Cash flow management, current situation and solutions to improve at petrolimex petrochemical corporation

ĐẠI HỌC QUỐC GIA HÀ NỘI TRƯỜNG QUẢN TRỊ VÀ KINH DOANH HÀ THỊ THU HƯƠNG CASH FLOW MANAGEMENT, CURRENT SITUATION AND SOLUTIONS TO IMPROVE AT PETROLIMEX PETROCHEMICAL CORPORATION QUẢN TRỊ DÕNG TIỀN, THỰC TRẠNG VÀ GIẢI PHÁP THÖC ĐẨY QUẢN TRỊ DÕNG TIỀN TẠI TỔNG CƠNG TY HĨA DẦU PETROLIMEX LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH HÀ NỘI - 2022 ĐẠI HỌC QUỐC GIA HÀ NỘI TRƯỜNG QUẢN TRỊ VÀ KINH DOANH - HÀ THỊ THU HƯƠNG CASH FLOW MANAGEMENT, CURRENT SITUATION AND SOLUTIONS TO IMPROVE AT PETROLIMEX PETROCHEMICAL CORPORATION QUẢN TRỊ DÕNG TIỀN, THỰC TRẠNG VÀ GIẢI PHÁP THÖC ĐẨY QUẢN TRỊ DÕNG TIỀN TẠI TỔNG CƠNG TY HĨA DẦU PETROLIMEX Chun ngành: Quản trị kinh doanh Mã số: 8340101.01 LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS PHẠM THỊ THANH HÒA HÀ NỘI - 2022 DECLARATION I declare that this thesis is my own work and my effort base on my work and communication with members at Petrolimex Petrochemical Corporation Finance Department Any other information and their sources included here have been fully public I also certify that this thesis has not been submitted to any other organization Date: May 25th, 2021 Author Ha Thi Thu Huong i ACKNOWLEDGEMENTS First of all, I would like to thank my supervisor, Assoc of Prof Dr Pham Thi Thanh Hoa This graduate thesis would have never been accomplished if I hadn’t had her assistance and dedicated involvement in every step throughout the process I would like to thank you very much for your support and understanding over these times I would also like to show gratitude to my teachers at the Hanoi School of Business and Management (HSB) with enthusiastic and inspiring teachers, including Their teaching style and creativities for the topic made a strong impression on me and I have always carried positive memories of all the classes with me Getting through my thesis required more than academic support, and I have many, many people to thank for listening to and, at times, having to tolerate me over the past two years I cannot begin to express my gratitude and appreciation for their friendship My friends have been unwavering in their personal and professional support during the time I spent at HSB In October 2020, I went to PLC to collect data at their Finance Department PLC is one of the biggest companies in the field of petrochemical products I express my many thanks to all the colleagues here, from the ones of Finance Department to all the staffs working at the PLC They gave me can-not-be-greater conditions and dedicated helps, so that I could smoothly complete my thesis here Most importantly, none of this could have happened without my family This thesis stands as a testament to their unconditional love and encouragement ii TABLE OF CONTENTS DECLARATION i ACKNOWLEDGEMENTS ii TABLE OF CONTENTS iii LIST OF ABBREVIATIONS vi LIST OF TABLE vii LIST OF EXHIBIT viii INTRODUCTION 1 The urgency of the topic Overview of research situation 3 Research objectives Research subjects Scope of research Thesis structure CHAPTER THEORETICAL BACKGROUND OF CASH FLOW AND CASH FLOW MANAGEMENT 1.1 Cash flow 1.1.1 Cash 1.1.2 Motivation for holding cash 1.1.3 Definition and characteristics of cash flow 10 1.1.4 Classification of Cash Flows 12 1.1.5 Understanding the Cash Flows Statement 16 1.2 Cash flow management in enterprises 19 1.2.1 Definition and roles of cash flow management 19 1.2.2 Contents of cash flow management 20 1.2.3 Factors affecting enterprises’ cash flows management 30 iii CHAPTER CURRENT SITUATION OF CASH FLOW MANAGEMENT AT PLC 34 2.1 the basic information 34 2.1.1 Introduction 34 2.1.2 Foundation and development 34 2.1.3 The business characteristics of PLC 35 2.1.4 Characteristics of Business operations 38 2.1.5 The overview of financial position and performance 42 2.2 CURRENT SITUATION OF CASH FLOW MANAGEMENT AT PLC51 2.2.1 Regulations - Current Cash flow management contents applied at PLC 51 2.2.2 Current situation of Cash at PLC 60 2.2.3 Situation of the Corporation’s Cash flows 62 2.2.4 Cash flow management indicators 64 2.3 Assessment of Cash flow management at PLC - period 2017- 2019 68 2.3.1 Achievements 68 2.3.2 Shortcomings 70 2.3.3 Reasons for the shortcomings 71 CHAPTER SOME SOLUTIONS TO IMPROVE CASH FLOW MANAGEMENT AT PLC 73 3.1 orientations and objectives for future development at PLC 73 3.1.1 Economic - socio context 73 3.1.2 Orientations and objectives for future development at PLC 74 3.2 Some solutions to improve cash flow management at PLC 75 3.2.1 Completing the Cash flow planning works 75 3.2.2 Solutions to improve operating cash flow 76 3.3 Conditions for implementing solutions 77 3.3.1 On the State side 77 iv 3.3.2 On the business side 78 CONCLUSION 80 REFERENCES 81 v LIST OF ABBREVIATIONS BEP Basic Earnings Power FCFE Free Cash Flow to Equity FCFF Free Cash Flow to Firm JSC Joint Stock Company PLC Petrolimex Petrochemical Company ROA Return on Assets ROE Return on Equity ROS Return on Sale vi LIST OF TABLE Table 2.1.ASSETS SITUATION OF PLC IN THE PERIOD OF 31/12/2017 TO 31/12/2019 42 Table 2.2 THE CAPITAL SOURCES AT PLC – PERIOD FROM 31/12/2017 TO 31/12/2019 45 Table 2.3 INCOME STATEMENT OF PLC IN THE PERIOD 2017 - 2019 47 Table 2.4 SOME OF MAIN FINANCIAL INDICATORS OF PLC FROM 2017 - 2019 49 Table 2.5 Sample of monthly cash flow planning of business 52 Table 2.6 Sample of cash flow planning for the last months 2019 54 Table 2.7 Situation of Cash and Cash equivalents of PLC., period of 2016 – 2019 60 Table 2.8 PLC’s Cash flows situation, period of 2017 – 2019 62 Table 2.9 Liquidity ratios of PLC., period of 31/12/2017 – 31/12/2019 65 Table 2.10 Cash conversion indicators of PLC., period of 2017-2019 67 vii LIST OF EXHIBIT Exhibit 1.1 Cash Generation Cycle Exhibit 1.2 Flow of cash and funds in business 12 Exhibit 1.3 Classification of cash flow in a company 13 Exhibit 2.1 Situation of Cash and cash equivalents of PLC., period of 20162019 61 Exhibit 2.2: Net Cash flow at PLC 2017 – 2019 63 viii Moreover, business unit controllers should stick with the information of sale department about the sale orders, the expected credit revenue, etc As a result, the business unit controller can forecast the demand of cash as accurate as possible, which is advantageous for the treasurers to balance the cash sources and find the capital support if needed The company must apply methods of forecasting revenue, costs, storing information and coordinating between planning, sales and finance departments in cash flow planning, planning use idle money sensibly, as well as take measures to raise capital when there is a shortage of capital in cash 3.2.2 Solutions to improve operating cash flow 3.2.2.1 Increase the revenue Improving the business efficiency of the company will help the company increase cash inflows from its operating business Promoting the consumption to improve quality of efficiency is one of the key factor of business units Based on the company's goal of building products is a solution for sustainable development, which is a trend that the market is currently favored Moreover, the company needs to promote the application of new technology in accordance with the actual conditions aimed at increasing productivity and product quality Strengthening cost management in the process of production and business in each business unit Provide costing levels for each type of cost Control the amount of supplies and stationery to serve the job closely 3.2.2.2 Improve receivable/collection management As far as we discussed, for own large business scale, PLC is implementing variously detailed works from accounting, planning, assessment to administration cost management And there is, a detailed, regular debts tracking procedure (the credit assessment that I mentioned in chapter 2) But, there is no official responsibility from the Finance 76 Department in recovery of receivables, and it is considered a drawback Improving debt recovery: The Corporation needs to establish a specialized department to monitor and recover debts and it should be under authority of Finance – Planning Board The Board can assign staffs to undertake this task Those who are assigned responsibility must be trained professionally as well as have a high sense of responsibility at work Conduct debt analysis over time, arrange customer receivables for easy tracking and take effective measures to urge customers to pay In addition, the company can also set up a short-term bad provision reserve fund for overdue receivables that debtors cannot afford to ensure stable financial situation of the company and safe For import-export-related activities, it is necessary to closely associate with bank partners so that the money reserve in the enterprises' accounts is sufficient for the performance of appropriate guarantee timely 3.2.2.3 Improve the payables management Payables to suppliers greatly affect the company's cash flow and production and business costs Decreased the payable from suppliers means that enterprises reduce their ability to occupy capital Therefore, based on the reputation of the business, negotiating with suppliers to increase in the amount of time to make payment and increase the limit of invoice value 3.3 Conditions for implementing solutions 3.3.1 On the State side The State uses macro policies to stabilize the economy and politics This is a prerequisite for businesses to conduct normal and continuous production and business activities The state should set out policies to support domestic enterprises to grow and grow Specifically: removing child licenses, reforming, minimizing administrative procedures, applying global standards on accounting, dealing 77 with online business registration, etc This will contribute to environmental development healthy competition schools, creating favorable conditions for companies to implement administrative procedures quickly, saving time and costs The Government should also introduce policies to encourage businesses with a sustainable development orientation Businesses plan to use measures to both create economic benefits and protect the environment such as using renewable energy and using clean energy Tax preferential policies should also be applied more widely to encourage businesses to strive for higher achievements in production and business The policies of the State in each period should be publicized widely on information channels so that enterprises can promptly assess, grasp, and adjust operating our business accordingly and effectively 3.3.2 On the business side Regularly cultivate and improve professional skills for the staff of the company in general and the staff of the finance department in particular because these are the people who directly manage and take actions with the cash flow of the company Regularly remind staff to participate in the training course to update timely the changes in policies, and enhance their academic and practical knowledge The company leaders need to pay more attention to the financial analysis in the enterprise Establishing a team specialized in financial analysis, whose mission is to regularly assess and timely grasp the financial situation of the company, thereby reporting to management to make the right decision Improving the efficiency of cash management (determining reasonable cash reserves, improving solvency), managing inventory (reducing inventory rate, good performance product consumption), management of receivables to 78 avoid loss of capital, minimize capital use costs and improve revenue and profit for the company – the material for Cash flows 79 CONCLUSION Cash flow management is an extremely important issue and is always of special interest to administrators The effectiveness of cash flow management directly affects the short-term survival of a company and its long-term decisions For PLC - a company mainly operating in the field of manufacturing, trading their lubricants, butimen, chemicals, cash is the most important item to ensure the liquidity of the company The thesis has presented the following basic contents: Summary of some basic theoretical issues about cash flow and management of cash flow; emphasizing the great importance and role of cash and its issues for the survival and development of businesses Analyze the status of working capital management at PLC from which give conclusions, assessments and comments on achievements and shortcomings need to be addressed Provide some basic solutions to enhance and further improve working capital management at the Company After all, I would like to sincerely thank , Dr Pham Thi Thanh Hoa, who gave me continuous and dedicated guidance However, due to limited knowledge, as well as practical work experience, my thesis has many shortcomings, the issues I raised are from a narrow view of me, not covering all the activities in the cash flow management of the company I hope to receive the comments and feedbacks of teachers so that my research will be more complete 80 REFERENCES Bibliography: - Annual Financial Statements of PLC 2017 - 2019 - Circular on guidelines for accounting policies for enterprises No.200/2014/TT-BTC - Website: www.plc.petrolimex.com.vn Books: Jonathan Berk, Peter DeMarzo, Jarrad Harford, ―Fundamentals of Corporate Finance‖ (2nd), Pearson Nguyen Dang Son (2018)- ― Cash flow management – A case study at VINACONEX JSC.‖ Rob Reider, Peter B.Heyler (2002), ―Managing Cash Flow: An Operational Focus‖, Wiley Stephen A Ross, Randolph W Westerfield, Bradford D Jordan (2009), ―Fundamentals of Corporate Finance‖ (9th), McGraw-Hill Bui Van Van, Vu Van Ninh (2016), ―Corporate Finance‖, Academy of Finance Cyllid Cymru Finance Wales (2004) ― A practical guide to cash-flow management‖ Pascal Quiry, Maurizio Dallocchio, Yann Le Fur, Antonio Salvi (2009) ―Corporate Finance – Theory and Practice‖(2nd) 81 INTERVIEW DOCUMENTS EXPERTS / MANAGERS Dear Sir/ Madam My name is Ha Thi Thu Huong I am completing the thesis on ― Cash flow management, current situation and solutions to improve at Petrolimex Petrochemical Corporation‖ In order to implement the thesis, I need to have information about current situation of cash flow management at the Company So I would like to invite you to take some valuable time to answer the questions in the attached survey Survey results will be an important source of information to help me complete an important part of my thesis Your comments are used for the purpose of completing the thesis.I hereby undertake to keep confidential the information you have provided and not use such information for other purposes We sincerely hope you carefully read the instructions and the answers For questions with other opinions, please directly write your content or opinion in the corresponding box If further communication is required, please contact me at: Ha Thi Thu Huong Tel: 0983.188.980 Email: huong.hathithu@gmail.com Best regards 82 A GENERAL INFORMATION Company’s name: Petrolimex Petrochemical Corporation, Adress: 18th -19th Floor, No.229 Tay Son Street, Dong Da Dist., Ha Noi City, Vietnam Tel: +84-24-3831-3205 Fax: +84-24-3851-3207 Email: plc@petrolimex.com.vn Website: www.plc.petrolimex.com.vn Position: Chief Accountant of PLC Job position: Manager of Department of Finance and Accounting B SURVEY INFORMATION The first question: What model does the company use to determine the optimal cash balance? Answer: Currently, the company has not used any model to determine the optimal cash balance All predictions are based solely on historical statistics and the manager's actual experience The second question: what does the company usually use the amount of cash which expected to be in excess of the minimum need? Answer: Until now, the excess cash is not much compared to actual needs, and the company also has loans at the banks, so when there is temporarily idle money in a short time, PLC only chooses the form of deposit with a term of one month to optimize cash flow Question 3: When the actual cash balance is short of the demand, what measures does the company apply to make up for the shortfall? Answer: In order to make up for the shortfall in cash as expected, the accounting department must closely coordinate with other departments to implement the following solution: - Urging the sales department to collect debts according to the set plan 83 and faster (if possible) - Minimize inventory to the lowest level - Additional short-term loans (if possible) - Negotiate with suppliers to temporarily extend payment terms - Can reduce the selling price to give priority to customers who can pay immediately The forth question: Has the Corporation determined its working capital requirements for the next period? Answer: ☒ Yes ☐ No The fifth question: What the methods does the company use to determine its working capital requitements? Answer: ☒ Direct method: Working capital requirement = Accounts receivable + Inventory – Accounts payable ☐ % of sales method ☐ Adjustment method as a percentage of working capital requirements over the reporting year ☐ The method is based on net revenue and working capital turnover for the plan year Other comments (please specify): In addition to the direct method, the company also assesses the ability to collect receivables from customers, receivables arising in the future (month, quarter, year), classification liabilities according to the payment term of the contract, the company's revenue and expenditure needs for the main activities of the company 84 C GENERAL INFORMATION Company’s name: Petrolimex Petrochemical Corporation, Adress: 18th -19th Floor, No.229 Tay Son Street, Dong Da Dist., Ha Noi City, Vietnam Tel: +84-24-3831-3205 Fax: +84-24-3851-3207 Email: plc@petrolimex.com.vn Website: www.plc.petrolimex.com.vn Position: General Accountant Of Lubricants Job position: staff of Department of Finance and Accounting D SURVEY INFORMATION The first question: Which department is responsible for managing the cash flow of PLC? Answer: Corporate Finance and Accounting Department The second question: What is the information system used to manage cash flow? Answer: Accounting software, customer data management software, production and business information system (project investment, sales plan, administrative organization, human resources) The third question: Are there any difficulties in business and information relations between corporate divisions in cash flow planning? Answer: Information is exploited from many departments such as production and business plan department, sales department, salary department, investment department etc., So the ability to collect money may be adjusted, leading to a short-term shortage or passive in the balance 85 E GENERAL INFORMATION Company’s name: Petrolimex Petrochemical Corporation, Adress: 18th -19th Floor, No.229 Tay Son Street, Dong Da Dist., Ha Noi City, Vietnam Tel: +84-24-3831-3205 Fax: +84-24-3851-3207 Email: plc@petrolimex.com.vn Website: www.plc.petrolimex.com.vn Position: General Accountant Of Butimen Job position: staff of Department of Finance and Accounting F SURVEY INFORMATION The first question: Does the company have a cash flow management plan? Answer: ☒ Yes ☐ No If yes, the company plans to manage cash flow according to: ☒ Monthly ☒ Quarterly ☐ Months ☒ Other comments (please specify): Make an overall plan by year, then follow and adjust quarterly and monthly to suit the company's business information system in the year and next years (if any) The second question : Does the Corporation implement centralized or disintergrated cash flow management? 86 Answer: Corporaton manages cash flow both centralized and disintergrated The third question 3: What is the Corporation's motivation to keep money? Answer: ☒ Trading ☒ Reserving ☒ Investing Others 87 G GENERAL INFORMATION Company’s name: Petrolimex Petrochemical Corporation, Adress: 18th -19th Floor, No.229 Tay Son Street, Dong Da Dist., Ha Noi City, Vietnam Tel: +84-24-3831-3205 Fax: +84-24-3851-3207 Email: plc@petrolimex.com.vn Website: www.plc.petrolimex.com.vn Position: General Accountant Of Chemicals Job position: staff of Department of Finance and Accounting H SURVEY INFORMATION The first question: What steps of Cash flow planning ? Answer: - Cash outflow Results Items Yes Plan to spend money from departments x Collect the plan sheet from departments x Make the spending plan x No Other comments (please specify): - Cash inflow Results Items Yes Business plan from the sales No x departments Capital mobilization plan x 88 x Make cash inflow plan Other comments x (please specify): Capital mobilization plan is implemented when it is expected that the cash flow is not enough for the year or in a certain time The second question: Does the Corporation evaluate the reputation of customers who buy on credit? Answer: ☒ Yes ☐ No The third question: The contents of reputable reviews of customers who buy on credit? Answer: Selections Items Yes Collect information about the customers who buy on x credit? Analysis of customer's financial statements? 89 x No I GENERAL INFORMATION Company’s name: Petrolimex Petrochemical Corporation, Adress: 18th -19th Floor, No.229 Tay Son Street, Dong Da Dist., Ha Noi City, Vietnam Tel: +84-24-3831-3205 Fax: +84-24-3851-3207 Email: plc@petrolimex.com.vn Website: www.plc.petrolimex.com.vn Position: General Director Job position: Boad of Director J SURVEY INFORMATION The first question: Does the Corporation make short-term investments? If yes, what problems does the Corporation often face in short-term investments? Answer: Make short-term investments when there is idle money In short-term investments, we often face low rate of return The second question: What short-term investment tools are often chosen by your Corporation? Answer: We often choose to deposit with a term at a reputable bank The third question: What is the Corporation's short-term investment criteria? Answer: We choose safety 90 ... of cash flow and cash flow management in the business - Analyzing the current situation of cash flow management and evaluate the efficiency of cash flow management activities at Petrolimex Petrochemical. .. Petrochemical Corporation - Evaluate the advantages and disadvantages of cash flow management, thereby suggest solutions to improve cash flow management activities at Petrolimex Petrochemical Corporation. .. Theoretical background of Cash Flow and Cash Flow Management Chapter 2: Current situation of Cash Flow Management at PLC Chapter 3: Solutions to Improve Cash Flow Management at PLC I completed this