000041377 THE ROLE OF CASH FLOW STATEMENT IN BUSINESSES OPERATING IN VIETNAM AND THE CORRELATION AND LINEAR REGRESSION OF CASH FLOW FROM OPERATING ACTIVITIES AND EARNINGS FOR MANUFACTURING AND TRADING ENTERPRISES LISTED ON VIETNAMESE STOCK EXCHANGE ̣̣̣̣VA

000041377 THE ROLE OF CASH FLOW STATEMENT IN BUSINESSES OPERATING IN VIETNAM AND THE CORRELATION AND LINEAR REGRESSION OF CASH FLOW FROM OPERATING ACTIVITIES AND EARNINGS FOR MANUFACTURING AND TRADING ENTERPRISES LISTED ON VIETNAMESE STOCK EXCHANGE ̣̣̣̣VAI TRÒ CỦA BÁO CÁO LƯU CHUYỂN TIỀN TỆ TRONG CÁC DOANH NGHIỆP HOẠT ĐỘNG TẠI VIỆT NAM VÀ MỐI QUAN HỆ VÀ HỒI QUY TUYẾN TÍNH CỦA DÒNG TIỀN TỪ HOẠT ĐỘNG KINH DOANH VÀ LỢI NHUẬN CỦA CÁC DOANH NGHIỆP SẢN XUẤT, THƯƠNG MẠI NIÊM YẾT TRÊN SỞ GIAO DỊCH CHỨNG KHOÁN VIỆT NAM

THE CORRELATION AND LINEAR REGRESSION O F CASH FLOW

FROM OPERATING ACTIVITIES AND EARNINGS FOR MANUFACTURING AND TRADING ENTERPRISES LISTED ON

VIETNAMESE STO CK EXCHANGE

Submitted by Nguyên Thi Huong Giang

A th e s is s u b m itte d a s a re q u ire m e n t fo r th e d e g re e o f

B a c h e ĩo r o f B u s in e s s A d m in is tra tio n

Hanoi ưniversity Faculty o f M anagem ent and Tourism

Dai hoc Ha Nol

IM

Hanoi November, 2008000041377

I

THE ROLE OF CASH FLOW STATEMENT IN BUSINESSES

OPERATING IN VIETNAM

A N D

THE CORRELATION AND LINEAR REGRESSION O F CASH FLOW

FROM OPERATING ACTIVITIES AND EARNINGS FOR

MANUFACTURING AND TRADING ENTERPRISES LISTED ON

VIETNAMESE STOCK EXCHANGE

Submitted by Nguyen Thi Huong Giang

A thesis subm itted as a requirement for the degree of

Bachelor o f Business Administration

18BKG

(£ỊỊs THÕNG ĩiN THƯ VIỆN 'ĩẩ NN-VM NỊ&C ỉiQOầl

Hanoi ưniversity Faculty o f M anagement and Tourism

Hanoi November, 2008

T a b le o f contents

Graduaũon Thesis - Nov 2008

Abbreviations 0

A bstract 0

Statement o f A uthorship 0

Acknowledgement 0

I Introduction 1

1 Overvievv o f the thesis 1

2 Overvie\v o f Cash Flow Statement 2

2.1 D eíĩnition 2

2.2 Roles o f cash flow statem ent 2

2.3 Benefíts o f Cash Flow Information 3

2.4 Regulations and rules o f Cash Flow statem ent 5

2.4.1 International Accounting Standard 7 - Statement o f Cash Flows 5

2.4.1.1 History o f IAS 7 5

2.4.1.2 Objectives OÍIAS 7 5

2.4.1.3 Fundamental Principle in IAS 7 6

2.4.1.4 Presentation o f the Statement o f Cash F lo w s 6

2.4.1.5 Rules given by LAS 7 7

2.4.2 Vietnamese context and regulations 8

2.4.2.1 Vietnamese Accounting Standard 24 (VAS24) - Cash Flows Statement 8

2A.2.2 Circular 105/2003/TT-BTC 8

2.4.23 Decision N o 46/2006/Q D -B TC 9

2.4.2.4 Rules on deadlines for financial report submission in V ietnam 9

2.5 Natures o f cash flows from activities & method o f presentation 10

2.5.1 Cash flow from operating activities 10

2.5 ỉ 1 The dỉrect m ethod 10

2.SA 2 The indirect m e th o d 11

2.5.2 Cash flo\v from investing activities 13

G r a d u a ù o n T lic s is N o v 2 DOS

2.5.3 Cash flow from íìnancing activities 14

2.6 Prcsentalion methods o f cash flow in Vietnam 14

2.7 Advantages and disadvantases o f each melhod o f presentation 15

2.7.1 Indirect m ethod 15

2 7 1 Ị Advantages: .15

2 7 1.2 D isadvantages: 15

2.7.2 Direct m ethod 16

2 7.2 Ị A dvantages: 16

2 7.2.2 D isadvantages 16

II Literaturc Revievv 17

III Research signiíĩcance 19

1 Background o f the research 19

2 Motivation o f the research 20

3 Research m ethodology 21

3.1 Research questions and aim s 21

3.2 Hypothesis 22

3.3 Sam pling 23

3.4 Data analysis 23

3.4.1 Primary data analysis 23

3.4.2 Secondary data analysis 24

3.5 Research M ethods 25

3.5.1 The su rv e y 25

3.5.1.1 Survey objectives 25

3.5.1.2 Questionnaire design 26

3.5.2 Correlation analysis 27

3.5.3 The linear regression 28

3.6 Assumptions 29

IV Findings 30

1 Findings from the survey 30

1.1 Detail íìndings 30

1.2 Overall íindings from the su rv ey 34

Graduaíion Thesis - Nov 2008

2 Findings from Cash Flow R atios 36

2.1 O perating cash flo\v to current liabilities ra tio 36

2.2 O perating cash flo\v to total liabilities ratio 38

2.3 o p e ra tin a cash flow to Capital Expenditures ratio 40

2.4 Discussion on the íìndings: In overall, through the cash flovv ratios calculations and analyses, we can concluded th a t: 41

3 Findings from data coưelation and regression model ru n n in g 42

3.1 The c o ư e la tio n 42

3.2 Linear R eg ressio n 44

V Research L im itatio n s 46

VI Im plications o f íìn d in g s 47

1 Im plication from the su rv e y 47

2 Im plications on the empirical correlation and regression m o d el 49

3 Im plications for V ietnam in the integration p ro cess 51

VII Future research opportunities 52

VIII C onclusions 53

References 55

Appendices 59

Appendix 1 59

Appendix 2 69

Appendix 3 69

Appendix 4 71

Appendix 5 76

Appendix 6 83

Vruthuưion Thesĩs - Nov 2008

A bbreviations

IFRS : International Financial Reporting Standard

AICPA : A m erican Institute o f C ertiíĩed Public Accountants

SFAS : Statement o f Financial 4 A ccounting Standard

Graduation Thesis - Nov 2008

A bstract

Financial statements portray the íìnancial effects o f transactions and other events by srouping them into broad classes according to their economic characteristics \vith a view to messaging the tìnancial information by way o f its various parts The acceptance o f International Accounting Standard- 7: Cash Flow Statement has added a new dimension to the preparation and presentation o f íĩnancial statement in Vietnam The statement o f cash flow beíore was optional and encouraaed to be prepared depending on the capabilities and conditions o f each business Ho\vever, according to accounting standards (Number 24) and Circular 105/2003-TT-BTC dated 4/11/2003, the preparation o f the cash flow statement is compulsory for any businesses o f different fields but not this regulation is applied for small and medium-sizes enterprises (Ministry o f Finance, Decision N o 46/2006/QD-BTC) This has placed many changes in the context o f Vietnam over the importance and role o f this statement This study covers the three main parts including a survey conducted on the fífty accountants o f fĩfty enterprises in Vietnam with the aim o f attaining the practice o f preparing and using cash flow statements in businesses, the computation and analysis o f three types o f cash flow ratios showing the liquidity and solvency risks o f the thirty manufacturing businesses selected on Vietnamese stock exchange from the year 2005 to 2007 More importantly, this paper also contains the correlations between the eaming before tax (EBT), eaming beíore interest and tax (EBIT) and net cash flow from operations (OCF) The findings from the survey can help the readers o f this paper knovv about the current practice o f preparing and using CFS, which is found out to be varied among different types o f businesses Additionally, the ratio computations and evaluation on those has dravv out the level o f both short and long-term risks o f manuíacturing and trading enterprises listed on Vietnamese stock exchange Besides the correlation analysis and linear regression running for the selected measures reveals many important findings implicating significant points for Vietnamese market This thesis includes about 17,350 words presented in total o f 70 pages excluding the appendices section

s ta te m e n t o f A uth orsh ip

"Except where reference is made in the tcxt o f the thesis, this thesis contains no material published else\vhere or extracted in whole or in part from a thesis or any other degree or diploma

No other persons’ vvork has been used \vithout due acknovvledgement in the main text o f the thesis

This thesis has not been submitted for the a\vard o f any dearee or diploma in any other tertiary institution”

Graduation Thesis - Nov 2008

Student’s Signature

Nguyen Thi Huong GiangDated November, 27th 2008

A cknow Iedgem ent

The completion and result o f this thesis paper is not only the achievement o f efforts from me but also the indispensable supports from a lot o f helpful people Firstly I

\vould like to express my eratefulness to my dear teachers at the Faculty o f Management and Tourism, Hanoi University vvhere I spent nearly five years studying, researching and groxving They have helped me and my íriends enlarge our kno\vledge as well as share with us lots o f valuable experiences and lessons in life which I will never forget Especially, I vvouỉd love to extend my heartfelt thanks

to my thesis’ supervisor, Mrs Phan Thu Huong for her instruction and encouragement during the time She was not only the person who initiated and inspired me to the topic o f this paper, but also continuously supported and consulted

me to find out solutions and complete this paper Without her and other tcachers’ advices and helps, I could not come to the destination and attain this result

Additionally, it is my great honor to receive the enthusiastic supports ííom more than fifty accountants and íĩnancial staffs who are involved in the survey conducted

in this thesis Although the relationship between me and those people is not close; however, I received one hundred percent replies over the questionnaire papers sent through both emails and in hands Based on their answers, the current practice o f using Cash flow statement in Vietnam has been found out and contributed a big value to this research

Finally, from the bottom o f my heart, I vvould like to express my great thanks to all

o f my íamily members and íriends for their vital encouragement and cares during the time conducting this thesis

Once a gain, F d love to send the proíound feeling to the above-mentioned people, hadn't been for all their supports and susgestions, this paper cannot be properly accomplished

Graduation Thesis - Nov 2008

Graduation Thcsis - Nov 2008

I Introduction

1 O v e r v ie w o f th e th e sis

Pinancial reportina is the most effective and \videly used medium o f communicatina the operatine results as vvell as latest financial position o f an enterprise Stability and success o f any business largely depend on its ability to generate sufficient cash

In order to convey the end result o f companies’ operation, managements use financial statements as an important tool through \vhich fmancial information is íurnished to the stakeholders Nevertheless, the three basic íìnancial statements present only íragmentary iníbrmation about a company’s cash flows (cash receipt and cash payments) For instance, balance sheet shovvs the increase in property, plant and equipment during the year; however, it doesn’t show how the additions vvere ílnanced or paid for The income statement showing net income doesn’t indicate the amount o f cash by operating activities Similarly, the statement o f owners’ equity only shovvs cash dividend declared but not cash dividend paid during the year In other words, the balance sheet, Income statement o f a business give a good indication o f how healthy the business is íinancially and hovv successfiilly it is without clariíying the inflows and outflows o f cash o f businesses

Gi ven this fact, statement o f cash flow’s role has been taken into analysis o f this research via conducting a survey on the accountants and íĩnancial staíTs working for fĩfty enterprises operating in Vietnam

Additionally, the study also covers the results o f the correlation analysis and regression model running for thirty manufacturing listed companies in Vietnam for the purpose o f drawing out the linear association between the EBT, EBỈT and cash flow from operations as well as the probability o f which variation in OCF can be explained by variation in EBT and EBIT on both quarterly and year end balances over the tvvo years 2005, 2006, 2007 and 2008

Finally this papers also covers the three most common and important ratios calculation and analysis for the companies’ in the sample From those results, an overvie\v o f the companies' cash flow conditions in the manuíacturing and trading

or cover the payments to suppliers and expenses (Don Hoístrand, 2004, pp.l).

CFS is a listing o f the flo\vs o f cash into and out o f the business or p ro je c t It is one

o f comprehensively fínancial statement reílecting the formation, sources and usage

o f cash and cash equivalents in a speciíic accounting period o f a fĩrm CFS was previously known as the statement o f changes in íĩnancial position or flow o f íiinds statement which thereíore reílects a fírm's liquidity or solvency.(Don Hoĩstrand,

2004, p p 1)

While the balance sheet is a snapshot o f a firm's íinancial resources and obligations

at a single point o f time, and the income statement summarizes a fírm's the accrual basis accounting used by finns to match revenues with the expenses associated with generating financial transactions over that period o f time, CFS includes only inf!ows and outflows o f cash and cash equivalents; it excludes ưansactions that do not directly affect cash receipts and payments (non-cash transactions) These non- cash transactions include depreciation or write-offs on bad debts or contribution o f ovvners by non cash items, etc

2.2 R oles o f cash fỉow sta tem en t

CFS has proved an important role in businesses nowadays It provides the iníormation o f the cash iníloxvs and outflows covering the three main activities o f a

( ìraduation Thesis - N ov 2008

business including opcrating invcsting and íìnancing (P Stickncy R Broun, p 65) It is also an useiul tool in evaluatina the accuracy o f the past projection o f cash llovvs and the relationship bet\veen the proíĩtability o f enterprise with the chanaes o f prices based on the tarsets retlectcd in the net income o f that business

In overall the cash flow statement is intended to:

a provide information on a firm's liquiditv and solvency and its ability to change cash flows in futurc circumstances

b provide ađditional iníormation for evaluating changes in assets, liabilities and equity

c improve the comparability o f different fiims' operating períormance by eliminating the effects o f different accounting methods

d indicate the amount, timing and probability o f íuture cash flows

The cash flo\v statement has been adopted as a Standard íinancial statement because

it eliminates allocations, which might be derived from diíĩerent accounting methods, such as various timeframes for depreciating íĩxed assets

(Source: B enefit o f Cash J1ow statem ent, pp 4)

2.3 B en eííts o f C ash Flow Iníbrm ation

The iníbrmation in a cash flow statement is improved to help investors, creditors, and others to assess the following aspects o f the firm’s financial position

a Serves as a mechanism for predicting the ability to generate íìiture cash ílovvs for the investors, creditors and others

b Enables managers or management to plan coordinate and control íĩnancial operation in an effective manner

c Gives an indication o f the relationship betvveen profitability and cash generating abilities

d Fumishes infoưnation to the management reaarding the entities ability to pay dividend and meet obliaations

Graihtation Thesis - Nov 2008

e Analyst and other users o f íìnancial information oíìen, formally oriníbrmally develop models to assess and compare the present value o f the six future cash flo\v entities Historical cash flow statements could be usetul

to check the accuracy o f past assessment (ACCA Text book, part 2, p.324)

f It is free from manipulation and is not affected by subjective judam ents or by accounting policies

e Such a statement dictates situations when a business has made huge proíìt but has run out money or it has sustained loss but has enough casli availability

h The extent o f cash generated from operational activity and extemal íinance

in order to meet Capital, tax, and dividend requirements can be obtained from such statements

i Aids in the evaluation o f risk which includes both the expected variability o f future retum and probability o f insolvency or bankruptcy (Hendrickson,

Eldom s , 1982: 237)

j Reveals the capability o f an enterprise to pay its short term obligations

k A cash flow statement in conjunction vvith a balance sheet provides iníòrmation on liquidity, viability, and adaptability

1 Assists users o f íinancial statements in making juđgm ents on the amounts, timing and degree o f certainty o f íiiture cash flows

m Provides iníormation that is useíìil in checking the accuracy o f past assessment o f ÍTiture cash flows and in examining ửie relationship betvveen

profitability and net cash flow and ứie impact o f changing price (IAS 7: Píra

3 & 4)

n Allows users to assess the impact o f those activities on the íĩnancial positĨDn

o f the enterprise and the amount o f its cash and cash equivalents (1AS7: P ư a

11).

(Source: B en efìí o f Caslt fĩo w statem ent, pp 4)

2.4 R egulations an d rules o f C ash FIow sta tem en t

2.4.1 International Accounting Standard 7 - Statement o f Cash Flows

International Accounting Standard 7 (IAS 7) is the International Accounting Standard that deals with cash flow statement

2.4.1.1 History of IAS 7

- June 1976 Exposure Draft E7 Statement o f Source and

Application o f Funds

- October 1977 IAS 7 Statement o f Changes in Financial Position

- July 1991 Exposure Draft E36 Cash Flow Statements

- December 1992 IAS 7 (1992) Cash Flow Statements

- ĩanuary 1994 Eíĩective Date o f IAS 7 (1992)

- September 2007 Retiled from Cash Flow Statements to Statement o f

Cash Flõws as a consequential amendment resulting from revisions to LAS 1

(Source: http:/Avw\v.iasplus.com/standard/ias07.htm)

2.4.1.2 Objectives o f IAS 7

The objective o f IAS 7 is to require the presentation o f information about ứie historical changes in cash and cash equivalents o f an enterprise by means o f a

Građuation Thesis - Nov 2008

statement o f cash flows, which classiiìes cash flows durina the period accordina to operatin2, investing, and íinancins activities

2.4.1.3 Fundamental Principle in IAS 7

All enterprises that prepare fínancial statements in coníbrmity with IFRSs are required to present a statement o f cash flo\vs [IAS 7.1]

The statement o f cash flows analyses changes in cash and cash equivalents during a period Cash and cash equivalents comprise cash on hand and demand deposits, together with short-term highly liquid investments that are readily convertible to a known amount o f cash and that are subject to an insignifícant risk o f changes in value Guidance notes inđicate that an investment normally meets the definition o f a cash equivalent when it has a maturity o f three months or less from the date o f acquisition Equity investments are normally excluded, unless they are in substance

a cash equivalent (e.g prefeưed shares acquired within three months o f their speciíĩed redemption date) Bank overdrafts vvhich are repayable on demand and which form an integral part o f an enterprise's cash management are also included as

a component o f cash and cash equivalents [IAS 7.7-8]

2.4.1.4 Presentation o f the Statement o f Cash Flows

Cash flows must be analyzed between operating, investing and íìnancing activities [IAS 7.10]

Key principles speciíied by IAS 7 for the preparation o f a statement o f cash flo\vs are as íòllovvs:

• Operating activities are the main revenue-producing activities o f the enterprise

that are not investing or ílnancing activities, so operating cash flows include cash received ííom customers and cash paid to suppliers and employees [IAS 7.14]

• Investing activities are the acquisition and disposal o f long-term assets and

other investments that are not considered to be cash equivalents [IAS 7.6]

• Financing activities are activities that alter the equity C apital and borrcnving

• structure o f the enterprise [IAS 7.6]

íinuìuation Thcsis Nuv 200S

CFS P reparation m ethods

1 here are t\vo methods oí'preparins the statement o f cash flo\v includins direct and indirect method Amona the t\vo the direct metliod results in a more easily understood report H ouever indirect method is almost universally used, because FAS 95 requires a supplementary report similar to the indirect method if a company chooses to use the direct method In United State, the use o f CFS shovvs out the fact that 97% o f enterprises using indirect method and only the rest o f 3% preparing via direct method (Bich Thuy, 2007, pp 11-12)

> Direct method

The direct method for creating a cash flow statement reports major classes o f gross cash receipts and payments Under IAS 7, dividends received may be reported under operatine activities or under investing activities If taxes paid are directly linked to operating activities, they are reported under operating activities; if the taxes are directly linked to investing activities or íìnancing activities, they are reported under investing or financing activities

> Indirect method

The indirect method uses net-income as a starting point, makes adịustments for all transactions for non-cash items, then adjusts for all cash-based transactions An increase in an asset account is subtracted from net income, and an increase in a liability account is added back to net income This method converts accrual-basis net income (loss) into cash flo\v by using a series o f additions and deductions

2.4.1.5 Rules given by IAS 7

The follo\ving rules are used to make adjustments for changes in cuưent assets and liabilities, operating items not providing or using cash and non-operating items

• Decrease in non-cash current assets are added to net income

• Increase in non-cash cuưent asset are subtracted from net income

• Increase in current liabilities are added to net income

Graduation Thesis-N ov 2008

• Decrease in current liabilities are subtracted from net income

• Expenses \vith no cash outflo\vs are added back to net income

• Revenues with no cash inílovvs are subtracted ữom net income (depreciation expense is the only operatins item that has no effect on cash flows in the period)

• Non-operating losses are added back to net income

• Non-operating gains are subtracted from net income

(Source: http://www.iasplus.com/standard/ias07.htm)

2.4.2 Vietnamese context and regulations

2.4.2.1Vietnamese Accounting Standard 24 (VAS 24) - Cash FIows Statement

This accounting Standard regulates that the statement o f cash flow is issued in pursuant to the Decision No 165/2002/QĐ-BTC on December 31sl 2002 by the Minister o f Ministry o f Finance in which enterprises have to present the cash flows within a financial period classified into three kinds o f activities including operatine, investing and fínancing

In this Standard, Ihe sample o f two different methods are clearly stated and directcd

to businesses in which enterprises have the right to choose one o f the two for the presentation o f this statement based on their ovvn nature o f business and the ability

o f their accounting staíĩs This ílexibility enables enterprises operating in Vietnam adapt and adopt the method which is suitable to them in preparing and using for analysis as well as decision making

2A.2.2 Circular 105/2003/TT-BTC

Beíore the issue o f the above Circular, the preparation o f cash flow statement is optional given the condition and capability o f each business; however, this Circular brought a ne\v regulation in \vhich the statement o f Cash flow has become compulsory statement needs preparing for iníbrmation disclose purpose However, this Circular has been supplimented by the following decision which is applied for small and medium-sized

( jn u h u it io n ĩh e s is N o v 200H

2 4 2.3 Decision No 46/2006/QD-BTC

In a c c o rd a n c e to the decision a b o v e th c a c c o u n tin a Standard No 2 4 re g u la tin g to

the presentation and preparation o f CFS is onlv encouraged to apply in small and medium sized enterprises This means that tliis decision alloxvs the insufficient application o f the CFS in small and medium-sizes businesses and explains the practice why lĩiost o f enterprises d o n 't prepare and use this kind o f statement

Hoxvcver, the Security Law regulates the iníormation disclose in which public and listed companies have to follow the rules in presentation, preparation and disclose the CFS and other Cash flo\v infonnation

2.4.2.4 Rules OD deadlines for íinancial report submission in Vietnam

In pursuant to the Circular No 38/2007/TT-BTC issued by Ministry o f Finance, the deadlines for year-end and periodic fínancial report submission are clearly applied for different types o f enterprises as follows:

> Year-end fmancial report

s Completed within 30 days from end o f the financial year i f businesses are

privatc and partnership ones

S Completed vvithin 90 days from end o f financial year if enterprises are public

and listed companies

s The date o f financial report completion is calculated from the day that the

auditing íìrm signs the audited report

S Within ten days since the date at which the year-end íìnancial report is

audited, public companies have to announce those audited statements to the public in pursuant to the Term 1 and 2, Article 16 o f Security Law

s The contents o f the announced iníbrmation include Income statement,

Balance Sheet, Statement o f cash flow and Notes to íĩnancial statement prepaređ according to the standards and regulation o f Accounting law

Gracìuation T h e s is - N o v 2008

> Periodic o r q u a rte rlv fìnancial re p o rt

V This regulation is only applied for the listed or2anizations in \vhich those kind o f businesses

s The deadline for completion o f quarterly financial statements is beíbre the

20th o f the next q u a rte rs month and those statements are not required to be audited

s Within five days from the date o f report completion, organizations have to

publicize the information to outside

(Source: Hanoi Authority for Planning and Investment,

h t t p : / / w w w h a p i g o v v n / p o r t a l s / d e f a u l t a s p x ? p o r t a l i d = ỉ l & t a b i d = 1 4 0 & n e w s i d = 6 0 8 )

2.5 N atures o f cash flow s from activities & m eth od o f p resen tation

2.5.1 Cash flow from operating activities

ư nder the deíìnition o f VAS 24, Cash flow from operations reílects all the cash inflows and out flows which relate to activities creating the main revenue o f the business The diíĩerences between the two methods o f presenting statement o f cash flow is the way that cash flow from operations is presented

2.5.1.1 The direct m eth o d

This method reports this net cash flow according to cash receipts (inflows) and cash payments (outflows) in which:

> Cash inflows consist o f cash received from sales, supply o f services and others received from the sale o f securities for trade purpose (01)

> Cash outflows include cash paid to employees (03), suppliers, State, and other payables related to goods and services ừansactions or purchases o f securities for trade purpose (02)

> The total interest expense (04) includes the payment to interest amount incuưed

in the reporting period, moreover, it also comprises the one paid for the last period and prepaid for the ỉbllovving one

Graduation Thesis - N ov 2008

> The total corporate income tax (05) paid for the ones incurred in the reportina period and aỉso includes the one incurred in the previous period and prepaid to the State if anv

'r Other cash receipts (06) from compensation, awards, deductible taxes, deposits

received from clients and others supporting amounts from other organizations and individuals

> Other cash payments (07) to the same activities as above receipts (07)

The receipts are added and payments are deducted, then the net cash ííom operating activities is the difference betvveen the cash inílovvs and outflows (equal

01 +02+03+04+05+06+07)

2.5.1.2 The indirecí m eíhod

This method starts from the profit before tax (01) o f the business and then is adịusted by the amount changes in inventories, receivables, payables from operating activities and non-cash items including depreciation, provisions, deferred taxes, loss

or gain, etc The adjustments from the profít beíore tax is analyzed as belovv:

> Adjustments from non-cash items

- Depreciation o f fíxed assets (02) which is correctly calculated is added to the net proíit before tax

- Provision amounts (03) for bad debts and decrease in value o f short and long-term investments as vvell as inventories are added to the income beíòre tax Ho\vever, the amount can be deducted from the profit beíbre tax if the operating expenses are converted when those expenses do not incur

- Profit/Loss from the exchange rate difference (04), if there is a proíit incurred but not yet conducted, this amount is deducted ữom the proíĩt before tax and vice versa, it is added if there is a loss

- ProĩiưLoss from investing activities (05) includes the amount received from the disposal o f íĩxed assets and investments for investing purpose such interest income, sale o f bonds and other debt tools, etc

Graduution Thesis-N ov 2008

- Interest e.xpense (06) can be extracted from the rinancial expense accountand is excluded from the profít beíore tax

> O peratin g Cash flow before changes o f vvorking C ap ital

From the above adjustments, the profít before changes o f \vorking Capital is the net total o f the amounts adjusted to profit before tax o f businesses.(equal 01+02+03+04+05+06)

> A fter those adịustments, the net amount o f operating cash flow before changes

o f \vorking Capital is made to the next step o f adịusting for changes o f working

C a p ita l as follows:

s Changes in account receivables

The movement between opening and closing balance o f account receivables is one

o f detennining íactors affecting the net cash flow from operations o f businesses The increase or decrease in the account receivables o f the opening balance in comparison with ending one leads to the change in cash received from operations The decrease in account receivables between the opening and ending balance results in an addition o f cash from operating activities and vice versa

s Changes ÍD inventories account

Like the account receivables, inventories account has the same nature that signiíĩcantly affects the cash flow from operations Because materials and goods are normally purchased on credit and recorded in the account - inventories Thereíore, the change in inventories betvveen the beginning and end o f the period leads to the chanee in cash flow ííom operation An increase in inventories results in an decrease in cash flow from operating and vice versa

s Changes in Prepaid expenses account

Based on accrual accounting, when some expenses which have not incurred yet but the amount paid in advance, they are recorded in the account - prepaid expenses and when those expenses incurs, there is a reduction in prepaid expenses for them Thereíore, if the prepaid expense balance at the end o f the accounting period is

(iraduotioii Thesis - Nov 2008

Miialler than that at the beginning, thc diíYerence amount is added to caslì from operatine activities and vice versa

V Changes in account payables

As ìnentioned above, account payables have a sie,nificant impact on the net cash from operating activities Hcnvever, this amount does not include the payable CIT expenses, interest expenses or related to investina activities such as acquisition o f iìxed assets, debt tools, etc and íinancing activities such as boưowings The increase in the account payables to suppliers leads to an add-back to cash flo\v because the amount o f materials and aoods received is greater than that o f cash paid (0 them

s The interest expense paid already

This amount is an deduction ííom the profít beíore changes in working Capital and can be taken from the total íìnancial expenses o f the businesses

s Corporate income tax paid already

This amount includes the payment made for CIT incurred in the period as well as the previous and is deducted from the proíit before changes o f working Capital

s Other receivables and payables from operations

These balances are the same as those in the direct method, thus these accounts can

be refeưed to the direct method part

2.5.2 Cash flow from investing activities

This net cash flow directly relates to cash inflows and outflows from investing activities including two main parts: '

• Acquisitions and sales o f fíxed assets th a t the businesses use operations or basic constructions

• Investments in other entities under different íòrms such as Capital contributions, securities without the classification o f short-term or long-term investment

Gradualion Thesis - Nov 2008

In other \vords, according to VAS 24, cash flow from investing activities is the oncs changing the scale and structure o f the tìm vs Capital and debt From the nature of this activity, the cash flows from investment include:

y Cash payments for buying fíxed assets such as plants, machines, equipments, or

other intanaible assets, cash paid for acquiring shares or other debt tools for investment purpose

> Cash receipts from sales o f fixed assets or cash received from sales o f shares or debt tools and dividends paid by joint-ventures

The net from cash receipts and payments for investing activities results in the net cash from this activity

2.5.3 Cash flow from ilnancing activities

> Cash flows ííom this activity mainly consist o f the cash transactions \vith shareholders and creditors o f the business

• The cash inflow records the cash received from issuing shares, bonds, debentures, or other Capital and debt tools

• The cash outílov/ comprises the payment o f dividends in cash, settlement o f loans, or deposits for borrowings

• The diíĩerence o f cash inflows and outílovvs gives out the net cash flow from fmancing activities

2.6 P resen tation m eth od s o f cash flow in V ietnam

In Vietnam, enterprises are encouraged to use either direct or indirect method depending on the conditions o f each company However, because the accounts reported based on direct method are clearer and detail than those o f indirect method and suitable to almost businesses with different types, scales and íbrms, it is more prefeưed to be applied Also in this paper, the practice o f using method and opinions o f accountants in those presentation methods, some questions have been stated in the survey paper The results can be vievved at the fm dins section

Orudmtion Thesis - Nov 2008

2 7 A dvantages and disad van tages o f each m ethod o f presentation

2 7.1 Inđirect method

2.7.7 ỉ Advaníages:

Because this method has the starting point o f net proíìt before tax and then adjusted

bv non-cash items and changes in working C a p ita l, one o f the most outstanding advantages o f indirect method is that it is easy for the users to see the reasons leading to the changes o f net cash from operating activities This method is also assumed to be easier than the other as cash flow íorecast using this method can be done through the íòrecast o f sross income and other measures o f the period such as inventories, account receivables, account payables, etc

2.7.1.2 Disadvantages:

The method only speciíies the items with their movement amounts in the period vvithout clariíying where those amounts o f cash inflows come from and cash outflows go to in the operating cash flow section

The indirect method uses many o f the same account titles found in other fínancial statements, but these similarities could coníuse some users examining the CFS For example, the CFS operating section begins with "operating income" and

"depreciation." Both o f these line titles are in the operating statement Depreciation

is added back to operating income on the CFS, whereas it is a deduction in the operating statement The "changes in assets and liabilities" subsection presents the increases and decreases in the current asset and current liability accounts, vvhich also are reported in a comparative balance sheet (Zang and Orpurt, 1993)

One objection raised by the accounting profession was the higher cost incurred

to maintain a separate set o f DM records While the authors did not take into consideration the cost o f producing DM disclosures in their study scope, they found that DM statements o f cash flows can be produced cost-effectively (Zang and Orpurt, 1993) As Orput explained, “So far, three countries, New Zealand, Australia and China, have made it compulsory for companies to make DM cash disclosures

Graduation Thesis - Nov 2008

There has been no adverse Teedback to date from companics in these three countries pertaining to issues or problems arising from the ruling.’*

2.7.2 Direct meỉhod

2.7.2.1 Advaníages:

It can be said that the \veaknesses o f indirect method can be the strengths o f direct one Thereíore, the advantage o f this method is that the cash inf!ows from what activities as well as the cash outtlows used for what purposes whĩch help the creditors and íinancial institutions analyze and make their decisions

One objection raised by the accountina proíession was the higher cost incuưed

to maintain a separate set o f DM records While the authors did not take into consideration the cost o f producing DM disclosures in their study scope, they found that DM statements o f cash flows can be produced cost-effectively (Zang and Orpurt, 1993) As Orput explained, “So far, three countries, New Zealand, Australia and China, have made it compulsory for companies to make DM cash disclosures There has been no adverse feedback to date írom companies in these three countries pertaining to issues or problems arising ííom the ruling.”

2.7.2.2 Dìsadvantages

This method does not provide the causes to the variations o f the net cash flow in the period Thus, this method đoes not allow to forecast the íìiture cash flows Additionally, the method is assumed to be more costly and time consuming

(ỉraduation The SIS - N ov 2008

II Literature R eview

Although cash flo\v statement is thc last one statement to be issued amons other coinpulsorv íìnancial statements, it has proved its importance o f providing useful intonnation not only for intemal users, especially business managers but also for ihe outside users such as investors, creditors and govemmental aaencies Researches and analysis in the íìeld o f cash flows have been conducted bv many economists and researchers Each o f them has found out signiíĩcant cash flow models and draw out meaningíul íĩnding implications that help the firms to improve the ability o f using and makine decisions on cash flow iníormation

A research paper named “ Evidence on the reỉationship behveen earnings and vơrious measures o f cash y7ơiv” done in 1986 in the context o f United State

reveals th a t there is a high c o r r e l a t i o n between n e t income a n d vvorking Capital

from operations \vhile the correlations between net income and cash flow from operations and between w orking Capital from operations and cash flow from operations are evidenced to be low The study also provided evidences on the ability o f earnings and cash flow m easures to forecast one and two period ahead cash flows An exception to this general fm ding is that the net income plus

d ep re c ia tio n and a m o rtiz a tio n an d \v o rk in g Capital fro m o p e ra tio n s a p p e a r to be

the best predictors o f cash flo\v from operations (Robert M Bowen, D Burgstahler, and Lane A Daley, pp 713)

In another research done by Pro Juha Kinnunen and Pro Markku Koskela, the

hypothesis “Dớ Casìĩ Flows Reported by Firms Articulate wiíh Their Income Statements and Balance Sheets” has been stated to draw out the relationships

behveen cash flow and the income statement and the balance sheet The overall ĩmdings o f the paper obtained from testing a sample o f listed Finish íìrms for 1995-

1997 indicated that reported cash flows do not alvvays articulate with income statements and balance sheets and that non-articulation can be observed in cash flows from operating, investing and ĩinancing activities The differences between reported and estimated cash flows prove to be mostly ranđom Non-articulation o f reported cash flows with income statements and balance sheets was not solely an American phcnomenon (Bahnson et al., 1996; Cheng et al., 1997), but can also be

Graduation T h e s is - N o v 2008

observed in Finland In addition to operating activities, non-arliculation vvas found for cash ílows from investing and financing activities (Juha Kinnunen and Markku Koskela, 1999)

In addition, the specialist named Don Hofstrand has done a research on the

understanding cash flow analysis In his research named “Understanding Cash fỉo w analysis” , he pointed out the signiíicance o f prọịection o f future cash ílovvs in

helping the business managers plan their sources and apply funds for upcomina time periods Moreover, he has found out that aiven the condition o f the acceptance

o f International Accounting Standard- 7, Cash Flow Statement has added a nevv dimension to the preparation and presentation o f fínancial statement in Bangladesh Preparation o f cash flow statement is not obligatory under Companies Act, but if the organizations are public limited company enlisted with stock exchange, they have to prepare this statement under other statutory lavvs and regulations Companies in Bangladesh are now preparing cash flo\v statement as one integral part o f their financial statement (Don Hofstrand, 2004)

From those above interesting relevant researches, it can be obviously seen that cash flows (CF) and statement o f cash flows (CFS) have been taken into signiíĩcant consideration and the studies regarding to the Cash flow’s role, especially the relationship betvveen net income and cash flow from operating activities \vhich have been conducted in many other countries in the world However, in Vietnam, researches on this topic are still in gap and offers a lot o f meaningũil and available aspects for study Given this signiíicant reasons, this study aims at researching on the practice o f preparing and using CFS in Vietnam by executing a survey targeted

at accountants o f companies operating in Vietnam, computing the cash flow ratios for the risk analysis and evaluatìon on the thrity manufacturing and trading enterprises listed on Vietnamese stock exchange and running ứie correlation analysis as well as simple regression model for the measures taken from the data o f that sample including cash flow from operations (OCF), eam ing beíore tax (EBT) and eaming beíore interest and tax (EBIT) The results o f those models \vi!l help this paper give out the crucial fmdings and implications for the strength o f linear association and how well the variation o f cash flow balances can be explained by eam ins measures on both quarterly and year-end basis

\vorking C ap ital which is classiíĩed into three activities including operating, investing and financing The Accounting Principles Board (APB) responded in October 1963 by issuing APB Opinion No 3 “the statements o f and application o f funds”, which recommended that a statement o f sources and application o f íunds be presented on a supplementary basis Because o f the favorable response o f the business community to this pronouncement, The APB issues Opinion No 198,

“Reporting changing in Financial Position” in March 1971 This opinion required that a statement o f changing financial position be presented as a basic íĩnancial statements and be covered by the auditors reports In 1981 the íĩnancial Accounting Standard board (FASB) reconsidered íìind flow issues as part o f the o f the conceptual framework project taken in 1976 At this time the FASB decided that cash flo\v reporting issues should be considered at the Standard level Subsequent deliberation and Research and developing process afterwards, especially the period from 1980 to 1986 resulted in Statement o f Financial 4 Accounting Standard (SFAS) no 95, ‘Statement o f cash flows’ in November 1987 (Weygandt, Kieso,

to ow ners\ cash flow statements and accounting policies and explanatory notes Thus cash flow statement is an integral part o f the financial statements.

2 M o tiv a tio n o f th e r e se a r c h

Although the CFS’s sÌ2nificance and useíìilness in helping managers, investors and other users to make the analysis, evaluation, and íorecast on the possibility o f cash generating, investments and liquidity o f an enterprise have been studied in many researches in Vietnam, there is a fact that the awareness o f cash flow statement users about the importance o f this statement is still limited even to the people who work in accounting field

The statement o f cash flow has been included in the íĩnancial reporting system since the year 1995 in pursuant to the Decision No 1141 TC/QĐ/CĐKT issued by Ministry o f Finance and now in Decision 167/2000/QĐ-BTC which regulated that the statement o f cash flow is not compulsory and optional depending on the condition o f each business Hovvever, the Circular 105/2003/TT-BTC issued in

2003 has changed the practice o f preparation o f statement o f cash flow in Vietnam the Circular above which mentions- that the preparation o f statement o f cash flow has become statutory financial statement and applied for all businesses operating in Vietnam The signiĩicant change is an unavoidable action o f Vietnam in the process

o f integration to the global economy In that condition, the ứansparency and sufficiency o f iníòrmation have placed a request and a must for firms to provide their íĩnancial report in which Cash flow statement is a useíìil and strongly paid attention on making decision process o f managers as well as investors Hovvever,

Graduation Thesis - Nov 2008

the dccision No 48/2006/QĐ-BTC supplies Ihe reaulation that the VAS No 24 on the CHS preparation is only encouraaed other than íorced to be used by small and medium enterprises This explains tth y this statement is not taken into account o f a larce number o f Vietnamese enterprises \vhich are mostlv small and medium-sized ones Hcmever, this research paper places concentration on íĩnding the current practice o f using and preparing statement o f Cash flow in enterprises operating in Vietnam including different kinds o f businesses in different sectors and testing the coưelation benveen EBT, EBIT and OCF by taking a sample o f thirty manufacturing listed companies on Vietnamese stock exchange with the efforts o f finding out implications and suegestions for businesses in using cash flow statement for their decision making

3 R e s e a r c h m e th o d o lo g y

3.1 R esearch q u estion s and aim s

As it is indicated in the literature revievv, there has been a study conducted by three researchers named Robert M Bowen, D Burgstahler and Lane A Daley in 1986, showed the low correlation betvveen net cash flow from operations and net income and other relationship between cash flow from operations and other measures In Vietnam, \vithin the research abilities, there have not any offícial research relating

to this topic Moreover, the previous studies and writing o f some professors and researchers just stop at the theoretical analysis o f the statement o f Cash flow in terms o f its methods, roles and suggestions for Vietnamese companies such as a vvriting on Accounting Article with the topic “Accounting Standard No 7 and the application o f that in Vietnam” by Doctorate Doan Xuan Tien

Thereíbre, this research expresses the motivation to have look at the understanding

o f the accountants and íĩnancial staffs about Cash flow statement as well as get to know the practice o f using this statement in businesses operating in Vietnam

Apart from conducting a survey, another purpose o f this study is to clariíying the correlation bet\veen net cash flo\v ữom operating activities and EBIT as well as

o f generating cash from their main operating activities which can ensure the capability o f paying debts and interest or dividend, etc Thus it is important to be knowledgeable in the effects o f operating activities on the cash flow The following writing is the analysis o f those impacts.

Although there has been a research shovved the low coưelation o f the relationship between net income and cash flow from operations (Robert M Bowen, D Burgstahler and Lane A Daley, 1986) in the context o f American companies, this inspired me to come to the decision o f testing the foIlo\ving correlations and lenear regressions on the sample o f thirty manufacturing and trading businesses listed on the Vietnamese stock exchange:

• Whether there is a high and positive correlation bet\veen eam ing before tax (EBT) and net cash flow from operations (OCF)

• Whether the eaming before interest and tax (EBIT) is strongly and positively coưelated with the net operatine cash flow

• Whether the variation in OCF can be \vell explained by the variation in EBT

• Whether the variation in OCF can be well explained by the variation in EBIT

(iroduution Thesis — Nov 2008

I he results o f these correlations and resression are thc basis for this paper draw out (he signiílcant implications for investors, business managers as \vell as the analysts

of Vietnamese market

3.3 Sampling

The survey in this research was conducted among fífty accountants o f different coinpanies operatine in Vietnam The questionnaires have been sent via both emails and hardcopies from the first o f October and the íeedbacks vvere received the end of the month With the contents and arrangements, the survey’s outcome is expected to reílect the true practice o f preparins and using CFS by businesses in Vietnam as well as obtain the particular opinions o f those accountants for the purpose o f generalizing the practice o f Vietnam on this statement

Moreover, in this research paper, the correlations and regressions for the different measure related to cash flow iníormation have been applied and stated in the hypotheses section The methodolo2,y applied need the retrieving o f necessary iníormation from the thirty companies listed on the Vietnamese stock exchange

3.4 Data analysis

3.4.1 Primary data analysis

In this thesis, the feedbacks received from the survey is the primary data which is aimed at dravving out the practice o f preparing and using the statement o f cash flow

by fĩfty companies with different types including limited liabilities, joint-stock and íoreign owned ones

After receiving the answers o f the questionnaires, a summary has been done to obtain the generalization and percentage o f asked accountants for different choices and opinions This is also the primary data

The fmding o f this survey is the primary sources o f data providing the significant ansvvers for the queries and concems about the practice o f preparing and using CFS

as vvell as giving out the opinions o f accountants about CFS before the time conducting this survey Hence, it would be probably useíìil for users to have a look

at the survey's results which can be seen at íĩnding section

Qraduation Thesis - N o v 2008

3.4.2 Secondary daía analysis

In order to run correlation analysis and linear rearession stated in the hypothesis as

\vell as compute the cash flo\v related ratios o f thirty manuíacturina and trading listed companies The necessary data in this paper has been collected mainly Online via the official \vebsites o f Hanoi Stock Trading Center (http://www.hastc.org.vn)

Ho Chi Minh stock exchange (hưp://www.hsx.org.vn) and some websites o f security companies such as Trang An Security Company (http://www.tsc.com.vn), VNdirect Security (vvww.http://www.vndirect.com.vn )

The first reason for choosing only the businesses classiíĩed in manufacturing and trading industries starts from the characteristics o f these two industries o f that the cash flow’s flow is the most common sense for the researcher as well as users o f this paper

Secondly, the choice is made o u t o f o th e r Industries such as banking and íĩnance, contruction, and so on in order to match with the scale o f a graduation thesis which can not cover all Industries with different and more distinguish and complex features

Therefore, the sample including ứiis thesis includes four manufacturing and trading businesses listed on Hanoi stock exchange and twenty-six fírms listed on Ho Chi Minh stock exchange The availability o f data in the time range selected for the research o f these enterprises is the main reason why the sample only stops at thirty businesses only The data collected comprises the followings:

> The cash flows from operations are obtained on quarterly basis from l st Jan

2007 to 30lh Jun 2008 and ending balance o f the year 2005 and 2006

^ The proíĩt beíbre tax is obtained on the same basis vvith OCF

> The interest expenses is obtained on the same basis with OCF

> The average total liabilities o f 2007 and 2006 by taking the average o f the opening and ending balance for each year

> The average current liabilities o f 2007 and 2006 with the same computation as average total liabilities

Graduation The sis — Nov 2008

'r Capital expenditures as at year end o f 2007 and 2006 This mcasure is retrieved

by takina the cash paid íor purchasina and constructing fixed assets and other long-term assets in the cash flow from investing section at end o f each year

> In summarv, the dctails o f each one are shovvn as follows:

Cash flow from operations Quarterly and yearly 31/12/2005 - > 30/6/2008

Eamings before interests Quarterly and yearly 31/12/2005 - > 30/6/2008

Eamings beíbre interest &

taxes

Quarterly and yearly 31/12/2005 - > 30/6/2008

Interest expenses Quarterly and yearly 31/12/2005 - > 30/6/2008

To conduct this survey, the questionnaire papers have been sent to fifty accountants working for different types o f companies in Vietnam via both emails and

Graduation Thesis - Nov 2008

hardcopies The contacts with the accountants involved in this survey is done through the two main sources including ihe relationships o f friends and especially the relationships with the Clients that my company - KMPG Vietnam Limited is providina auditing services The íeedbacks to the sur\'ey questionnaires are the basis for the generalization about the practice o f CFS usage in Vietnamese market

In order to attain the biggest number o f accountants and diversity in term o f business types, the criteria when sendine the questionnaire is set up to be one questionnaire per enterprise Hence, the sample o f fifty accountants in this survey also represents the sample o f fífty different businesses The summary o f this diversity can be seen at the section “Findings from the survey”

3.5 ỉ 2 Quesíìonnaire design

The survey questionnaires is divided into two main parts:

• The first part is the brief iníormation o f the accountants ansvvering the survey,

\vhich includes their full names, organizations, departments and current positions

• The second part comprises the questions o f which the answers are the íĩndings

o f the survey stated in the section “Findings from the survey” in this paper Thí questionnaire part includes twenty three questions xvhich are mainly multiple choices ones:

> Question 1 to question 3 asks about the awareness o f the surveyed accountanls about CFS and the related Circular

> Question 4 to question 8 asks whether presentation o f CFS is necessary ornot and by whom the CFS is prepared in each business and the írequency o fthis task

> Question 9 to question 11 discovers the usage o f businesses as well as theopinions and preferences o f accountants in terms o f the t\vo differentpresentation methods o f CFS

Craduation Thesis - Nov 2008

> Question 12 and 13 inquires the difficulties \vhen preparine CFS as \vell asthe possible reasons for the fact that manv businesses never prepares the CFS

> Question 14 to question 20 asks about the roles o f CFS in the businesses o f those accountants in making decisions, management and the írequency at which they use CFS for those purposes

> The last three questions inquire the unđerstanding o f those accountants about the relationships between the CFS and other statements and their opinions on benefits o f CFS and cash flow iníòrmation for businesses

3.5.2 Correlation analysis

Coưelation analysis is the statistical tool that we can use to describe the degree to

\vhich one variable is linearly related to another Frequently, correlation analysis is used in conjunction with regression analysis to measure hovv well ứie least squares line íìts the data Correlation analysis can also be used by itselí to measure the degree o f association between two variables The most common measure of correlation is the Pearson Product Moment Correlation (called Pearson's correlation

for short) When measured in a population the Pearson Product Moment correlation

is designated by the Greek letter rho (p) When computed in a sample, it is designated by the letter "r" and is sometimes called "Pearson's r." Pearson's coưelation reílects the degree o f linear relationship between two variables It ranges from +1 to -1 and has the same sign as b, the slope o f the least squares line A coưelation o f +1 means that there is a perfect positive linear relationship between variables high data value on the X-axis associated vvith high data values on the Y- axis A correlation o f -1 means that there is a perfect negative linear relationship betvveen variables A correlation o f 0 means there is no linear relatio n sh ip between the two variables (Damodar N Gụịarati, 2003, pp 23)

In this section we present two measures for describing the correlation between two variables: the coefficient o f determination and the coeíĩicient o f correlation The

Pearson product moment coeffìcient o f correla tion (or simply, the coefficient o f correlation) r is a measure o f the strength o f the linear relationship beUveen tvvo

Graduation Thesis - A'ov 2008

variables X and y It is co m p u ted (fo r a sam p le o f n m easu rein en ts on X and V ) as

The correlation coefficient r measures ửie coưelation betvveen X values and y values

in the sample, and that a similar linear coefficient o f correlation exists for the population from which the data points were selected

In Microsoft Excel the pearson correlation can be obtained for two time series by using either the statistical íunction “Pearson” or “coưel” Thereíore this study use

“correl” íiinction to obtain ửie coưelations o f for each couple o f measures according

to time series to conclude the hypothesis o f vvhich the resulls are shown in the íìndings section

(Source:

http://web.mit.edu/10.001/Web/Course Notes/Statistics Notes/Correlation/node2.html)

In coưelation analysis, there is no distinction between the dependent and explanatory variables or they are treated systematically Both variables are assumed

to be random (Damodar N Gujarati, 2003, pp 24)

3.5.3 The linear regression

In order to run the two variable or simple regression for the measures selected to be run in this part, Excel has been applied by conduting the following steps

• Select Data/Analysis/Data Analysis/Regression

• Click in the box "input y range” Then highlight the y values in your spreadshtet

(inu/uation Thesis - N o v 2008

• Click in the hox "input X ranee" Then highliaht the X values in vour spreadshcet

• Click the "output ranae" circle then click in the hox to the rieht o f the \vords

"output range'\ Go to your spreadsheet and click in the upper left com er o f the resion \vhere you want to place the regression output

• Click "ok" lo run the linear rearession

DiíTerent from the correlation analysis, in regression analysis, there is asymmetry in the way the dependent and explanatory variables are treated The dependent variable is assumed to be statistical, random or stochastic \vhich means has the probability distribution The explanatory, on the other hand, to have ííxed values (Damodar N Gujarati, 2003, pp 23)

3.6 A ssum ptions

Apart from the assumptions that have been mentioned in each research method above, there are still some other assumptions needed in this paper as follo\v:

> The mean o f the probability distribution o f the random error is 0, E(e) = 0, that

is, the average o f the errors over an infinitely long series o f experiments is 0 for each setling o f the independent variable X this assumption implies that the mean value o f y, E(y) for a given value o f X is y = A + B X

> The variance o f the random error is equal a constant, say s2, for all value o f X

> The probability distribution o f the random error is normal or Gaussian

> The errors associated vvith any two different observations are independent That

is, the error associated with one value o f y has no effect on the errors associated with other values

Graduotion Thesis - Nov 2008

in Vietnamese enterprises The detail results are as follows:

• Over the fifty questionnaire survey papers sent to accountants o f fifty operating businesses in Vietnam, 100% o f them have been retum ed through both emails and in hands

• The classiíication o f business types o f fífty íirms involved in the survey are done

O radiiation T hesis - iV ov 2ỞƠ.V

> In term of b a c k g ro u n d inform ation about CFS:

s 100% o f fìftv surveyed accountants arc a\vare o f the CFS

s 83% o f surveyed accountants know about the Circular 105/2003//TT-

BTC relating to the regulation on the obligatory preparation o f CFS applied for all kinds o f businesses

s 73% oí'surveyed companies have been applied the above Circular

s 83% o f surveyed accountants think that it is necessary for enterprises to

prepare CFS

y 90% o f com panies have themselves prepare CFS by their accounting

department or corporate fínance deparlment The rest o f 10% o f companies use the extemal services for the preparation o f this statement

such as a u d itin g íìrm s o r íìn an cial Consulting companies

> The frequency o f preparing C FS is varied by different companies There is

about 30% o f surveyed enterprises monứily prepare CFS, the írequency quarterly and annually that CFS is prepared also accounts for 30% for each,

then the rest o f 10 % are the various ansvvers as follows:

s The preparation o f CFS depends on the requirement o f the Board o f

Directors at different points o f time during the year

s Some businesses normally semi-annually prepare CFS.

> Another ílnding o f th e survey is the opinions o f asked accountants about

the practice o f two different methods o f presenting cash flow iníbrmation in term o f their preferences, understandability and feasibility

73% am ong th e num ber o f surveyed com panies apply the direct

m ethod for th e presentation o f CFS T his signiíĩcant num ber is objectively consistent to the íĩnding over the sam ple o f thirty listed com panies in w hich there is about 77% o f those enterprises use direct

m ethod for th eir CFS