Solutions to improve working capital efficiency in hanoi transportation and goods services jointstock company

Managing and using working capital directly affect the results of production and business activities of the enterprise.. To achieve that target together with to ensure good quality, reas

MASTER THESIS

Master in Finance, Banking, and Insurance (Southeast Asia)

SOLUTIONS TO IMPROVE WORKING CAPITAL EFFICIENCY

IN HANOI TRANSPORTATION AND GOODS SERVICES

JOINT-STOCK COMPANY

Supervisor: Nguyen Phu Hung (PhD)

Student: Nguyen Thi Thanh Nga

September 2017

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ABSTRACT Title: Solutions to improve working capital efficiency in Hanoi Transportation and Goods

Services Joint Stock Company

Program: Master Finance – Banking – Insurance cooperated between National University,

Hanoi (Vietnam) and Nantes University (France)

Time for graduation: 2017 - 2018

Student: Nguyen Thi Thanh Nga

Supervisor: Nguyen Phu Hung (PhD)

When conducting a business, enterprise must have a certain amount of capital to establish the facilities corresponding to the selected business line That advance is called business capital

in which there is a huge part of working capital Working capital is one of the two components

of productive capital In the process of production, working capital plays an important role in the business Working capital usually accounts for a large proportion of capital in the enterprise Managing and using working capital directly affect the results of production and business activities of the enterprise Therefore, improving the efficiency of working capital is always the target of every business

To achieve that target together with to ensure good quality, reasonable price, stable development in competitive environment, enterprises must constantly improve their production and business activities in which managing and utilizing working capital plays an important role and affects strongly to the production and business efficiency of enterprises

Improving working capital efficiency, especially in production and business, is not a new issue; however, it is always a matter of survival of any enterprise Thus, for Hanoi Transportation and Goods Services Joint Stock Company, finding solutions to improve working capital efficiency is extremely essential Base on the analysis of current usage and management

of working capital of the company, this thesis proposes specific solutions with the expectation of helping the company to maximize working capital efficiency

Keywords: Capital, working capital, working capital efficiency

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ACKNOWLEGDEMENT

First of all, I would like to extend my sincere thanks to my supervisor, Dr NGUYEN Phu Hung – ISVNU’s lecturer for his useful comments, remarks and engagement through the learning process of this master thesis

Next, I would like to acknowledge and express my sincere gratitude to all the lecturers of Nantes University and International School, Vietnam national University, Hanoi for providing

me the insight knowledge on all aspects of the major Finance, Banking, and Insurance

Furthermore, my deepest appreciation also goes to the managers and staffs working at Hanoi Transportation and Goods Services Joint Stock Company who helped me to collect data for this research It has been a pleasure working with them

Last but not least, I would like to give my deepest and greatest thanks to my family Their love and support have kept me going this far

Student

Nguyen Thi Thanh Nga

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LIST OF ABBREVIATIONS

Hanoi Transportation and Goods Services Joint-Stock Company: HTGS

LIST OF TABLES

Table 4.1: Business results of the Company in the period 2014 - 2016

Table 4.2: Financial indicators in term of profitability and growth

Table 4.3: Analysis of the structure of assets and capital of the company over the years Table 4.4: Financing Model

Table 4.5: Working capital financing model of HTGS in 2016

Table 4.6: Situation on the fluctuation of working capital demand in 2016

Table 4.6: Fluctuation in short-term assets of HTGS

Table 4.7: Volatility of cash and cash equivalents

Table 4.8: Indicators reflecting the overall efficiency of working capital

Table 4.9: Fluctuation of receivables in 2016

Table 4.10: Indicators assessing speed of recovering receivables 2015-2016

Table 4.11: Company's debt situation in 2016

LIST OF FIGURES

Figure 1.2: Research process

Figure 4.1: The organizational structure of the company

Figure 4.2: The organizational structure of accounting divisions of the company

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TABLE OF CONTENTS

ABSTRACT i

ACKNOWLEGDEMENT iii

LIST OF ABBREVIATIONS iv

LIST OF TABLES iv

LIST OF FIGURES iv

TABLE OF CONTENTS iv

CHAPTER 1 INTRODUCTION 1

1.1 Problem statements Error! Bookmark not defined. 1.2 The rationale of the thesis 1

1.3 Research Objectives 2

1.4 Research Questions 5

1.5 Objects and scope of study 5

1.6 Research methodology 6

1.6.1 Researching Methods …….6

1.6.2 Research Design 6

1.6.3 Data Collection 7

1.7 Values of the thesis 7

1.8 The structure of thesis 7

CHAPTER 2: LITERATURE REVIEW 8

2.1 Study overview 8

2.1.1 Overview on international studies 8

2.1.2 Overview on domestic studies 10

2.2 Definitions 13

2.2.1 Definition of capital 13

2.2.2 Definition of working capital 15

2.2.3 Definition of working capital efficiency 16

2.3 Classification of working capital 18

2.3.1 In term of form and liquidity 18

2.3.2 In term of role of working capital in business stages 18

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2.3.3 In term of ownership relationship 19

2.3.4 In term of capital formation 19

2.3.5 In term of time mobilizing and using capital……… 20

2.4 The factors affecting working capital structure 20

2.4.1 Factors affecting working capital structure 20

2.4.2 The meaning of improving the efficiency of working capital 25

2.5 Indicators for assessing the working capital efficiency 25

2.5.1 Indicators reflecting working capital efficiency 25

2.5.2 Indicators reflecting the overall efficiency of working capital 26

2.5.3 Working capital turnover rate… ……… 27

2.5.4 Capital savings due to increasing speed of working capital circulation……… … 28

2.5.5 Average working capital to net sales ratio 29

2.5.6 Return on average working capital ratio 29

CHAPTER 3 3131

RESEARCH METHODOLOGY 31

3.1 Description of research object 31

3.2 Choice of research method 32

3.3 Research process 32

3.3.1 Data collection method 33

3.3.2 Using analytical tools 35

3.3.3 Comparative method 35

3.3.4 Analytic - synthetic method 36

CHAPTER 4 RESEARCH RESULTS 38

4.1 General information about HTGS 4.1.1.The formation and development of the company………38

4.1.2 The management structure of HTGS 38

4.2 The economic and technical characteristics of the transportation service business……… 41

4.2.1 General characteristics of the transport service business……… 41

4.2.2 General information about the products of the transportation service business…… 43

4.2.3 Characteristics of transport service products………44

4.3 Current status of utilizing working capital at HTGS……… 44

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4.3.1 General assessment of the company's production and business activities in the period

from 2014 to 2016 44

4.3.2 Asset – capital structure of the company 47

4.3.3 Analysis of working capital efficiency at HTGS……… 55

4.3.3.1 Managing and using capital in cash……… …….58

4.3.3.2 Situation of managing receivables………61

4.3.3.3 Assess the situation and efficiency of inventory management………66

4.4 An overview of the management and use of working capital in the company 64

4.4.1 Strengths 6466

4.4.2 Weaknesses working capital use 67

4.4.2.1 Weakness in the management and use of working capital 67

4.4.2.2 Weaknesses in mobilizing capital 67

4.4.2.3 Management of receivables 67

CHAPTER 5 67

SOLUTIONS TO IMPROVE WORKING CAPITAL EFFICIENCY IN HTGS 678

5.1 Business plan of HTGS in the future 678

5.2 Solutions to improve working capital efficiency at HTGS 6870

5.2.1 Plan working capital 70

5.2.1.1 Determine working capital demand to overcome the limitations in the management and use of working capital 70

5.2.1.2 Strengthen management of the use of capital in temporary idle cash 71 5.2.1.3 Improve effectiveness in inventory management, minimize inventory costs 7372 5.2.1.4 Use flexible commercial credit policy ……… ……72

5.2.1.5 Apply measures to manage current assets in a scientific way………72

5.1.2.6 Speed up working capital rotation……… 73

5.2.2 Search and select financial sources for working capital to overcome the limitations of Weakness in the management and use of working capital 73

5.2.3 Regularly monitor, evaluate and adjust debtswithin the implementing process 74

5.2.3.1 Monitoring, evaluating, regular adjustment of debt in the implementation process ……… 76

5.2.3.2 Management according to business characteristics of the company……….76

5.2.3.3.Improve the financial management capacity of the professional workforce…….76

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CONCLUSION 78 REFERENCES 77

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CHAPTER 1: INTRODUCTION 1.1 Problem statements

Hanoi Transportation and Goods Services Joint-stock Company has been established over 50 years as a state-owned company with initial capital provided from the State budget HTGS specializes in investments for goods transportation services, logistic service businesses, leveling urban transportation construction, etc The HTGS’s total capital in 2016 was 23,281 billion VND, of which working capital is 7,026 billion VND

In recent decades, in times of persisting national budget deficits, issues of corporate finance for state-owned enterprises become a hot topic of reform Many Governmental studies found that shortfalls in “soft” state financing are often one of the key factors forcing to start restructuring, and consequently the Government has to accept adopting a more economical approach to help state-owned enterprise with financial requirements through better ways to control costs to achieve sustainable financial viability

In the period 2014 to2016, though the HTGS made profits in business, its managing usages of working capital was assessed to not follow a really effective manner, affecting the company’s business operations in the incoming years Working capital (i.e., three most important being accounts payable, accounts receivable and inventory levels) is essentially necessary for a company to maintain its operations on a day-to-day basis in a stable way Managing working capital is one of the most important financial management tasks for state enterprises when Vietnam moves toward a market economy from a command-and-control model Efficient working capital management involves planning and controlling current assets and current liabilities so that to (i) respond to short term obligations and (ii) to avoid excessive investment in assets on the other hand Those that want to survive and prosper in the current market mechanism must improve the efficiency of management and usage of working capital in business This is not a new issue, but it has always been a big question for state enterprises and managers because of its vital importance determining business destiny Therefore, in order to achieve this goal, I will analyze financial indicators such as profitability and growth, asset structure - company capital, the company's working capital, short-term asset movements, debt restructuring, etc And I think that these will enhance the working capital management for the HTGS as subject of my thesis study

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1.2 The rationale of the thesis

The fisrt reason rerived from the important role of working capital for enterprises

Working capital is a part of business capital, which is the most important element in the production and business activities, plays a decisive role in the production and business efficiency, thus determining the existence and development of enterprises For each enterprise, working capital is required to renovate technology and equipment, increase production scale, improve product quality, and enhance competitiveness Therefore, in the market economy, enterprises that want to survive must pay attention to the creation, management and usage of working capital, so that they can become the most effective in order to achieve profit maximization

The second reason rerived from the inefficient management of working capital in Vietnamese enterprises

In the context that the world economy and Vietnamese one have many fluctuations nowadays, Vietnamese enterprises have been facing difficulties in both managing and using working capital effectively, listed as follows:

Efficient usage of working capital and reduced capital

According to a recent assessment of Vietnam Report, the ROE of 500 Vietnamese largest companies (VNR500) is having the tendency to decrease steadily over the past three years The decline in capital usage efficiency is the most severe in telecoms and shipping businesses (with a 50% reduction in capital efficiency according to the VNR500 ranking chart from 2014 to 2016)

Especially, while the usage efficiency of working capital and business capital has been decreasing recently, large Vietnamese enterprises still pay more attention to raising capital and increasing the scale of enterprises, instead of emphasizing on improving the efficiency and productivity of capital at the enterprise

More than 60% of enterprises participating in a survey by Vietnam Report state that

"the difficulty to manage, mobilize and use working capital as well as business capital" is in the top 3 biggest difficulties of enterprises in the recent years from 2014 to 2016 Meanwhile, only less than 30% of enterprises think that "the lack of effective investment projects" is a big difficulty for enterprises within the next two years

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Not only large and fast-growing companies ranked in the VNR500 and FAST500 have been experiencing difficulties in working capital usage efficiency, but small and medium-sized enterprises have also been experiencing similar problems

According to VCCI's Annual Report on Small and Medium Enterprises in 2014, the working capital usage capacity of enterprises in all eight sectors, which include telecommunications, insurance, electricity production and distribution, waterway transport, chemical manufacturing and chemical products, garments, rubber and plastic products, and construction, was studied to have a declining tendency The sectors with the most decreasing trend were telecommunications and electricity production and distribution

Lack of strategy on working capital structure

An inherent weakness of Vietnamese enterprises, especially for small and medium ones, is the view on the working capital structure of the enterprise itself Accordingly, only when businesses need to invest, they will begin to consider borrowing or issuing shares to mobilize their working capital, without taking long-term strategies to effectively restructure their existing capital This subjective perspective has caused Vietnamese businesses to miss many investment opportunities and directly affected their working capital structure’s safety

In fact, in the recent years, Vietnamese enterprises have been heavily reliant on borrowing funds They have not been able to control their cash flow, as they have gone after the income and used working capital for medium-term investment, which has led to the imbalance of working capital

In addition, a large number of enterprises have been using too much working capital, and have not actively borrowing and mobilizing from various sources, which has led to negative consequences in the production and business activities of enterprises These make it impossible to reach a large scale of capital, which leads to insufficient access to large projects, and subsequently no opportunity for breakthroughs and rapid growth

In the last few years, many businesses, especially those listed on the stock market, have been trying their best to increase their equity indefinitely, while not having a successful investment project There are companies that have increased their capital dozens of times over several years This has led to increasing equity, but the ROE and EPS ratios have decreasing, which is not beneficial to the company's long-term strategy

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The thirrd reason rerived from market demand for efficient working capital usage

Increasing the efficiency of working capital is important for every business in particular and for the economy in general

First, improving the efficiency of working capital will ensure the financial security of enterprises, directly affecting their existence and development Through this, businesses will ensure the mobilization of funding and solvency, as well as reduce business risks

Second, improving the efficiency of working capital will increase business competitiveness In order to meet the requirements of technological improvement, quality improvement and diversification of products, the enterprise must have working capital However, the capital is limited, thus it is essential to improve the efficiency of working capital usage

Third, improving the efficiency of working capital will help businesses to achieve their goal of increasing owners' assets value and other business goals, such as enhancing products’ prestige on the market, improving living standards of workers, etc Because when business activities create profits, enterprises can expand production scale, create more jobs for workers and improve their living standards gradually This helps to increase labor productivity of enterprises and create development for the businesses and related industries

At the same time, it also increases the tax contribution for state budget

The fourth (this is the main reason) reason derived from the practical management and usage of capital at HTGS was assessed to not follow a really effective manner

HTGS has been established over 50 years, is a state-owned company with initial capital from the state budget At present, the Company's capital in 2016 is 23,281 billion VND, of which working capital is 7026 billion VND The company specializes in investment for goods transportation services, logistic service businesses, leveling urban transportation construction, etc In the period from 2014 to2016, although the company had gained profit in business, however, the management and usage of working capital is not really effective, affecting the company’s business operation in the future Managing and using working capital

is one of the important financial management measures for enterprises in a market economy But not all enterprises use working capital effectively Therefore, those that want to survive and develop in the current market mechanism, must improve the efficiency of management and usage for working capital in business This is not a new issue, but it has always been a big

In the context that the global economy and the Vietnamese one have many fluctuations nowadays, Vietnamese state enterprises have been facing difficulties in both managing and using working capital effectively So a research on this theme is very necessary

to Vietnamese state enterprises As of now, there has been lack of studies conducted upon the issues of barriers in working capital management practices in Hanoi Transportation and Goods Services joint-stock Company By this study, I am looking for the optimal solutions to enhance the performance of working capital

1.3 Research Objectives

The overarching objective is applying the theory system on working capital, and its efficiency in usage, management and improvement into analyzing the current status of working capital efficiency of HTGS The outcome would propose practical and scientific solutions to improve working capital efficiency for the company in the future

Specific objectives of thesis include:

 Systematize the theoretical basics of working capital efficiency

 Analyze properly working capital usage and assess the working capital efficiency for HTGS

 Propose measures to create innovation in the usage of working capital at HTGS

1.4 Research Questions

 What are overall challenges facing HTGS?

 What can be done to relieve these barriers for higher business performance?

1.5 Objects and scope of study

 Researching object: usage efficiency of working capital at HTGS

 Researching scope: The data for thesis covers only the period of 2014-2016

1.6 Research methodology

1.6.1.Researching Methods

Applying the method of dialectical materialism and historical materialism, combining with other researching methods such as analytical statistics, comparison, synthesis of tables and generalization, secondary data collection and qualitative analysis

1.6.2.Research Design

This thesis use the steps below:

Figure 1.2 Research process

1.7 Values of the thesis

The thesis has brought some new contributions as follows:

Firstly, the thesis has fully and systematically compiled the most basic arguments on the working capital of enterprises In particular, the thesis has clarified the concept of working capital, systematized working capital targets, generalized international and domestic experiences on solutions to increase usage efficiency of working capital, thus proposed suggestions for development policy at HTGS The theoretical issues on improving usage efficiency of working capital in the dissertation are systematic, comprehensive and scientific, and have formed a full and necessary theoretical framework

Secondly, through the survey of indicators related to working capital at Hanoi transportation and goods services Joint-stock Company

Thirdly, in order to overcome the backlog in the management and usage of capital, solutions have been proposed to improve usage efficiency of working capital at HTGS

1.8 Thesis structure

Chapter 1: Introduction

Chapter 2: Literature review

Chapter 3: Research methodology

Chapter 4: Research results

Chapter 5: Solutions to improve working capital efficiency in HTGS

2.1.1 Overview on international studies

- Studies on the business’s capital structure

A lot of studies have been done worldwide concerning the capital structure of firms with different approaches and different levels of research, both theoretically and practically It can be seen that researching on the capital structure in the world focuses on the following main groups of issues:

- The concept of optimal capital structure

- Characteristics of capital structure

- Components of capital structure

Some research groups focus on clarifying theoretical grounding and empirical proofs

to explain that firms prefer debt financing rather than equity This perspective is evident in the studies of Sheridan Titman and Roberto Wessls (1988) in “The Determinants of Capital Structure Choice”, when they consider that the debt ratio has the only inverse relationship to the business sector of an enterprise

Harris's study in 1991 also has demonstrated in theory and in practice that increasing average margins would lead to increased risks in asset valuation models over time and eventually to an increase in capital expenditures

Some research groups have proposed research models to identify one or more single factors that affect or are related to the capital structure of an enterprise Typically, a study by Prof Federick H Harris at Wake Forest University (1988), proposed a model for studying the relationship between asset structure, turnover level, and capital structure to assess business performance of enterprises

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Meanwhile, a study by Williams Gentry (1988-1991) suggests that the higher the ratio

of fixed assets to total assets, the greater the usage of equity should be By examining the hypothesis on the relationship between leverage and the dividend payout rate of American code share companies in the oil and gas exploration industry, Gentry (1994) found out that joint ventures not subjected to corporate income tax had higher dividends and less debt than their peers

There are several research groups on the changing trend of capital structure of enterprises, as well as impacts of factors on the movement trend of capital structure Typically, the study by Lisa A Keister (2004) on financial strategies of enterprises in a typical transition economy, with China as a representative The author has created hypothesis about the changing trend of capital structure in Chinese SOEs The test results showed that in the first decade of the reform process, SOEs with more profits retained would have to borrow more externally At the same time, the increase in corporate borrowing depended on the changes in geographical conditions, with firms in developed regions borrowing more money from banks than those in less developed regions Most state-owned enterprises were heavily reliant on bank loans

- Studies on capital usage efficiency

Rajan and Zingales (1995) have presented a very typical study on capital usage efficiency by enterprises in OECD countries and found a very strong negative relationship between the book values of the stock and the financial leverage

The article "Effects of working capital management on SME profitability" by Pedro

Juan Garcia - Teruel and Pedro Marniez - Solano (2007) was published in the International Journal of managerial Finance By investigating a sample of 8,872 small and medium Spanish firms in the period 1996-2002, the authors ran models to test the effects of working capital management on efficiency and profitability in small and medium-sized businesses It has demonstrated that business managers can create values by reducing inventories and inventory days, and, on the other hand, reducing cash flow cycle in order to help increase business profits

Another noteworthy research on management efficiency of working capital was by an American and a Nigerian author, Odi Nwankwo Ebonyi and G Solomon Osho (2010), in his

article on the topic "An Empirical Analysis of Corporate Survival and Growth: Evidence from

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Efficient Working Capital Management" The authors have argued that all organizations,

whether private or public, need sufficient working capital to meet daily business needs Their research objective was to consider whether management efficiency of working capital should

be considered as a prerequisite for business survival and growth, as well as what measures to improve working capital’s management efficiency

F W.Kasiran, N.Azhar Mohamad and al (2015) have a study on “Working Capital Management Efficiency: A Study on the Small Medium Enterprise in Malaysia” at the 7th

International Economics and Business Management Conference This preliminary study was made with an attempt to analyze the efficiency of working capital management in the selected small medium enterprise companies in Malaysia The secondary data was derived from Suruhanjaya Syarikat Malaysia Database of 24 companies are randomly selected from the SME Corp website for four years period from 2010 - 2013 In analyzing the efficiency of working capital management three indexes was used in this current study namely, performance index of working capital management (PIWCM), utilization index of working capital management (UIWCM), and efficiency index of working capital management (EIWCM) The results reveal that the selected small medium enterprise company was less efficient in managing their working capital during this study period

2.2 Overview on domestic studies

- Studies on capital structure of enterprises

Domestic researchers have done some researches related to the capital structure of firms The following typical case studies may be included:

The study by Nguyen Thu Thuy (2008) on "Capital Structure, Strategic Competition, and Governance" has provided a model to quantify the impact of factors the degree of

financial leverage for enterprises

The article "An empirical model of the capital structure of countries worldwide" by Nguyen Viet Anh (2012) or the article "Fundamentals reasoning basis for Researching and Selecting Capital Structure” by Do My Loan (2010) or "The Factors determining the choices for Capital Structure in Some ASEAN Countries" by Nguyen Manh Cuong (2015) have all

focused on the question of capital structure In addition, a number of the projects have studied capital structure of specific firms, but these studies have only been at the analysis

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level of existing capital structure in these particular firms Meanwhile, the qualitative proposal

to renovate capital structure of such enterprises has presented in the study by Bui Van Thi

(2012) in her master thesis on "Renovation in capital structure of Hai Phong Shell Gas Company "and Le Thu Thuy (2013) with the theme " Renovation in capital structure of Lung

Lo Construction Company"

The article by Dam Van Hue (2015), which was published in the Journal of Economic

Development on "Conditions to build optimal capital structure for Vietnamese enterprises",

has analyzed some factors affecting the capital structure of enterprises as well as the conditions for building optimal capital structure for Vietnamese enterprises

The PhD thesis by Tran Thi Thanh Tu (2006) with the topic "Finalizing Capital Structure in State-Owned Enterprises of Vietnam" has introduced the econometric model to

determine the influence of some basic and traditional factors for an enterprise, which are its interest rates, asset structure, profitability, equity cost, industry risk, tax rate, and capital structure Subsequently, solutions have been introduced to (i) innovate the perception of business managers; (Ii) determine the basis for setting up optimal capital structure; (Iii) diversify long-term debt financing channels and increase equity by issuing stocks; (Iv) improve facilities and techniques for management

Doan Huong Quynh's Ph.D thesis (2010) on "Solutions to Restructure Capital of State Owned Enterprises in the current situation of Vietnam" has assessed the condition of capital

structure in state-owned enterprises of Vietnam, factors affecting the capital and their impacts

on business performance and financial status of SOEs The author has proposed solutions to promote the restructuring of capital and to strengthen the financial situation of SOEs

- Researches on capital usage efficiency

Nguyen Quoc Tuan (2012) in his doctoral dissertation on the topic "Research to improve capital usage efficiency of coal-mining enterprises in Quang Ninh province, with applications to Coal Thong Nhat One-member limited liability company", has presented the

current status of capital usage in some coal mining enterprises in Quang Ninh during

2006-2010 period In addition, the author has analyzed the lessons for effective capital usage of coal-mining enterprises in China In addition, the study also analyzed factors that affect capital usage efficiency so as to propose solutions for improvement in efficiency for coal-

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mining enterprises in Quang Ninh province Moreover, the study has conducted a case study

of Coal Thong Nhat One-member limited liability company the period of 2011-2015

Tran Duc Loc's Ph.D thesis (2004) on "Improving the efficiency of investment capital usage for socio-economic development in the Red River Delta up until 2010" has established

theoretical grounding for the regional economy and the efficiency of investment capital usage

to develop the regional economy The study has pointed several shortcomings in the usage of investment capital for socio-economic development in the Red River Delta during 1995-2003 period

Vo Thi Thanh Thuy (2011) has done a research on the topic of "Analyzing the efficiency of capital usage at Da Nang Food Technology Joint Stock Company" The scope of

the study is from 2006 to 2010 By analyzing of the efficiency of using fixed capital, working capital and general capital (business capital), as well as by analyzing financial ratios such as profit over business capital ratio (ROA), profit over owners’ capital ratio (ROE), profit over loaning capital, etc., the author has given assessments of the advantages and disadvantages of capital usage of enterprises, found out the causes for limitations and proposed solutions to improve the efficiency of using capital for enterprises

A review of literatures by national and international researchers has shown that capital and capital management are of particular interest because of its important role However, the current reality in Vietnam shows that, according to a recent survey by Vietnam Report, ROE

of 500 largest companies in Vietnam (VNR500) has the tendency to decrease steadily within the last 3 years The decline in capital efficiency is the most severe in telecoms and shipping businesses (with a 50% reduction in capital efficiency according to VNR500 rankings from

2010 to 2013) It is noteworthy that although the efficiency of capital usage has been declining recently, large Vietnamese enterprises are still paying more attention to increasing capital and business size, rather than to increasing efficiency and productivity of capital at enterprises This is also the current situation in small and medium enterprises As a result, many businesses have suffered losses, the rate of business bankruptcy has been increasing because there is no effective capital management measure (inefficient capital management)

Because of this, researching is essential to propose solutions to improve working capital efficiency of enterprises Currently, there has been no topic that studies the solutions to improve the efficiency of working capital usage in Hanoi transportation and goods services

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Joint-stock Company Thus, the study on the thesis topic is very urgent, can be used and inherit theories on working capital, usage and management of working capital, as well as other existing research results, in order to apply into researching the topic in practice at Hanoi transportation and goods services Joint-stock Company

2.2 Definitions

2.2.1 Definition of capital

Investment is the mobilization of resources to make expected benefits become reality

in a long enough time in the future An important resource that all investment projects have to mobilize is capital

According to K Marx (1895), capital can bring surplus value Thus, capital is considered in terms of value, as an input to the production process This point of view is highly generalized and has had practical significance till nowaday However, it is limited to the idea that capital always produces surplus value and only in the production sector can create surplus value for the economy

After Marx, economists representing various schools of economics came up with many views on capital Among these, the view on capital of P Samuelson and D Begg must

be taken into account According to P Samuelson (1948), capitals are the goods produced for the new production process, are one of the three inputs of business activities (capital, labor, land) Thus, the capital here is considered in the form of in-kind, fixed assets of the enterprise Unlike Samuelson, in David Begg's (2006) "Economics," the author gave two definitions of capital as physical capital and financial capital The physcial capital is the goods stored in order to produce other goods Financial capital is the money and other valuable papers of the enterprise

In today's market economy, capital is viewed as an input of not just a single production process but of a continuous production and reproduction process throughout the existence of the business Even if the business does not exist, its capital is transferred to other business processes In this point of view, capitals are all of the initial value and for the subsequent processes, which are expressed in both cash and material values, goods and assets

of the enterprise The capital here is different from other conventional currencies Money will

be considered as capital when it is put into production, otherwise it is not considered as capital when it is only used to buy products for personal and social needs

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This view inherits the previous views on capital This view indicates that capital is the value invested in production and business for the purpose of bringing profits, that is to bring the value of surplus Capital is formed as the inputs of production and business such as machinery, equipment, supplies as well as stock items, debts, cash (budget), etc Besides, capital exists in the form of artifacts or non-artifacts

Capital is the advance value put into production and business, which helps formthe assets of enterprises Any production and business activities must have capital that plays a very important role for enterprises This requires enterprises to have a proper understanding of capital as well as basic characteristics of capital This is the premise for effective usage of capital Based on the above concept, we can see that the capital has the following basic characteristics:

 Capital is represented by the assets of the enterprise used for production and business activities or others, in tangible or intangible form These are the types of machinery, equipment, workshops, materials, etc or business locations, product labels, patent inventions, etc

 Capital is put in to production and business activities with the purpose of creating profits, providing benefits to enterprises in the future Hence, capital must be accumulated to

a certain extent

 Capital is valuable in terms of time Generally, a capital today is worth more than that

of tomorrow This has an important meaning in calculating, choosing investment options and assessing the effectiveness of capital use

 Capital must be associated with a certain owner If the owner of the capital can not be clearly identified, the use of capital will be ineffective This feature requires the capital owner

to manage well the capital

 Capital is a special commodity First and foremost, capital is a commodity because it has use value Capital is a special commodity because ownership and use rights can be separated This means that capitals can be exchanged for use in the market (capital market) There are two approaches to financial analysis as well as an analysis of corporate capital use efficiency, which is the comparative method and the percentage analysis methods

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The comparative method: In order to apply this method, it is necessary to ensure comparable conditions of financial indicators (uniformity of space, time, content, nature and unit of calculation) ) and for the purpose of analysis that determines the source of comparison The comparator is chosen as the root of time or space, the analysis period is chosen as the reporting period or the planning period, the comparable value can be selected by absolute, relative, or average Comparative content may be the comparison between the current year and the previous year, the comparison between the number of projects and the number of plans, the comparison of the number of enterprises and the average data of the industry The percentage analysis methods: In analysing the corporate finance, the financial ratios are grouped into specific interest groups, reflecting the basic content of the business objectives These are groups of solvency ratios, group of capital and capital ratios, group of operating ability ratios, and profitability group Each rate group consists of multiple individual reflectivity ratios, each of which is financially sound, in different cases, depending on the analytical perspective, the analyst chooses the different set of indicators

2.2.2 Definition of working capital

The working capital of an enterprise is the amount of capital supplied to form curent assets in order to ensure that the business process is carried out regularly and continuously Working capital circulates in full at once and is fully recovered, completing a rotation at the

end of a business cycle

To conduct business, in addition to fixed assets, enterprises need to have curent assets Current assets of an enterprise include two parts which are current assets in production and current assets in circulation

Current assets in production consist of assets at the stage of production reserves such

as fuels, primary raw materials, auxiliary materials, etc and assets at the stage of production such as being-manufactured products, semi-finished products, prepaid expenses

Current assets in circulation of the enterprise include finished products waiting for consumption, capital in cash form, capital in payment, expenses awaiting for transfer, prepaid expenses, etc

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Current assets in production and current assets in circulation are always mobilized, replaced and transformed in the process of production and business to ensure the production and business process is carried out continuously

Chracteristics of working capital

Working capital in the cycle process always changes the form

Working capital is transferred in full at once and is fully refunded after each business cycle

Working capital completes a rotation after each business cycle

2.2.3 Definition of working capital efficiency

In order to improve the efficiency of working capital, the first we need to find that how do to manage and preserve working capital

Derived from the characteristics of the method of transfer value (transfer all the costs of product consumption) movement method of current assets and working capital (It has the nature of repeating cycle, interleaving) and then jn the management of the use and preservation of working capital, we should be paid attention to the following contents:

- It is necessary to determine (estimate) the working capital needed, at least in the business period This will ensure sufficient working capital needed for the production and business process to be carried out regularly, avoiding stagnant capital (paying interest on loans), speeding up the flow of capital leading to raising the efficiency of capital use

- Organizing the exploitation of working capital sources

+ First of all, on the process of exploiting capital sources, the company must make full use of internal capital sources and capital amounts which can be appropriated lawfully and regularly

+ In the case the working capital is not enough, enterprises continue to exploit outside sources such as joint venture capital, bank loans, financial companies, equity and bond capital and while exploiting the outside capital, most notable thing to consider is the interest rate factor

- It must be measures to preserve and develop working capital always as well as fixed capital Preserving working capital means preserving the real value of capital or otherwise preserving

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the purchasing power of the capital that is not diminished from the beginning This is reflected in the ability to purchase current assets and solvency of enterprises in the production and business process

- It is necessary to carry out an analysis of the use of working capital through financial indicators, such as rotation of working capital, efficiency of working capital, debt ratio Thanks to these criteria, the financial manager can timely adjust the measures to improve the efficiency of using the capital to increase the profit

The issues mentioned above are only a matter of principle In practice, management of working capital is very complex This requires managers not only to have theoretical knowledge but also to have a practical mind and have "art" using capital

Problems of using working capital effectively

Concept and meaning of use the working capital effectively

The starting point for conducting business activities of each company musst have a certain amount of capital and corresponding source of funding Having "large capital" and "strong capital" is a good premise for company but the use of such capital for efficiency is the decisive factor for the growth and development of each company

The concept of use the working capital effectively

+ The effect of using working capital is the efficiency gained after speeding up the flow of working capital through the stages of production The higher this rate, the greater the efficiency of working capital

+ The effect of using working capital is the most effective when the working capital needed for a rotation is the least This concept is more inclined toward saving as much working capital as possible for a rotation But in the case the goods produced by the company can not

be sold, the efficiency of using capital is not high

+ The efficiency of using working capital is the shortest time for working capital to be rotated This concept can be said to be the consequence of the above conception

+ The efficiency of using working capital is the most effective way of reflecting the total current liabilities against total working capital

+ The efficiency of using working capital is an effective reflection of the amount of profits earned when spending a working capital

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+ The efficiency of using working capital is the efficiency gained when investing in working capital more appropriately to expand the production scale to increase the sales volume with the requirement to ensure the increase of profit greater than the rate of increasing the working capital

In short, despite the different approaches to the efficiency of using working capital , but mentioning the efficiency of using working capital, we should have a more comprehensive view and can not separate it from a rational business cycle (the shorter the cycle of production, the more efficient the use of capital) high, reasonable use of inputs, responsible management of production, consumption and debt collection Therefore, it is necessary to address the criteria for effective use of working capital

2.3 Classification of working capital

2.3.1 In term of form and liquidity

Working capital is divided into two categories:

Cash and receivables includingmonetarycapital such as cash on hand, bank deposits, receivables of customers, advances to suppliers, etc

Capital on inventories:

In production enterprises: Capital of goods and supplies including capital with

specific forms such as main materials, auxiliary materials, fuels, spare parts, tools, prepaid expenses, finished products, etc

In commercial enterprises: Capital on inventories is mainly the value of all kinds of

reserve goods

2.3.2 In term of role of working capital in business stages

Working capital is divided into 3 categories:

Working capital in the stage of reserve for production and business activities: this is a part of the working capital needed in order to establish the reserve of materials and goods to ensure that the process of production and business of the enterprise to be conducted frequently and continuously This includes raw materials, spare parts, packaging materials, small tools

Working capital in production stage includes capital of unfinished products, finished products and capital for awaiting transfer Working capital in circulation stage includes capital of finished products, capital in cash, capital for payment, short-term investment capital

semi-19

This classification shows the role of each type of working capital in the production and business process, thereby selecting and arranging a reasonable capital structure for each item and each stage of business As a result, there are grounds for determining the management focus for each stage of production and business activities of enterprises in order

to define the demand for working capital by the direct method

2.3.3 In term of ownership relationship:

- Owner's capital: The working capital is under the ownership of the enterprise and the enterprise has full rights with this type of capital such as the right to possess, use, dominate and dispose of There are many different types of equity depending on the type of enterprise, such as the private sector itself, from the state budget, shareholding in joint stock companies, etc

- Debts: The working capital is made up of loans from financial institutions or commercial banks, loans through the issuance of bonds, outstanding loans from customers

2.3.4 In term of capital formation

- Authorized capital is the working capital formed from the initial authorized capital used when the enterprise is established or the additional authorized capital in the process of production and business of the enterprise This capital also differs among types of enterprises

of different economic sectors

- Self-supplemented capital means the capital supplemented by enterprises themselves in the process of production and business such as profits from enterprises being reinvested

- Joint venture capital is the working capital formed from the capital contributed by the parties

of the joint venture Joint venture capital may be in cash or supplies and goods agreed by the joint venture parties

- Borrowing capital is loans from commercial banks or credit institutions It also can be loans from employees in enterprises or be borrowed from other enterprises

- Mobilized capital from the capital market by issuing shares and bonds

Loans with deductible interest expenses help to increase the value of the business; and value

of enterprise willl be maximized if 100% of loans is used In fact, no business will use 100%

of the loans because in addition to the interest, loans also bring a lot of potential financial risks It is the risk of bankruptcy if the interest is too large (especially when market interest

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rates fluctuate and the business does not have a buffer that is equity) From the perspective of financial management, every source of funding has its cost Therefore, enterprises should consider the optimal funding structure in order to reduce their capital expenditures Firms must decide on financial leverage on the basis of the balance between interests obtained from the loans and financial risks

2.3.5 In term off time mobilizing and using capital

- Temporary working capital: is capital of temporary nature, arising in the production and business process such as short-term bank loans

- Regular working capital: is Stable capital to create liquid assets regulary

This classification shows the role of each type of working capital in the production and business process, thereby selecting and arranging a reasonable capital structure for each item and each stage of business Thereby, there are grounds for determining the management focus for each stage of production and business activities of enterprises or organizations in order to determine the demand for working capital by the direct method

2.4 The factors affecting working capital structure

2.4.1 Factors affecting working capital structure:

Factors affecting the efficiency of using working capital at companies include:

 The external factors:

(1) The economic policy of the State must first be mentioned This is a factor that has

a great impact on the efficiency of business production in general and the efficiency of using working capital in particular Depending on each development objective, depending on each development objective, the State shall adopt preferential policies on tax capital and loan interest rates for each specific industry and branch, and adopt policies to encourage these industries but other professions Therefore, when doing business, any business is interested in and adhere to the economic policies of the Party and the State

(2) The impact of the macroeconomic environment, such as inflation, can lead to the depreciation of the currency, which causes firms to lose capital in the face of the inflationary pressures of the currency or factors that affect supply and demand If the demand for goods decreases, it will make the goods of the enterprises difficult to consume, and the backlog of capital and the efficiency of working capital will be reduced

 The internal factors:

(3) The qualification of human resources: The human factor is the most decisive factor in ensuring the efficient use of capital in the enterprise The workers are skilled, experienced, able to absorb new technologies, promote creativity in work, have the sense of preserving and preserving reproduction in the process of labor, Savings in production, thereby increasing the efficiency of using capital The managerial level also has a great effect on the capital use efficiency of enterprises Having good human resource management ensures that there is a qualified labor force to perform the tasks and arrange reasonable labor to avoid wasting labor This helps businesses improve the efficiency of capital use Financial management is very important In the course of operation, the revenues and expenditures must be clear, thrifty and accurate at the right time in order to raise the efficiency of the use of capital of enterprises Management level is also reflected in inventory management, production management, consumption management

(4) The process of organizing production and business: This is a factor that directly affects the efficiency of capital use of enterprises The business process of the enterprise has to go through 3 stages: supply, production and consumption

+ Supply is the process of preparing inputs for the production process as raw materials, labor, it involves buying reserves In order to ensure business efficiency, the quality

+ Product consumption is the decisive factor to business performance Therefore, enterprises must determine the optimal selling price and take appropriate measures to promote the consumption of products quickly This stage will decide the level of turnover, it is the base for reproduction

(5) The determination of capital structure and demand:

+ The capital structure: the investment capital structure is subjective, affecting the efficiency

of capital use The highest proportion of capital invested in assets used and used in production and business activities is the optimal capital structure; Ensure the balance between fixed capital and working capital in the total business capital; Make sure the appropriate ratio between positive fixed capital and non-aggressive fixed capital; Ensure consistency between stages of the production process to maximize efficiency of time and quantity

Working capital structure reflects each component and the share of each component in the total working capital of the enterprise

An analysis of the working capital structure of an enterprisein accordance with different classified criteria will help the enterpriseachieve better understanding on specific characteristics of working capital that the enterprise is managing and using Thereby, the enterprise can correctly identify the key and effective measures in managing capitalwhich is suitable with specific conditions of the business

Because working capital is distributed in all three stages of the business process, the factors affecting the working capital structure are many, which can be divided into three main categories:

Group of factors in term of production:

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The production cycle has a great influence on the share of capital of in-progress products Long or short production cycle will dominate the amount of capital The longer the production cycle is, the greater the amount of capital is given to the in-progress product and vice versa

Characteristics of the technological process of the enterprise: if technology is applied with small amount of capital, the business performance will be increased; and the more complicated the products are, the higher the amount of capital is

Organizational characteristics affect the difference in the share of working capital that goes into production and stockpiling If enterprises have synchronous production and coordinate the supply and production process in a rational way,in-progress reserves will be reduced

Group of factors in term of material procurement and consumption:

The looser the relationship between the enterprise and the supplier, between the enterprise and the buyer is,the larger the storage of materials, finished products is

Conditions and means of transportation also have an impact on commodities, finished products If that condition is good, the reserve is less and vice versa

Market supply capacity: if the material is rare, it is necessary to stockpile more and vice versa

The supply contract or product consumption contract depends on the time of supplying and delivery, the quantity of inputs and outputs If the supply is regular, the reserve will be less

Group of factors in term of payment:

The reasonable payment method and timely resolution will help to reduce the proportion of capital needed to be collected

The situation of managing the receivables of the enterprise and the compliance with the customer's payment discipline: If payment discipline is tight and strict, it will help enterprises avoid lacking of capital and make customers have high sense of responsibility for their debt

In addition to the above factors, the working capital structure is also influenced by the seasonal nature of production, the capacity of organization and management

+ The determination of capital demand:

The capital need of an enterprise at any given time is equal to the total amount of assets that the business needs to secure its business Identifying capital demand is very important

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Due to the quality of the determination of capital demand that it is inaccurate or accurate, enough or not enough, excessive or not excessive for production and business activities of enterprises These are the causes or expressions of inefficient use of capital In contrast, identifying capital needs that are appropriate for the actual use of capital will contribute to improving the efficiency of capital use

(6) The level of management in using of capital resources is a direct factor affecting the capital efficiency of enterprises The main tool for monitoring and managing capital is the accounting and financial system Exellent accounting work will provide accurate data to help managers understand the financial situation of the business in general as well as the use of capital in particular and make the best decision On the other hand, the characteristics of accounting and internal accounting of enterprises are always associated with the organization

of production of enterprises, so also affect the management of capital Therefore, through the accounting work with regular checking on the capital use of the business, it will help the enterprise to find out the shortcomings early and having the measures to solve

(7) Selection of investment options: Choosing an investment option is one of the most important factors affecting the efficiency of using capital in business Specifically, if the enterprise knows the market, the consumer tastes on which to draw up the investment plan to create products that are widely available in the market, The revenue will be higher, the profit will be higher, the efficiency of capital use will increase Conversely, if the investment plan is not good, the quality of the product is not suitable for the consumer's taste, it will not be able

to consume the goods, which is stagnant, the capital turnover is slowed down, inevitably these are bad indications of the efficiency of using business capital of enterprise

(8) Enteprise’s relationships: they are the relationships between the enterprise and the customer, the supplier These relationships are very important, they affect to the pace of production, distribution capacity, consumption volume they are the issues directly affecting the profitability of the enterprise In the case the above relationships are going well, then the business process of the new business happens continuously, the new products are sold quickly, affirming the position of enterprises on the arket

In order to have a good relationship with customers and suppliers, the enterprise must have a specific plan to maintain relationships with long-term customers and establish relationships

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with new customers Depending on the specific characteristics of your business, each enterprise will choose the appropriate measures: renew the payment process for convenience, expand the sales network and purchase raw materials, Apply for economic measures to increase sales, product diversification, deferred sales, discounts

2.4.2 The meaning of improving the efficiency of working capital

As mentioned above, to carry out any business activity, the indispensable condition is capital Once you have the capital in hand, another question is how to use that capital to make profit, which must be profitable is the decisive factor for the existence and development of the business Business benefits require businesses to manage, use rational, effective capital, save cumulative capital to make reproduction and expand production scale is getting larger

The effective use of working capital is one of the general indicators used to assess the quality of business management and use of business capital in general Through the criteria for assessing the efficiency of using working capital, corporate finance managers can have an accurate and comprehensive view on the management and use of working capital of the unit Measures, policies and decisions are appropriate and appropriate for the management and use

of capital in general and working capital in particular will be effective in the future

After all, improving the efficiency of working capital is about raising the bottom line There are profits we have accumulated to reproduce more and more

2.5 Indicators for assessing the working capital efficiency

2.5.1 Indicators reflecting working capital efficiency

In general terms, efficiency is a concept that reflects the capacity of using necessary elements to engage in an activity for defined purposes Thus, it is possible to understand capital efficiency as an economic category which assesses the capacity of utilizing material resources of enterprises to achieve the highest results in the process of production and business with the lowest total cost

As discussed above, the working capital of an enterprise is used for the processes of stockpiling, production and circulation The process of mobilizing working capital starts with the use of currency for the purchase of supplies for production, then continues with production and ends with consumption providing enterprise a capital in original form of monetary with added value Each movement like that is called a rotation of working capital

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The more efficient the company uses that capital, the more productive it can be Because of business benefits, it is required that enterprises need to use working capital reasonably and efficiently which make working capital each year can be used to buy more raw materials and fuel, produce more and sell more This also means that businesses are improving their working capital circulation (the number of working capital cycles within a year)

In order to evaluate working capital efficiency, many different criteria can be used; but, the working capital rotation rate is the most basic and aggregate indicator reflecting the capacity in working capital management of the enterprise

2.5.2 Indicators reflecting the overall efficiency of working capital

a Profitability of working capital by after-tax profit

Formula:

The ratio of profitability of working capital by the after-tax profit indicates how much net profit will be generated for the enterprise by one working capital The higher the profitability of working capital by after-tax profit is, the higher the efficiency of working capital is

b Profitability of working capital by net revenue

Formula:

The ratio of profitability of working capital by net revenue indicates how much net revenue can be generated by one working capital The higher the profitability of working capital by net revenue is, the higher the efficiency of working capital is

Profitability of working capital by after-tax profit =

After-tax profit Average working capital

Profitability of working capital by net revenue =

Net revenue Average working capital

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2.5.3 Working capital turnover rate

The working capital turnover rate is a general indicator for assessing the working capital efficiency of enterprises The quick or slow speed of rotation of working capital indicates the organizing situation of all aspects such as procurement, production reserves, reasonable or unreasonable sales of enterprises, high or low cost of production, etc The analysis of working capital turnover rate can help enterprises accelerate the speed of rotation, improve the working capital efficiency

Working capital turnover rate can be measured by two indicators which are the workingcapital rotation and working capital rotation period

a Working capital rotation:

Formula:

Working capital rotation =

Net revenue Average working capitalThis indicator states of the number of rotation of working capital in a given period (usually one year) This indicator evaluates working capital efficiency base on the comparative relationship between production output (sum of net revenue) and average working capital of the period The higher the working capital rotation is, the better it is

b Working capital rotation period:

Formula:

Working capital rotation period =

Number of days in the period Working capital rotation

(In which the number of days in the period is usually evened in a way that a year is

360 days, a quarter is 90 days, a month is 30 days)

This indicator refers to the average length of a working capital circulation or the number of days required for a working capital to carry out a rotation in a given period In

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contrast to the ratio of working capital rotation, the shorter the working capital rotation period

is, the more efficient the working capital is

2.5.4 Capital savings due to increasing speed of working capital circulation

Capital savings is an indicator reflecting the working capital that can be saved by increasing working capital circulation in this period compared to the previous period Capital savings due to increasing speed of working capital circulation are indicated by two indicators:

 Absolute savings

By increasing the flow of working capital, businesses can save some working capital which can be used in other works In other words, with an unchanged capital circulation, by increasing the speed of working capital circulation, enterprises need less capital and can save

a certain amount of working capital so that they can use it in other works The less capital is the absolute savings of working capital

Absolute working capital savings are calculated according to the formula:

0 1

0 1

Vtktđ: Absolute savings of working capital

VLĐBQ0, VLĐBQ1: In turn are average working capital of report year and that of plan year

M1: Total working capital turnover of the plan year

K1: Time of working capital turnover in the plan year

 Relative savings

The essence of the relative savings is that by increasing the circulation speed of working capital, enterprises and organizations can increase the total working capital turnover (creating a larger net revenue) without increasing the size of working capital

Relative savings are determined by following formula:

)(

1

K K

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K0, K1: Time of working capital turnover in the report year, plan year

2.5.5 Average working capital to net sales ratio

This indicator indicates how much average working capital will be needed in order to generate a net turnover

Average working capital to net sales ratio

Average working capital to

Average working capital Net revenue

Average working capital to net sales ratio reflects the amount of working capital required to achieve a net turnover The smaller the ratio is, the higher the working capital efficiency is

This indicator, which reflects the effectiveness of using the capital, will be used to analyze the effectiveness of capital use of enterprises in the period (usually one year) We will compare these indicators with indicators in the years ago and compare with that of the industry and competitors If the indicator of the enterprise in the analytic period is better than the same index in the previous years or the general index of the industry, we can conclude that the capital efficiency of the enterprise is good

2.5.6 Return on average working capital ratio

Return on average working capital ratio =

Profit before tax Average working capital This indicator reflects how much profit before tax (or profit after corporate income tax) can be generated from one working capital The higher this ratio is, the higher working capital efficiency is

With the study on working capital, working capital efficiency and indicators for assessing working capital efficiency, the importance of working capital in the production and business activities of enterprises can be pointed out Working capital exists at all stages of the business cycle, from storing (reserve working capital), production (working capital in production) to circulation (working capital in circulation) and mobilize in rotations The working capital turnover rate is the aggregate indicator assessing the working capital

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efficiency Increasing working capital turnover rate will ensure the working capital efficiency

of enterprises in term of saving working capital, raising the profitability of working capital Obviously, through these mentioned studies, we can see that it is needed to improve the working capital efficiency

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CHAPTER 3: RESEARCH METHODOLOGY

This thesis paper applies the collection of secondary data for the calculation, analysis and comparison of research indicators Based on the analysis of statistical indicators, the author assesses the working capital efficiency of the company

3.1 Description of research object

The research object of the thesis is to study solutions to improve working capital efficiency of Ha Noi Transportation and Goods Services Joint Stock Company (HTGS)

HTGS was established on May 16, 1966 under the name Ha Noi Goods Transportation Company and was under the management of Hanoi Transportation Department The company

is currently owned by shareholders, established on the basis of equitization of state-owned enterprises HTGS is a leading enterprise with a reputation for transportation, transportation forms and other services relating to transportation The company always develops all resources in order to build a scientific management system, strictly follow the transport quality basing on ISO 9001: 2000 with the purpose of offering customers services with high quality, safety, being on schedule and reasonable price

HTGS specializes in providing transportation services, logistic service business, leveling urban transportation construction, importing and exporting materials, specialized equipment and means of transport, supplying electric equipment repair services, investing in warehouse, loading and unloading goods, cooperating with vocational training institution in driving vehicles to conduct vocational training and driving tests, etc

The company's working capital has been characterized by a combination of chartered capital, self-financed capital and borrowed capital In particular, the chartered capital of HTGS was VND14.4 billion by the end of 2016 In addition, the company has relatively regular self-financed capital from the profits in the production process By December

31st2016, undistributed profit was approximately VND 1.29 billion which increased 13% in comparison with that by December 31st2015 With borrowed capital, in the year 2016, that of HTGS has experienced considerable fluctuation This change was due to the substantial reduction in short-term liabilities in which payables to sellers were the primary driver At the time of December 31st 2015, the total short-term debt of the company was VND 6.6 billion, while that at December 31st2016 was only VND 5.047 billion Thus, in just one year, the

3.2 Choice of research method

As the theoretical basis mentioned in chapter I, my thesis with title "Solutions to improve working capital efficiency in Ha Noi Transportation and Goods Services Joint Stock Company", the method of analysis and compare are applied in order to find out the current

status of managing and utilizing working capital of the company, to study the factors affecting the effectiveness of managing and utilizing working capital, to develop indicators for assessing working capital efficiency, to calculate, analyze and evaluate statistical indicators which accurately reflect the status of managing and utilizing working capital of the company

On that basis, the thesis will provide feasible solutions with the purpose of improving working capital efficiency at HTGS

3.3 Research process

For this topic, we apply the research process as presented in the following diagram: