The meaning and role of cash flow statements in vietnamese enterprise the case of ha noi milk joint stock company hanoimilk jsc

LIST OF TABLE AND CHARTS Table 4: Summary of answer about what is the risk that users of financial information obtain information regarding Cash Flow from other financial statements, suc

SUPERVISOR: MSc Nguyen Tra My

STUDENT: Nguyen Thi Ngoc Anh

STUDENT ID: 16071149

COHORT: AC2016B

MAJOR: Accounting, Analyzing and Auditing

Hanoi - Year 2020

LETTER OF DECLARATION

I hereby declare that the Graduation Project “The meaning and role of cash flow statement in Vietnamese Enterprises- The case of Ha Noi Milk joint stock company (Hanoimilk.JSC)” is the results of my own research and has never been published in any work of others During the implementation process of this project,

I have seriously taken research ethics; all findings of this project are results of my own research and surveys; all references in this project are clearly cited according to regulations

I take full responsibility for the fidelity of the number and data and other contents of my graduation project

Secondly, I would like to express my endless thanks and gratefulness to my supervisor MSc Nguyen Tra My Her kindly support and continuous advice went through the process of completion of my thesis Her encouragement and comments had significantly enriched and improved my work Without her motivation and directions, the report would have been impossible to be done effectively

As a part of the project, my thesis has been done by contributions of many relevant students and lecturers So far, I would like to thank the teachers and friends who helped me complete the survey to get data for my report

As last, my deeply thanks come to my family and all my friends Their kindly help, care, motivation gave me strength and lifted me up all the trouble for the rest of

my life

TABLE OF CONTENT

Contents

LETTER OF DECLARATION 3

ACKNOWLEDGEMENT 4

TABLE OF CONTENT 6

TABLE OF NOTATIONS AND ABBREVIATIONS 7

LIST OF TABLE AND CHARTS 8

ABSTRACT 9

CHAPTER 1: INTRODUCTION 10

CHAPTER 2: LITERATURE REVIEW 13

CHAPTER 3: METHODOLOGY 18

The Survey 19

The Response 20

Results 21

Discussions 29

CHAPTER 4: FINDINGS 30

CHAPTER 5: CONCLUSION 64

REFERENCES 68

APPENDICES 70

Appendix 1 70

Appendix 2: 77

Appendix 3: 79

TABLE OF NOTATIONS AND ABBREVIATIONS

IFRS International Financial Reporting Standards

AC Accounting, analyzing and auditing

LIST OF TABLE AND CHARTS

Table 4: Summary of answer about what is the risk that users of

financial information obtain information regarding Cash Flow from

other financial statements, such as Balance Sheet and Income

Chart 1- Number of students and employees who responded Page 18

Chart 3- To whom is the CFS most meaningful? Page 22 Chart 4- Which statements have the most useful? Page 23 Chart 5- which method do you think is the most practical? Page 24 Chart 6- OCF is the most meaningful for a business Page 24

ABSTRACT

Vietnam is a developing country and aims at international integration, so its financial statements are also aiming to achieve IFRS standards Although Cash flow statement is not a mandatory financial statement in Vietnam, its significant meaning has encouraged many companies to prepare it The purpose of this research is to highlight the meaning and role of cash flow statements, especially for Vietnamese enterprises Ha Noi Milk is the company mentioned in the article because Hanoi Milk is the company that has gone through all the cycles of an enterprise: introduction, growth, maturity, decline and now is recovery Therefore, when discussing this company, we can see clearly how the change and the problems encountered affected the company through the cash flow statement The survey conducted in this study revealed that cash flow statement was especially meaningful for two groups of financial statement users: managers (36%) and investors (36%) Moreover, the study showed the possible risks of analysing cash flow from Balance sheet or Income statement instead of Cash flow statement to have better view about the meaning and role of Cash flow statement

CHAPTER 1: INTRODUCTION

Financial statements are the most important product of the accounting process, the basic tool to disclose accounting information to the outside In particular, the Cash Flow Statement is one of the important financial statements, reflecting the formation and amount of money arising in the reporting period of the enterprise So, Does CFS really help managers and investors to make business decisions?

Based on the cash flow statement, we can assess the ability to generate money in the period and in the future, evaluate the solvency of the business, evaluate the ability

of investing in idle cash through business purchases of bonds, bonds, and loans This is the tool to estimate money, build a plan As a result, the Cash Flow Statement is an important general financial statement, which is of great interest to many investors, lenders, suppliers, credit institutions and financial institutions Not only that, the CFS is an important tool in the system of economic management tools in general and business management in particular Thanks to the information about cash flow on the Cash Flow Statement to make appropriate business decisions Therefore, providing CFS is essential, especially for developing economies like Vietnam that wants to integrate and call for investment from abroad Accounting Standard No 7 (IAS7) or VAS 24 (Cash flow statement) is one of the indispensable financial statements for enterprises in the market economy However, the preparing of cash flow statements is not a mandatory report in the Vietnamese accounting system In fact, some small and medium enterprises still do not have much interest in it Perhaps, it is due to the difficulty of preparing or not aware of its importance in the financial reporting system in general and in particular in the

management of enterprises Therefore, my graduation thesis topic is: "The Meaning And Role Of Cash Flow Statements In Vietnamese Enterprise- The Case Of Ha Noi Milk Joint Stock Company (Hanoimilk.Jsc)" HNM is a company established in

2001 and started operating in 2003, It is a company trading in a wide range of

products and services, the main products being manufacturing and trading dairy products such as cow's milk, soya milk…; With modern equipment lines, advanced technology, professional and enthusiastic staff, Hanoimilk constantly improves the quality control in the process of purchasing raw materials and manufacturing to bring to people safe products with precious nutrition every day On the national market, Hanomilk accounts for about 25-28% of the sterilized milk market for children and about 8-9% of the total sterilized milk market in general (vndirect.com.vn) The company has grown and become one of the leading enterprises of the dairy processing industry In the first years, from 2004 to mid-

2008, HNM ranked third in Vietnam's dairy market share However, the milk brand faced difficulties when the 2008 melamine contaminated milk crisis was made and the wrong decision with the milk carton made consumers shaky Since then, Hanoimilk's business results seem to be plummeting when the profit margin is only around 0.6% -1% (2013-2018), from 2015 to the present, Hanoimilk has never completed a business strategy, the stock down to VND 3100/share while closing price for the first trading day was VND 59500/share (finance.vietstock.vn, 2020) Not only that, in October 2019, HNM shares were decided to suspend trading by the Hanoi Stock Exchange (HNX) The reason stated by HNX was that Hanoimilk could not overcome the cause of the special control and continued to violate the disclosure Up to this point, the Company has not yet released the audited financial statements for 2018 and semi-annual review reports for 2019 (Tintucchungkhoan.vn, 2019) Therefore, it can be seen that the publication of full financial statements is very necessary, especially CFS to properly reflect the cash flow in and out of the business to help investors and manager makes the right business decisions It can be seen that HNM is a company with a lot of fluctuations

in both business results and events on the stock market That is why I chose HNM

as a prime example for my report analysis Moreover, In the years after 2008 were quite similar in business situation, so instead of choosing to discuss the most recent

3 years, the period of time was chosen for this study is 2008, 2009 and 2010 to see

the change of before and after have incidents but can still assess the overall situation

of the years combined with the information I mentioned in finding part

Although Cash flow statement is an issue that has been mentioned by many authors However, I still want to give important evidence to show the meaning, the role of CFS with Vietnamese businesses To reach this conclusion we have to go through a research process

The structure of my report consists of 5 parts:

CHAPTER 2: LITERCTURE REVIEW

CFS is a very popular financial report For foreign countries that is the type of financial statement required In Vietnam, large enterprises issue CFS, but small and medium enterprises are still in the process of consideration

CFS reflects the cash flow situation according to three types of activities such as operating activities, investing activities and financing activities It is very useful in predicting business results on the basis of planned production and business expansion in the future Therefore, depending on the purpose of uses, Cash flow statements will have its own meaning and impact on users of financial statements The meaning and role of Cash flow statement is a topic that has been mentioned by many authors with different meanings and roles for each type of investment and management After a research process I have consulted a lot of interesting insights around this topic

Along with the same topic, In a research paper of Lê Hà and Lê Minh (2019), the

authors highlighted the disadvantages of the Balance sheet and Income statement that cash flow statement has overcome and confirmed that it is the most reliable report in the analysis investment and in particular is the role of analysis cash flow statement in level activities credit of the bank In the credit operations of the Bank,

to make a loan decision, the appraiser must perform financial analysis to know the financial capacity of the borrower The financial analysis is done through the Balance Sheet, Income statement, and Cash flow statement For Balance sheets, the analysis allows the analyst to assess the financial status of the business However, the balance sheet is of a temporal nature, while the accounting figures are constantly changing Therefore, assessing the financial status of businesses through the balance sheet is not safe enough For the Income statement, the analysis allows appraisers to assess the effectiveness of enterprise cost management in an accounting period, because the income statement is prepared on an accrual basis, all transactions arising from an enterprise related to its business activities are recorded in the

Income statement In fact, the costs that businesses have to pay must be made in the form of money At the same time, the money to meet the demand for payment of the above amounts is money collected from goods sale and service provision However, unearned revenues in cash or unpaid expenses and non-cash expenses are recorded

in the Income statement Therefore, the evaluation of cost management effectiveness through Income statement alone is not satisfactory

The analysis of the Cash flow statement can overcome the disadvantages as presented when analyzing the balance sheet and Income statement At the same time, it allows analysts to have more detailed assessments of business management policies, investment policies and financial policies of enterprises In addition, the Cash flow statement is made on the basis of cash in an accounting period, so the policy assessments that the enterprise is applying exclude the timing factor such as balance sheet analysis; At the same time, the Cash flow statement is made on the principle of actual revenue - actual expenditure, so the assessment of financial ability, especially the ability to pay debts, is more authentic than ratio analysis by the combination of balance sheet and Income statement From the above analysis, the Cash flow statement plays a very important role in assessing the financial capacity and management policies of the business This is an important content for appraisers to draw conclusions in the process of enterprise financial analysis; At the same time, this is the basis for determining the debt repayment capacity of the enterprise, thereby making a decision on financing the loan to the borrower

In addition, with different perspectives on fields, researchers also offer different benefits on the role of cash flow statements

AL-Khadash, (2005), this article aimed to work out whether earnings or cash flows

is better as performance measure He follows the more direct approach utilized in several recent US studies, during which earnings and cash flows are considered as competing variables Specifically, his methodology could also be a development of the study of Dechow (1994) He provided a replication of her main analysis, then extends this to affect the effect of earnings permanence, earnings growth and firm

size on the price relevance of cash flow and earnings His study provides evidence

on the relevance of cash flow figures for investors in their investment decision in an emerging stock exchange The study covered the case of ASE and employs data on

a sample of economic firms The time horizon of this study covers the period of 1993-2001 The results of the present study indicate that earnings and cash flows have information content regarding the prediction of future cash flows Cash flows and earnings separately have a big association with stock return The results show that there's no significant difference between the power of earnings and cash flows

in explaining the variation in stock return Furthermore, because the earnings growth is low and thus the firm’s size is small, the operating income considered better than earnings as performance measure (Journal of advanced social research, June 2012)

Ahmad Khan,(2017), acknowledged that the many and positive relationship exists

between cash flows and company performance The results of the study support both theoretical and empirical evidences of prior studies that operating and financing cash flows impact positively on the profitability of corporate organizations, provided a robust governance policy is operational within the industry (Brush, et al 2000) Also, the researcher concluded that negative net cash flows generated from investment activities related to weak corporate governance are capable of decreasing performance This finding supports the prior studies of Ali, et

al (2013) and Zhou, et al (2012)

From the findings of the research, the study suggests that Regulatory Authorities such as IFRS should encourage companies to set-up a result oriented cash flow system that will encourage the investing public to avail themselves of monetary risk capable of jeopardizing their investment More so, external auditors should be encouraged to use Cash ratios in evaluating the performance of a corporation before forming an independent opinion on the financial statements This will give detailed information on the financial performance of the corporate to enable investors make effective investment decisions: The study also suggests the implementation of

compulsory CF policies such as investment policy, dividend policy in order to restore the confidence of investors

Trang Nguyễn (2017) authored a discussion about the actual situation of cash flow

statements in Vietnamese enterprises that, in which she discussed that: A cash flow statement is one of the four mandatory financial statements that any business must prepare to provide its users with information Because the cash flow statement is a relatively new report and many businesses have not really paid attention to it, not yet assessed the role as well as the scientific analysis (tapchitaichinh.vn, 2020) need orientation to enhance the role of cash flow statements, put it into practice, making

an important contribution in analyzing the financial capacity of enterprises

Firstly, every business, financial institution should have a department with deep expertise in financial statements in general; especially the cash flow statement to read, understand and analyze the basic cash flow indicators in the cash flow statement, including the cash flow in and out of activities

Secondly, it is advisable to strengthen the facilities for accounting work, especially the application of computerization to accounting work, especially small and medium-sized enterprises so that the accounting work can be carried out quickly and effectively more fruitful; it is easier to set up accounting reports, including cash flow statements, to be automated

Thirdly, the State should have appropriate policies, especially policies on investment, joint ventures and associates Through foreign investment programs and projects in our country, the accounting system of our country will become more and more complete to meet international trends, create a favorable environment, and also require grant pressing to report cash flows - an object of the widely applied and scientific accounting system in Vietnam

In summary, depending on the different purposes, users will have different cash

flow analysis indicators to analyze Therefore, the analysis of cash flow statements has become a useful analytical tool to help users assess the financial capacity of the business and make the right decision for both managers and investors

Monetary is really an indispensable tool for businesses that want to succeed Hopefully, in the coming time, with the growth of enterprises in terms of experience and competitiveness, the effective application and analysis of cash flow statements will achieve positive results, to report cash flows

essence-Category: Making decisions in connection with users’ CFS

Subcategory: Importance of cash flow

Code: LIQUIDITY

Code: SOLVENCY

Code: CASH ON HAND

Code: INVESTMENT AND MANAGEMENT STRATEGY

Code: RISK VALUATING

Then, based on this code, I designed the relevant question to do the survey Coding must be conducted with care and requires immersing yourself in the data By that

we mean, reading and re-reading the material and identifying categories that capture elements of the phenomena under study Some researchers develop codes based on those used in previous studies or on their theoretical framework; others develop codes purely on the basis of the patterns they find in the data During your study of the literature you will come across articles and other papers' where the researchers claim to have used “grounded theory” Developed by Glaser and Strauss (1967) and elaborated by Strauss and Corbin (1998) and Corbin and Strauss (2008), it involves

a highly system- atic approach to applying specific types of codes at several stages

in the coding cycle This leads to the development of theory that is 'grounded' in the data - hence the name of the methodology

Based on my previous surveys and want to get the most valuable answers, therefore the questions given are shortened and simplified but still have all the necessary content in the hope that it will not be boring, tiring, or answer questions perfunctorily for the sake of getting done After a period of research, it was deemed appropriate to design a 10-question survey, including 4 questions about respondents' demographic information and 6 questions related to specialized knowledge in which there are 2 sentences for users to express their views on the issue

87%

13%

Number of students and employees who responded

Student Worker

Almost those surveyed were asked to complete a questionnaire From these responses it was possible to analyse the data and identify the meaning and role of Cash flow statement, especially within Vietnamese enterprises Background questions are also asked in the questionnaire The questions related to the type of user the participant represented Based on these questions, it is possible to know the tendency to use analysis among students who have not had much financial experience, or lecturers who have been highly trained in this knowledge Or even the person who do not have much knowledge but are interested and still using financial statements as an investment tool A question relating to the type of job they represent, was also included in this study Moreover, in professional-related questions, I always try to include the additional content needed to help those who do not really understand the financial statements still have a basic view to make the answer An example of question six: “CFS has 2 methods of preparation: direct method and indirect method, which both produce the same result Direct method: This method takes data from the income statement using cash receipts and cash disbursements from operating activities, the network of two values is operating cash flow (OCF) Indirect Method: This method starts with net income and converts it to Cash flow from operating by adjusting for items that were used to calculate net income but did not affect cash So, which method do you think is the most practical?”

Then, the questionnaires were sent via the media like email, facebook, zalo

The Response

The data collection took 2 weeks, whereby the questionnaire was sent to 50 people and received 40 responses Since English language is not the official language of Vietnam and the English skills of Vietnamese students are limited, when making the survey, I made two versions, one is the English version and one is the Vietnamese version The English version is intended for international students, lecturers, or students with specialized English backgrounds The Vietnamese version is

responded to by students learning specialized knowledge in the Vietnamese language And the result I got is 30 answers in Vietnamese and 10 answers in English The special thing is that Vietnamese answers are more complete and have many suggestions for text answers The results received from the Vietnamese version have more feedback, contributed more comments, as well as to facilitate statistics and analysis The survey results for both versions have been compiled for information and evidence in my report The charts and data I present are data that I have compiled The original results of each version will be attached to the appendix

3

This research topic is an academic issue that requires specialized knowledge, so all respondents have some level of knowledge of Finance and Accounting Those with specialized knowledge accounted for 52% of Accounting/ Auditing, 2% is lecture, 5% is finance and the rest are workers in other practices such as sales, MIS, IT, …

Lecturer Sale Finance Others

From the chart below we can see, CFS is meaningful to many objects, mainly investors (36%) and managers (36%) In which employees in the company are those who are rated least interested (5%)

According to VAS 21, the financial reporting system includes: Balance sheet, Income statement, Cash flow statement and Notes to the financial statements In which only 3 financial statements are Balance sheet, Income statement and cash flow statement Each financial statement has its own presentation and function As the results in chart 4, we can see the Income statement is the most useful report with

When discussing CFS, in addition to its meanings and roles, how to create a CFS is also a matter of great concern There are two methods to make a CFS: direct method and indirect method In particular, According to the survey results, the direct method is considered to have the most practical significance (70%) What those meanings mean and what other papers say about these two methods will be discussed in detail in the findings section

70%

30%

which method do you think is the most practical?

Direct method Indirect method

However, The superior performance accounted for 80% of the total assessment that operating cash flow was most meaningful to a business

Next is two tables summarizing the answers of the two questions that have answers

in text form both Vietnamese and English versions

Fraud in cash outflow

Cannot see the cash flow of the company

80%

7%

13%

OCF is the most meaningful for a business

CF from operating activities

CF from investing activities

CF from Fiancing activities

the risk of such

practice (in your

opinion)?

Accounting manipulation

understand the operations of the business

Because the data on B/S is timely

The analysis results from the balance sheet or other sources may not be as detailed as when reading a separate cash flow statement

It will be very difficult to analyze the business situation of

a company if it takes the main information of cash flow from balance sheets or financial statements because when the cash flow is included in those two reports, the cash flow has a little fix For some reasons such as: there is a beautiful report to attract investors

It is not necessary to have a cash flow statement But If yes

The cash flow statement is one of the financial statements that businesses must prepare to provide information to users.

Financial statements are manipulated for the purpose of an individual, investors do not have an accurate view of the performance of the business

This question mentioned the risk of such practice (in your opinion) if users of financial information obtain information regarding Cash Flow from other financial statements, such as Balance Sheet and Income Statement We see a lot of opinions

to prove that CFS has different meanings to avoid risks but there are conflicting opinions The two comments highlighted in red are the two opposite statements we can see that the perception of the importance of CFS still is a significant question for many people Because the answer “It is not necessary to have a cash flow statement But If yes it is better” received from a senior student majoring in Business Accounting This may be the opinion of a student who has not been able to say anything but it is this comment that shows that the student's knowledge of CFS

is limited and we need more research to be able to conclude about this problem The table below is a collection of responses received regarding the last question: What is the purpose of cash flow analysis?

Q.10 Cash flow is the

movement of money

(cash inflows and

To know the financial capacity of the business from which to prepare an appropriate business plan and minimize risks

outflows) in a given

period Cash is the

most liquid asset,

giving the company a

high level of liquidity

and flexibility What is

the purpose of cash

flow analysis?

The purpose of cash flow analysis is to offer a portrait

of all the transactions that go through the business, where every transaction contributes to its success

Firm liquidity

The purpose of the cash flow statement is to show where an entity's cash is being generated (cash inflows), and where its cash is being spent (cash outflows), over a specific period of time (usually quarterly and annually)

Analyze whether the company uses cash appropriately and whether assets are formed by debt or equity

1, On the investor side: Analyze the company's growth potential (wealthy, rate of return, net income, gain / loss) to consider investing in

2, on the business side: so that managers can more easily control the money available in the enterprise

To find out the ability, trend of cash flow balance for the needs of each production and business activity

In order to consider the flow of cash in and out of the company, it can draw a general operating situation, especially the financial situation of the company

Determine the origin of cash flow, find out the liquidity, determine where the revenue of the business is from =>

to see when there is an opportunity to increase production capacity?

For investment, operational orientation, to be used as a proof when borrowing money,

Discussions

All of these questions and answers will be analyzed and discussed in the next chapter, findings

CHAPTER 4: FINDINGS

Financial reporting is a very common term that no matter what the work, it can be heard in any field But not everyone understands what financial reporting and financial statements are, including what reports and how they are presented

According to VAS 21, the financial reporting system of an enterprise consists of: a)

Balance sheet; b) Income statement; c) Cash flow statement; d) Notes to the financial statements, in which, (d) is not a financial statement but only contain explanatory notes and supplementary information to support the main financial statements, it is however a mandatory part of financial reporting In particular, it can

be said that CFS is the latest updated report in Vietnam's financial reporting system according to VAS 21, even many small companies do not prepare this financial

statement; but in my survey when it comes to a question 5 "Have you ever heard,

read or prepared any cash flow statements?" the result is 87% of "Yes" answers Thus, it can be said that the financial statements are a very popular report and receive the attention of many people

87%

13%

The popularity of CFS

yes no

So, the next part will briefly introduce each financial statement, its role and

meaning It also relates to question 4 of my survey- “In Vietnam, Financial

statements include: Balance sheet, Income statement, Cash flow statement Which one do you think is the most useful?” First, I will discuss the structure,

characteristics of each financial report then the meaning and advantages of all 3 types, from which we can explain why most of the answers received for this

question is Income Statement

Balance sheet (BS)

The balance sheet (BS) provides a summary of a company's assets, liabilities, and stockholders' equity as a snapshot in time The date at the highest of the BS tells you when the snapshot was taken, which is usually the end of the financial year

The Balance Sheet Formula:

Assets=Liabilities+Owner’s Equity

The BS totals are going to be calculated already, but here's how you identify them

1 Locate total assets on the balance sheet for the period

2 Total all liabilities, which should be a separate listing on the balance sheet It may not include contingent liabilities

3 Locate total shareholder's equity and add the number to total liabilities

4 Total assets should equal the total of liabilities and total equity (Chris B Murphy 4/2020),

Data from the Balance Sheet

The BS identifies how assets are funded, either with liabilities, like debt, or stockholders' equity, like retained earnings and extra paid-in capital Assets are listed on the BS so as of liquidity (Chris B Murphy 4/2020)

Liabilities are listed within the order during which they're going to be paid term debt is expected to be paid in the year, while long-term debt or non-repayment

Short-debt is the Short-debt that is expected to be paid in more than a year (Chris B Murphy 4/2020)

Income Statements (IS)

Unlike the BS, the income statement (IS) covers a variety of your time, which may

be a year for annual financial statements and 1/4 for quarterly financial statements The IS provides a summary of revenues, expenses, net profit and earnings per share

It usually provides 2 to 3 years of information for comparison (Chris B Murphy 4/2020)

Income Statement Formula and Calculation:

Net Income= (Revenue−Expenses)

1 Total all revenue or sales for the period

2 Total all expenses and costs of operating the business

3 Subtract total expenses from revenue to achieve net income or the profit for the period (Chris B Murphy 4/2020)

Data from Income Statements

An IS is one among the three important financial statements used for reporting a company's financial performance over a particular accounting period Also referred

to as the profit and loss statement or the statement of revenue and expense, the IS primarily focuses on a company’s revenues and expenses during a specific period (Chris B Murphy 4/2020)

Once expenses are subtracted from revenues, the statement produces a company's profit figure called net profit

Types of Revenue

Operating revenue is that the revenue earned by selling a company's products or services The operating revenue for an automaker would be realized through the assembly and sale of autos Operating revenue is generated from the core business activities of a corporation (Chris B Murphy 4/2020)

Non-operating revenue is that the income earned from non-core business activities These revenues fall outside the first function of the business Some non-operating revenue examples include:

 Interest earned on cash in the bank

 Rental income from a property

 Income from strategic partnerships like royalty payment receipts

 Income from an advert display located on the company's property

Other income is that the revenue earned from other activities Other income could include gains from the sale of long-term assets like land, vehicles, or a subsidiary (Chris B Murphy 4/2020)

Types of Expenses

Primary expenses are incurred during the process of earning revenue from the first activity of the business Expenses include: depreciation or amortization, Cost of goods sold (COGS), general and administrative expenses (SG&A), selling, and research and development (R&D) Typical expenses include employee wages, sales commissions, and utilities like electricity and transportation (Chris B Murphy 4/2020)

Costs associated with secondary activities include interest paid on loans or debts Losses from the sale of an asset also are recorded as expenses

The main purpose of the IS is to convey details of profitability and also the financial results of business activities However, it may be very effective in showing whether sales or revenue is increasing in comparison over multiple periods Investors may also see how well a company's management is controlling expenses to work out whether a company's efforts in reducing the price of sales might boost profits over time (Chris B Murphy 4/2020)

The Cash Flow Statement

The Cash flow statement (CFS) measures how well a corporation generates cash to pay its debt obligations, fund its operating expenses, and fund investments The CF statement complements the BS and profit-and-loss statement (Chris B Murphy 4/2020)

Data from the Cash Flow Statement

The CFS allows investors to know how a company's operations are running, where its money is coming from, and the way money is being spent The CFS also provides insight on whether a corporation is on a solid financial footing (Chris B Murphy 4/2020)

There is no formula, per se, for calculating an income statement, but instead, it contains three sections that report the CF for the numerous activities that an organization has used its cash Those three components of the Cash Flow Statement are listed below (Chris B Murphy 4/2020)

Operating Activities

The operating activities on the CFS include any sources and uses of money from running the business and selling its products or services Cash from operations includes any changes made in cash, accounts receivable (AR), depreciation, inventory, and accounts payable These transactions also include wages, tax payments, interest payments, rent, and cash receipts from the sale of a product or service (Chris B Murphy 4/2020)

Investing Activities

Investing activities include any sources and uses of money from a company's investments into the long-term way forward for the corporate Buying or selling an asset, loans made to suppliers or received from customers or any payments related

to mergers or acquisitions are included in this catalog (Chris B Murphy 4/2020) Also, purchases of fixed assets like property, plant, and equipment (PPE) are included during this section In short, changes in equipment, assets or investments involve cash from investments

Financing Activities

Cash from financing activities include the sources of cash from investors or banks, also because the uses of cash paid to shareholders Financial activities include debt issuance, stock issue, stock repurchase, lending, dividend payment and debt repayment (Chris B Murphy 4/2020)

The CF statement reconciles the IS with the BS in three major business activities Thus, it can be seen that each type of financial statement has a specific meaning for the enterprise and its use It is complementary to provide information to users It is difficult to spot what report is the “most important” but to mention" the most meaningful for a business”, the big number (63%) of assessments is that the Income statement, 20% CFS and 17% balance sheet.(According to the results of my survey) Balance sheet generally reflects all existing assets as well as capital to form the assets of the enterprise at a given time The statement of cash flows represents the amount of money in and out of the business But what people are most interested in is how the company is doing, is it profitable?! Meanwhile, the income statement, also known as the profit and loss statement, shows the balance between income and expenses in each accounting period Income statement is a general financial report, reflecting the overall situation and business results in an enterprise's operation period and details for the main business activities In other words, Income statement is a means to present the profitability and the current situation of business operations of the enterprise Enterprises organize production and business with the main purpose of gaining profits to increase their capital Because profit is the most important goal of the business, as well as those with related interests, so providing information about the business situation of each activity, the profit and loss of the business is important effective in making management decisions, as well as investment decisions, loans of the people involved or deciding on appropriate future plans But, if we only base on profit and loss on the Income statement, we cannot confirm the fact that this company is financing or investing, we can only see results from its operations, and in fact, many

investors have been blinded by the impressive make up numbers To determine the health status of businesses, in other words, its liquidity, we must know their cash inflows and outflows Therefore, especially for investors and managers, cash flow analysis is a useful tool

Cash flow is the movement of money (cash inflows and cash outflows) in a given period Cash is the most liquid asset, giving the money a high level of liquidity and flexibility Cash is tightly tied from the beginning until the end of a company's operating cycle

It is cash, not income Cash flow, not revenue or profit Cash flow analysis shows the origin of the cash flow of businesses Especially, cash flow is not affected by accounting principles When analyzing the company, it is important to note the cash flow of the company Assess whether your business is capable of paying its due debts? Consider the possibility that businesses can pay dividends? If Yes, do you pay on time? Also, cash flow analysis can consider whether the business can increase production capacity, meet the investment needs in new investment opportunities when the company has the opportunity or not?

Cash flow analysis for interested entities such as management board, shareholders, creditors To see the origin of the currency of the business and answer the question: What is the business money generated from, is it the main business of the company? Does the activity generate sustainable money?

Thus, it can be seen that cash flow analysis is very important, each different object will have different analysis purposes So what is the purpose of cash flow analysis?

That is also the problem that question 10 in the survey mentioned

(1) Through cash flow analysis, the amount of cash balance at the end of the period

is evaluated, thereby assessing liquidity, and flexibility What is the financial aspect

of the business? For some businesses with high-income problems but lack of cash, cash flow analysis will answer this question

(2) How to assess the ability to create the money of businesses? Is the money created by businesses stable and sustainable? Cash flow analysis must assess whether the business can make money?

Know how to use money? Cash flow analysis must assess where the money generated by the business is the main business activity of the enterprise?

Finally, cash flow analysis must evaluate whether holding cash or not holding cash

is better, more efficient?

(3) Assess whether businesses know how to use money? What is the cash flow during the period? Cash flow in, cash out like? Is there a balance between cash flow in and out? Does it meet the demand for money?

(4) Cash flow analysis helps businesses detect money related diseases on time affecting the financial situation of the business For example: Is the enterprise in financial difficulties, financially exhausted, and putting the business at risk of bankruptcy? Through cash flow analysis, enterprises can identify any bad debts and bad debts to see if they have a bad influence on the credit relationship of enterprises

to credit providers? On the other hand, cash flow analysis will identify businesses with solvency One of the other important goals of cash flow analysis is to determine whether this is the source of money to pay off debt as well as the long-term debt due and payable; what the cost of the business is related to money and which costs are not related to money Besides, cash flow analysis shows that the cash dividend payment of enterprises can be done? Are businesses facing financial difficulties?

Based on these goals, we can answer basic but important questions when analyzing HNM The first is based on the amount of cash left over at the end of the period to assess the solvency of the company It can be seen that HNM has a low amount of cash at the end of the period, so its ability to pay low debts, have to borrow short-term loans to pay long-term loans or purchase, sale of other entities' debt instruments The second is the ability to make money of businesses Cash flow of businesses is made from financial activities (2010), investment activities (2008), not

business activities (appendix 1) With this unstable and unsustainable cash flow, it will be difficult for the company to invest in new business projects when they have opportunities It is also difficult to pay cash dividends, in 2009 there was no dividend payment, in 2010 it was very low (VND 1 million) (appendix 1) Since then, this money analysis will help business managers to promptly detect the health problems the company is facing to have timely solutions At the same time, it also helps investors and lenders make effective investment decisions

Cash flow is divided into 3 categories from 3 different sources and combined called cash flow statement (CFS) CFS is a financial report that reflects the revenues and expenditures of the enterprise in each period according to each operating activity, investing activity and financing activity In essence, CFS is a balance sheet of revenues and expenditures, the amount of money generated in the period including cash in cash and short-term investments are considered cash equivalents This is reflected in the balance equation of the cash flow process as follows:

Opening balance + cash received in the period =cash payment in the period + ending balance

The difference between the ending and opening balance is due to the process of cash flows through the activities of the enterprise in the period

Therefore, the purpose of CFS is to show users how the cash flow of the business was generated and how the business used it in the reporting period On the other hand, it is also a useful tool in testing the accuracy of previous assessments of future cash flows and in examining the relationship between firm's profitability and the effects of price changes are based on indicators that reflect business results This is always necessary for all types of businesses

According to Vietnam Accounting Standard (VAS) No 24 - Cash flow statement issued under Decision No 185/2002 / QD - BTC of December 31, 2002, enterprises must present cash flows in the period on CFS following 3 types of activities:

- Cash Flow from Operating Activities

- Cash Flow from Investing Activities

- Cash Flow from Financing Activities

CASH FLOW FROM OPERATING ACTIVITIES

Cash flows from operating activities are the cash flow related to the main generating activities of the business, it provides basic information to assess the ability of businesses to generate money from business activities to cover debt, maintaining operations, paying dividends and conducting new investments without external financing Main cash flows from business activities include:

(a) Proceeds from the sale of goods

(b) Proceeds from other revenues (royalties, fees, commissions and other amounts from amounts determined as cash flows from investing and operating activities); (c) Cash payments to suppliers of goods and services;

(d) Cash payments to employees on salaries, bonuses, insurance payments and benefits

(e) Interest payment;

(f) Cash payment for corporate income tax;

(g) Cash receipts from tax reimbursement;

(h) Cash collected from compensation, penalties due to customers breaching economic contracts;

(i) Cash payments to the insurance company of premiums, indemnities and other sums under the insurance contract;

(k) Cash payments due to fines, penalties due to enterprises breaching economic contracts

CASH FLOW FROM INVESTING ACTIVITIES

Cash flows related to investment activities are cash flows related to the procurement, construction, sale, liquidation of long-term assets and other

investments other than cash equivalents Cash equivalents: are short-term

investments (not exceeding 3 months), easily convertible into a defined amount of money and not much risk in converting into cash

The cash flows are mainly from investment activities, including:

(a) Cash payments for procurement, construction of fixed assets and other long-term assets, including those related to deployment costs, which have been capitalized as intangible fixed assets;

(b) Cash receipts from the liquidation or sale of fixed assets and other long-term assets;

(c) Cash payments to lend to other parties, except loans to banks, credit institutions and financial institutions; money spent on purchasing debt instruments of other units, except where debt instruments are regarded as cash equivalents and debt instruments used for commercial purposes;

(d) loan repayments to another party, except in the case of loan recovery proceeds from banks, credit institutions and administrative institutions; proceeds from the sale of debt instruments of other units, except for cases where proceeds from the sale of debt instruments are considered cash equivalents and the sale of debt instruments used for commercial purposes

(e) Cash recovered from investments in other entities, except for proceeds from resale of stocks purchased for commercial purposes;

(f) loan interests, dividends and profits received

CASH FLOW FROM FINANCING ACTIVITIES

Cash flows arising from financial activities are cash flows related to changes in the size and structure of equity and loans of enterprises The cash flows are mainly from financial activities, including:

(a) Proceeds from issue of shares, receipt of equity capital;

(b) Cash payments for contributed capital to owners, repurchased shares of the issuing enterprise;

(c) Cash receipts from short-term, long-term borrowings;

(d) Money spent on borrowed principal;

(e) Cash payments of finance lease debts;

(f) Dividends and profits paid to owners