10 WORKING CAPITAL MANAGEMENT AT VINACOMIN DEO NAI COAL JOINT STOCK COMPANY

ACADEMY OF FINANCE CORPORATE FINANCE GIAP GIA HUNG CQ55/11.02 GRADUATION THESIS Topic: WORKING CAPITAL MANAGEMENT AT VINACOMINDEO NAI COAL JOINT STOCK COMPANY Major: Code: Supervisor: Corporate Finance 11 Assoc Prof PHAM THI THANH HOA HA NOI - 2021 Graduation thesis finance Academy of DECLARATION I hereby declare that this is a study done by myself with the support of the supervisor The figures and the results stated in the thesis are honest from the actual situation of the internship company In case any information given in this thesis proves to be false or incorrect, I shall be responsible for consequences Signature of thesis’s author Giap Gia Hung Giap Gia Hung i CQ55/11.02 Graduation thesis finance Academy of TABLE OF CONTENTS Giap Gia Hung ii CQ55/11.02 Graduation thesis finance Academy of LIST OF ABBREVIATIONS No 10 11 Giap Gia Hung Abbreviation AR BEP COGS DSO EOQ NWC ROA ROE ROS VND WC Full meaning Accounts Receivable Basic Earning Power Cost of goods sold Days sales outstanding Economic Oder Quantity Net Working Capital Return on assets Return on equity Return on sales Vietnam dong Working capital iii CQ55/11.02 Graduation thesis finance Academy of LIST OF TABLE Table 2.1: Analysis and comparison of balance sheet criteria 46 Table 2.2: Analysis and comparison of the Company's reporting indicators of business performance 49 Table 2.3: Analysis of asset structure of Deo Nai Coal Joint Stock Company – Vinacomin 53 Table 2.4: Regular working capital in 2019, 2020 55 Table 2.5: Cash and cash equivalents structure in 2019 and 2020 60 Table 2.6: Solvency ratio of the company in 2020 64 Table 2.7: Structure of the account receivable 65 Table 2.7a: The situation of inventories of the company 69 Table 2.7b: The Company's Product Utilization Efficiency in 2018 - 2019 - 2020 .73 Table 2.8: Indicators reflecting the performance coefficient of working capital in 2019, 2020 74 Giap Gia Hung iv CQ55/11.02 Graduation thesis finance Academy of LIST OF FIGURE Figure 1.1 Classification of working capital .7 Firgure 1.2 Under matching plan 16 Figure 1.3 Under Conservative Strategy 16 Figure 1.4 Under highly aggressive strategy 19 Figure 1.5 Baumol’s model-tradeoff between holding cost and trasaction cost 21 Figure 1.6 Miller-orr model .21 Figure 1.7 EOQ model .24 Figure 1.8 EOQ model with uniform demand 24 Giap Gia Hung v CQ55/11.02 Graduation thesis finance Academy of PERFACE The rational of the study In the market economy, in order to conduct production and business activities, certain enterprises must have a certain amount of capital following their size and business conditions The problem is with this initial capital, how to put it into production that earns the most profit? What will be the mobilization and use of capital in the coming time to ensure that the production and business process is continuous, giving the business owner a positive cash flow every year? To solve these problems, the administrator needs to pay attention to the working capital management of business and consider it an essential premise to ensure the long-term survival and development of his business To conduct any production and business activities are also required capital Business capital is one of the factors that plays a decisive role in the operation process of the business Working capital is a part of business capital, plays an important role in ensuring business activities of the business are conducted regularly and continuously Efficient and rational use of working capital contributes to improving business performance business of the whole business Therefore, the management of working capital is a decisive factor to the existence and development of each business Through the internship at Vinacomin – Deo Nai Coal Join Stock Company, with the guidance and enthusiastic help of Assoc Prof., Ph.D Pham Thi Thanh Hoa and the Board of Directors of the company especially the partners in the Finance and Accounting Department; I have had many opportunities to be exposed to the situation is the reality of the Company Thereby, I have the condition to clarify the theoretical issues learned at the school as well as be more aware of the importance of working capital and working capital management for enterprises in general and with Vinacomin – Deo Nai Coal Join Stock Company in particular Recognizing the importance of working capital management at the Company and the difficulties that the company is facing, I decided to choose the topic: Giap Gia Hung CQ55/11.02 Graduation thesis finance Academy of "Working capital management at Vinacomin – Deo Nai Coal Join Stock Company” to my graduate thesis Research purposes The objectives of this thesis is to propose some solutions to improve working capital management at Vinacomin – Deo Nai Coal Join Stock Company in the coming time Specific objectives: - Systematize theoretical issues about working capital management of enterprises - Assess the status of working capital management at Vinacomin – Deo Nai Coal Join Stock Company, thereby drawing out the achieved results, limitations and causes in working capital management at the Company - Proposing solutions to enhance working capital management at Vinacomin – Deo Nai Coal Join Stock Company Object and scope of the study - Object of the study: The thesis focuses on studying the basic issues of working capital and working capital management at the company - Research scope: Research the current situation of working capital management at Vinacomin – Deo Nai Coal Join Stock Company 2019 - 2020 Data and methodology Data collection method: Collecting data through archived documents of the company in recent years Besides that, gather information through internship or other information sources such as websites and references Research method: Based on collected data, start processing and analyze according to the purpose and requirements of the topic Comparison method: Based on processed data to make comparisons between years, thereby assessing the achieved and unsatisfactory results At the same time, comparison with peer firms to make conclusions Giap Gia Hung CQ55/11.02 Graduation thesis finance Academy of Data sources used in the analysis were collected based on the actual situation at the Company and the financial statements of 2018, 2019, 2020 of Vinacomin – Deo Nai Coal Join Stock Company Thesis structure Besides Introduction, Conclusion and other supplemental documents, the thesis consists of three chapters: Chapter Overview of working capital and working capital management Chapter Working capital management at Vinacomin – Deo Nai Coal Join Stock Company Chapter Solutions to improve working capital management at Vinacomin – Deo Nai Coal Join Stock Company I only research within the scope of management and use of working capital at Vinacomin – Deo Nai Coal Join Stock Company The thesis is presented in the direction of applying general arguments on working capital and working capital management in evaluating the management of working capital at the Company; point out the results achieved as well as the remaining limitations, causes, and remedies; at the same time to export a number of solutions to improve the efficiency of using business capital at the Company I sincerely thank Assoc Prof., Ph.D Pham Thi Thanh Hoa, Vinacomin – Deo Nai Coal Join Stock Company and other members of Finance and Accounting Department, and teachers of the Academy of Finance have been helpful to complete this research project Student Giap Gia Hung Giap Gia Hung CQ55/11.02 Graduation thesis finance Academy of CHAPTER 1: OVERVIEW OF WORKING CAPITAL AND WORKING CAPITAL MANAGEMENT 1.1 Working capital and company’s working capital financing 1.1.1 Definition and characteristics of working capital 1.1.1.1 Definition of Working Capital (WC) In order to carry out businesses, every company needs cash to invest to form the required assets In addition to the initial investment in fixed assets, the company needs a necessary working capital to operate continuously This working capital is used to purchase materials, goods,labor cost, etc At the end of an operating cycle, the initial investment in working capital is collected completely when a company collects all sales from goods and services As such, WC involves the use of short-term assets such as cash, inventory to ensure the company's operating activities are continuous In this view, working capital is defined as “initial investment in current assets to maintain the smooth operations of a company in a particular period" This is the gross definition of working capital WC is also known as the variance between current assets and current liabilities This is net definition of working capital That means Net Working Capital (NWC) is equal to (Current Assets - Current Liabilities) This definition considers not only the current assets but also its liquidity to cover the short-term obligations of a company WC in this thesis is defined according to the first way, the gross definition That means, the amount of money put into current assets to make the operations of a Giap Gia Hung CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài Suggestions and petitions (optional): - Conduct more throughout inspections of the money management system: To run checks on the money management system also means to limit the risks of cash flow from investing and operating activities Comply with the principle that all cash revenues and expenditures must go through the fund, not collecting expenditures outside the fund At least every quarter, businesses should conduct a one-time inspection to promptly detect errors in financial data, or issues such as trade fraud For bank deposits, periodically compare the balance between the accounting books of the enterprise and the bank's balance to detect and handle the differences if there is a reduction to the maximum amount of losses - Effective use of capital with idle temporary money: In fact, the amount of financial cash and bank deposits of the company is not small In order to continue improving the efficiency of capital management with money, besides maintaining the ability to pay in a timely and effective way to ensure continuous business activities, the goal of increasing the efficiency of exploiting idle funds is also especially noticed when the funds at the cash fund are not profitable and the deposit department at the bank's profitability is also quite low 3.2.4 Determination of annual working capital needs: The working capital needs of the company are given according to the calculation as follows: Step 1: Giáp Gia Hưng 97 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài + Select short-term asset items and occupied capital sources in the balance list with close relationship and direct impact on revenue Also note that it is necessary to subtract the types of short-term assets lost, debts that cannot be recovered, materials of poor quality; in terms of debt, it is necessary to subtract nonappropriation debts that the company can completely dominate in terms of payment such as un ownerless debts, buyers paying in advance + Then calculate the average balance of items in the balance table of the implementation period * Review the annual Balance sheet and find the necessary figures from the shortterm assets and liability sections we have the following table Giáp Gia Hưng 98 CQ55/11.02 Luận Văn tốt nghiệp Asset Học viện Tài Input Output Capital sources I Current assets I Short-term debt Capital Short-term loans Receivable Accounts payable to suppliers Inventory Deferred revenue Other current assets Taxes and other payables to the State budget Input Output Payable to employees Accrued expenses Other short-term payables Short-term payable reserves Giáp Gia Hưng 99 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài Calculate the average balance of necessary items in the balance sheet: + Average balance of short-term assets + Average balance of occupied capital Step 2: Calculates the percentage of the average value of items that are closely related and directly impact the revenue (just calculated in step 1) compared to the revenue made in the period Step 3: Use a percentage of items on revenue to estimate increased working capital demand for the planned year on the basis of expected five-plan revenue * Increased working capital demand = Revenue increased by × Percentage of working capital demand compared to revenue In which: + Additional revenue = Planned period revenue – Reporting period revenue + Percentage of working capital demand compared to revenue = Percentage of WORKING ASSETS items compared to revenue – Percentage of capital accounted for compared to revenue * To estimate the net revenue of the following year, the table tracks the change in net revenue of the next years based on the business results report Step 4: Forecast funding for the company's increased working capital needs and make adjustments to the financial plan to achieve the company's first goal This method is very important in determining the working capital needs of the company 3.2.5 Investment in upgrading and innovating machine and equipment Giáp Gia Hưng 100 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài Machinery and equipment are fixed assets, which are technical facilities of each enterprise, expressing the capacity and business scale of each enterprise Therefore, before starting the production and business process, each enterprise needs a large capital investment to buy machinery and equipment However, in the process of use, machinery and equipment will have a gradual decrease in value over time due to wear and tear, along with the rapid progress of science and technology also causing the value of machinery and equipment to fade Therefore, any machinery and equipment needs investment in upgrading and innovating to be able to timely serve operating and business activities and bring high efficiency, subsequently adding to expanding the income of the business In order to effectively implement the task of innovation of machinery and equipment to contribute practically to improve business results and efficiency, the company needs to pay attention to synchronization from machinery and equipment to improve the technical level of the workforce In the near future, the company can implement synchronized solutions such as: The company needs to calculate investment in essential assets first For example, repairing old and obsolete ships and machinery assets together with upgrading engines would help to save fuel costs Particularly, using assets for seaway business costs a lot If the accrued expense is not taken into consideration, the total cost will be high Step by step bringing in synchronous replacement for equipment to suit the market needs by investing effectively in more modern technological advances Choosing the right technology and equipment, setting the goal of being competitive enough to be the top, having the most advanced qualifications to ensure long-term life to bring out the highest business efficiency to the company Carrying out the maintenance of machinery periodically instead of whenever problems arise, the company will send technical staff to repair to ensure the problems are repaired in a timely manner, helping the business activities to take place continuously and saving time and effort for the direct labor team Giáp Gia Hưng 101 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài For excess assets that have not been used optimally for time, the company can rent outsourced units, hire employees in the company and trade in business to promote productivity as well as optimize the time of use fixed assets with the initial cost of private oil, the prerequisite goal must maximize productivity, avoid rest time that does not work, making revenue not maximum as well as damage not repaired regularly Improve management level, with a focus on the role of technical management On the other hand, actively train the staff of science and technology, skilled workers on the basis of ensuring satisfactory material training for them 3.2.6 Training and improving the quality of human resources The workforce is a undeniably vital factor to the production and business efficiency of an enterprise The use of labor resources associated with production and business, so using labor effectively will promote increased productivity, cost savings Thereby, it will increase the profitability of the company, and contribute to enhancing the financial capability of the company Therefore, in order to improve productivity and business efficiency, the company needs to have a plan for training and fostering the staffs: The company needs to raise the standard of labor selection, especially for the technical department, to ensure the quality of later employed staff On the other hand, due to the growth of modern technology, the company needs to encourage employees to constantly learn and improve their knowledge to meet the technical requirements Workers can only be effectively promoted when they are encouraged and evaluated properly Therefore, in addition to the training policy, the company needs to pay attention to the policy of compensation, distribution of labor remuneration and income in accordance with the ability and effort of employees This will motivate employees to improve their qualifications and capacities to conduct higher quality and more effective work, which contributes to the increase in the company's productivity and revenue Giáp Gia Hưng 102 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài In addition to the reward regime, the company also needs to set a regime of strict sanctions, implement strict criticism of individuals who violate the general regulations and discipline of the company 3.2.7 Some other solutions - Find new markets to promotes product consumption The consumption process is an important stage in the business cycle of the enterprise Thanks to the consumption of products, corporations can collect the revenue, which is a significant financial source to help businesses cover costs and win profits Implementing the consumption of products, enterprises will ensure that the reproduction process takes place regularly and continuously, contributing to increasing revenue, increasing working capital turnover Currently, the company is in the stage of exploiting machinery and equipment capacity, so it is necessary to increase production capacity, make the most of machine capacity to ensure the efficiency of investment in the innovation of fixed assets To meet that requirement, the company needs the following solutions: + The company needs to focus on developing and implementing effective marketing plans on the basis of strengthening the professional marketing team, developing brand development strategies and business development strategies in a comprehensive way + Expanding and developing the market by building sales systems, regularly participating in exhibition support associations, as well as the most effective way to promote products, as well as a way to find more customers + Develop appropriate price policies to both ensure the company's business profits and stimulate consumers on the basis of appropriate prices and quality - Focus and pay more attention to the training of financial management personnel Giáp Gia Hưng 103 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài Regardless of the working environment, the human factor is still the top priority In the current fiercely competitive conditions, firms need not only cash capital and technology advancements, but also human resources Over the years, for the staff in general, the company has actually focused on promoting the human factor The staff is rejuvenated, every year Moreover, the company also has plans to improve the qualification levels of managers as well as the skills of worker engineers A well-functioning organization needs to have outstanding managers and efficient human resources that are one of the most decisive factors for the success of the business Therefore, investing in the human factor is considered as a strategy that each business needs to pay attention to Currently, the company's highly skilled workforce is not much, the technical staff in charge of operating and managing machinery and equipment has not grasped modern technology, thereby affecting production and business efficiency Therefore, professional training should be carried out continuously to strengthen and improve the qualifications of technical and managerial staff The company needs to expand its training and retraining cooperation with domestic and foreign schools and research institutes In the immediate future, it is focused on schools and research institutes in the Corporation Focus on exchanging and learning experiences in modern advanced techniques There are policies to encourage and treat people who work hard and toxic, especially those working in remote areas Taking care of working conditions, creating a democratic equal environment so that all individuals can develop their abilities, have mechanisms to encourage and attract talented people to stick with businesses In the process of development, it is necessary to develop a plan to train core staff for enterprises, select ethics, talented and enthusiastic people with enthusiasm for the development of the Company in important positions However, for financial staff, in order to ensure the appropriate size of development as well as the life-long life of the corporate finance sector in the company, in the coming time, the company needs to have its own policies and take the following measures: Giáp Gia Hưng 104 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài + Recruit more financial managers with qualifications, capacity, careful, enthusiastic at work, with appropriate age + Focus on training financial administrators to improve professional skills to better implement the organization, management, mobilization and use of capital to bring the desired efficiency - Promoting development, improving the reputation of the company: Currently, the company brand has been known by many domestic partners, but in order to further develop production and business activities, the company needs to develop a long-term overall strategy in promoting the brand That is: brand promotion associated with the continuous improvement in product quality and service quality - Improving corporate culture: In the market economy, corporate culture is one of the decisive factors to the existence and development of each enterprise Building and developing corporating culture will contribute to improving business efficiency, improving the company's reputation, brand and value Therefore, in all its activities, the Company needs to build a modern and effective business management and business management system; culture of communication and behavior in the enterprise in accordance with the times Continuing to promote democracy, creativity and attention to developing resources with the spirit of public employees is number one and needs to promote the tradition of discipline consensus, overcoming difficulties always successfully fulfilling production tasks to continue maintaining and building the Development Company The company continues to build its image and brand to develop further The brand will be an invaluable asset and one of the factors that determine the Company's foothold in the market 3.3 Conditions required for the process of implementing solutions 3.3.1 On the State side Giáp Gia Hưng 105 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài An enterprise which operates in the State economy must obey the laws of the State, so the efficiency of the Company's WORKING CAPITAL organization depends not only on the quality of the Company's work but also on the macro policy of the State Therefore, in addition to supporting solutions to help the Company organize and use WORKING CAPITAL effectively Starting from the reality of Deo Nai Coal Joint Stock Company, I would like to make some of the following recommendations: + The State needs to build an average target system for each industry so that the company has an accurate basis for assessing its position and finding both strong and weak sides to take appropriate measures + The State needs to create a favorable environment for business activities, reduce unnecessary cumbersome procedures in applying for investment licenses to expand production and business activities + The Ministry of Finance needs to have a timely tax refund policy, and pay business capital for remables of enterprises About deductible value-added tax: although it accounts for a not high proportion of the company's rebates, if not refunded in time, it may be not efficiently used while the company has to borrow from outside with high interest rates + The Government needs to promote the development of financial fields, especially the monetary market so that businesses can diversify investment as well as choose capital mobilization methods With a developed currency market, companies can invest their idle temporary capital effectively and at the same time easily raise capital as needed A complete financial market also helps businesses to perform better financial management such as money management and risk management Giáp Gia Hưng 106 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài + The State continues to improve the system of legal documents, study additional adjustments and promulgate a new system of legal documents, policies on prices, finance, tax and credit policies, in which financial regulations must have stability Because financial regulations are the foundation for businesses to apply financial management policies for their businesses 3.3.2 On the part of the Company With the solutions to promote the management of working capital mentioned, the Company must also have complete management in order to facilitate the implementation of the above solutions 3.34 Recommendation for solutions to be implemented smoothly In order to create favorable conditions for the Company to implement these above solutions, the solutions that need to be supported from the State, Vietnam Coal – Mineral Industry Group and the Company are: + For the State - Quickly improve the legal documents system to create a legal corridor for the development of the business Encourage enterprises to mobilize capital on the stock market - Encourage the development of joint-stock companies with supporting policies such as taxes, interest rates, investment - Improve financial management level for enterprises, especially capital management Complete the financial information system, ensure the clarity and transparency of the information + For Vietnam Coal and Mineral Industry Group - In order to increase the initiative in planning and implementing production and business activities, the Group needs to have a stronger decentralization for member units in the management of mobilization and use of capital in order to promote the creativity and autonomy of member units Giáp Gia Hưng 107 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài - Guarantee for the Company loans to carry out large investment projects - Support human resources in production as well as create mechanisms and policies to encourage highly skilled and professional staff to work in remote projects - There are mechanisms and policies to support the Company on training and improving qualifications as well as rearranging labor for the Company's workers in the production process to achieve high efficiency + For Deo Nai Coal Joint Stock Company - Vinacomin - Proactively formulate regulations on management of assets, supplies, capital, investment in procurement in a strict and unified way - Improve the proactive planning of capital mobilization and use of capital - Increase investment in human factors, arrange a specialized finance department to monitor, analyze and evaluate the quality of production and business activities and the efficiency of capital use thereby understanding the causes and proposing leaders to settle in a timely manner CONCLUSION Working capital is the first factor that every business must pay attention to because it ensures the normal operation of the business is continuous Working capital is not only a bridge between short-term and long-term financial balances, but it also helps to provide necessary indicators of solvency at a time as well as in the future for businesses Therefore, determining the necessity of working capital is often necessary and working capital management is a decisive factor in the survival and success of an enterprise Giáp Gia Hưng 108 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài In the course of its operation, Deo Nai Coal Joint Stock Company - Vinacomin always tries to organize its working capital management to help the company operate better In fact, the Company has achieved remarkable achievements, but it is still inevitable that certain limitations are inevitable Therefore, in the coming time, the Company needs to make efforts to overcome the problems and limitations to improve capital management so that it can further increase profits and develop stable and sustainable in the future Through the time of learning the reality Deo Nai Coal Joint Stock Company Vinacomin , along with the knowledge equipped in the school, I chose to research the topic "Working capital management – the case study of Deo Nai Coal Joint Stock Company - Vinacomin ", through which I boldly offered some solutions to enhance working capital management at the company Hopefully, these solutions will contribute practically to the management of the company's working capital in the future Because of the limited access to data and knowledge limited, this thesis may be had some controversial points I look forward to receiving feedback contribution from the teachers, my internship guide and all staffs of the company so that I can complete this subject Once again, I would like to sincerely thank the dedicated help of teachers in Faculty of Corporate Finance, especially Assoc Prof Pham Thi Thanh Hoa, together with the Board of Directors, the Finance and Accounting Department and the related departments of Deo Nai Coal Joint Stock Company - Vinacomin supported and facilitated me so that I could complete this graduation thesis Thank you sincerely! Hanoi, January, 2021 Graduation Thesis Author Giáp Gia Hưng 109 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài Giap Gia Hung   REFERENCES Assoc Prof Vu Van Ninh and Assoc Prof Bui Van Van (2013), “Tài Doanh nghiệp” – Finance Publishing House Basic Corporate Finance (For the Advanced Educational Program) Prof Ngo The Chi and Assoc Prof Nguyen Trong Co ( 2015) “Giáo trình Phân tích tài doanh nghiệp”- Finance Publishing House Giáp Gia Hưng 110 CQ55/11.02 Luận Văn tốt nghiệp Học viện Tài Websites, magazines and journals about Finance: Economic Times, Financial Magazines, stockbiz.vn, cophieu68.vn, cafef.vn,… Website of Deo Nai Coal Joint Stock Company - Vinacomin Financial reports 2018, 2019, 2020 and other related documents of Deo Nai Coal Joint Stock Company - Vinacomin Other references Giáp Gia Hưng 111 CQ55/11.02 ... of working capital and working capital management Chapter Working capital management at Vinacomin – Deo Nai Coal Join Stock Company Chapter Solutions to improve working capital management at Vinacomin. .. issues of working capital and working capital management at the company - Research scope: Research the current situation of working capital management at Vinacomin – Deo Nai Coal Join Stock Company. .. results, limitations and causes in working capital management at the Company - Proposing solutions to enhance working capital management at Vinacomin – Deo Nai Coal Join Stock Company Object