Working capital management at advanced network systems vietnam limitted company

The thesispresents primary problems of working capital in the enterprise, mentions methods toevaluate the efficiency of working capital management, analyzes the situation of working capi

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2020

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 01 02

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS PHẠM THỊ THANH HÒA

HÀ NỘI - 2020

The author confirms that the research outcome in the thesis is the result ofauthor‟s independent work during study and research period and it is not yetpublished in other‟s research and article

The other‟s research result and documentation (extraction, table, figure,formula, and other document) used in the thesis are cited properly and thepermission (if required) is given

The author is responsible in front of the Thesis Assessment Committee,Hanoi School of Business and Management, and the laws for above-mentioneddeclaration

Hanoi, September 3 rd , 2019

I would like to take this opportunity to express my deepest gratitude andappreciation to the people who have given me their assistance throughout mystudies during the preparation of this thesis They are my teachers, my colleagues,

my family and my friends I would like to express my great thanks to all of them

First of all, I would especially like to thank my advisor, Assoc Prof PhamThi Thanh Hoa, for her continuous encouragement and especially for her academicand creative guidance She has been my source for inspiration thoughout my thesis.Without her support, I would not be able to complete my thesis And I reallyappreciate her patience in reading and correcting my thesis

I am indebted to all my teachers at Academy of Finance for their guidanceand help with valuable lessons thoughout four years of study

Moreover, I would also like to thank all of you and your colleagues who havebeen working at ANSV Co., Ltd, who helped me answer the survey questionnaire as

a data source for analyze and produce research results of this graduate thesis

Last but not least, many thanks to my family, friends and classmates for theirgreat love and care in both spirit and health during preparation for theundergraduate thesis in Finance

Finally, I have to give myself credit because I endured to the end of mythesis instead of giving up, losing my mind or getting sick due to the stress

Student

Pham Thi Kim Dung

TABLE OF CONTENTS

DECLARATION i

ACKNOWLEDGEMENT ii

LIST OF ABBREVIATIONS v

LIST OF TABLES vi

LIST OF CHARTS vii

INTRODUCTION 1

Chapter 1: THEORETICAL BACKGROUND OF WORKING CAPITAL AND WORKING CAPITAL MANAGEMENT 2

1.1 Working capital and the sources of working capital 2

1.1.1 Definition and characteristics of working capital 2

1.1.2 Classification of working capital 3

1.2 Working capital management of business 4

1.2.1 Definition and objectives of working capital management 4

1.2.2 The content of working capital management 5

1.2.3 The criteria evaluating working capital management of the Company 17

1.2.4 Factors affecting working capital management efficiency 22

Chapter 2: CURRENT SITUATION OF WORKING CAPITAL MANAGEMENT AT ANSV CO., LTD 25

2.1 Overview of ANSV CO., LTD 25

2.1.1 Foundation and development 25

2.1.2 Characteristics of business operations 26

2.1.3 An overview of financial situation 29

2.2 current situation of working capital management at ansv company 41

2.2.1 Determining working capital requirements 41

2.2.3 Current status of working capital financing 48

2.2.4 Cash management 52

2.2.5 Receivables management 61

2.2.6 Inventory management 69

2.2.7 The criteria evaluating the efficiency of working capital management 77

2.3 Evaluating the management of working capital 80

2.3.1 Achievements 80

2.3.2 Shortcomings and reasons 81

2.3.3 Reasons of shortcomings 83

Chapter 3: SOME SOLUTIONS TO IMPROVE EFFICIENCY OF WORKING CAPITAL MANAGEMENT AT ANSV COMPANY 86

3.1 Orientations and objectives for future development at ANSV company 86

3.1.1 Economic-Social context 86

3.1.2 Orientations and objectives for the future development of ANSV company .88

3.2 Some solutions to improve working capital management at ANSV company 89

3.2.1 Determining the right working capital requirements 89

3.2.2 Improving the efficiency of inventory management 90

3.2.3 Improving the efficiency of receivables management 92

3.2.4 Strengthening the management and improvement of personnel organization .96

3.2.5 Improving the management of cost 96

3.2.6 Improving the rotation of working capital by promoting access to new technologies in manufacturing 97

3.3 The conditions for implementing the measures 98

3.3.1 Some proposals to Department of Telecommunications - Ministry of Information and Communications 98

3.3.2 Some proposals to State 99

3.3.3 Some proposals to Commission for the Managenment of State Capital at Enterprises 100

3.3.4 Some proposals to Vietnam Post and Telecommunications Group 101

CONCLUSION, LIMITATION, IMPLICATION 102

REFERENCE 104

iv

LIST OF ABBREVIATIONS

BEP Basic Earnings Power

CL Current Liabilities

EOQ Economic Order Quantity

JSC Joint Stock Company

NWC Net Working Capital

WCM Working Capital ManagementWCR Working Capital RequirementsCTIN Post and Telecommunication and

Informatics Joint Stock CompanyPOT Post and Telecommunication

Equipment Joint Stock Company

LIST OF TABLES

Table 2.1 The situation of assets in 2016, 2017, 2018 of ANSV Company 32Table 2.2 The structure of capital sources in 2016, 2017 and 2018 of ANSVCompany 35

Table 2.3 INCOME STATEMENT IN 2016, 2017, 2018 OF ANSV COMPANY 38

Table 2.4 Profitability ratios 2016, 2017, 2018 of ANSV company 40Table 2.5 The actual working capital requirements 2016, 2017, 2018 of ANSVcompany 42Table 2.6 The expected working capital requirements determined on the basis ofactual net of revenue in 2016, 2017, 2018 of ANSV company 43Table 2.7 The allocation working capital in 2016, 2017 and 2018 of ANSVcompany 45Table 2.8 Working capital resourse of ANSV in 2016, 2017, 2018 48Table 2.9 The situation of fluctuations by cash of ANSV Company in 2016, 2017and 2018 54Table 2.10 Liquidity ratios in 2016, 2017 and 2018 of ANSV company 56Table 2.11 The indicators for evaluating the situation of managing cash in 2016,

2017 and 2018 of ANSV company 59Table 2.12 Detail of accounts receivables 2016, 2017, 2018 of ANSV company .63Table 2.13 The situation of receivables management policy in 2016, 2017 and 2018

of ANSV company 65Table 2.14 The situation of accounts receivable and payable in 2016, 2017 and

2018 of ANSV company 67Table 2.15 Inventory structure in 2016, 2017 and 2018 of ANSV company 73Table 2.16 The efficiency of use inventory in 2016, 2017, 2018 of ANSV company 75Table 3.1 Table of quality monitoring using inventory, finished products of ANSVCompany 91Table 3.2 ANSV debt monitoring table for age customers 95

LIST OF CHARTS

Chart 2.1 The structure of capital at end of 2016, 2017, 2018 31

Chart 2.2 The structure of capital sources at end of 2016, 2017, 2018 34

Chart 2.3 Profitability ratios 2016, 2017, 2018 of other telecommunication equipment companies 40

Chart 2.4 Capital financing model of ANSV company at 31/12/2016 48

Chart 2.5 Capital financing model of ANSV company at 31/12/2017 49

Chart 2.6 Capital financing model of ANSV company at 31/12/2018 49

Chart 2.7 Liquidity ratios of other telecommunication equipment company in 2016, 2017, 2018 57

Chart 2.8 Accounts receivable turnover of telecommunication equipment companies in 2016, 2017 and 2018 66

Chart 2.9The efficiency of use inventory of telecommunication equipment companies in 2016, 2017 and 2018 of ANSV company 76

1 Rational of the study

Nowadays, in our country economic situation, besides the enterprises doingbusiness effectively, many businesses are still confused in capital management.Even, many businesses cannot simply reproduce, leading to losing business capitalafter every business cycle and businesses are always in a lack of capital, loss-making business situation Those enterprises are always in the risk of bankruptcy.There are numerous of reasons for that reality, ineffective capital management is themost indispensable one

Capital is not only a category of commodity economy, but also one of the mostimportant factors impacting on the production and good circulation Therefore, it‟svital for all businesses to pay attention to the working capital management to maximizethe company‟s profitability for it‟s survival and development Working capitalmanagement plays an important role in operating expense changing, cost of products,then impacts considerably on company‟s profitability Thus, working capitalmanagement is a pressing issue for all businesses

Advanced Networks System Viet Nam Co., Ltd has precursor which was ajoint venture company, so it was provided capital regularly and fully However,after the joint venture‟s revulsion of capital, ANSV transformed into a two-memberlimited liability company In the process of transition, the Company met manydifficulties in working capital management

In the process of working at Advanced Networks System Viet Nam Co., Ltd,grasping the situation combined with the studying of basic arguments aboutworking capital and working capital management, the author realized that theworking capital management at Advanced Networks System Viet Nam Co., Ltd wasreally necessary and urgent Therefore, on the basis of the contribution to workingcapital management of the Company, and the guidance of Assoc Prof Dr PhamThi Thanh Hoa, the author chose the issue of "Working capital management atAdvanced Networks System Viet Nam Co., Ltd" as the subject of the master‟sthesis

The thesis focuses on studying the current status of working capitalmanagement at Advanced Networks System Viet Nam Co., Ltd to break out thestrengths and weaknesses as well as the problems to propose some solutions whichimprove business efficiency to the Company.

2 Overall of the reseach

Practically speaking, working capital management not only is a critical part of business

in every enterprise but also contribute considerably to the economic development, therefore

it has been considered by many researchers as well as managers

Relating to working capital management theory, there are numerous number ofauthors researching, analyzing as well as summarizing definitions, overal principlesand thesis mentioned in popular textbooks such as Short-term financialmanagement, Nguyen Tan Binh, Le Minh Duc (2010), published by StatisticPublisher; Business Finance textbook of Assoc Prof Dr Bui Van Van and Assoc.Prof Dr Vu Van Ninh, published by Finance Publisher in 2015; Textbook ofCommercial Enterprise Management of Assoc Prof Dr Hoang Minh Duongpublished by Labor - Social Publisher

In terms of practical research on working capital management, there are manyvaluable works of researchers and Masters in many different fields Each practicalstudy summarizes the issues affecting working capital and working capitalmanagement as well as suggests solutions to improve the efficiency of workingcapital using for enterprises The details are as follows:

- Author Nguyen Thi Hong Lan with research topic of working capitalmanagement at Phu Yen Mineral Joint Stock Company - Master's thesis - Da NangUniversity in 2012 The thesis has systematized the general theoretical basis on workingcapital in the enterprise, analyzed the current situation of working capital management,then given solutions to improve working capital management at Phu Yen Mineral JointStock Company;

- Topic "Working capital management at Song Da 10 joint stock company,Song Da Group of author Nguyen Tien Nhat also mentioned some basic theoreticalissues about working capital management in the company in the

period of 2008 to 2010 The author has evaluated, commented on theachievements as well as issues then give some basic solutions to improveworking capital management at the Company;

- Author Tran Van Nha with the research topic "Working capital management at

Da Nang Food Joint Stock Company" MBA thesis - Danang University - 2012 The thesispresents primary problems of working capital in the enterprise, mentions methods toevaluate the efficiency of working capital management,

analyzes the situation of working capital management, thereby giving

solutions to improve the efficiency of using working capital in the Company.All of the above works have researched on many aspects relating to financialmanagement in both theoretical and practical aspects In general, studies havementioned the following issues:

- Giving basic and theoretical issues, methods of analyzing the efficiency of working capital management

- Evaluating the current status of working capital management

- Proposing measures to improve the efficiency of using working capital for each research object

- The projects applied to studying enterprises and operate in Vietnam

Although there have been many works relating to the research topic, these

projects are still limited and incomplete in the implementation process as well as theresults In addition, working capital management in a commercial enterprisedeploying projects in the telecommunication sector is very different fromenterprises of other industries in the economy, bearing particularities and followingparticular management regulations

Unless specific studies, applying the general theoretical basis of working capitalmanagement and combining with specificities of business lines, it is impossible tohave an overall and reality view about working capital management to achievebusiness efficiency Therefore, the thesis will be a new research direction to helpimproving working capital management at Advanced Networks System Viet NamCo., Ltd to meet the requirements and actual conditions

3 Aims of the study

The research objective of the thesis is to propose solutions to enhance workingcapital management at ANSV Co., Ltd in the coming time To achieve this goal,the dissertation performs the following research tasks:

- Systematizing theoretical issues about working capital management

- Analyzing and evaluating the current status of working capital management at Advanced Networks System Viet Nam Co., Ltd

- Proposing solutions to improve working capital management at Advanced Networks System Viet Nam Co., Ltd

4 Objects of the study

Objects of the study of thesis is working capital management at Advanced Networks System Viet Nam Co., Ltd

5 Scopes of the study

- Content: The thesis studies, systematizes and analyzes the contents of

working capital management at the Company

- Scope: This research is conducted at Advanced Networks System Viet Nam Co., Ltd

- Time: Data on working capital management is collected in 2016 and 2017,

2018 and other relevant periods (if any)

6 Methods of the study

- Analysis and synthesis method: used to systematize the theoretical basis of

working capital management The thesis studies textbooks and documents relating toresearch topic, then analyzes, synthesizes and systematizes in a scientific way to servethe research process

- Statistical method: used to correct and systematize primary and secondary

documents on working capital management from Advanced Networks System Viet NamCo., Ltd then the author synthesizes into tables, documents which can reflectcharacteristics for effective indicators of working capital Primary data is used in theresearch phase by technical interview directly with employees who have been working atANSV Co., Ltd Secondary data uses data collected from internal

documents, reports and information of ANSV Co., Ltd from 2016 - 2018, datasources collected from outside such as central ministries, publications have beenpublished (textbooks, articles, magazines, internet, dissertations, ).

- Comparison and evaluation methods: used to make comparison relatively,

absolutely fluctuate trends of indicators, to help the author understand the relationship,development speed, popularity and fluctuate trends in economic indicators, systematize,reflect the efficiency of working capital management to evaluate the current status ofworking capital management at Advanced Networks System Viet Nam Co., Ltd

- Experts interview: used to determine current situation of working capital

management, to help understand about the stage of working capital management atAdvanced Networks System Viet Nam Co., Ltd (number of interviewees was 05) Thismethod collected primary data, the comments of expert were summazied and used toanalyze the causes

7 Structure of the study

Beside the introduction, conclusion and references, the thesis includes 3 chapters

as follows:

CAPITAL AND WORKING CAPITAL MANAGEMENT

CAPITAL MANAGEMENT AT ANSV CO., LTD

OF WORKING CAPITAL MANAGEMENT AT ANSV CO., LTD

5

Chapter 1: THEORETICAL BACKGROUND OF WORKING CAPITAL

AND WORKING CAPITAL MANAGEMENT.

1.1 Working capital and the sources of working capital

1.1.1 Definition and characteristics of working capital

1.1.1.1 Definition of working capital

Besides fixed assets, every enterprise wanting to carry out the activities ofproduction and business must own current assets The current assets structures arevarious based on different types of business However, in a manufacturingenterprise, there are two components of current assets: operating current assets andcirculating current assets, in which:

Operating current assets: include assets in the stage of production storagesuch as main raw materials; auxiliary materials; fuels… and assets in the stage ofproduction such as semi-finished products; unfinished products;…

Circulating current assets: include products/goods whose have not beenconsumed (inventories), cash and receivables

In the manufacturing and operating process, operating current assets andCirculating current assets are always moving, transforming and interchanging Toensure the manufacturing and operating process carry out continuously, theenterprise must have a particular number of current assets Therefore, the enterprisehas to give some advance of capital called working capital for current assets to set

up this type of asset

So, the enterprise’s working capital is the advance money that enterprise use

to invest in setting up current assets which are necessary for enterprise‟s

manufacturing and operating activities

1.1.1.2 Characteristics of working capital.

When joining in manufacturing business operation, working capitalincessantly changes morphological expression From the form of money to differentforms and when finishing product consumption process, working capital comesback to the first form that is capital in cash

The movement of working capital through stage is described as follows:

goodsThis movement of working capital is called “capital circulation”

When joining in manufacturing business operation, since dominated by the characteristic of current assets, working capital has following characteristics:

- Working capital in the rotation process always changes the forms of expression

- Working capital transfers all the values right in a time and get a full refund after each business cycle

- Working capital completes a circuit after a business cycle

- Working capital is very liquid for it can be converted as cash any time

without losing anything

- Investments in current assets such as working capital come with less risk for it is just for short term

Since these characteristics of working capital, so that, working capitalmanagement method is on quota, it means working capital quota for each productunit, capital quota for each cycle of manufacturing business operation However, inmarket economy, it is usually difficult to determine working capital requirementtoward each cycle of manufacturing business operation, therefore we usually base

on important target: most economical of working capital

1.1.2 Classification of working capital

In the enterprise, the content of organization and management of workingcapital plays an important role, which is an important part of the management offinancial activities of enterprises Managing working capital to ensure reasonable,economical and efficient use of working capital The more efficient the use ofworking capital is, the more products that can be produced, ie the better theprocurement process, the production and consumption processes Working capitalhas many types that participate in a production and business cycle and often change

material form, so want to manage working capital well need to proceed sorting according to the following criteria:

1.1.2.1 According to expression patterns

- Cash: includes cash on hand, bank deposits and cash in transit

- Accounts receivables: includes mainly accounts receivables and advance payments

 Capital in materials and goods: includes materials, work in

progress, semi-finished products and finished products

This classification helps the business assess the level of inventory reserves, the solvency and liquidity of the investment assets in enterprise

1.1.2.2 Based on the role of working capital in the production process

 Working capital in the reserved state includes thetypes of capital such as material capital, additive material capital

fuel capital, tool & instruments,…

 Working capital in the production process includestypes of capital, such as: goods in process, homemade end-

product, prepare items…

 Working capital in circulation includes finishedproduct, cash, short-term investment and the capital during the payment process

This classification shows the role of each type of WC in the process ofproduction and business, from which to choose appropriate structure of capital toinvest, ensuring the balance of production capacity among stages in the process ofproduction and business of enterprises

1.2 Working capital management of business

1.2.1 Definition and objectives of working capital management

1.2.1.1 Definition of working capital management

In market economy condition, its mechanism sets up the requirements ofmanagement and organization, which requires enterprises to find themselves exists

and grows direction To snap up bargain and overcome the challenge, to keep firm‟sfoothold in the competition, firms need to make right decision about creating andmanaging manufacturing business capital in general and working capital inparticular most efficiency and to make profit for firms.

“Working capital management is the process of managing and monitoringactivities related to working capital” (Vu Van Ninh, 2014)

1.2.1.2 Objectives of working capital management

the business to firstly improve the firm‟s profitability

The timely and sufficient mobilization of capital, savings on using capital helpfirms to seize business opportunity, increase revenues and profits for corporation.Choosing the right form and method of mobilizing capital can help firms to decreasethe cost of capital, contribute to increase profits and ROE for firms On the other hand,with maximum mobilizing of amount WC for manufacturing business operation canhelp firms to avoid loss by blocked funds, increase inventory turnover, receivables,which contribute to grow up profits after tax for firms

 Second, ensure the firm has sufficient liquidity to meet its short-term obligations

Working capital is prerequisite for business‟s operation In operationprocess, firms frequently have the requirements of working capital for regularoperation like developing corporations If a enterprise doesn‟t mobilize timely andenough capitial, firm‟s operation will be difficulty and not carry out So that,ensuring the operation of the business to jog on regularly and continuously dependsmore on the mobilization of capital of firms

1.2.2 The content of working capital management

1.2.2.1 Determining working capital requirements and the methods

The permanent working capital requirements is the minimum working capitalrequired to ensure the normal and continuous operation of the business Under thislevel, business production of enterprises will be difficult, even stalled, interrupted

But if above the necessary level, the situation of capital stagnation and capital use iswasteful and inefficient.

Working capital requirements is the minimum capital, necessary trade and isdetermined by the formula:

Working

In which Inventory requirements is the minimum capital needed to storeraw materials, fuel, work in progress, semi-finished products, finished products ofthe enterprise

To determine working capital requirements, we can use direct method andindirect method:

This method directly identifies the demand for capital for inventory, accountsreceivable, accounts payable to suppliers and then aggregates into the workingcapital total of enterprises

Determine capital demand for inventories: including inventories forproduction reserve stages, production stages and circulation stages

Working capital requirements in production reserving (reserve capital demandfor main materials, auxiliary materials, fuel, ): based on the demand of usingaverage capital per day and number of reserve days for each type to determine andthen aggregate General formula:

VHTK = ∑ ∑

In which

VHTK : Inventory requirements

Mij : The average daily amount of consumption for i Inventory

Nij : Reserves days of i Inventory

n : Types of inventories in need of reserves

m: Stages need to reserve inventories

Working capital requirements in producting (Working capital requirements

to create unfinished products, semi-finished products, prepaid expenses ):

Vsx = Pnx CKsx x Hsd

In which :

Vsx : Operating working capital requirements

Pn : Average Production costs of products per day

CKsx : Producing cycling (day)

Hsd : Ratio of unfinished product and semi-finished products (%)Working capital requirements in Circulating (including finished products reserves,

account receivables, account payables):

Determine fnished products requirements: is the minimum capital used toform the inventory of finished products in stock, waiting for consumption,determined according to the formula:

Vtp = Zsx x Ntp In which:

Vtp : Finished products requirements

Zsx : Average Cost price per day planning period

Ntp : Reserves days of finished products+ Determine account receivables requirements:

Vpt = Dtn x Npt In which:

Vpt : Accounts receivables

Dtn : Average sales per day

Npt : Average period (day)Determine account payable requirements:

Vpt = Dmc x Nmc In which:

Vpt : Account payables for planning year

Dmc : Purchasing sales the average day of the planned period

Nmc : Average payment period for suppliers

 Direct method have advantages and disadvantages following below: 7

Advantages: it clearly reflects the demand of working capital for each type ofmaterial and good in each stage of business It can evaluate exactly the capitalneeds of enterprises.

Disadvantages: complex calculation, take more time to determine working capitalrequirements

b) Indirect method:

This method is based on the analysis of the actual working capital use of thecompany in the reporting year, the change in business size, the rotation speed ofworking capital in the plan year or the fluctuation of working capital demandaccording to the turnover of reporting year to determine the working capital demand

of the company in the plan year There are some of methods:

Using adjusted rate of WC requirements between reporting and planning year :

Essentially, this method is based on the practice of the demand of WC in thisyear to adjust according to the size of business and WC turnover in next year,following formula:

Operating Cycle Method:

This is probably best of the methods because it takes into account the actualbusiness or industry situation into consideration while giving an estimate ofworking capital The longer the working capital operating cycle, the higher would

be the demand of WC and vice versa Following formula can be used to estimate orcalculate the working capital:

Working Capital

=

Net revenue

 Advantages: this method is simple It can help firm to evaluate

instantly working capital requirements for planing year, so as to determine resonable

soures

 Disadvantages: the result of this method isn‟t high exactly

Percentage of Sales Method: It is the easiest of the methods for calculating the

WCR of the company This method is based on the principle of „history repeats

itself‟ It is a financial planning method based on the premise that predicted

sales are the driven, and most of the financial variables on the balance sheet

and income statement are functions of the forecasted sales

 Advantages: This method is a simple prediction, not count to

changes in factors in future that will change the ratio of WC to turnover, so this method

is more suitable for forecasting WC

 Disadvantage: When using this method, requires operator to

understand the business characteristics of the company and must understand the rules of

the relationship between revenue to assets, resources and appropriation of profits of

enterprises

1.2.2.2 The allocation of working capital

Working capital is a necessary condition for ensuring normal and continuous

business operations Therefore, the organization of reasonable WC structure is a

great significance for enterprises, basis of the efficiency of WC usage, and

foundation for the development of each enterprise Enterprises use working capital

effectively when they allocate WC in each stage: the purchase of reserved materials,

production and consumption of products in a reasonable way Resonable allocation

increases the rotation of capital from one type to another types, from one form to

another forms, contributing to shorten the cycle of working capital, improving

production efficiency of enterprises

Because of the difference of business characteristics, WC structure is also

different for each business Therefore, the analysis of WC structure is necessary It

helps us to see the situation of WC allocation and the proportion of each capital ineach rotation stage, thus identifying the key of working capital, finding the method

of efficient WC usage in each specific condition and in each firm Thereby,contributing to raising the efficiency of production and business of enterprise

Working capital structure

Working capital structure reflects the proportional relationship between theworking capital components in the total working capital of the enterprise at a given time

The study of the structure of the structure will help us to see the situation ofallocation of resources and the proportion of each capital accounted for in therotation period to determine the key management of explosives and find all optimalmeasures to improve efficiency use of working capital in specific conditions

Some of factors affecting to structure of working capital:

Factors about supplies, reserved materials, finished goods: The distancebetween enterprises and suppliers of materials; possibility of providing of market;delivery period and volume of materials supplied; the distance of business andconsumption market;…

The factors about manufacturing: Characteristics of technique; complexity ofmanufactured products; the level of organization and production management of enterprise

The factors about payment: Factors about withdrawing money of goods soldsuch as resonable payment method, payment procedures,…; the implementation ofpayment discipline among units, implementation of payment contracts, choice ofthe form of payment also affect the structure of working capital

Moreover, structure of WC is also affected by the charecteristics of seasonproduction, the level of organization and management In each stage, depending onfirm‟s abilities and conditions, each firm will choose itselfs resonable structure tomake sure that manufacturing business operations is the most efficient

1.2.2.3 The working capital financing

a) The matching principle of funding model: All fixed assets and permanentcurrent assets are regularly secured by permanent capital resourses, the entire temporarycurrent assets are secured by temporary capital resourses.

Advantages: help enterprises limit risks in payment, higher safety level.Reduce costs in using capital.

Disadvantages: certainty is guaranteed but has not yet created the flexibility

to use the capital, which is usually the source, the certainty is more assured

Money

Temporary current assets

Temporary capital resourses

Permanent liquid assets

Permanent capital resourses

Fixed assets

Time

b) The conservative funding model: All fixed assets and permanent current assetsand a part of temporary current assets are secured by permanent capital resourses and theremaining part of temporary current assets is secured by temporary capital resourse

Advantages: Solvency and safety is high level

Disadvantages: enterprises have to use long-term and medium-term loans,

so businesses have to pay more for using capital

Temporary

Temporary capital resourses

Permanent capital resourses Fixed assets

Time

11

c) The aggressive model: The total fixed assets and part of the permanent current

assets are regularly secured by permanent capital resourses, while a part ofpermanent liquid assets and the total temporary liquid assets secured bytemporary capital resourses.

Advantages: The cost of capital will be lowered because of the use of moreshort-term credit, the use of capital will be more flexible In fact, most businesseschoose this model

Disadvantages: The possibility of having risks is higher than the above twomodels, so enterprises need to have experience and dynamism in organizing capitalsources

Therefore, cash management of enterprises has a basic requirement to ensureabsolutely safety, high profitability, beside it must meet timely payment needs bycash of enterprises

The goal of cash management is (1) to maintain an adequate level of cash on

hand to meet the daily cash requirement in operation and (2) maximize the amount

of money that are available for investments and obtain the maximum of interest earned on excess cash while ensuring the safety.

The management of cash concerns with some important aspects:

Properly determine the minimum and reasonable cash reserve to meet the cash expenditure needs of enterprises in the period

The level of reasonable holding cash should be determined so that enterprisescan The optimal cash balance depends on the following factors:

companies

 The availability of liquidity assets to the firms.

avoid the risk of being unable to pay immediately There are many methods ofdetermining reasonable holding cash of businesses The simplest method is to getthe daily average fund disbursement multiplied by the amount of budget reservedays

Beside, the enterprise can be apply the Baumol model to determine the level ofcash of enterprise

Q =√

In which:

Q: the optimum cash balance

Qn: the total cash requirement for that period

c2: the fixed cost of selling securities to replenish cash

c1: The opportunities cost of holding cash.

The strict controlling of collection and payment of cash

The operation of cash collection and payment of enterprises takes place daily,

so enterprises must take measures to manage and use cash capital strictly to avoidloss and take advantage of as:

13

All cash collection and payment of the enterprise must be made through the fund,not allowed to collect and pay outside the fund, self-financing

There must be a clear division of responsibilities in managing cash betweencashier and fund accountant; must have management measures to ensure thesecurity of the treasury

Enterprises must develop cash collection and payment regulations to apply for eachcase of income and expenditure Normally, the revenues and expenditures are not large,

the cash can be used, and the big expenditures need to use non-cash paymentStrictly manage cash advances, need to clearly determine the subject of advancepayment, advance level and advance payment period for timely recovery

Actively establish and implement annual cash flow plans

The budget forecast is a collection of expectations about the source and use offunds The annual budget is both general and detailed for monthly and weekly,

Predict the flow of cash flows including income streams from business results; fromfinancial performance results; borrowing flows and other capital raising flows In theabove mentioned cash flows, the budget for entering the budget from business results is

the most important, predicted based on the expected cash revenues in the period,Predict the flow of funds usually includes expenses for business activities such asasset procurement, payroll, expenses for investment activities according to theenterprise's plan; interest payments must be divided, paid taxes and other expenses

1.2.2.4 Receivables management

In business, most businesses have receivables but for different scales andlevels This may increase some costs due to the increase of accounts receivable fromcustomers such as receivable debt management costs, debt recovery costs, risk costs In return for businesses as well can increase profits by expanding the number ofproducts consumed Accounts receivable also relate to the trade-off between profitsand risks in selling goods and services

In order to manage efficiently account receivables, when formulating thecompany policy on credit sales, a firm has to pay attention to the decisions involvedthe following components of credit policy:

- Term of sale: refers to the conditions that a firm

establishes for selling products and services on credit The term of sale are consist ofthree elements:

credit is extend

that discount is allowed It is an expensive source of financing for the firm

that evidence a debt

- Credit Analysis: aims at making a judgment about

customer‟s ability to pay back their owes and deciding whether

or not to extend credit to particular customers

Firms need to gather relevant information and then determine the creditworthiness of customers through credit information (the customer‟ financialstatements; credit reports on customers‟ payment history with other firms; banks;the customers‟ payment history with the firm ) and credit evalutation and scoring( character; capacity; capital; collateral; conditions )

- Collection policy: Involves monitoring account

receivables It is used with the purpose of collecting receivables on time ad to deal withpast-due accounts There are several produres employed to collect overdue amount andreduce bad debts

credit policy A firm must monitor its accounts receivables It is aimed to analyzewhether its credit policy is working

effectively or not; and to keep an eye on the customers‟

payment to spot over-due problems

15

Two tools that firms use to monitor the accounts receivables are the Days Sale Outstanding (DSO) (or average collection period) and the aging schedule

Days Sale Outstanding (DSO)= (Receivables) / (Average Sales Per Day)

The “accounts receivable days” are the average number of days that it takes

a firm to collect on its sales A firm can compare this number to the payment policyspecified in its credit terms to judge the effectiveness of its credit policy

accounts by the number of days they have been on the firm‟sbooks It can be prepared using either the number of accounts

or the dollar amount of the accounts receivable outstanding Allaccounts or customer‟ debts are classified based on the length

of time the amounts have been past due and the relativeproportion of these accounts to total value of accountsreceivable are presented

After knowing the status quo of the account receivable, firms decide themethod for collecting over-due amounts

1.2.2.5 Inventory management

Inventories are the properties that an enterprise holds for producing or sale inthe near future In an enterprise, inventory is generally categorized as raw materials,work-in-progress, and finished goods

The inventory management is crucial for business, not only does inventoryaccount for a significant proportion of enterprise‟s total working capital, but it alsohelps enterprise not to be interrupted in producing Managing inventory effectively

is critical for ensuring the business has enough stock to meet customer demand.Also, it helps to accelerate working capital management

The amount of inventory for raw materials depends on scale of production,storage demand of materials for production of the enterprise, marketavalability, delivery cycle, shipping time and price of materials

The amount of inventory for work-in-progress depends on characteristics andtechnological requirements in the process of manufacturing, length of productcycle time, organizational level of business production process

The amount of inventory for finished goods depends on coordination between production and consumption of products, purchasing power of the market… Being aware of the influencing factors would help businesses have appropriate

management measures to maintain the most reasonable inventory amount Inventory

makes costs increase, so the enterprise must manage them

economicaly and efficiently Inventory costs are usually divided into 2 categories::+ Cost of storage and preservation of inventory: includes costs such as storage

of goods, insurance, costs of loss due to damaged goods, discounts and opportunity costsdue to capital kept in inventory

+ Cost of implementing supply contracts: including transaction costs, contract signing costs, transporting and delivery costs according to delivery contracts

- Determining and selecting soruce of material supply;

- Determining minimum inventory level and the order point:

There are some models of inventory management: Economic order quantity (EOQ); Quantity discount model (QDM); supply model according to production order quantity (POQ); probability model with constant supply time; model of marginal analysis; Just-in-time inventory management model (JIT) Managing closely, maintaining inventories

1.2.3 The criteria evaluating working capital management of the Company

1.2.3.1 The criteria reflecting cash management

To assess the situation of cash management, it is considered the criteria to assess the cash flow and solvency of enterprises, including:

Criteria group about liquidity:

Current ratio :

The current ratio is a liquidity ratio that measures a company's ability to payshort-term obligations To gauge this ability, the current ratio considers the currenttotal assets of a company (both liquid and illiquid) relative to that company‟scurrent total liabilities.

Quick ratio :

The quick ratio is an indicator of a company‟s short-term liquidity, andmeasures a company‟s ability to meet its short-term obligations with its most liquidassets Because we're only concerned with the most liquid assets, the ratio excludesinventories from current assets This ratio is assess more rigorous than current ratio

Cash ratio:

Cash ratio =

The cash ratio calculates a company's ability to repay its short-term debt bye cashand cash equivalents; this information is useful to creditors when deciding howmuch debt, if any, they would be willing to extend to the asking party

Time interest earned ratio:

Time interest

=

earned ratio

The interest coverage ratio is used to measures how well a company has its

interest obligations covered This ratio is also one of the most important criteria that

banks are particularly interested in when expertise lending, it is a great impact on

reliant rating as well as interest rates with businesses

Criteria group about ability to generate money: is used to measure how to

generate money and contribution level of each activity in creating in the period.This criteria can be consider during on quarterly or yearly to help managersevaluating ability to generate money from operating compared to revenue

Ratio of generating money Cash flow from business operation from business operations = Net revenue from good sold and

services rendered

Average cash holding period:

Average cash

=

holding period

The indicators of cash conversion cycle:

Average days in receivable (ADR): looks at how long it takes a company tocollect its receivables

Average

days in =

payables

Average days in inventory (ADI): it indicates the average time required for

a company to convert its inventory into sales Average

days in =

inventory

Cash conversion cycle = ADR + ADI – ADP

1.2.3.2 Criteria about receivables management

To assess the situation of receivables management, we use the following criteria:

Receivable turnover : The receivables turnover ratio is an activity ratio measuring

how efficiently a firm uses its assets This criteria is as big as possible, it saysthat the more capital is rotated, the more it depends on the selling policy, theorganization of payment of enterprises

Receivable

=

turnover

Day’s sales outstanding: Days' sales outstanding ratio is used to measure the

average number of days a business takes to collect its trade receivables afterthey have been created

Day‟s sales outstanding =

1.2.3.3 Criteria about inventory management

To assess the situation of inventory management, we use the following

criteria:

Inventory turnover: Inventory turnover is the number of times a company sells

and replaces its stock of goods during a period Inventory turnover providesinsight as to how the company managing costs and how effective their salesefforts have been

Inventory

=turnover

Day‟s sales in inventory: This ratio indicates the average days of one inventory

turnover Low days sales in inventory reflects fast sales of inventory stocks andtherefore would minimize handling costs as well as increase in cash flow andvice versa

Day‟s sales in inventory =

1.2.3.4 Criteria about working capital efficiency

The rotation speed of working capital: reflects the degree of circulating working

capital fast or slow and is often reflected in the indicators of working capitalturnover and working capital rotation

Working capital turnover :

Working capital turnover =Working capital turnover indicates whether procedure, production reserveand consumption in the business are reasonable, how high or low the cost ofproduction and business process

The period between the points at which cash is first spent on the production of

a product and the final collection of cash from a customer

+ Days in working capital:

Days in working capital =This ratio reflects about the average number days needed to carried out oncerotation The shorter the rotation period, the faster the rotation of the workingcapital and vice versa

The amount of capital saved due to increasing the rotating speed of working

capital:

The relative saving level Average the level of

of WC due to increasing = WC rotation per day in x Days to shorten

In which:

Average the level of

WC rotation per day =

in planning year

Days to shorten the time of WC

the time of WC rotation in

The amount of capital saved reflecting the amount working capital which can

be saved by increasing the rotating speed of working capital during this period in

comparison with the previous Because the increase in the speed of the circulation

of working capital, enterprises can withdraw from working capital to use for other

activities

Profit to working capital ratio:

This indicator is used to measure the effectiveness of using working capital

during the operating period

1.2.4 Factors affecting working capital management efficiency

1.2.4.1 Subjective factors

Enterprise’s scale and organizational structure

The larger scale of the enterprise is, the more complex enterprise

organizational operating management Because of the large amount of capital used,

the closer corporate structure is, the more efficient it is to produce If the operation

is managed closed, the enterprise will save cost and earn high profit The main tool

to monitor the business of the enterprise is financial accounting system A well

implemented accounting management gives accurate data helping managers to

understand the financial situation, so that they can make right decisions

Production technical level: in the enterprises with high production level, the

modern technology helps save more manufacturing cost leading to decrease

cost price, improve the competitiveness in the market On the contrary, the low

production level and outdated machines decrease the revenue affecting to the

financial situation of the enterprise

Qualification of production staff

Management qualification of the managers: the role of managers in the

enterprise is significant The management must combine optimally manufacturing

factors to cut out unnecessary costs as long as take business opportunities which

help enterprise to develop

Skill of workers: if workers with superb workmanship correspond tomanufacturing line level, it will be easier to control machines Then the enterprisecan maximize equipment productivity, create high qualified products definitelyleading to stabilization of enterprise‟s financial situation

The enterprise’s development and investment strategy: every business wanting to

operate lay out development plans through strategies In order to developmentsteadily the enterprise‟s financial situation, operating strategies must be in theright direction The managers have to consider carefully before make decisionsbecause those strategies can cause a big change in business capital

1.2.4.2 Objective factors

Market:

Market is a significant factor to manufacturing and operating activities of theenterprise in which capital market is crucial to raising capital of the enterprise,otherwise the commodity market is decisive to using capital decision Theconsumption market has big impact on enterprise‟s revenue and profit The stabledevelopment of those market will promote business to expand production andincrease market share

Customer:

Nowadays, the need of using product is higher and higher which requestsuppliers to make special products and attractive to buyers The business mustcreate those things with reasonable cost for high profit The enterprise must spendcost for market research, find out which products are popular and about design andpackaging… so that they can make efficient manufacturing decision

Economic status:

Economic status can affect indirectly to enterprise‟s financial situation Astrong and stable developed economy creates opportunities for the enterprise suchas: Increase capital, invest in big project, ability to choose partners…

Economic development and advancement in science and technology lead toincreasing in business performance When science and technology developstrongly, the enterprise will be in fierce competitive environment and the

enterprise must adapt to this kind of environment if it want to survive So manybusinesses always focus on technology investment By using modern machines,the enterprise not only saves labour but it also creates huge number of low-priceproducts which satisfy customer‟s demand That will help enterprise to enhancerevenue and profit which encourage enterprise to produce and financial situationwill be improved On contrary, if economy is in depression, it is very difficult forenterprise to improve financial situation.

Economic policies:

State adjustment is an indispensable factor in the economy Those mechanismsand policies have a significant impact on enterprise‟s financial situation For instant,capital allocation mechanism, asset revaluing, changes in tax policies (Value addedtax, corporate income tax, import tax and export tax…), lending, protection andtechnology import encouraging policies,… affect to operating process and financialsituation of the enterprise

Suppliers:

To operate, the enterprise must have input factors such as: materials,machines, equipment, technology,… bought from other enterprises Paymentsimpact directly on enterprise‟s finance For example, paying money right the time

of delivery leads decreasing in cash or cash in bank, the enterprise meet difficultyfor creasing capital Also, if the enterprise has to ship materials to it‟s store willincrease production cost leading to decrease in profit of the enterprise

Chapter 2: CURRENT SITUATION OF WORKING CAPITAL

MANAGEMENT AT ANSV CO., LTD.

2.1 Overview of ANSV CO., LTD

2.1.1 Foundation and development

2.1.1.1 The basic information

- Vietnamese name: Công ty TNHH thiết bị viễn thông ANSV

- English name: Advanced networks System VietNam Limited Company

- Abbreviated name: ANSV

- Headquater: No 124 Hoang Quoc Viet Street, Nghia Tan ward, Cau Giay

District, Ha Noi City

2.1.1.2 The process of foundation and development

ANSV was established in July 1993 in the joint venture cooperation betweenAlcatel Group (now Alcatel-Lucent) and Vietnam Post and TelecommunicationsCorporation (now the VNPT group)

In 1997, the Company expanded its production, extending its operation time to July 2016; In 2000 Alcatel transferred new technology to produce 1000 E10

systems; In 2006 Alcatel transferred the production technology of MSAN;

Since August 24, 2011, Vietnam Post and Telecommunications IndustryTechnology Joint Stock Company (VNPT Technology) has acquired all rights andresponsibilities of Alcatel-Lucent at ANSV, owning 51.2% in ANSV together withVNPT 48.8%;

- The name of the company is changed from Alcatel Network Systems VietNam to Advanced Networks System VietNam ;

- The operating period is extended from to 20 years to 50 years starting from 05 July 1993

2.1.2 Characteristics of business operations

2.1.2.1 Function, business aspect – main products :

- Manufacture, install and carry out services relating to Alcatel 100E10 publicswitching, PABX internall switchboard and other new generation of telecommunicationand information technology network systems;

- Provide technical services relating to GSM mobile communication andtransmission, informatics services and electronics applications intelecommunication, including study, development, manufacture and sales ofsoftware applications and networks solutions in telecommunication and otherinformation technology sectors

- Consult, design, install and maintain information technology and telecom systems (including hardware and software)

- Research and develop application software products and network solutions in communication sector and other information technology sectors

- Wholesale and retail telecommunication electronic and information technology components

The principle activities of the Company are to research, develop, manufacture,distribute product and provide services related to telecommunication andinformation technology products

Input market:

With the role of distributing telecommunication products manufactured byparent company VNPT Technology (High-tech Company), the proportion ofdomestically produced business goods accounts for a large proportion The rest isgoods imported directly from manufacturers or distributors of telecommunicationsproducts with brand and reputation in the world such as France, Finland, USA, suppliers of goods for ANSV most of them are longtime customers, have long-termcooperation with the Company