Improving the efficiency of using capital at bao viet group

Nguyen Thi Hai Duong Keywords: Business Capital, Bao Viet Group, improving efficiency This paper focuses on analyzing, evaluating and offering solutions to overcome shortcomings, and to

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S

MASTER IN FINANCIAL MANAGEMENT

Improving the efficiency of using capital at

Bao Viet Group

Graduate student: Phan Dinh Tam

Supervisor: Nguyen Thi Hai Duong, PhD

HA NOI, 2019

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ABSTRACT

Thesis Title: Improving the efficiency of using capital at Bao Viet Group Pages: 100

University: Vietnam National University

Graduate School: International School

Date: Octorber, 2019 Degree: Master

Graduate Student: Phan Dinh Tam Supervisor: Dr Nguyen Thi Hai Duong

Keywords: Business Capital, Bao Viet Group, improving efficiency

This paper focuses on analyzing, evaluating and offering solutions to overcome

shortcomings, and to contribute to improve and bring better efficiency for using capital at

Bao Viet Group in the period of 2016–2018 The researcher will study the system and

theoretical basis of the organization of capital use, do research and evaluate the status

of the organization of using capital in enterprises in general and the status of organization

using capital at Bao Viet Group, and provide recommendations and basic conditions to

improve the efficiency of capital use at the Bao Viet Group The research uses following

methods: Statistical methods, synthetic methods, analytical methods and comparison

methods to clear the research objective Thereby, the research recommends financial

solutions: Adjust capital structure in a more reasonable way; Strict management and

improve the profitability of capital in cash; Focus on investing in architectural houses,

means of transmission and improving the efficiency of using existing fixed capital;

Determine the Group's need for regular working capital appropriately; Regularly monitor,

analyze and evaluate the efficiency of capital use; Periodically conduct financial analysis

and evaluate the performance of the company, and needs to build and train high quality

human resources

My thesis was also completed with the help from my superiors and colleagues

at Bao Viet Group

Last but not least, I would like to express my gratitude to my friends and family for giving me encouragement and supports during my studying time and completion

of my thesis

Thank you!

Phan Dinh Tam

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TABLE OF CONTENTS

ABSTRACT 1

ACKNOWLEDGEMENT 2

TABLE OF CONTENTS 3

LIST OF TABLES 5

LIST OF FIGURES 7

CHAPTER 1: INTRODUCTION 8

1 The necessity of the research 8

2 Research objectives 8

3 Research Scope 9

4 Research Methods 9

5 Structure of the thesis 9

CHAPTER II: THEORETICAL BACKGROUND AND LITERATURE REVIEW 10

1 CONCEPT AND CLASSIFICATION OF BUSINESS CAPITAL 10

1.1 Concept of Business Capital 10

1.2 Characteristics of Business Capital 10

1.3 Classification of Business Capital 11

1.3.1 Based on the Source of Capital Formation 11

1.3.2 Based on the characteristics of capital rotation 12

1.3.3 Based on the scope of capital mobilization 13

2 EFFICIENCY OF USING CAPITAL IN ENTERPRISE 14

2.1 The concept of efficient use of Business Capital 14

2.2 Indicators for evaluating the efficiency of using Business Capital 15

2.3 The necessity to improve the efficiency of using business capital of enterprises in market economy 26

3 FACTORS IMPACT ON THE EFFICIENCY OF USING BUSINESS CAPITAL 27

3.1 External factors 27

3.2 Internal factors 28

CHAPTER III: DATA ANALYSIS AND SOLUTIONS TO IMPROVE THE EFFICIENCY OF CAPITAL USE AT BAO VIET GROUP 29

I SITUATION OF USING CAPITAL AT BAO VIET GROUP (2016-2018) 29

1 Business performance of Bao Viet Group 29

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1.1 History and Development of Bao Viet Group 29

1.2 Management Organization of Bao Viet Group 30

1.3 Results of Business Performance of Bao Viet Group 33

2 The situation of effective use of business capital at Bao Viet Group (2016 -2018) 39

2.1 The situation of using business capital 39

2.2 Using Capital at Bao Viet Group 48

3 ASSESSMENT ON THE ORGANIZATION AND EFFICIENCY OF USING CAPITAL IN BAO VIET GROUP 79

3.1 Achievements 79

3.2 Existences 80

II SOLUTIONS TO IMPROVE THE EFFICIENCY OF CAPITAL USE AT BAO VIET GROUP 82

1 Bao Viet group’s development orientations towards 2025 82

1.1 Socio-economic context at home and abroad 82

1.2 Developmental orientations 83

2 Solutions to improve the efficiency of capital use at Bao Viet Group 86

2.1 Financial solutions 86

2.1.1 Adjust capital structure in a more reasonable way 86

2.1.2 Strict management and improve the profitability of capital in cash 87

2.1.3 Focus on investing in architectural houses, means of transmission and improving the efficiency of using existing fixed capital 89

2.1.4 Determine the Group's need for regular working capital appropriately 92 2.1.5 Regularly monitor, analyze and evaluate the efficiency of capital use 93 2.2 Others solutions 94

2.2.1 Periodically conduct financial analysis and evaluate the performance of the company 94

2.2.2 The company needs to build and train high quality human resources 95

3 Conditions to implement recommendations 95

3.1 For the state 95

3.2 For the Group 97

CONCLUSION 98

REFERENCES 100

2.1 Some financial information of Bao Viet Group (2016-2018) 35

2.3 Structure of business capital of Bao Viet Group (2016 – 2018) 44

2.4 Some targets on the structure of capital sources of Bao Viet Group

2.5 Capital financing model of Bao Viet Group (2016– 2018) 47

2.6 Working capital structure of Bao Viet Group (2016– 2018) 49-50

2.7 The solvency assessment criteria of Bao Viet Group in 2016-2018 54

2.8 The average receivable and receivable turnover cycle of Bao Viet

2.9 Compare the appropriated and occupied capital of Bao Viet Group

2.10 Some indicators evaluate the efficiency of using working capital of

2.11 Long-term assets structure of Bao Viet Group (2016 – 2018) 67

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2.12 Fluctuation of tangible fixed assets of Bao Viet Group in 2018 71

2.13 The situation of depreciation of fixed assets of Bao Viet Group

2.14 Effective use of business capital of Bao Viet Group (2016-2018) 77

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CHAPTER 1: INTRODUCTION

1 The necessity of the research

Globalization is an indispensable trend now, which is taking place strongly It is creating a link and increasing exchange between countries, organizations or individuals in all angles: Culture, economy, politics Considering the economic perspective in general and finance in particular, it can be seen that fierce competition is increasing among countries in general and domestic enterprises in particular An enterprise that wants to survive and develop must have the qualifications, knowledge and management capacity

In particular, capital is an important factor affecting the business performance

Indeed, any business that wants to scale up or restructure the industry must have a stable source of capital After that, enterprises must know how to preserve and develop their capital to improve their financial capacity In the current economic context, Bao Viet Group is a special-class enterprise, which is allowed by the Government to pilot the equitization to establish a Group operating under the model of Parent Company and Subsidiary Company After more than 10 years of equitization, with the technical support of HSBC strategic partner and Sumitomo Life, the Group has achieved quite good results in core business sectors (insurance) and other financial sectors such as Banking, Securities, Fund Management Strictly controlling investment management and cash flow management has helped the Group effectively to manage capital use, thereby contributing significantly to the Group's business results in the past 10 years However, in the process of implementing the investment, the management and use of capital in Bao Viet Group still has certain limitations and shortcomings, so I choose the

topic: “Improving the efficiency of using capital at Bao Viet Group” to analysis of

the Group's business capital efficiency, as well as some comparisons in the Group's core business: Bao life insurance and non-life insurance

2 Research objectives

Based on theoretical issues and actual situation of using capital of Bao Viet Group, the thesis proposes solutions to improve the efficiency of capital using at the Bao Viet Group In detail, the sub objectives are followings:

- Study the system and theoretical basis of the organization of capital use;

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- Research and evaluate the status of the organization of using capital in

enterprises in general and the status of organization using capital at Bao Viet Group;

- Provide recommendations and basic conditions to improve the efficiency of

capital use at the Bao Viet Group

Assess and analyze the current situation of using capital at Bao Viet Group in the following aspects: Efficiency and not really effective, urgent contents to improve the efficiency of the Group's capital use

The thesis proposes research theorems, scientific points as the basis for solutions

to improve the efficiency of the Group's capital use, and provides and clarifies the solutions especially flexible capital raising solutions operating and using capital effectively at the Group With these solutions, the thesis clarifies qualitatively and especially quantifies the benefits of the Group's capital efficiency

5 Structure of the thesis

In addition to abstract, conclusion, appendices, table lists, tables, catalogs of references and indexes, the dissertation is divided into 3 chapters:

- Chapter 1: Introduction;

- Chapter 2: Theoretical background and Literature review;

- Chapter 3: Data analysis and Solutions to improve the efficiency of capital use at Bao Viet Group

According Bui Van Van and Vu Van Ninh (2013) “Business capital of the enterprise is the entire amount of advance that businesses spend to form the necessary assets for production and business activities of the enterprise”

1.2 Characteristics of Business Capital

To manage and use business capital effectively, businesses must be aware of some characteristics of business capital:

- Business capital is expressed as the value of assets of the enterprise In other

words, capital must represent a certain amount of asset value Therefore, it is impossible

to have capital without assets or vice versa

- Capital must be mobilized to earn profit Capital is expressed in money but

money is not necessarily capital To become capital, money must be mobilized for profit

In the business process, capital can be transformed through many different forms, but the starting and ending points of the cycle must be the monetary form with a value greater than the original value, ie business profitable This requires businesses to manage the use

of business capital so that the circulating capital is not stagnant

- Capital must accumulate, focus on a certain amount to be effective in business,

which shows that to be able to use capital effectively requires businesses to calculate accurately the amount of capital to be used to avoid the shortage of capital, businesses will fall into a passive or excess capital which will cause capital stagnation, increase opportunity costs during the process of using capital, and reduce use efficiency

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Therefore, businesses must not only rely on their available potential but also seek to attract capital from various sources

- Capital is valuable in terms of time, ie the value of the same amount of capital at

different times is not the same This feature requires businesses in the process of using capital to make capital move constantly, not to "die" capital

- Capital associated with one or more certain owners This feature requires

businesses to choose capital mobilization to balance between profit and cost to mobilize capital

- At one time, capital can exist in many different forms, which can be in the form

of specific material such as cash, inventory, machinery, vehicles or no morphology Specific material such as land use rights, trademarks This feature helps businesses have

a comprehensive view of business capital, thereby having appropriate solutions to promote the strength of business capital

1.3 Classification of Business Capital

In order to classify business capital, we can consider many different criteria such

as capital formation, capital transfer characteristics, capital mobilization scope

1.3.1 Based on the Source of Capital Formation

According to capital formation criteria, the enterprise's business capital includes equity and liabilities

a) Equity: Equity is the source of capital owned by the business owner and

members of the joint venture company or shareholders in joint stock companies

Equity = Total asset value - Total liabilities

With different types of businesses, equity is also formed from different sources In Vietnam today there are the following types of equity:

- For state-owned enterprises: Owner's equity is capital operated by the state or

invested Therefore, the owner is a state

- For limited liability companies (limited liability companies): Capital is formed

by the members participating in the establishment of the company Therefore, these members are capital owners

- For joint stock companies: Equity is the capital formed by shareholders

Therefore, the capital owner here is the shareholders

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- For partnerships: Capital contributed by the members involved in establishing

the company These members are capital owners A partnership is an enterprise that must have at least two partners and may have capital-contributing members

- For private enterprises: Enterprise's capital is contributed by the business

owner Therefore, the owner of capital is, of course, the business owner The owner of a private enterprise must be responsible for all his assets

- For venture enterprises (which may include joint ventures or

joint-venture enterprises): Joint joint-ventures may be conducted between domestic enterprises or

domestic enterprises or foreign enterprises

b) Liabilities must pay: Liabilities are debts arising in the course of production

and business activities that businesses must pay, must pay to creditors, including loans, debts and payables for sellers, for the State, for employees and other payables

1.3.2 Based on the characteristics of capital rotation

Based on the capital turnover criteria, capital of enterprises is divided into two types: fixed capital and working capital Specifically:

a) Fixed capital: Fixed capital is the value of fixed assets (fixed assets) These

types of assets are assets of great value, the duration of use lasts through many business

cycles of the business From the above definition, fixed capital has characteristics:

- Firstly: Rotate through many production and business periods of enterprises due

to fixed assets and long-term investments involved in many production and business cycles of enterprises

- Secondly: When participating in the business process of business, the fixed

capital invested in production is divided into 2 parts A fixed capital component corresponding to the depreciation value of fixed assets is shifted into business costs or the cost of products and services produced, this value unit will be offset and accumulated each when goods or services are consumed The remaining part of fixed capital is in the form of residual value of fixed assets

In enterprises, fixed capital is an important part and accounts for a large proportion

in the structure of investment capital in particular, production capital in general Fixed capital scale and fixed capital use management is a key factor affecting the efficiency of using business capital of enterprises

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b) Working capital: Working capital is expressed in cash of short-term assets so

the movement characteristics of working capital are always influenced by the characteristics of short-term assets From the above definition, working capital has specific characteristics:

i Fast traffic

ii Move once into the production and business process

iii Complete a cycle after completing a business process

iv The movement of working capital is a closed cycle from one form to another and returns to the original form with a value greater than the original value The mobilization cycle of working capital is the basis for assessing the solvency and business and production efficiency of enterprises and the efficient use of capital of enterprises

The biggest difference between working capital and fixed capital is: fixed capital gradually transfers its value into the product through depreciation, while working capital transfers its entire value into the product value according to production and business cycle

1.3.3 Based on the scope of capital mobilization

According to the standard of capital mobilization, the business capital of the enterprise is classified according to two sources: the internal capital source of the enterprise and the capital outside the enterprise Specifically:

- Internal capital of the enterprise: The enterprise mobilizes the use of the

internal capital of the enterprise with the advantage that the enterprise is entitled to autonomy to use for the purpose of the business without having to bear the pressure of use costs capital With the above characteristics, many businesses easily fall into the case

of inefficient use of capital

- Capital source outside the enterprise: It is an enterprise's capital source that

can be mobilized from outside to meet the demand of using capital for production and business activities of enterprises There are many sources for businesses to mobilize such

as bank loans, loans from other financial institutions, issuance of debiting instruments With the above characteristics, the external capital mobilization channel of enterprises is very wide If businesses build a reasonable business plan, the mobilization plan from outside will help businesses thrive However, with capital mobilized from outside, enterprises will be subject to pressure to pay interest on debt as prescribed If the business

of capital for businesses and reduce risks when mobilizing capital

2 EFFICIENCY OF USING CAPITAL IN ENTERPRISE

2.1 The concept of efficient use of Business Capital

In a market economy, the biggest purpose of an enterprise is business and production activities that bring about high economic efficiency This means businesses must take advantage of all capital to develop production and business, bring high economic efficiency and facilitate the expansion of production scale Business capital helps businesses operate continuously, stably and effectively Corresponding to each production scale requires a certain amount of capital However, it is only a necessary condition, it is important that the enterprise uses that capital to bring the highest efficiency, not only to preserve capital but also to develop capital and bring the effect Highest business results The effect is the economic benefit gained after compensating for the expenses for production and business activities

Thus, the efficiency of using business capital of enterprises is an economic category reflecting the quality and usefulness of the use of input cost factors in the production process, determined by term The relation between the output and the input cost of an economic system in a certain time so that the profit achieved by the enterprise

is the highest with the lowest total cost At the same time, it is possible to create capital for its business and production activities, ensuring the investment and production expansion of enterprises in the future (Bui Van Van and Vu Van Ninh, 2013

In a market economy, every business wants to survive and grow; it must have a required amount of monetary capital However, with the same amount of capital, the profits of businesses are different The main reason is due to the efficiency of capital utilization of each enterprise and different Effective use of capital ensures the safety of businesses, affecting the existence and development of that business Therefore, improving the efficiency of organizations using business capital in enterprises is an objective requirement for the production and business process of enterprises

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2.2 Indicators for evaluating the efficiency of using Business Capital

When studying to find out measures to improve the efficiency of capital of enterprises, we need to assess the current state of using business capital of enterprises through analyzing the criteria of evaluating the efficiency of using capital business Basis for evaluating the effectiveness of capital use, including the criteria considered as follows:

1.2.2.1 Performance indicators for using business capital of enterprises

a) Performance of business capital:

Circle of money: This indicator reflects in the period, how many rounds of business capital of the business turn Or in the period of 1 dong, the capital is spent on production and business

Circle of money=

Net revenue Average business capital

b) Performance using working capital:

When considering the use of working capital, people often consider the circulation rate of working capital according to the following two criteria:

- Working capital turnover: This indicator reflects the period of working capital,

how many rounds or 1 dong of working capital will be generated

Working capital turnover =

Net revenue Average working capital in the period Working capital turnover cycle, the more revs, the more effective the working capital is used

- Circulating working capital: This indicator reflects the average number of days

required for working capital to execute a rotation (or the length of time a rotation of working capital in the period)

Circulating working capital =

Number of days in the period Working capital rotation The shorter the rotation period, the faster the working capital is circulated, and the higher the effective working capital

c) Target savings of working capital

With:

VTK: The amount of working capital can be saved or increased due to the effect of the circulating working capital rate compared with the original period

M1: Total amount of circulating working capital in comparison period

K1, K0: The circulating period of working capital in the comparison and original periods

L1, L0: Number of times of circulation of working capital in comparison period, original period

If the working capital turnover period is longer than the previous period, the enterprises will have wasted working capital

d) Content of working capital:

This indicator reflects to create a net revenue that requires how much working capital

Content of working capital =

Average working capital in the period

Net revenue

In addition to assessing the efficiency of using working capital, people also use a number of other criteria such as: inventory turnover, accounts receivable turnover, average collection period

The study of the above indicators helps businesses improve capital efficiency If the business strives to shorten the capital rotation cycle by saving reasonable working capital, raising the total capital turnover, it will increase the working capital turnover From there, contributing to increase profits, increase business efficiency of the business

e) Inventory turnover:

Inventory turnover is a ratio showing how many times a company has sold and replaced inventory during a given period A company can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the

f) The average collection period

The average collection period is the amount of time it takes for a business to receive payments owed by its clients in terms of accounts receivable (AR) Companies calculate the average collection period to make sure they have enough cash on hand to meet their financial obligations

The average collection period =

360 Receivables turnover

With receivables turnover:

Receivables turnover =

Revenue (with tax) The average balance of receivables

If the turnover of receivables increases from year to year, it shows the weak ability

of debt management in a company (and vice versa)

g) Fixed use of capital

When considering fixed capital usage, people often base on the following specific criteria:

- Fixed capital use performance: Reflecting a fixed capital to create net revenue in the period

Fixed use of capital =

Net revenue Average fixed capital

- Fixed capital content: is the inverse quantity of the fixed capital use efficiency index to create a net revenue that needs how much fixed capital

Average fixed capital

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Fixed capital content = Net revenue

- Usage efficiency Fixed capital and other long-term capital: This indicator reflects

a fixed capital and other long-term capital (long-term total assets) involved in the period

of how much revenue is generated

Usage efficiency Fixed

capital and other

After calculating the above indicators, people compare them between years to see

if the fixed capital (or fixed assets) is used effectively or not It is also possible to make comparisons between Enterprises in the same sector or an area to consider whether their competitiveness, use status and business management are effective

h) Coefficient of fixed assets

This indicator reflects the level of wear and tear of fixed assets in the enterprise compared to the initial investment time

i) Number of days of money transfer

This index is a useful way to assess the company's cash flow because it measures the amount of time invested in working capital The cash conversion cycle (CCC) is calculated by the following formula:

CCC = RCP + ICP - PDP with:

RCP: Receivable Collection Period ICP: Inventory Conversion Period PDP: Payable Deferral Period

a) Indicators reflect the profitability of business capital

 The ability to profitability of all business capital

- Basic earning power (BEP) ratio is a measure that calculates the earning power

of a business before the effect of the business' income taxes and its financial leverage It

is calculated by dividing earnings before interest and taxes (EBIT) by total assets

BEP = Earnings Before Interest anh Taxes (EBIT)

Total Assets This index is very significant in comparing the situation of company operations with the common ground of the industry The higher the BEP, the better the business performance of the Company

- Return on assets (ROA) is a profitability ratio that provides how much profit a

company is able to generate from its assets In other words, return on assets (ROA) measures how efficient a company's management is in generating earnings from their economic resources or assets on their balance sheet ROA is shown as a percentage, and the higher the number, the more efficient a company's management is at managing its balance sheet to generate profits

ROA =

Net income Average Total Assets

A high and stable ROA for a long time is a positive sign that the company is using its assets more and more effectively and optimizing the resources available

- The return on equity ratio (ROE) is a profitability ratio that measures the

ability of a firm to generate profits from its shareholders investments in the company In other words, the return on equity ratio shows how much profit each dollar of common stockholders’ equity generates

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ROE is also an indicator of how effective management is at using equity financing

to fund operations and grow the company

ROE =

Net Income Shareholder’s Equity The higher this indicator, the greater the profitability of equity, the more co-equity

a co-owner generates after-tax profits

- Return on sales (ROS) often called the operating profit margin, is a financial

ratio that calculates how efficiently a company is at generating profits from its revenue

In other words, it measures a company’s performance by analyzing what percentage of total company revenues are actually converted into company profits

ROS =

Operating Profit Net Sales

This larger indicator shows the higher the efficiency of the business

 Profitability of working capital

- Working capital return: This indicator reflects in the period, one dong of

working capital participating in the business process creates how much profit before tax (after) tax It has a proportional relationship to the profitability of the business and can be used to see how efficient it is to use working capital compared to the cost of financing it

(This indicator reflects in the period, how many dongs of working capital involved

in a business process generate profits before (after) the tax can be used to see the working capital efficiency versus funding costs for it.)

Working capital rate of return = Profit before (after) tax

Average working capital in the period

 Profitability of fixed capital

Fixed capital rate: This indicator reflects a fixed amount of capital involved in the period, which can generate as much of the previous (after) tax profit

Fixed rate of return on capital = Profit before (after) tax

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Average fixed capital in the period

b) Indicators reflect the level of business capital safety

 Frequent working capital also known as Net working capital (NWC) is a

liquidity calculation that measures a company’s ability to pay off its current liabilities with current assets This measurement is important to management, vendors, and general creditors because it shows the firm’s short-term liquidity as well as management’s ability to use its assets efficiently

Much like the working capital ratio, the net working capital formula focuses on current liabilities like trade debts, accounts payable, and vendor notes that must be repaid

in the current year It only makes sense the vendors and creditors would like to see how much current assets, assets that are expected to be converted into cash in the current year, are available to pay for the liabilities that will become due in the coming 12 months

Net Working Capital = Current Assets – Current Liabilities

or,

Net Working Capital = Current Assets (less cash) – Current Liabilities (less debt)

or,

NWC = Accounts Receivable + Inventory – Accounts Payable

If long-term capital is larger than long-term assets, the enterprise has regular working capital This is a sign of safety for businesses because it allows businesses to cope with risks that may occur as far as bankruptcy of large customers, credit cuts of suppliers including losing temporary hole

In case of long-term capital source is smaller or equal to long-term assets, it means that the enterprise has no working capital regularly The fact that long-term capital is smaller than fixed assets and long-term assets means that the enterprise has used a short-term part of its capital to finance long-term assets Even if the long-term capital is equal

to long-term assets, that means: long-term capital of the enterprise is enough to finance long-term assets, financial balance in this case, although it still achieves stable properties The decision is not high, the risk of violating the financial balance principle is still potential This is a sponsorship policy that does not bring stability and safety to businesses

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 Debt ratio: It is a very important financial factor for business managers, with

creditors as well as investors For corporate managers, through debt ratios, financial independence, financial leverage and financial risks can be encountered from which to adjust financial policy appropriate main For creditors, by considering the debt ratio of the business, it is possible to see the security of the loan to make loan decisions and debt recovery decisions Investors can assess the level of financial risk of the business, based on that to consider the investment The capital structure coefficient is expressed mainly through debt ratio Debt ratio represents the use of corporate debt in the organization of capital and it also shows the level of using leverage of enterprises

Debt ratio = Total debt

Total asset This coefficient indicates how many dong is raised in a loan fund, in which the mobilized capital is

 The solvency index group

- Current solvency coefficient: Also known as the ability to pay short-term debt

This coefficient reflects the ability to convert assets into money to cover short-term debts

of businesses

Current solvency coefficient

=

Short-term assets Short-term debt

Total short-term assets include short-term financial investments Short-term liabilities are liabilities payable for a period of less than 12 months

In order to evaluate this coefficient, it is necessary to base on the average coefficient of enterprises in the same industry or the criteria for assessing the financial ratios of the banking industry It should be noted that there are differences between these coefficients in different business sectors An important basis for evaluation is to compare with the current solvency coefficient at the previous points of the business

Normally, when this ratio is low (especially when it is less than 1), it is weak and

is also a sign of potential financial difficulties that businesses may encounter in debt repayment This high coefficient indicates that enterprises are highly capable of being

- Quick payment coefficient: Is a criterion to assess more closely the solvency of

enterprises This coefficient indicates how much VND short-term debt is guaranteed by short-term assets after eliminating low liquidity assets is inventory

Quick solvency coefficient =

Short-term assets - inventory

Short-term debt This indicator is high, indicating that NNH of enterprises is well guaranteed with high liquidity assets However, in difficult economic conditions, short-term receivables of enterprises may not be fully recovered, affecting the solvency of the company Therefore,

in order to further assess the solvency, we use the ability of instant solvency

- Instant payment ratio: Reflecting a short-term debt of the enterprise guaranteed

by how many coins and cash equivalents

Instant payment ratio = Money + Cash equivalents

Short-term debt Money includes cash, deposits and money in transit Cash equivalents are short-term investments in securities, other short-term investments that can be easily converted into cash for a period of 3 months and without significant risks This coefficient is particularly useful to assess the solvency of an enterprise in the period when the economy

is in crisis when inventory is not consumed and many bad debts are difficult to recover

- Loan interest payment coefficient: Reflecting the profit before interest and tax

of the business in the period to ensure the payment of interest-bearing obligations

Loan interest payment

coefficient =

Profit before interest and taxes loan interest payable during the period Loan interest is the cost of using the loan that the business is obliged to pay on time to creditors A business that owes a lot of debt but does business badly, the profitability of the capital is too low or it is unprofitable, it is difficult to guarantee payment of interest on time

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This coefficient is calculated based on the data of the business results report and reflects the level of risk that may be encountered for creditors This indicator is one of the criteria that banks are very interested in evaluating customer loans Therefore, this indicator greatly affects the credit rating and interest rate of enterprises

- Ratio to ensure payment of interest from the net operating cash flow: This

coefficient is used to assess the ability to create money from production and business activities that meet the requirements of payment of interest or not

How to determine this indicator is as follows:

Ratio to ensure payment

of interest from the net

operating cash fl ow

=

Net cash flow from business activities +

Payable to lend interest Payable to lend interest

- The coefficient of assessing the ability to pay debts of active cash flow: This

indicator is used to consider the ability of enterprises to pay short-term debts through a net operating cash flow Thereby, assessing the ability to create money from business operations of the enterprise is enough to pay the debt or not

The coefficient of assessing

the ability to pay debts of

active cash flow

=

Net cash flow from business activities

Total current liabilities

1.2.2.3 The relationship between the efficiency of capital usage and business capital efficiency

The profitability of equity of enterprises is the result of a series of measures and management decisions of enterprises To see the impact of the relationship between the level of management and use of capital to the profitability of the owner of considered are:

a) The interaction relationship between the rate of after-tax profit on business

capital with the efficiency of using the entire capital and the rate of after-tax profit on revenue This relationship is established as follows:

As mentioned above, the ratio of after-tax profit to business capital is determined

as follows:

Rate of after-tax profit

on business capital

=

Profit after tax

Average business capital in the period

Net revenue Average business

capital in the period

=

Rate of after-tax profit on revenue x Total turnover Considering this relationship, it can be seen how the impact of the after-tax profit ratio on revenue and the total return on capital affects the rate of after-tax profit on business capital On that basis, enterprise managers set out appropriate measures to increase after-tax profit ratio on business capital

b) The interaction relationship between the rate of after-tax profit on equity and

the efficiency of using the whole capital, the rate of after-tax profit on revenue and the coefficient of capital on equity (or the level financial leverage.) This relationship is established as follows:

Return on equity (ROE) =

Profit after tax

Average Shareholders’ Equity

In the above formula:

Total business capital

It is called the coefficient of capital on equity and is shown as the level of financial leverage of enterprises From that:

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1- Debt ratio

Net revenue Total business capital 1- Debt ratio

ROE = Rate of after-tax profit on

revenue x Total turnover x

1 1- Debt ratio Through the above formula, there are three main factors affecting the rate of return

of equity in that period:

- Rate of after-tax profit on revenue: Reflecting the level of management of

revenue and expenses of enterprises

- Asset turnover (Total capital turnover): Reflecting the level of enterprise's

exploitation and use of assets

- Capital ratio on owners' equity: Reflecting the management and organizational

level of capital for the operation of the enterprise

On the basis of identifying the factors that will help business managers identify and find ways to exploit potential factors to increase the rate of equity return of enterprises

2.3 The necessity to improve the efficiency of using business capital of enterprises in market economy

With the diversified and complex movement of the market mechanism leads to fierce competition among businesses, contributing to promoting the progress of businesses in both width and depth However, in order to create the existence and development of the business, it is necessary for businesses to identify for themselves a way of operating, developing strategies and business plans in a suitable and effective way fruit

Improving the efficiency of capital use is a basic basis to ensure the existence and development of enterprises The existence of enterprises is determined by the presence of enterprises in the market, but the efficiency of capital use is a direct factor to ensure this existence, and the goal of enterprises is always existed and develop firmly Therefore, improving capital efficiency is an indispensable requirement for all businesses operating

in the current market mechanism Due to the requirements of the existence and

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development of each business, the income of the enterprise must constantly increase But

in terms of capital and technical factors as well as other factors of the production process only change within a certain framework, to increase profits requires businesses to improve the efficiency of capital use Thus, capital use efficiency is a very important condition in ensuring the existence and development of enterprises

3 FACTORS IMPACT ON THE EFFICIENCY OF USING BUSINESS CAPITAL

In the production and business process, business capital is affected by many factors In order to achieve high results in the use of business capital, businesses need to consider factors affecting the efficiency of business capital use, including:

3.1 External factors

Management mechanism and macro policies of the state: Tax policies,

investment policies of the state will directly affect the business activities of enterprises

to change the efficiency of business management

The level of inflation of the economy: Inflation makes businesses have no stable

measure of money for each investment project, making a strong impact on the price of inputs, making businesses have to change price the output elements accordingly

Characteristics of the business sector: Comparison of indicators reflecting the

efficiency of capital management of enterprises with the industry average is essential to properly assess the advantages and disadvantages of enterprises in managing and using capital

Market interest rates: Affecting the cost of borrowing, high interest rates will

increase debt repayment pressure, increase capital use costs, thereby reducing profits

Business risks: Fires, storms, floods, natural disasters, market fluctuations, etc.,

make businesses' assets damaged, leading to a decrease in investment capital of enterprises

Progress of science and technology: Science and technology are both

opportunities and challenges for businesses Currently with the rapid progress of science and technology has led to the invisible wear and tear of machinery and equipment increased faster, requiring businesses to use reasonably, efficiently and quickly to invest

in public innovation technology

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3.2 Internal factors

Management skills and skills of employees: Good management, creativity, skilled workers, experience will help businesses use business capital effectively, high labor productivity

The reasonableness of asset structure and business capital sources in enterprises: The unreasonable use of loans by enterprises or inadequate investment in assets not only does not promote the effect of capital but is also lost loss, loss, create risks for businesses

Development policies of enterprises in each period: For new market penetrating businesses, it is necessary to set policies to reduce prices and promotions so there will be low profits so the efficiency of capital use will be reduced short-term

Choice of investment plans: If businesses choose to produce products with high quality, suitable for consumer tastes, it will bring great economic efficiency

Salary and incentive mechanisms for employees: The attitude and awareness of employees have a direct impact on productivity, product quality, thereby affecting the efficiency of capital use

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CHAPTER III: DATA ANALYSIS AND SOLUTIONS TO IMPROVE THE EFFICIENCY OF CAPITAL USE AT

BAO VIET GROUP

I SITUATION OF USING CAPITAL AT BAO VIET GROUP 2018)

(2016-1 Business performance of Bao Viet Group

1.1 History and Development of Bao Viet Group

Bao Viet is the first enterprise to provide non-life insurance, life insurance and securities services in Vietnam market Bao Viet's predecessor today is Vietnam Insurance Company established under the Decision No 179/CP dated December 17, 1964 The company officially went into operation on January 15, 1965 with only 16 employees

On the first day of operation, Bao Viet has only its Head Office in Hanoi and a branch in Hai Phong Business activities of the Company only in the field of import and export goods insurance, ship insurance The company's revenue at this time only reached

800 thousand VND with total assets of 900 thousand VND Since 1975, Bao Viet has started to develop its business network to the southern provinces During this period, the brand "Bao Viet" was known as the largest and only state-owned insurance enterprise in the whole territory of Vietnam

By 1989, Vietnam Insurance Company was converted by Vietnam Government into Vietnam Insurance Corporation under Decision No 27-TCQĐ-TCCB issued by the Ministry of Finance on February 17, 1989 Total revenue of Bao Viet reached VND 78 billion, total assets reached VND 73 billion, profit was VND 6.6 billion In 1996, Bao Viet's sales reached VND 970 billion, of which non-life insurance revenue reached VND

882 billion, financial investment revenue reached VND 80 billion The government has rated Bao Viet as "Special State-owned Enterprise", one of the 25 largest state-owned enterprises in Vietnam

On November 28, 2005, the Prime Minister signed Decision No TTg approving the Scheme on Equitization of Vietnam Insurance Corporation and piloting the establishment of a Finance Group - Bao Insurance Vietnam On May 31,

310/2005/QD-2007, Bao Viet officially issued its first public shares On September 13, 310/2005/QD-2007, the

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Minister of Finance issued Decision No 3083/QD-BTC on adjusting the scale of chartered capital and equity structure of Bao Viet Group, according to which chartered capital of Bao Vietnam is identified as VND 5,730,266,050,000, of which: the state holds 77.54% of charter capital, Shares sold to foreign strategic investors (HSBC Insurance) account for 10% of chart capital

January 23, 2008: Bao Viet Group officially launched; at the same time announced the re-establishment of subsidiaries invested by Bao Viet Group: Bao Viet Insurance Corporation, Bao Viet Life Corporation, Bao Viet Fund Management Company

In March 2008: Bao Viet and HSBC Insurance signed an agreement on training cooperation and technical assistance under the witness of Prime Minister Nguyen Tan Dung, including a very important content to support carefully Art of establishing Internal Audit of Bao Viet Group

June 25, 2009 Bao Viet Holdings (Stock code: BVH; Authorized capital: VND 7,008,864,340,000) was officially listed and traded on Ho Chi Minh City Stock Exchange

2012: Bao Viet Group Developed the project of Enterprise Restructuring and was approved by the Ministry of Finance leaders in 2013 Also, in 2012 Sumitomo Life bought back 18% of HSBC's shares and became an investor Bao Viet's strategy

Currently, Bao Viet - through its member units - is providing comprehensive financial services including insurance, banking, securities, fund management and investment with a wide distribution network province across the country, serving tens of millions of customers

1.2 Management Organization of Bao Viet Group

From July 1, 2008, new organizational model has been applied at the Group, including: General Meeting of Shareholders; Board of Directors (with functional help committees); Control Board and forming functional blocks This governance model is built on the objectives of developing the Group's business strategy; corporate governance standards of domestic and foreign economic groups; comply with the provisions of the law of Vietnam and the provisions of the charter of Bao Viet Group

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FIGURE 2.1: ORGANIZATION MODEL OF BAO VIET GROUP

(Source: from website baoviet.com.vn)

This organizational model defines a clear governance structure, applies governance standards, defines the responsibilities and relationships of the parent company and its subsidiaries; Thereby, corporate governance will be both tight and effective, but not administrative This is an important milestone contributing to the gradual integration of the Group into the regional and global financial and insurance markets, enhancing the Group's position and image, in order to contribute to the development of Bao Viet is to become the leading Financial - Insurance Group in Vietnam

- General Meeting of Shareholders: is the highest authority of the Group

including all shareholders entitled to vote The General Meeting of Shareholders is responsible for discussing and approving annual audited financial statements , reports of the Board of Directors and the Board of Supervisors of the company on business performance, deciding plans and short and long-term plans of the company, conducting discussions through, supplementing and change the charter of the company, elect and dismiss members of the Board of Directors, Supervisory Board and other duties in accordance with the charter of the company

Functional blocks

Functional rooms Local companies Functional boards

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- Board of Directors (BOD): is the body with full authority to perform all rights

on behalf of the Group except for the authority of the General Meeting of Shareholders The BOD decides the medium-term development strategy, plan and annual business plan

of the Group and makes timely adjustments appropriate to the market situation The Board approved the key issues related to the Group's development strategy such as the issues of corporate governance, investment, and construction in accordance with the development orientation of the Group, deciding development solutions market, marketing and information technology towards centralized management model

- Members of the Supervisory Board: are elected by resolution of the General

Meeting of Shareholders by the method of cumulative voting with a specific number decided by the General Meeting of Shareholders from 3 to 5 people

- The Supervisory Board is the authorized body on behalf of the General

Meeting of Shareholders to supervise the activities of the Board of Directors and the General Director in the management and administration of the Group's business activities The Board of Supervisors operates independently of the Board of Directors and the General Director, conducts the review of the Group's annual business and financial statements, and considers the management letter of the auditor independence and reporting of the Group on internal control systems, as well as proposing to the General Meeting of Shareholders the selection of an independent auditing company, audit fees and any issues related to the withdrawal or dismissal of an independent auditing firm; report to the General Meeting of Shareholders on the reasonableness, legality, honesty and the degree of caution in the management and administration of business activities, in the organization of accounting, statistical work and making financial statements main The Board of Supervisors meets at least twice a year and must have at least three-fourths

of members participating in a meeting of the Board of Supervisors

- The Audit Committee is a Committee under the Board of Directors, functioning

to advise and assist the Board in ensuring an effective system of internal control and legal compliance; fully meet the requirements for external financial reporting, including the requirements applicable to listing on the stock market in accordance with the law and the charter of the Group The Audit Committee is responsible for inspecting and monitoring the truthfulness of the financial statements related to the business situation of the Group before submitting to the Board of Directors; inspect and supervise the internal audit plan,

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the effectiveness of internal audit activities and the cooperation between the Internal Audit Board and the independent auditing organization; review and assess the current status of financial and accounting regulations of the Group; supervise the independence, objectivity and requirements of the independent auditing organization and other activities stipulated in the Regulation on functions, duties and organizational structure of the Committee

- The Strategy and Investment Committee is a committee under the Board of

Directors, functioning to develop development strategies, assessing the results of implementing business strategies and proposing changes in the business strategy of the Group; promote the implementation of the Group's strategy and development plan; planning investment strategies, developing policies and principles for short, medium and long-term investments; Research, appraisal, evaluation of investments under the authority

of the Board

- The Remuneration and Appointment Committee is a committee under the

Board of Directors, functioning to advise and advise the Board in planning, promoting and evaluating the implementation of the Group's strategy and human resource development plan; research, appraise and evaluate proposals of the General Director, Members' Council of subsidiaries invested by the Group with 100% charter capital, Chairman of the Committees under the Board and managers to propose to the BOD to consider and approve the basic issues in the corporate governance model, the management of labor and wages of the Group and its subsidiaries invested by the Group; develop and implement management policies related to the organization and personnel of the Group

1.3 Results of Business Performance of Bao Viet Group

Bao Viet was established on 15 January 1965, and is the leading insurance group in Vietnam It has been accredited as one of the top 25 enterprises in the country by the State Government

financial-The Group is headquartered in Hanoi with a widespread network of more than 188 branches across 63 provinces nationwide Bao Viet was the first insurance company incorporated in Vietnam

Bao Viet was granted the First-Class Labour Medal by the Party and the State on the eve of its 50 years establishment, in January 2015 BVQI (UK) accredited Bao Viet

(Source: Bao Viet Group's separate financial statements)

- In 2016, the Group completed 100% of the revenue plan and completed 102.3% of the plan for 2016 after-tax profit The rate of return on charter capital reached 14.7%

- In 2017, the Group completed the 2017 business plan assigned by the General Meeting of Shareholders with a total revenue of VND 1400 billion, completed 100% of the plan, grew 6.3% compared to 2016, profit before tax was 1,043 billion dong, 3.8% higher than the plan, 2.2% higher than 2016; Profit after tax reached VND 1,022 billion, exceeded 1.7% of the plan, increased 1.9% compared to 2016 Profit rate on charter capital reached 15%

- In 2018, the Group achieved VND 1,056 billion in pre-tax profit, 3% higher than the plan, up 1.2% compared to 2017 After-tax profit reached VND 1,026 billion, fulfilling 100% of the plan, profit ratio profit on charter capital reached 15.1%

The Group's business results have grown, however, the growth rate has slowed down, showing that the Group has some problems to be overcome However, the Group's business results were stable in the period of 2016-2018 and the high profit margin as above was mainly due to: The business results of the two subsidiaries under the Group, Bao Viet Life and Bao Viet Insurance are quite good Bao Viet Life continues to be the industry leader in new mining fee revenue, Bao Viet Insurance continues to rank first in the market for premium income These are the two corporations that contribute mainly to the Group's profit, so when the two Corporations operate stably, the Group will develop stably Specifically, the market share of the non-life insurance

FIGURE 2.2: MARKET SHARE OF NON-LIFE INSURANCE

IN VIETNAM 2017

(Source Department of Insurance Management - Ministry of Finance)

FIGURE 2.3: MARKET SHARE OF NEW LIFE INSURANCE REVENUE IN VIETNAM 2017

(Source Department of Insurance Management - Ministry of Finance)

As of December 31, 2017, the insurance market has 64 enterprises operating in the fields of non-life insurance, life insurance, reinsurance and insurance brokerage In particular, Life Insurance has a number of new exploitation contracts of major insurance products reaching 1,964,262 contracts, an increase of 27.64% compared to 2016 In particular, the number

of individual insurance contracts reached 1,963,970 contracts, the number of group insurance contracts reached 292 contracts (corresponding to the number

of insured group members was 140,605 people) The total sum of the respective insurance amounted to VND 579,687 billion, an increase of 35.26% compared to 2016 The average amount of insurance of the main new personal insurance contract in 2017 reached VND 286.4 million The average group insurance amount reached VND 59.19 billion, equivalent to VND 122.9 million / member

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The general situation of Life Insurance is that, for Bao Viet Life, 2017 has achieved impressive growth thanks to promoting the overall strength in the field of business, improving labor productivity, applying public technology, focus on investing and developing staff while improving the quality of consultants Bao Viet Life led the Vietnam life insurance market in 2017 with

a total premium of VND 17,471 billion, an increase of 29.83% Newly exploited revenue reached VND 4,646 billion, up 26.72% The growth indices

of Bao Viet Life are relatively close to the overall growth of the industry, clearly showing the position of Bao Viet Life in the life insurance industry

In 2017, non-life insurance premium revenue reached VND 41,594 billion, an increase of 12.83% compared to 2016 The majority of the premium market share is concentrated in the top 5 businesses including Bao Viet (19, 36%), PVI (16.08%), Bao Minh (8.16%), PTI (7.71%), Pjico (6.28%) The remaining 25 non-life insurance enterprises and foreign non-life branches in Vietnam account for 42.41% of market share of premium revenue

With the Group's core business activities very well, always in the top group, why the Group's growth is slow? We will analyze the business targets

of the Group more closely to understand the problem

2 The situation of effective use of business capital at Bao Viet Group (2016 -2018)

2.1 The situation of using business capital

Capital structure and funding sources have a great impact on the efficiency of using business capital as well as business performance of enterprises