However, the food processing enterprises in Vietnam still operate in terms of habit, there are no scientific computing in business management in general and in operating cash flow manage
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INTRODUCTION
1 Imperativeness of the study
In fact, many profitable businesses can go bankrupt if cash flow is not managed
closely Therefore, the change in perception from considering only the profit to
seeing the money flow management is a necessity for the business financial
managers of Vietnam However, cash flow management is a relatively new
issue for enterprise in Vietnam in general and food processing businesses in
particular so the embarrassment and arising defects are unavoidable; as a result
cash flow management did not meet the required expectations, the inability to
meet payment needs of businesses is not small Especially in the context of the
complex changing business environment, competition becomes fiercer, a series
of corporate bankrupt, the survival of enterprises will hardly be sustainable if
the cash flow management is not enhanced towards tighter, more
comprehensive and more effective
Food processing enterprises in Vietnam are businesses trading essential
products which closely linked to the agricultural economy of Vietnam
However, the food processing enterprises in Vietnam still operate in terms of
habit, there are no scientific computing in business management in general and
in operating cash flow management in particular Especially, the operation of
food processing enterprises is characterized by great frequency cash inflows
and cash outflows Therefore, good cash flow management will help food
processing businesses survive and will overcome the crisis more easily
From the above fact, the study "Managing cash flow of food processing
enterprises in Vietnam" is very essential
2 Research Objectives
Based on the perspective of the researcher and the above analysis, the research
goals of the project focused on the following issues:
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- Clarify the reasoning of business cash flow management and build up the evaluation criteria of cash flow management in accordance with the characteristics of food processing enterprises listed Vietnam
- Analyze and evaluate the real situation of the cash flow management of food processing enterprises in Vietnam
- Propose some solutions to enhance cash flow management of food processing enterprises in Vietnam
3 Object and scope of the research 3.1 Object of study
The subject of the study is cash flow management of the business
In this study, the author has focused on cash flow management for operating cash flow of the business
3.2 Scope of Research
About time: the period of 2007-2012
About space: 53 food processing businesses listed on Vietnam stock market
4 Contribution of the research
(1) The author has proposed a new approach in the cash flow management of businesses Managing cash flow needs to be understood as a process involving all business operations of the enterprise
(2) The author has developed a system of governance indicators evaluating the cash flow of the business
(3) The author has outlined the factors (subjective and objective) which have impacts on the cash flow management of the business; at the same time, used these factors to assess the situation of weak cash flow management of the food processing listed businesses
(4) The author has carried out deep interviews with questionnaires to chief financial officer, chief accountant, caseworker orders from 8 food processing
Trang 2listed businesses on HSX and HNX, and in-depth interviews with financial and
audit experts to provide information in the process of analysis and assessment
of cash flow management of these businesses
(5) The author has used quantitative research methods through data collection
of secondary finance to construct the study sample with 15 among 53
businesses and use the STATA software for analyzing factors affecting cash
flow management in the food processing listed enterprises
(6) The author has proposed building cash flow forecasting model with the food
processing listed businesses through analysis, evaluation of 6 cash flow
forecasting models which are widely used in the world and association with
Vietnam conditions At the same time, the author has shown the positive impact
of cash flow forecast on the cash flow management of food processing listed
businesses
(7) The author has studied Stone's application to build optimized budget models
for food processing listed businesses, which help cash flow management of
these companies achieve better results
5 Structure of the research
In addition to the introduction and conclusion, the thesis is structured into 4
chapters, as follows:
Chapter 1: Overview of research and research methods
Chapter 2: The basic theoretical issues of cash flow management of businesses
Chapter 3: Real situation of managing cash flow of food processing enterprises
listed on the Vietnam stock market
Chapter 4: Solutions to enhance cash flow management of food processing
enterprises listed on the Vietnam stock market
CHAPTER 1: OVERVIEW OF THE RESEARCH AND METHODOLOGY
1.1 Research Overview 1.1.1 Studies abroad
The author has overviewed the research of authors in the world according to 4 contents:
- The role of cash flow management
- The content of cash flow management and fund management
- Factors affecting cash flow management
- Cash flow management model
It can be seen that the basic research in the world has provided different approaches to cash flow management as well as evaluated the impact of cash flow management on businesses However, no study has evaluated the impact
of total factor group to cash flow management of the business So we need to conduct a study of a general nature, combining elements of management affects the cash flow management of the business This suggests the study on the following directions: (i) evaluate all factors affecting cash flow management of the business; (ii) quantify the factors that impact on cash flow management and construction of model cash flow management of the business; (iii) appropriate techniques which are used for cash flow management
1.1.2 Studies in Vietnam
Cash flow management has an important role and has become increasingly more important for every business However, at present, in Vietnam, the research on the reality of cash flow management is very limited, no study has yet approached profoundly and completely
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Through comprehensive research assessment, we need to have a comprehensive
approach project on cash flow management of the business
1.2 Research Questions
1 Which contents are included in cash flow management of the business?
2 What factors affect the cash flow management of the food processing
businesses listed on the stock market in Vietnam?
3 How does cash flow management influence the operation of enterprises?
4 Do food processing listed businesses use models in the administration of cash
flow? Which cash flow management model fits with these businesses?
1.3 Research Methodology
1.3.1 Approach
Subjects of the research are approached towards a comprehensive way in terms
of the process from the emergence of cash inflows and outflows, cash flow
planning, to forecast cash flow and build the optimal budget
1.3.2 Variables of the research
Based on these hypotheses, the research focuses on the following variables:
Opportunity costs, transaction costs, the demand for money (based on cash flow
forecast)
Net revenue, receivables, payables, inventory, cash inflows and outflows These
variables help business to forecast the money needed Thus helping to
determine the optimal level of reserve money
1.3.3 Information collection methods
Primary information collection: deep interview with financial managers, chief
accountants, line worker, at the same time consulting experts in the field of
financial management and auditors
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Secondary information collection: previous financial accounting information and inheritance studies in the country and in the world which related to cash flow management
1.3.4 The sample research
Statistical analysis describes cash flow management situation: 15 out of 53 businesses
Applied research and build models that predict cash flow and cash optimization: the data of 53 companies (Overall)
In-depth interviews: 4 food processing businesses listed on HSX and other four ones listed on HNX
1.3.5 Synthetic methods and data processing
The method of analysis and synthesis of information are described in detail, including descriptive statistical analysis method, the method uses econometric modeling quantitative analysis, comparative analysis of the control and scenarios analysis and expert method
Conclusion of Chapter 1 From the synthesis of the research in the country and abroad, the space of the research is determined This is a pre-condition to guide the direction for the research of the author Accordingly, research objectives, research subjects and research scopes are defined The author has developed modeling research questions and hypotheses, thereby choosing research methods (a combination of qualitative research and quantitative research through a survey and in-depth
interviews)
Trang 4CHAPTER 2: BASIC THEORETICAL PROBLEMS OF
CASH FLOW MANAGEMENT OF BUSINESS
2.1 Overview of cash flow of business
2.1.1 General overview of business
Enterprises can be classified according to many different criteria; in the thesis,
the author uses the classification criteria in the form of business ownership
(including SOEs and private enterprises) and specific criteria for business
(according to the general classification criteria of business classification
systems in Vietnam and around the world, in which the author focuses on how
businesses are classified under the general criteria of ICB)
2.1.2 Cash flow of business
When referring to cash flow of a company, there is not a concept of money flow
in general, we need to understand the concept of cash flow through cash
inflows, outflows and net cash flow Net cash flow is determined by the total
amount in a period minus the amount spent in the corresponding period Cash
flow is recorded under actual incurred amount method, which is different from
the target profit of a period calculated according to the accrual method
Cash flow characteristics of the company are based on three activities
(production business, finance and investments)
2.2 Cash flow management of business
2.2.1 The concept of cash flow
There are many different ways to understand and approach the cash flow;
according to the author cash flow management should be understood in a
comprehensively process
Cash flow management is a continuous effort to minimize the negative impacts during operations and focus on money management principles, "not too much and not too little money"
As slowly as possible As quickly as possible
Cash
Material
Inventory Receivables
Purchasing
Manufacturing Collection
Sales
Figure 2.1 Cash flow management process
2.2.2 Content of cash flow management
Managing cash flow should be implemented in accordance with the full range
of content from arising transactions, recognition and control to the financial transactions in order to optimize funds and the handling of funds of enterprises
So, basically the contents of the cash flow management including determining cash inflows (revenues), determining cash outflows (expenditures), planning for cash flow and determining optimal budgets
Cash inflows and outflows are determined under direct and indirect method Scheduling cash flow is based on cash flow forecasts (6 methods of forecasting cash flows)
Building up optimal funds (studying 3 optimal funding models which are widely used around the world: Baumol, Miller - Orr, and Stone models)
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2.2.3 Evaluation criteria of cash flow management
Managing cash flow of the business is well assessed when the payment needs of
businesses are met in full The ratio reflects the cash flow, including:
(i) Full affordability of cash flows: Ability to pay the full fixed costs of cash
flow; Ability to pay total debt; Ability to repay short-term debt; Ability to
reinvest
(ii) The ability to generate cash from operations of the business: The ratio of
cash flow/revenue; The ratio of cash flow/profit after tax; The ration of cash
flow/assets; The ratio of cash flow/equity; The ratio of cash flow/share
2.3 Factors affecting cash flow management of the business
2.3.1 Subjective factors
Cost of debt and funding structure, content selection and cash flow management
techniques, the capacity of financial management, commercial credit policies of
the enterprises
2.3.2 Objective factors: business characteristics, interest rates and economic
indicators, economic cycles and financial needs of businesses, financial markets
and financial institutions
Conclusion of Chapter 2
Through chapter 2, the author has outlined the basic content of cash flow
management of the company, from which proposed a more comprehensive
understanding of cash flow management of business by the process
Besides, the author also generalize the factors affecting cash flow management
of the company
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Chapter 3 The real situation of cash flow management of food processing companies listed on Vietnam’s stock market
3.1 Characteristics of the food processing companies that affect cash flow management
According to the Industry Classification Benchmark structure for sector analysis, the companies listed on Vietnam’s stock market are allocated to the subsector based on their source of revenue or where they constitutes the majority of revenue Consequently, up to the date of 31st May 2013, these food processing companies have been classified to the third level subsector including
53 companies (there are 26 food companies and 27 aquaculture and seafood companies)
In Vietnam, under the government’s decree No 56/2009/NĐ-CP dated 30th June
2009, most of these companies are large scale ones Their business activities closely associate with essential products and agricultural production in Vietnam Although the companies’ products serve the essential needs, their operation decreases considerably due to the influence of economic recession It
is clearly seen through the falling ratio of ROA, ROE, and ROCE at a low and significant level
3.2 The real situation of cash flow management of the food processing companies listed on Vietnam’s stock market
According to the survey result of 15 food processing businesses listed on the stock market and in-depth interview with chief financial officer, the cash flows into and out of these businesses are determined by an indirect method
Accordingly, the statement of cash flows reflecting cash flow coming in, cash flow going out and net cash flow of the businesses is incorporated indirectly Under this method, the net cash flow of the company is based on the after – tax profit margin adjusted for some items which are not the incurring cash on the
Trang 6balance sheet and show some changes in working capital Therefore, the real
situation of managing cash flow in and out mainly bases on the administration
of the items which have a significant influence on changing cash flow in, cash
flow out and net cash flow The following data reflect the current status of cash
flow management by these food processing companies
3.2.1 The real situation of managing incoming cash flow
According to the result of data collection and analysis on the status of
receivables, it can be obviously seen that receivables accounted for a large
percentage and tend to increase As of 31st December 2012, the percentage was
even higher in some enterprises, particularly in the field of aquaculture For
example, the receivable per total assets at Gentraco was 62.07%, and Viet An
Seafood 43.22%
Agricultural and seafood processing enterprises had a high inventory proportion
of the total assets and increase significantly in 2012 In addition, foreign
exchange losses, billing discounts and provision for credit risk also went up
3.2.2 The real situation of managing outgoing cash flow
The cash flow out of a company consists of payments for a company’s business
activities in which payables play an important role They have a vital impact on
the outgoing cash flow The result of analyzing these food processing
companies’ data showed that the percentage of payables of the total pay was
high and increased rapidly in the period 2007 - 2012 In particular, the number
of enterprises with more than 50% was 31; especially Vietnam Thai Hoa Group
was 94%
Furthermore, these companies did not use the policy of electronic payments to
balance cash flows in and out
3.2.3 The real situation of planning cash flow and building the optimal budget
As the survey and in-depth interviews showed, planning cash flow was not paid attention The process of planning cash flow has not been fully implemented from preparation, cash flow prediction and determination to establishment of optimal budget The companies are planning cash flows based on the balance of revenue and incurring expenses, and have no plans for forecast Moreover, cash flow planning can only be done together with financial planning annually Because of not paying adequate attention to planning cash flow, these firms do not use any model to forecast cash flow, do not really apply the model of optimizing budgets in cash flow management, and do not overcome the seasonal forecast and cash flow management
3.3 Evaluating the real situation of cash flow management of the food processing companies listed on Vietnam’s stock maket
The result of cash flow management is recognized through some of financial indicators as follows
Table 3.14 Cash flow ratios of listed food processing companies
Unit: times
Year 2007 2008 2009 2010 2011 2012
No Ratio
1 Cash flow fixed charge coverage 0.08 0.27 0.17 0.09 0.07 0.71
2 Debt repayment from operating cash flow (2.78) 0.03 (30.51) 6.76 1.22 (12.63)
3 Cash flow current ratio (8.22) (2.34) (50.27) 15.00 2.48 (16.34)
4 Devidend payment from operating cash flow 0.10 2.52 0.00 2.14 0.02 (0.93)
5 Cash flow from continuing operations to sales 0.00 (0.01) 0.06 0.01 0.02 0.04
6 Cash to income ration 1.11 (1.53) (7.02) (1.65) (0.33) 6.05
7 Cash return on assets 0.02 0.01 0.07 0.01 0.02 0.09
8 Cash return on equity 0.07 (0.09) 0.05 (0.05) (0.00) 0.10
(Resource: Stoxplus.com.vn and calculating of author)
3.3.1 Achievements
As can be seen from the table, the affordability is low, often maintain less than 1
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The food processing enterprises have covered several contents of cash flow
management such as management of receivable and payable accounts,
provision for bad debts despite the fact that the management is not paid as much
attention as profitability
These enterprises have applied some measures to deal with temporary surplus
or shortage though funds have not been developed optimally
Net working capital is maintained stable Most of the businesses have already
complied the principle of capital allocationis, i.e short-term capital financing
short-term assets, long-term capital financing long-term assets Thus, the net
working capital of these companies has always been to maintain stable and
positive (42/53 companies)
3.3.2 Limitations and causes
(1) Limitations
After analyzing the real situation of cash flow management of these food
processing companies, there have existed some of basic limitations including
the risk of imbalance between revenues - costs, the low ability to pay the full
costs for fixed line money (less than 1), the low solvency for short-term debt,
the low ratio of cash flow / sales and and low rate of meeting the full payment
needs, the less than zero working capital of some companies, and the low ability
to generate cash (receivables> payables)
(2) Cause: There are two fundamental reasons as follows
Subjective reasons: the cost of debt and capital structure is irrational; the choice
of cash flow management techniques is inconsistent and incomplete; the ability
to forecast cash flow is limited; not really building up optimal budget model is
not really developed; the scale of production is unreasonable; there are not
financial management speaclists; financial executives do not take cash flow
management into account; derived services and risk reduction of exchange rate
are not selected; the trade credit policy is not flexible and not directly linked to
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the changing market conditions
Objective reasons: First, the interest rate policy of the State has changed and interest rates on the financial market are unpredictable Second, economic cycles affect the operation of the business, and accordingly managing cash flow
is easier or harder based on the economic cycle Third, exchange rate risk and exchange rate policies do not facilitate export companies The products and services of financial markets and financial institutions are limited Trading tools for commercial credit are undeveloped Besides, the quality of financial
statements, especially statements of cash flows is not high Supporting services for public liability do not grow, especially through the establishment and operation of debt trading companies and commercial arbitration centers
Conclusion of Chapter 3
On a theoretical basis for cash flow management, definitions of factors affecting cash flow management, and the results of surveys and in-depth interviews to analyze the actual circumstances of cash flow management among these companies, some lessons are drawn besides several certain achievemnts The most major limitation is that these companies do not take care of planning and forecasting cash flow They have not chosen any model to forecast cash flows Cash flow forecasts are often combined with financial planning annually
It is obviously showed that the demand for money has not been determined suitably for business operations, so negative cash flow on a quarterly basis is common in many businesses In addition, most of the companies have not yet realized the role of determining optimal budgets and building a suitable model
of optimal budgets
Trang 8Chapter 4
SOLUTIONS TO STRENGTHEN CASH FLOW MANAGEMENT OF
FOOD PROCESSING COMPANIES LISTED ON VIETNAM’S STOCK
MARKET
4.1 Direct Solutions
4.1.1 Cash flow forecast
Developing regression models for multivariate time series is to forecast cash
flows from operations of a group of 53 companies The regression equation is
constructed as follows:
CFT = a + b1 (CFT-1) + b2 (OIBDt-1) + b3 (rect-1) + b4 (INVT-1)
+ b5(PAYt-1) + Et (4.2)
Dependent variable: CFT is operating cash flow in a year t
Independent variables: OIBDt-i is operating income before depreciation in a
year ti
RECt-1 is receivable in a year t-1
INVt-1 is the inventory in a yeart-1
PAYt-1 is payable in a year t-1
Et is variable
Testing Methodology:
There are three methods of testing and estimating parameter of the regression
equation:
- POOLS (pooled OLS)
- Random effects (random effect factor)
- Fixed effects (fixed effect factor)
Hypothesis:
H0: bi = 0 (Xi has no relationship with CF) H1: bi ≠ 0 ((Xi has a relationship with CF) Using STATA 11 and the data of 53 LPP companies in the period from 2007 -
2012
The testing and estimation steps are performed as follows:
Step 1: Declare the dependent variable and independent variables of the equation (4.2)
Step 2: Conduct to test the hypothesis
The test of chaging error variance for POOLS and random effects methods showed showed that error variance changes Thus, to test and estimate the coefficients of the model, it is necessary to use the fixed effects method The results are shown as follows:
Table 4.4 Hypothesis Results
Step 3: Write the regression equation
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Based on the results of running the model in Table 4.4, the regression equation
is defined as follows:
CF t = - 87.512,43 + 0,4210556 (OIBD t-1 ) + 0,4276063 (REC t-1 )
+ 0,6955193 (INV t-1 ) – 0,4129928 (PAY t-1 ) + e t (4.3)
The meaning of the model:
The model is used to forecast cash flows based on financial data related the
history
According to the regression equation (4.3) on cash flow which has been
developed in conjunction with the data of listed food processing enterprises in
the period of 2007 - 2012, the cash flow of these businesses will be predicted
4.1.2 Setting up a precondition for building optimal budget
Case Study: Applying the Stone model for building optimal to NTACO JSC,
Step 1: Set the lower limit for the fund balance This limit is related to the level
of spending security
Based on the fund balance (cash and cash equivalents) quarterly for the period
from 2007 to 2012, combined with the demand for cash during the next year
and interviewed the chief accountant / chief financial officer, the amount of
minimum reserve is determined
L = 23935.2 million VND
Step 2: Estimate the standard deviation of the cash flow
According to the historical data of NTACO cash flow, revenue and expenditure
budget variances are defined as: Vb = 7221778859.1 million VND
Step 3: Decide the interest rate to determine the opportunity cost
NTACO does not make short-term investment in securities for the purpose of
ensuring safety for payment activities Hence, the opportunity cost is based on
the interest rate prescribed by the central bank to commercial banks’s capital
raising activities As discussed above, the interest rate is 10.05% / year
Step 4: Estimate transaction costs related to selling or buying short-term
securities
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NTACO does not trading short-term investment in securities for the purpose of ensuring liquidity and transaction costs of deposits are negligible (in the interviews) Therefore, the transaction costs are tiny too (Cb = 1) Thus, the optimal cash reserves =
Optimal cash reserves = 29,931.25 million VND
In sum, optimal cash balance = 29.931,25 tr.đ
High cash balance: H = 3Z - 2L = 41.293,38
Chart:
Cash
Cash at bank/ Buy Securities
H1 = 41.293,38
Z*= 29.931,25
L1 = 23.935,18
Cash at bank/ Sell Securities
Time
4.2 Mô hình quản trị dòng tiền của Công ty NTACO
Step 5: Handling the budget surplus or deficit
Credit limits are determined as follows: (in Appendix 1) Credit Limit Demand in 2013 = 279 billion VND
b Handling the budget surplus or deficit
The cash flow forecasted for 2003 as in the forecast equation 4.2 was 23,621.94 million VND
Compared with optimal cash reserve Z * = 29,931.25 million VND From this, it is easily seen that NTACO company will have budget surplus
Trang 10Surplus amount = 6,309.31 VND
Due to the fact that Vietnam's stock market is potentially at short-term risk and
NTACO cannot make short-term investments in the stock market, so the most
appropriate thing to do is that NTACO should make short-term cash
investments in short-term deposits at An Giang Vietcom bank The three –
month period interest rate for deposit was 6.8% / year (according to the bank's
interest rates)
Hence, the interest that NTACO obtained from short-term investments of idle
cash is: 6309.31 x 6.8% / 4 = 107.26 million VND
(Detailed assessment of the impact of cash flow forecasting, optimal budget
building on operating efficiency of NTACO JSC, see Appendix 1)
4.1.3 Strengthening governance debt
- Assign decentralization workers who are in charge of receivables,
payables, cash separately
- Enhance the recovery of receivables
- Extend the time of payable payment
- Balance the revenue - expenditure on the level of importance and
reconciliate with cash accounting
- Change the appropriate sales policy
4.2 Supplementary solutions
4.2.1 Developing human resources
- The separation of the chief accountant and chief financial officer is
needed in the financial management of enterprises
- Increase awareness of leadership and management about cash flow
- Raise awareness of employees about the importance of cash flow for
businesses
4.2.2 Developing a suitable production and business plan
It is necessary to combine doing market research and developing a production plan to help these businesses plan an appropriate capital budget, select funding channel as well as construct funds with the aim of not affecting solvency
4.2.3 Developing flexible sales policies and enhancing marketing activities
Sales policy should be developed consistantly and steadily, decentralized markedly among agent groups to create a partition (North, Central, South), urban and rural areas
According to the BMI overview report about food processing enterprises (2013), Vietnam has a large income gap between urban and rural areas, so the consumption pattern of these companies should change based on income They need to make the products in accordance with the tastes and incomes of each type of market Therefore, marketing policies should be developed to suit each market segment
4.2.4 Using a variety of products and services of commercial banks
The survey resultsc show that most of the companies only use international payment operations as basic as L/C or T/T and are not interested in the derivatives business Meanwhile, rates have a huge effect on foreign trade transactions Exchange rates of currency pairs are constantly fluctuating Therefore, the exchange rate risk is inevitable To reduce the negative impact of exchange rate risk, the companies should choose the derivative transactions of commercial banks
4.2.5 Some other solutions
- Picking up to build cash flow management software
- Combining a portion of cash flow management and other parts of the accounting software
- Managing order automation
- Use additional indicators reflecting the quality of the cash flow of the businesses apart from indicators reflecting traditional solvency which is being widely used in the financial analysis in Vietnam