(Luận văn thạc sĩ) working capital management at advanced network systems vietnam limitted company

2 The thesis focuses on studying the current status of working capital management at Advanced Networks System Viet Nam Co., Ltd to break out the strengths and weaknesses as well as the

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

i

DECLARATION

The author confirms that the research outcome in the thesis is the result of author‟s independent work during study and research period and it is not yet published 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 the permission (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-mentioned declaration

Hanoi, September 3 rd , 2019

ii

ACKNOWLEDGEMENT

I would like to take this opportunity to express my deepest gratitude and appreciation to the people who have given me their assistance throughout my studies 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 Pham Thi Thanh Hoa, for her continuous encouragement and especially for her academic and 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 really appreciate her patience in reading and correcting my thesis

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

Moreover, I would also like to thank all of you and your colleagues who have been 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 their great love and care in both spirit and health during preparation for the undergraduate thesis in Finance

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

Student

iii

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

iv

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

WC Working Capital WCM Working Capital Management WCR Working Capital Requirements CTIN Post and Telecommunication and

Informatics Joint Stock Company POT Post and Telecommunication

Equipment Joint Stock Company

vi

LIST OF TABLES

Table 2.1 The situation of assets in 2016, 2017, 2018 of ANSV Company 32 Table 2.2 The structure of capital sources in 2016, 2017 and 2018 of ANSV Company 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 40 Table 2.5 The actual working capital requirements 2016, 2017, 2018 of ANSV company 42 Table 2.6 The expected working capital requirements determined on the basis of actual net of revenue in 2016, 2017, 2018 of ANSV company 43 Table 2.7 The allocation working capital in 2016, 2017 and 2018 of ANSV company 45 Table 2.8 Working capital resourse of ANSV in 2016, 2017, 2018 48 Table 2.9 The situation of fluctuations by cash of ANSV Company in 2016, 2017 and 2018 54 Table 2.10 Liquidity ratios in 2016, 2017 and 2018 of ANSV company 56 Table 2.11 The indicators for evaluating the situation of managing cash in 2016,

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

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

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

vii

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

INTRODUCTION

1 Rational of the study

Nowadays, in our country economic situation, besides the enterprises doing business effectively, many businesses are still confused in capital management Even, many businesses cannot simply reproduce, leading to losing business capital after 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 the most indispensable one

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

Advanced Networks System Viet Nam Co., Ltd has precursor which was a joint venture company, so it was provided capital regularly and fully However, after the joint venture‟s revulsion of capital, ANSV transformed into a two-member limited liability company In the process of transition, the Company met many difficulties 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 about working capital and working capital management, the author realized that the working capital management at Advanced Networks System Viet Nam Co., Ltd was really necessary and urgent Therefore, on the basis of the contribution to working capital management of the Company, and the guidance of Assoc Prof

Dr Pham Thi Thanh Hoa, the author chose the issue of "Working capital management at Advanced Networks System Viet Nam Co., Ltd" as the subject of the master‟s thesis

2

The thesis focuses on studying the current status of working capital management at Advanced Networks System Viet Nam Co., Ltd to break out the strengths and weaknesses as well as the problems to propose some solutions which improve 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 of authors researching, analyzing as well as summarizing definitions, overal principles and thesis mentioned in popular textbooks such as Short-term financial management, Nguyen Tan Binh, Le Minh Duc (2010), published by Statistic Publisher; Business Finance textbook of Assoc Prof Dr Bui Van Van and Assoc Prof Dr Vu Van Ninh, published by Finance Publisher in 2015; Textbook of Commercial Enterprise Management of Assoc Prof Dr Hoang Minh Duong published by Labor - Social Publisher

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

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

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

3

period of 2008 to 2010 The author has evaluated, commented on the achievements as well as issues then give some basic solutions to improve working 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 thesis presents primary problems of working capital in the enterprise, mentions methods to evaluate 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 financial management in both theoretical and practical aspects In general, studies have mentioned 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 the results In addition, working capital management in a commercial enterprise deploying projects in the telecommunication sector is very different from enterprises of other industries in the economy, bearing particularities and following particular management regulations

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

4

3 Aims of the study

The research objective of the thesis is to propose solutions to enhance working capital 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

to research topic, then analyzes, synthesizes and systematizes in a scientific way to serve the research process

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

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

5

documents, reports and information of ANSV Co., Ltd from 2016 - 2018, data sources collected from outside such as central ministries, publications have been published (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 of working 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 at Advanced Networks System Viet Nam Co., Ltd (number of interviewees was 05) This method collected primary data, the comments of expert were summazied and used to analyze the causes

7 Structure of the study

Beside the introduction, conclusion and references, the thesis includes 3 chapters as follows:

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

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

 Chapter 3: SOME SOLUTIONS TO IMPROVE EFFICIENCY

OF WORKING CAPITAL MANAGEMENT AT ANSV CO., LTD

2

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 of production and business must own current assets The current assets structures are various based on different types of business However, in a manufacturing enterprise, there are two components of current assets: operating current assets and circulating current assets, in which:

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

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

In the manufacturing and operating process, operating current assets and Circulating current assets are always moving, transforming and interchanging To ensure the manufacturing and operating process carry out continuously, the enterprise must have a particular number of current assets Therefore, the enterprise has 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 capital incessantly changes morphological expression From the form of money to different forms and when finishing product consumption process, working capital comes back to the first form that is capital in cash

Cash & Equivalent cash

This 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 capital management method is on quota, it means working capital quota for each product unit, capital quota for each cycle of manufacturing business operation However, in market economy, it is usually difficult to determine working capital requirement toward 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 working capital plays an important role, which is an important part of the management of financial activities of enterprises Managing working capital to ensure reasonable, economical and efficient use of working capital The more efficient the use of working capital is, the more products that can be produced, ie the better the procurement process, the production and consumption processes Working capital has many types that participate in a production and business cycle and often change

4

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

 Capital in cash and receivables:

- 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 the types of capital such as material capital, additive material capital fuel capital, tool & instruments,…

 Working capital in the production process includes types of capital, such as: goods in process, homemade end- product, prepare items…

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

This classification shows the role of each type of WC in the process of production and business, from which to choose appropriate structure of capital to invest, ensuring the balance of production capacity among stages in the process of production 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 of management and organization, which requires enterprises to find themselves exists

5

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

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

1.2.1.2 Objectives of working capital management

 First, effectively manage the day-to-day activities of the business to firstly improve the firm‟s profitability

The timely and sufficient mobilization of capital, savings on using capital help firms to seize business opportunity, increase revenues and profits for corporation Choosing the right form and method of mobilizing capital can help firms to decrease the 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 can help 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 operation process, firms frequently have the requirements of working capital for regular operation like developing corporations If a enterprise doesn‟t mobilize timely and enough 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 depends more 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 capital required to ensure the normal and continuous operation of the business Under this level, business production of enterprises will be difficult, even stalled, interrupted

Account Receivables -

Account Payable to suppliers

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

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

a) Direct method:

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

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

Working capital requirements in production reserving (reserve capital demand for main materials, auxiliary materials, fuel, .): based on the demand of using average capital per day and number of reserve days for each type to determine and then 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

7

Working capital requirements in producting (Working capital requirements

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

Vsx = Pn x 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 to form 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:

8

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

Disadvantages: complex calculation, take more time to determine working capital requirements

b) Indirect method:

This method is based on the analysis of the actual working capital use of the company in the reporting year, the change in business size, the rotation speed of working capital in the plan year or the fluctuation of working capital demand according 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 this year 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 actual business or industry situation into consideration while giving an estimate of working 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 or calculate the working capital:

9

Working Capital

Net revenue

WC turnover in next year

 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

Working capital structure

Working capital structure reflects the proportional relationship between the working 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 of allocation of resources and the proportion of each capital accounted for in the rotation period to determine the key management of explosives and find all optimal measures 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 distance between enterprises and suppliers of materials; possibility of providing of market; delivery period and volume of materials supplied; the distance of business and consumption market;…

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

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

Moreover, structure of WC is also affected by the charecteristics of season production, the level of organization and management In each stage, depending on firm‟s abilities and conditions, each firm will choose itselfs resonable structure to make 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 permanent current assets are regularly secured by permanent capital resourses, the entire temporary current assets are secured by temporary capital resourses

11

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

b) The conservative funding model: All fixed assets and permanent current assets

and a part of temporary current assets are secured by permanent capital resourses and the remaining 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

Permanent liquid assets

Fixed assets

Temporary capital resourses

Permanent capital resourses Money

Temporary capital resourses

Permanent capital resourses

12

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 of permanent liquid assets and the total temporary liquid assets secured by temporary capital resourses

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

Disadvantages: The possibility of having risks is higher than the above two models, so enterprises need to have experience and dynamism in organizing capital sources

1.2.2.3 Cash manegement

Cash is the most liquid asset and determines the solvency of the enterprises However, cash which itself is not profitable, it is only profitable when it is invested for a certain purpose To this characteristic of high liquidity assets of enterprises, capital in cash is also vulnerable to loss, fraud and abuse

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

Fixed assets

Permanent liquid assets

Temporary liquid assets

Money

Time

Temporary capital resourses

Permanent capital resourses

13

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 enterprises can The optimal cash balance depends on the following factors:

 The forecasts of future cash inflows and outflows of companies

 The efficiency of the firm‟s cash flow management

 The availability of liquidity assets to the firms

 The company‟s borrowing capacity

 The company‟s tolerance of risk avoid the risk of being unable to pay immediately There are many methods

of determining reasonable holding cash of businesses The simplest method is to get the daily average fund disbursement multiplied by the amount of budget reserve days

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

of cash 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 avoid loss and take advantage of as:

Enterprises must develop cash collection and payment regulations to apply for each case 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 payment

Strictly manage cash advances, need to clearly determine the subject of advance payment, 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 of funds The annual budget is both general and detailed for monthly and weekly,

Predict the flow of cash flows including income streams from business results; from financial performance results; borrowing flows and other capital raising flows In the above 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 as asset procurement, payroll, expenses for investment activities according to the enterprise'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 and levels This may increase some costs due to the increase of accounts receivable from customers such as receivable debt management costs, debt recovery costs, risk costs In return for businesses as well can increase profits by expanding the number of products consumed Accounts receivable also relate to the trade-off between profits and risks in selling goods and services

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

15

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

establishes for selling products and services on credit The term

of sale are consist of three elements:

 The credit period: is the length of time for which credit is extend

 The cash discount and the discount period: is the time that discount is allowed It is an expensive source of financing for the firm

 The type of credit instruments: refers to documents 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 credit worthiness of customers through credit information (the customer‟ financial statements; 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 with past-due accounts There are several produres employed to collect overdue amount and reduce bad debts

 Monitoring account receivables: Is after establishing a credit policy A firm must monitor its accounts receivables It

is aimed to analyze whether its credit policy is working effectively or not; and to keep an eye on the customers‟ payment to spot over-due problems

16

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 policy specified in its credit terms to judge the effectiveness of its credit policy

 Aging schedule: An aging schedule categorizes accounts by the number of days they have been on the firm‟s books It can be prepared using either the number of accounts

or the dollar amount of the accounts receivable outstanding All accounts or customer‟ debts are classified based on the length of time the amounts have been past due and the relative proportion of these accounts to total value of accounts receivable are presented

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

1.2.2.5 Inventory management

Inventories are the properties that an enterprise holds for producing or sale in the 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 inventory account for a significant proportion of enterprise‟s total working capital, but it also helps 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, market avalability, delivery cycle, shipping time and price of materials

17

The amount of inventory for work-in-progress depends on characteristics and technological requirements in the process of manufacturing, length of product cycle 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 costs due to capital kept in inventory

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

Inventory management content as below:

- 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 :

18

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

Quick ratio :

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

Cash ratio:

The cash ratio calculates a company's ability to repay its short-term debt bye cash and cash equivalents; this information is useful to creditors when deciding how much 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 managers evaluating ability to generate money from operating compared to revenue

Ratio of generating money

from business operations =

Cash flow from business operation Net revenue from good sold and

services rendered

The indicators of cash conversion cycle:

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

Average days in payables (ADP): it measures the average number of days it takes for a company to pay its suppliers The majority of companies aim for a relatively short average days payable ratio as this indicate that they are able to meet their financial obligations toward their suppliers

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

a company to convert its inventory into sales

Cash conversion cycle = ADR + ADI – ADP

20

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 says that the more capital is rotated, the more it depends on the selling policy, the organization 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 after they 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 provides insight as to how the company managing costs and how effective their sales efforts 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 and therefore would minimize handling costs as well as increase in cash flow and vice versa

Day‟s sales in inventory =

21

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 capital turnover and working capital rotation

Working capital turnover :

Working capital turnover =

Working capital turnover indicates whether procedure, production reserve and consumption in the business are reasonable, how high or low the cost of production 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 once rotation The shorter the rotation period, the faster the rotation of the working capital and vice versa

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

Average the level of

WC rotation per day in planning year

x Days to shorten

WC rotation period

In which:

Average the level of

WC rotation per day

- the time of WC rotation in

reported year

22

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:

Profit to working capital ratio=

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

23

Skill of workers: if workers with superb workmanship correspond to manufacturing line level, it will be easier to control machines Then the enterprise can maximize equipment productivity, create high qualified products definitely leading 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 development steadily the enterprise‟s financial situation, operating strategies must be in the right direction The managers have to consider carefully before make decisions because 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 the enterprise in which capital market is crucial to raising capital of the enterprise, otherwise the commodity market is decisive to using capital decision The consumption market has big impact on enterprise‟s revenue and profit The stable development of those market will promote business to expand production and increase market share

Customer:

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

Economic status:

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

Economic development and advancement in science and technology lead to increasing in business performance When science and technology develop strongly, the enterprise will be in fierce competitive environment and the

24

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

Economic policies:

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

Suppliers:

To operate, the enterprise must have input factors such as: materials, machines, equipment, technology,… bought from other enterprises Payments impact 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 difficulty for creasing capital Also, if the enterprise has to ship materials to it‟s store will increase production cost leading to decrease in profit of the enterprise

25

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,

2.1.1.2 The process of foundation and development

ANSV was established in July 1993 in the joint venture cooperation between Alcatel Group (now Alcatel-Lucent) and Vietnam Post and Telecommunications Corporation (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 Industry Technology Joint Stock Company (VNPT Technology) has acquired all rights and responsibilities of Alcatel-Lucent at ANSV, owning 51.2% in ANSV together with VNPT 48.8%;

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

26

- 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 public switching, PABX internall switchboard and other new generation of telecommunication and information technology network systems;

- Provide technical services relating to GSM mobile communication and transmission, informatics services and electronics applications in telecommunication, including study, development, manufacture and sales of software applications and networks solutions in telecommunication and other information 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 and information technology products

Input market:

With the role of distributing telecommunication products manufactured by parent company VNPT Technology (High-tech Company), the proportion of domestically produced business goods accounts for a large proportion The rest is goods imported directly from manufacturers or distributors of telecommunications products 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-term cooperation with the Company

27

Beside material factors, investment in level of science and technology, modern equipment, human resource, material facilities,… creates advantages for the enterprise when new telecommunication products are used constantly on the market with lower price and better quality

Output market:

Be a long-term reputable company in the market providing Vietnam telecommunication products, company‟s products are always in seasonable price and good quality The Company has been distributing products all over country through provincial telecommunication and agents Nowadays, ANSV has two branches with thirty agents, stores operating nationwide Besides, the Company also provides products for sixty four provinces through provincial telecommunication Besides domestic market, the Company has been expanding into foreign markets and exported products to some countries such as Myanmar, Laos, Cambodia,

2.1.2.2 The organization of business operations

ANSV has the organizational structure of a model of Company Limited which

is reasonable with full functions departments suitable to the business and production activities of the enterprise:

 Board of members: board of members is the highest management agency of the Company which has full authority to give all of decisions for matters relating to the Company‟s purpose, right under obligations stipulated in the Company‟s regulation and current laws In the present, the Company has three members in board of members with 5-year term of office

 Board of directors: Board of directors is accredited by board of members with mission of organization, operate and manage all company‟s operating activities under plans and strategies adopted by Board of members Term of office of BOD members is five years

General Director is representative under law of the Company, accredited and dismissed by Board of members General Director operates directly manufacturing and operating activities of the Company and is responsible for given rights and obligations