapid expansion.
• Revenue Growth vs Expenses: Cash flow can become positive, but it is often a challenge to balance growth with the need for working capital
• Working Capital Management: Managing inventory, accounts receivable, and accounts payable becomes crucial as the company scales Delayed payments or increased inventory can strain cash flow
• Investment in Growth: There is often a need for reinvestment into marketing, hiring, technology, and expansion, which could put pressure on cash reserves
• Improve cash collection processes and shorten the sales cycle
• Consider lines of credit or other financing options to smooth over cash gaps
• Keep a close eye on cash conversion cycles (how long it takes to convert investments in inventory into cash) c Maturity Stage
The company is established with consistent revenue streams and is often profitable However, cash flow challenges may still arise, especially with market fluctuations or changes in consumer demand
• Sustainable Profitability: Managing a steady stream of revenue and ensuring that operational costs are aligned with income
• Capital Allocation: The company must decide how to allocate profits— whether to reinvest in the business, pay down debt, or distribute dividends
• Debt Management: Cash flow management at this stage may include servicing debt, particularly if the company took on loans or external financing earlier
• Use excess cash for strategic investments (e.g., acquisitions, technology upgrades, or entering new markets)
• Maintain a balance between reinvesting in the business and returning profits to stakeholders
• Establish strong cash reserves to weather any unexpected downturns d Decline/Exit Stage
At this stage, a company may be experiencing a decline in revenue, facing increased competition, or planning for an exit (e.g., selling the company, merging, or going public)
• Cost Control and Cash Conservation: The focus shifts to preserving cash and reducing costs Cash flow is critical to maintain liquidity while managing a declining business or preparing for sale
• Exit Planning: If the company is being sold or merged, cash flow will play a crucial role in the valuation of the business
• Debt Repayment and Settlement: If the company has significant liabilities, managing cash flow to meet debt obligations is essential
• Tighten credit terms and focus on cash collection
• Sell non-core assets to raise liquidity
• Consider scaling back on non-essential operations to conserve cash
1.2.2.2 Steps to conduct cash flow management
Effective cash flow management is crucial for the financial health of a business Here are the key steps to conduct cash flow management:
Step 1: Create a cash flow plan and do cash flow analysis: In this step, the company's cash flow needs to be analyzed specifically depending on the purpose of cash flow planning and capital needs The nature of the company's industry and the company's
24 cash flow characteristics also need to be carefully considered to make appropriate plans
Step 2: Making cash flow forecasting: In this step, the indicators of cash inflow (cash flow from business activities, investment activities, financial activities) and cash outflow (costs of personnel, operations, goods, etc.) are specifically forecasted based on specific studies and arguments about the nature of the company cash flow in step
1 From there, an assessment of the cash flow situation is made based on the calculated net cash flow, or in other words, whether the company is in a state of excess or shortage of cash Finally, solutions to remove obstacles, if any, are proposed Step 3: Conducting cash flow budgeting
Step 4: Use method and tools to do cash flow optimization: In this step, the company, based on the above cash flow forecast, makes a decision on the selection of sources of cash and uses of cash The company will make important decisions regarding which sources of cash to get, where, how much and how to finance the shortfall in capital needs as well as how to use the surplus cash for and with what plan and roadmap The ultimate goal is to optimize the cash flow and ensure that the business does not fall into a cash shortage situation
Cash flow plans are strategic documents that companies make to forecast their cash inflows and outflows over several periods
Cash flow planning is essential for predicting a business's future cash inflows and outflows, helping to identify potential cash shortages or surpluses It allows companies to implement strategies that balance cash sources and uses, ensuring financial stability Effective cash flow management enables businesses to make informed decisions, improve liquidity, and maintain operational efficiency By forecasting cash movements, businesses can proactively address cash flow challenges and optimize their financial health.
The significance of cash flow planning
Good cash flow management is key to ensuring any business runs smoothly Matching the payment of expenses to projected incoming cash and making payments
Delaying payments as long as possible can enhance efficient working capital management by optimizing cash flow Implementing cash flow plans allows businesses to earn interest on cash reserves and maintain a liquidity cushion to cover unexpected expenses Additionally, these plans help assess whether operating cash flow is sufficient for capital expenditures or if additional capital needs to be raised to support growth and investments.
In other words, the payment capacity of an enterprise depends on its cash flow capacity
Using an accrual basis of accounting can create a mismatch between a company's revenue recognition and cash flow, potentially leading to cash shortages despite profitability This imbalance may cause a profitable firm to face bankruptcy if it cannot meet its immediate financial obligations Implementing a cash flow plan enables managers to forecast cash inflows and outflows accurately, helping to prevent cash shortages and ensure financial stability.
Effective cash flow planning is essential for business success, as it provides insight into the company's financial position at any given time Without proper cash flow management, companies face increased risk of unexpected shortfalls or surpluses Implementing detailed cash flow plans helps mitigate surprises, enabling businesses to proactively address potential financial challenges and optimize their financial stability.
The tools used in cash flow planning process
Cash flow planning is essential to ensure that future expected cash sources exceed cash uses, helping maintain a positive cash flow Regular comparison of actual results against the cash plan allows for effective analysis and informed decision-making Key tools in the cash flow planning process include preparation, cash forecasting, cash planning, and cash budgeting, which collectively support healthy financial management (Reider & B Heyler, 2003, p 264)
Steps to conduct cash flow forecasting:
To facilitate predicting and planning cash flow, cash inflows can be divided into three categories
Factors affect enterprises’ cash flow
There are many different factors that can affect the enterprises’ cash flow
Financing policy decisions of enterprises
Investment decisions, financing decisions and dividend decisions are decisions that directly affect the cash flow of enterprises
Investment decisions are primarily driven by an organization’s long-term and short-term needs, with long-term investments focusing on capital assets and short-term investments managing working capital The firm's financing policy aligns with these investment requirements, sourcing funds accordingly, often at lower interest rates for long-term funds compared to short-term funds These investment choices significantly impact the company's cash flow and influence its capital structure, ultimately affecting liquidity Strategic decisions such as asset sales and additional investments aim to maximize business value (Nguyen, 2019)
Financing decisions, although they indirectly impact a company's cash flow, also have a direct effect on financial health and stability The finance manager’s primary responsibility is to select optimal sources of finance to achieve an efficient capital structure Balancing debt and equity is crucial, as choosing the right proportion can maximize returns and minimize risks While higher debt can increase leverage, it also leads to higher interest liabilities and associated financial risks, emphasizing the importance of strategic financing decisions for sustainable business growth.
Increasing a company's equity and permanent funds boosts its overall financial strength; however, it also raises shareholder expectations for higher returns Financing decisions aim to enhance shareholder wealth and organizational profitability by carefully determining how to mobilize capital and utilize leverage These decisions directly influence the company’s cash flow from the financial sector, subsequently impacting overall company cash flows Nonetheless, cash flows resulting from capital mobilization are often irregular and unstable.
37 fluctuation in this cash flow will lead to a great impact on the amount of money circulated by the business (Boex, 2015)
Dividend decisions significantly impact a company's cash flow and play a crucial role in shaping its financing policy (Li et al., 2009) Determining the amount of profits available for distribution requires careful consideration of dividend stability policies and the company's future outlook When a firm distributes higher dividends despite growth opportunities, it may need to borrow funds to finance expansion, affecting its solvency The choice of cash dividend policy directly influences the company's cash reserves and financial stability Corporate managers often face challenges in balancing dividend payments with investment needs, especially when conflicts arise over the allocation of cash Additionally, changes in short-term financing policies—such as selling strategies, discount policies, inventory management, purchasing, and repayment plans—also play a vital role in affecting overall cash flow.
Asymmetric information can significantly impact a company's cash flow by increasing the costs of raising external capital When information asymmetry issues arise, businesses face higher expenses in obtaining external funding compared to using internal resources, leading to financial uncertainties Consequently, the company allocates cash flows primarily to cover debts, with issuing new shares considered only after debt repayment, which gradually shifts the firm’s capital structure and further influences its cash flow dynamics (Enright, 2021)
Scale, stage of development in the life cycle of products and businesses
The development stage in the business and product life cycle is a crucial factor when analyzing cash flows During the startup period, companies typically experience negative net cash flow due to significant investments in infrastructure and development activities This phase reflects the high initial costs associated with launching a new business or product Understanding this stage helps in accurately projecting future cash flow and financial sustainability.
The company faces challenges in maintaining cash flow due to limited revenue from machinery, equipment, and regular operations, compounded by difficulties in capital mobilization Limited cash flow from investment activities, low turnover, and poor collection of receivables are further issues, often caused by frequent lending to customers and a lack of strategic supplier relationships During this period, the sales policy focused heavily on introducing products to consumers, which significantly impacts overall cash flow management (Laughlin, 1980).
During the growth and development phase, businesses often experience significant improvements in cash flow due to strong revenue growth and increased customer prepayments, reflecting a positive shift in financial position (Nguyen, 2019) Investment projects start generating substantial cash inflows, while cash flows from financial activities fluctuate based on the company’s capital mobilization strategies Additionally, businesses modify their selling policies, such as prioritizing payment discounts, to optimize cash flow management during this period.
Macroeconomic situation, monetary policies and fiscal policies
During an economic crisis, net operating cash flow can decline significantly, leading to slower or reduced revenue generation Cash flows from investment and financing activities are highly sensitive to economic conditions; investment projects may be curtailed, causing a decrease in net investment cash flow Additionally, government policies aimed at tightening credit, reducing inflation, and controlling capital can impact both investment and financing strategies through capital and loan channels, further influencing overall cash flow dynamics.
Effective financial management by business executives significantly impacts cash flow, primarily through accurate forecasting, utilization of appropriate models, and avoiding unrealistic predictions According to Al Bento and Regina Bento (2006), robust cash flow management is rooted in sound financial planning and reliable forecasting methods, which are essential for maintaining healthy business operations and preventing financial uncertainties.
39 managing cash flows reasonably is not easy Ensuring continuous flow of cash flow along with the growth of the financial situation of enterprises are the top goals of managers
CASH FLOW MANAGEMENT AT GEMADEPT CORPORATION
The overview of the company
2.1.1.1 Overall introduction of the company
Gemadept Corporation was established in 1990 and was among the first 3 companies being selected by the government for equitization in 1993 From 2002, Gemadept was officially listed on Vietnam Stock Exchange
- Name in Vietnamese: Công ty Cổ phần Gemadept
• Tax code and Business Registration No.: 0301116791
• Registered Head-office of the company:
+ Address: 6 Le Thanh Ton street, Ben Nghe ward, District 1, Ho
+ Website: http://www.gemadept.com.vn/
+ Email: info@gemadept.com.vn
“To become a leading corporation in Vietnam in Port and Logistics integrated ecosystem.” (Gemadept Corporation, 2022)
“To promote economic growth and create added values for the country, the corporation and partners through comprehensive service chain and outstanding solutions.” (Gemadept Corporation, 2022)
• Values for customers and partners
“Excellence - Pioneer - Partnership and development.” (Gemadept Corporation, 2022)
Gemadept, with over 30 years of establishment and development, has established itself as a pioneer across multiple sectors Through relentless efforts, it is now recognized as one of Vietnam’s leading companies in port operations and logistics Its extensive business network spans major cities and provinces within Vietnam and extends into other ASEAN countries Consistently ranked among Vietnam’s Top 500 Largest Enterprises, Gemadept has earned numerous honors for its significant contributions to the industry.
1000 enterprises having the largest contribution of corporate income tax to national budget, Top 20 Logistics Enterprises in Vietnam, Top 50 Best Vietnamese Listed Companies by Forbes, etc
So far, Gemadept has been one of the leading flags in the core businesses of the Group including Port Operations and Logistics with over 30 years of operating experience
We can see the process of formation and development of the company as follows:
• In 1990: Company establishment under Vietnam Maritime Bureau
• In 1993: Transformation into a joint-stock company with VND 6.2 billion charter capital
• In 1995: Establishment of Phuoc Long ICD, the first inland port of
• In 1997: Implementation of Midstream operation, river way transport
• In 2000: Achievement of 2nd ranking in container handling volume nationwide
• In 2001: Obtaining the number of VND 200 billion in charter capital
• In 2002: Listing in the stock market
• In 2003: Deployment of container liner transport service
• In 2004: Establishment of 2 overseas subsidiaries in Singapore and
• In 2006: Successful share issuance to add charter capital up to VND 475 billion
• In 2007: Purchase of 3 seagoing vessels, launching 4 service lanes, establishment of 3 joint ventures with reliable international partners
• In 2008: Putting into operation 4 important projects: Gemadept Tower,
Schenker-Gemadept Logistics and 2 ports in Dung Quat and Hai Phong
• In 2009: Accomplishment of a new level of profit; Initiation of Tan Son Nhat Air Cargo Terminal Construction
• In 2010: Increasing charter capital reaching the number of VND 1,000 billion; Putting Tan Son Nhat Air Cargo Terminal into operation; Owning 99.98% of proportion of Nam Hai Port Joint-Stock Company
• In 2011: Starting rubber plantation project in Cambodia; Putting DC1 in Song Than IZ into operation
• In 2012: Official deployment of investment in rubber plantation -
Cambodia; Putting Distribution Center No 1 and No 2 in Song Than IZ (Binh Duong Province) into operation; Starting construction of Nam Hai Dinh Vu Container Port
In 2013, the company increased its charter capital to VND 1,144 billion and successfully completed the construction and operation of Nam Hai Dinh Vu Container Port, enhancing its logistics capabilities Additionally, the company transferred 85% of shares in Gemadept Tower, strengthening its real estate portfolio The year also saw significant achievements in rubber plantation development, with notable progress in new plantation areas and infrastructure construction, supporting sustainable growth and diversification of the firm's business operations.
In 2014, the company increased its charter capital to over VND 1,161 billion, marking a significant financial milestone The year also saw the grand opening of Nam Hai Dinh Vu Port, enhancing regional shipping capabilities Additionally, the capacity of Gemadept Dung Quat International Port was upgraded to handle vessels of 70,000 DWT, boosting its operational efficiency The company successfully completed its 85% capital investment in Gemadept Tower, further strengthening its portfolio of core assets.
• In 2015: ncreasing charter capital to over VND 1,196 Billion; Putting
Distribution Center No 3 at Song Than, Binh Duong is now operational, enhancing supply chain efficiency in the region The company has commenced construction of new Logistics & Depot Centers in Hai Phong and Hai Duong to expand its logistics network Additionally, a joint venture has been established with Minh Phu Seafood Corporation to strengthen seafood distribution capabilities Furthermore, the cold storage warehouse project in Hau Giang has begun construction, supporting temperature-sensitive food storage and distribution.
In 2016, the company increased its charter capital to over VND 1,794 billion and successfully completed and launched three key projects, including Vietnam's largest and most modern cold warehouse, Mekong Logistics; the Nam Hai ICD in Hai Phong; and the K’Line Gemadept Logistics Center in Long Hau Industrial Zone Additionally, construction commenced on the Nam Dinh Vu Port in Hai Phong, marking significant growth in infrastructure and logistics capabilities.
• In 2017: Increasing charter capital to over VND 2.882 billion; Completing and putting into operation large-scale projects: Nam Dinh Vu Port (phase
1) in Hai Phong; Nam Hai Distribution Center in Hai Phong; Putting into operation 8/9 cold storage warehouses belonging to the single cold DC
44 largest in Southeast Asia - Mekong Logistics; Completing all three phases of K’Line – Gemadept Logistics Vehicle Processing Center (KGL VPC); Having strategic partnership with CJ Logistics (Korea)
• In 2018: Increasing charter capital to over VND 2,969 billion; Opening
Nam Hai Dinh Vu port cluster and establishing the position of the leading port operator in the north of Vietnam
In 2019, the chapter capital remained consistent with the previous year, supporting the continued development of key infrastructure projects such as the Gemalink deep-sea port in Cai Mep, BRVT The year also saw the expansion of Binh Duong port to enhance maritime capacity and the operational launch of phase 2 of the Auto Logistics Center (KGL) at Long Hau Industrial Zone in Long An province, strengthening logistics and industrial growth.
• In 2020: Increasing charter capital to over VND 3,013 billion; Expanding
Binh Duong Port; Completing the construction and test-run of Gemalink Deep-sea Port to put into official operation since Q.1/2021; Pushing up
In 2021, the chapter capital remained unchanged from the previous year, supporting stable financial growth The Gemalink Deep-sea Port Phase 1 at Cai Mep - BRVT was officially put into operation, enhancing Vietnam’s maritime logistics capacity Additionally, construction of Phase 2 of the Nam Dinh Vu Port Cluster in Hai Phong commenced, further strengthening the country's port infrastructure and facilitating international trade.
In 2022, the company maintained the same chapter capital as the previous year, demonstrating financial stability Key developments included the construction of Phase 2 of the Nam Dinh Vu Port Cluster and accelerating procedures to commence construction of Phase 2 of Gemalink Deep-sea Port Additionally, the successful deployment and replication of the SmartPort application across Gemadept's port system enhanced operational efficiency and digital transformation efforts.
• In 2023: Increasing charter capital to over VND 3,058 billion; Grand opening of Phase 2 of Nam Dinh Vu Port Cluster; Divesting Nam Hai Dinh
Vu Port is dedicated to transforming the Nam Dinh Vu Port Cluster into the largest river port in Northern Vietnam, signaling a significant boost to regional logistics capacity The successful deployment of innovative River Gate and Smart Gate applications enhances operational efficiency and security at the port Additionally, preparations are underway for the groundbreaking of Phase 3 of the Nam Dinh Vu Port Cluster and Phase 2 of Gemalink Deep-Sea Port, marking major milestones in expanding Vietnam’s maritime infrastructure.
Gemadept specializes in core businesses such as port operations and logistics, backed by an extensive network of ports and logistics centers across Vietnam—from Hanoi, Hai Phong, and Hai Duong to Bac Ninh, Hung Yen, Quang Ngai, Tay Nguyen, Ho Chi Minh City, Dong Nai, Ba Ria Vung Tau, Can Tho, and the Mekong Delta Additionally, the company has expanded its reach to neighboring countries including Singapore, Hong Kong, China, and Cambodia Gemadept delivers a comprehensive range of professional logistics services designed to meet the growing demands of its customers, ensuring reliable and efficient supply chain solutions across Southeast Asia.
Figure 2.1 Gemadept's core business and strategic investment
Gemadept's core business focuses on Port Operations and Logistics, establishing a comprehensive network across Vietnam from Hanoi to the Mekong Delta The company owns extensive port and logistics infrastructure in key locations including Hai Phong, Hai Duong, Bac Ninh, Hung Yen, Quang Ngai, the Central Highlands, Ho Chi Minh City, Binh Duong, Dong Nai, Ba Ria Vung Tau, Can Tho, and the Mekong Delta Additionally, Gemadept has expanded its reach into neighboring countries such as Singapore, Hong Kong, China, and Cambodia, reinforcing its position as a leading player in regional transportation and logistics.
Gemadept provides a variety of services to meet the increasing demands of customers:
Port operation services Logistics services
- Warehousing services, river ports, seaports;
- Stevedoring, tallying, freight forwarding, stuffing and unstuffing goods;
- Supplying, cleaning, repairing and maintaining containers and ships;
- ICD, warehouse, bonded warehouse and yard, CFS services;
- Distribution centers, bonded warehouses, cold storage;
- Transporting goods by sea, inland waterway, road, air;
- Out of gauge cargo transport;
- Conducting pre-delivery inspection (PDI) for imported cars;
The company has achieved quality management certification according to ISO 9001:
2000 With a commitment to quality, the company always improves the quality of service and better meets the requirements of customers
2.1.2.2 Organization chart and management structure:
In recent years, Gemadept has faced a number of favorable and difficult factors as follows:
Gemadept's core business is port operations, with a strategic goal to become a leading port and logistics provider in Vietnam The company’s ports are strategically situated in major Vietnamese port cities, offering an advantageous position within Southeast Asia’s shipping routes This prime location enables quick access to key trade regions, making Gemadept a preferred partner for international shipping companies By integrating port exploitation and logistics services, Gemadept has built a comprehensive system that enhances service quality, boosts competitiveness, and fully meets customer needs.
Gemadept is one of Vietnam's leading logistics and port service providers, holding a significant share of the domestic market that offers a competitive advantage Its well-established reputation and extensive client base serve as a solid foundation for continued growth and market expansion.
Gemadept is a leading enterprise in the seaport and logistics industry, recognized for its numerous brand strengths It has been honored as one of Vietnam's top logistics companies by the Vietnam Logistics Association (VLA) Additionally, Gemadept received the prestigious "Technology Application in Supply Chain Management 2014" award from the Vietnam Supply Chain, highlighting its commitment to innovative logistics solutions and industry leadership.
Risk managm ent departm ent
Gemadept Group has established and continuously enhanced its brand value through its community initiatives, solidifying its industry position The company is actively developing and operating large-scale, modern seaports with strategic locations and advanced infrastructure, including Phuoc Long Port (PIP), Binh Duong Port, Gemadept Dung Quat International Port, Nam Hai Port, and Nam Hai Dinh Vu Port.
The company’s cash flow and cash flow management
2.2.1.1 Overview analysis of cash flow status at Gemadept in 3 years 2021, 2022 and 2023
Since the company initially used the indirect method for preparing its cash flow statement, the author recalculated the cash flows using the direct method to distinctly identify and analyze the company’s cash inflows and outflows This approach enhances the clarity and accuracy of cash flow insights, supporting more effective financial research and decision-making.
The direct method of cash flow relies on financial information from both the income statement and balance sheet, as it is based on the cash basis rather than the accrual basis While the indicators of cash flows from investing and financing activities remain consistent between the direct and indirect methods, the primary focus of the conversion process is on the cash flows from operating activities Therefore, only the relevant indicators within the operating activities section are included in the calculation and conversion, ensuring accurate representation of cash inflows and outflows.
Cash flow from operating activities
To employees For interest For income taxes
Net cash flow from operating activities
In which, we have the formula of the components as below
- Cash Received from Customers = Net sales (IS) – Changes in Accounts Receivable (BS) (short term AR + long term AR) + Change in Unearned revenues (BS)
- Cash payment to suppliers = Cost of sales (IS) + Change in Inventory (BS) – Change in Account payable (BS)
- Cash payment to employess = Wages expense (IS) - Change in wages payable (BS)
- Cash payment for interest = Interest expense (IS) – Change in Interest Payable + Amortization of Bond Premium or - Amortization of Bond Discount
- Cash payment for income taxes = Income tax – Change in Defferd income tax liabilities (DTL) + Change in deferred income tax asset (DTA)
Cash from the investing activities:
- Inflows = Proceeds from sales of equity + Principal on notes + Money received from sales of assets
- Outflows = Investing activities paid to acquire debt + Buy equity interest + Disbursements made to purchase assets
- Net cash fow = Inflows – Outflows
Cash from the financing activities flow:
- Inflows = Proceeds from sales of stock + Money received from borrowing + Money received from contributions + Investment income
- Outflows = Money paid towards principal on debt + Money paid to reacquire equity + Dividend payments to shareholders
- Net cash fow = Inflows – Outflows
The total net change in cash flows is calculated by summing the net cash flows from operating activities, investing activities, and financing activities This comprehensive measurement provides a clear overview of the company's cash position during a specific period, highlighting how cash is generated and used across different areas of the business Understanding this total helps stakeholders evaluate the company's liquidity, financial health, and ability to fund operations and growth initiatives.
Free cash flow = Cash from Operating activities – Capital expenditure
Table 2.5 Structure and dynamics of cash flows of Gemadept Corporation for the period between 2021 and 2023, unit: VND
Index Inflows Outflows Net cash flow Inflows Outflows Net cash flow Inflows Outflows Net cash flow
Cash flow balance at the beginning of the period
Total net change in cash flows
Balance of cash flows at the end of the period
In 2021, Gemadept Corporation achieved a positive free cash flow (FCF) of approximately VND 378.7 billion, driven by operational cash inflows of around VND 964.8 billion and capital expenditures of roughly VND 586.2 billion This increase in FCF highlights improved cash management and signifies enhanced financial stability, supporting the company's long-term investment capacity and growth potential.
In 2021, Gemadept achieved an FCF margin of approximately 11.8%, reflecting strong operational efficiency Despite fluctuations over the past decade driven by shifts in investment activities and variations in operational expenses, especially within logistics and port operations sectors where the company has significant exposure, the positive free cash flow in 2021 signaled effective cost management and revenue growth amidst industry challenges.
In 2022, the company's net cash flow from operating activities significantly increased to VND 2,299 billion, more than doubling compared to 2021, which was a key driver of the strong growth in the ending cash balance and free cash flow Despite this, a sharp rise in capital expenditures from investing in key projects slightly impacted the growth margin of free cash flow The primary contributor to the cash flow increase was a rise in payables, notably the receipt of deposits for subsidiary transfers, amounting to VND 1,000 billion, which accounted for a substantial portion of the cash flow fluctuation and ensured the completion of Capital Transfer Contracts.
In 2023, the company reported a net cash flow of VND 104 billion; however, it experienced a negative free cash flow of VND 1,180 billion, indicating an inability to generate sufficient cash to sustain its operations Negative free cash flow highlights that the business is not generating enough cash after covering operating expenses, which can impact its financial stability and future growth prospects Understanding free cash flow is crucial for assessing a company's liquidity and overall financial health in 2023.
Despite experiencing negative free cash flow, Gemadept's financial situation does not necessarily indicate poor performance or imminent crisis, as this metric alone is insufficient to assess the company's overall health.
Gemadept’s core business focuses on port operations and logistics, both of which are asset- and capex-intensive industries Rapid expansion in these sectors typically involves extensive construction, requiring heavy equipment, increased storage facilities, warehouses, and comprehensive inbound and outbound logistics Currently, Gemadept is in a growth phase, investing heavily in infrastructure development, expanding logistics services, and hiring more staff, which leads to higher salaries and increased receivables These combined factors put significant pressure on the company’s cash flow, reflecting its strategic focus on infrastructure and capacity building for long-term growth.
In 2023, the company experienced a significant decrease in other short-term payable items, primarily due to the repayment of nearly all transfer deposit payables received in advance in 2022 and payables to related parties such as Saigon Cargo Service Corporation (SCSC Corp) and Gemadept Shipping Limited Company Additionally, fluctuations in cash flow were driven by increased losses from investing activities and higher corporate income tax payments resulting from a sharp rise in financial income.
In 2023, the company generated a significant boost in financial income, reaching VND 1,941 billion—nearly 80 times higher than the previous year—ensuring positive cash flow and maintaining liquidity This substantial increase was primarily driven by proceeds from the transfer of long-term financial investments, bank deposit interest, and exchange gains from revaluing foreign currency monetary items As a result, this unexpected influx of funds enables the company to cover any existing shortfalls effectively.
2.2.1.2 Analysis of cash flow ratios in three years from 2021 to 2023
𝑇𝑜𝑡𝑎𝑙 𝑛𝑒𝑡 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑐𝑎𝑠ℎ 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 0.58 0.64 0.48 Net cash flow adequacy ratio for current activities
Net cash flow sufficiency for current activities
*OA = operating activities; IA = investing activities; FA = financing activities
Source: Author's calculations Stability ratio:
The stability ratio assesses whether a company's cash inflows are primarily derived from operating activities, indicating the stability of its cash flow Calculated by dividing operating cash inflows by the total net change in cash inflows, this ratio reveals the percentage of cash generated from core business operations A higher stability ratio suggests a more stable and secure financial position, demonstrating that the company relies heavily on its main business activities Although the ideal ratio varies across industries, a high stability ratio is generally considered favorable for assessing financial health.
This ratio provides valuable insights into a company's long-term financial health by analyzing cash inflows, offering a more realistic perspective than relying solely on net income or total debts A high stability ratio indicates strong financial stability, while a low ratio—even amid profit spikes—can reveal underlying vulnerabilities This indicator is particularly useful for investors and stakeholders seeking to assess the company's sustainability over time.
The company's cash inflows in that year did not originate from core operating activities, indicating that the sudden profit may be temporary and unstable Therefore, further analysis is essential to accurately assess the company's true financial health and long-term stability.
Gemadept's stability ratio over the past three years remains at an average level, indicating that the company's operating cash inflows are insufficient compared to cash flows from investing and financing activities This situation suggests long-term instability and highlights poor cash generation from core business operations, which may pose risks to financial sustainability.
Net cash flow adequacy ratio for current activities for self-financing:
Assessment of the company’s cash flow management
Over the past decade, the company has strategically shifted its focus by divesting from non-industry projects and prioritizing the development of its core businesses to strengthen its market position It has implemented comprehensive financial planning across one, three, and five-year horizons to accurately project financial needs for management-approved projects, ensuring effective resource allocation These financial strategies have enabled the company to address cash flow challenges from fixed asset investments, expand core business activities, and sustain consistent dividend payments to investors, thus avoiding potential financial crises Additionally, the period from 2021 to 2023 marked a significant boom for the company, characterized by the emergence of promising growth opportunities.
86 projects for Gemadept When coming into operation, those projects will suppose to bring breakthroughs in Gemadept's business results in the coming years
With over 30 years of establishment, Gemadept Corporation has consistently strived to improve profitability and adapt to a highly competitive market economy The company’s leadership and dedicated team conduct business activities responsibly, proactively sourcing supplies and customers while adhering to economic accounting standards Gemadept focuses on enhancing operational efficiency, increasing employee responsibility, and improving staff well-being, all while fulfilling obligations to the State and optimizing resources to strengthen its market position gradually.
2.3.2 Factors affecting cash flow management at Gemadept
Leadership style is a key factor influencing cash flow management at Gemadept Corporation, with an autocratic approach currently prevalent While this style enables quick, decisive, and clear policy decisions—especially in urgent situations—it can also hinder employee participation and motivation over time Effective cash flow management at Gemadept depends on leadership's ability to balance autocratic decision-making with encouraging input from others, particularly when planning budgets, approving cash flow projections, and selecting financial sources.
87 department are only for reference and sometimes contributions and advice are not approved And this is the biggest factor affecting all decisions in cash flow management at Gemadept
Effective cash flow management is essential for avoiding emotional decision-making and ensuring financial stability Implementing best practices systematically within the company can significantly improve cash flow control These best practices will be detailed in Chapter 3 of this thesis, providing practical solutions to enhance financial management strategies.
In addition to the above advantages, the company still has certain limitations in cash flow management, expressed in the following aspects:
In 2023, financial ratios indicating the company's efficiency in cash flow management remain relatively low, a trend that was also evident in 2018 when operating cash flow declined by 1263% compared to 2017 This significant decrease is primarily driven by a substantial reduction in cash flow from operating activities, which resulted from substantial investments in the company's projects.
In 2018, Gemadept divested its capital from two subsidiaries, Gemadept Shipping and Gemadept Logistics, reducing its ownership stakes to 51% and 49%, respectively Following this transaction, Gemadept's investment in Gemadept Shipping was valued at VND 104 billion, while its investment in Gemadept Logistics was valued at VND 131 billion, reflecting the company's strategic restructuring and focus on core operations.
In 2023 and the first quarter of 2024, Gemadept successfully sold all its shares at Nam Hai Dinh Vu port and Nam Hai port, generating significant profits despite a decline in core business activities The profits from this divestment led to a 2.6-fold increase in Gemadept Group's net profit in the first quarter of 2024 compared to the same period last year Following the sale of Nam Hai Dinh Vu port in 2018, the company continued to divest from Nam Hai port and currently operates six remaining seaports to support its port exploitation activities.
Port operation and logistics businesses require significant initial investments in equipment, infrastructure, and fixed assets, leading to unavoidable negative operating cash flows in the early stages However, if these projects do not generate the expected future benefits, the company could face serious financial difficulties Consequently, divesting from Nam Hai Port is a strategic move, allowing the group to focus on more promising projects such as Phase 3 of Nam Dinh Vu Port and the expansion of Gemalink deep-water port, aligning with the company's long-term growth plan.
2024 (Gemadept Corporation, 2023) These two strategic projects of the company will be analyzed in more detail in Chapter 3 of this thesis
Table 2.14 Financial ratios measure Gemadept’s efficiency of cash flow management in the period between 2016 - 2018
1 Operating cash flow to sales ratio 0.110 0.025 -0.789
2 Operating cash flow to net income ratio 0.639 0.034 -0.089
5 Operating cash flow to current liabilities ratio 0.0768 0.0108 -0.1938
Gemadept has strategically financed large investments by utilizing long-term debt, divestments from subsidiaries, and real estate sales, avoiding short-term debt to maintain optimal leverage levels The company's divestments have generated sudden profits, significantly boosting cash flow from investing activities in 2018 and 2023 However, this increased cash flow is a temporary revenue source, emphasizing the need for effective management to prevent potential long-term negative impacts Additionally, Gemadept deliberately limits the use of short-term debt to ensure financial stability and sustainable growth.
89 and the increasing tendency in long-term debt are two positive factors contributing to reduce financial risks for the company
Gemadept is a leading corporation with a significant capital scale and a prominent position in the industry, supported by numerous subsidiaries and affiliated companies However, the company lacks a dedicated finance department, functioning instead with a finance team overseen by the accounting department This structure indicates that Gemadept perhaps undervalues the strategic importance of a dedicated finance department and has yet to establish comprehensive and precise processes for effective cash flow management.
Gemadept Corporation has achieved encouraging results in recent years concerning effective cash flow management However, despite these positive outcomes, the company still faces certain shortcomings in overall business activities and cash flow management To enhance the quality of cash flow management, implementing major strategic solutions is essential.