234. “WORKING CAPITAL management – A case study of RED STAR VIETNAM LIMITED LIABILITY COMPANY”

MINISTRY OF FINANCE ACADEMY OF FINANCE FACULTY OF CORPORATE FINANCE  PHAN NGOC NHAT MAI GRADUATION THESIS “WORKING CAPITAL management – A case study of RED STAR VIETNAM LIMITED LIABILITY COMPANY” Major: Corporate Finance Student ID: 16CL3402010076 Class: CQ54/11CL.02 Supervisor: PhD Tran Thanh Thu Ha Noi - 2020 DECLARATION Academy of Finance Graduation Thesis I hereby declare that this graduation thesis is my own research, and it was composed by myself The data and results used in this thesis accurately come from the actual situation of the internship company I also certify that this thesis has not been submitted to any other organization thus it is the only published version submitted to the thesis’s reviewers Signature of Author PHAN NGOC NHAT MAI ACKNOWLEDGEMENT Phan Ngoc Nhat Mai CQ54/11.CL02 Academy of Finance Graduation Thesis In preparing this graduation thesis, I have had generous helps and advices and I would like to express my great gratitude to all of my teachers, my colleagues and my family First of all, I would like to thank to my research supervisor, PhD Tran Thanh Thu, a lecturer of Academy of Finance Without her careful instructions and dedicated involvement, this graduation thesis would have never been completed I would also like to thank Mr Hoang Anh Tuan and Mrs Thanh Xuan and my colleagues from Red Star Vietnam for creating the most favorable conditions and valuable supports during the internship period It would be impossible for me to finish this work without their helps Additionally, I would like to show my sincere gratitude to all my lecturers at Academy of Finance, who give me valuable lessons and basic background throughout years of study Last but not least, I am grateful and to send my loving thanks to my parents, my family for their support in both spirit and health to encourage me to complete this thesis ABSTRACT Phan Ngoc Nhat Mai CQ54/11.CL02 Academy of Finance Graduation Thesis This thesis identifies the actual situation of working capital management of Red Star Vietnam Limited Company The thesis aims at examining the current situation, pointing out the drawbacks of the company’s working capital management and recommending solutions to improve the efficiency of working capital management of Red Star Vietnam Limited Company To achieve these aims, the thesis studied the current situations of working capital management and asssesses whether it is effective or not Based on findings, the author recommended some solutions to improve the efficiency of working capital of the company in the following years Phan Ngoc Nhat Mai CQ54/11.CL02 Academy of Finance Graduation Thesis TABLE OF CONTENTS Phan Ngoc Nhat Mai CQ54/11.CL02 Academy of Finance Graduation Thesis LIST OF ABBREVIATIONS EBIT NWC WC ROA ROE ROS VND NI VAT Earnings before tax Net working capital Working capital Return on assets Return on equity Return on sales Vietnam dong Net income Value Added Tax Phan Ngoc Nhat Mai CQ54/11.CL02 Academy of Finance Graduation Thesis LIST OF TABLES LIST OF DIAGRAMS, FIGURES AND CHARTS INTRODUCTION Rationale of the study Every business, regardless of type or size, it needs a certain amount of capital to sustain its business Capital is an indispensable prerequisite for the formation and development of a business Inside, working capital is regarded as an essential component of every business, playing a particularly important role, directly affecting the business process as well as the business performance of the business, especially enterprises in the field of trading of goods and services Currently, in the context of globalization, the competition in the market is getting more intense Therefore, the demand for working capital for business activities becomes larger While the ability to generate and mobilize capital of businesses is still limited, this requires businesses to use working capital in the most efficient manner based on respect for financial principles, credit Phan Ngoc Nhat Mai CQ54/11.CL02 Academy of Finance Graduation Thesis principles and obey the law Being aware of the importance of working capital management in a company, with the support of my supervisor, PhD Tran Thanh Thu, and the help of Accounting Department of Red Star Vietnam LLC, I chose the topic “Working capital management – A case study of Red Star Vietnam Limited Company” for my graduation thesis The objectives of the study The thesis has main objectives, including: To generalize the theory of working capital and working capital management; To examine the situation of working capital management of Red Star Vietnam LLC; indicating the achievements and drawbacks of WC management of Red Star Vietnam LLC; To propose some solutions to improve working capital management of Red Star Vietnam LLC; The scope of the study Subject of the study: Working Capital management of a company Space: The study was conducted at Red Star Vietnam LLC Time period: From 2017 to 2019 Data & Methodology Data: Both primary data and secondary data were used in this study Primary data were collected during the internship at Accounting Department of Red Star Vietnam Secondary data were extracted from financial statements and other official sources of information Methodology:  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 The structure of thesis Besides the Contents, Introductions, Conclusion and References, the thesis includes main chapters as follows: Phan Ngoc Nhat Mai CQ54/11.CL02 Academy of Finance Graduation Thesis  Chapter 1: Overview of working capital and working capital management  Chapter 2: Working capital management of Red Star Vietnam LLC  Chapter 3: Solutions to improve working capital management of Red Star Vietnam LLC Phan Ngoc Nhat Mai CQ54/11.CL02 Academy of Finance Graduation Thesis CHAPTER 1: OVERVIEW OF WORKING CAPITAL AND WORKING CAPITAL MANAGEMENT 1.1 Working capital and working capital financing 1.1.1 Definition and features of working capital 1.1.1.1 Definition of working capital To carry out the business activities, every company needs cash to invest to form the required assets Besides the initial investment in fixed assets, the company needs a necessary working capital to keep the business activities operating continuously This working capital is used to purchase materials or goods, labor cost, etc At the end of an operating cycle, the initial investment in working capital is completely collected when a company collects all sales from goods and services Therefore, working capital is related to the use of current assets such as cash, inventory to ensure the company’s business activities take place continuously From this viewpoint, 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 In other words, working capital is the difference 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 Working capital 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 business activities of a company smooth and continous 1.1.1.2 Features of working capital Because working capital is the amount of capital spent in advance to create current assets, so the characteristics of working capital are also influenced by the characteristics of current assets Phan Ngoc Nhat Mai 10 CQ54/11.CL02 ... capital and working capital management; To examine the situation of working capital management of Red Star Vietnam LLC; indicating the achievements and drawbacks of WC management of Red Star Vietnam. .. working capital management of Red Star Vietnam LLC; The scope of the study Subject of the study: Working Capital management of a company Space: The study was conducted at Red Star Vietnam LLC... working capital management of Red Star Vietnam LLC Phan Ngoc Nhat Mai CQ54/11.CL02 Academy of Finance Graduation Thesis CHAPTER 1: OVERVIEW OF WORKING CAPITAL AND WORKING CAPITAL MANAGEMENT 1.1