Analyzing and planning financial management at garmex saigon company

~ HO CHI MINH CITY UNIVERSITY OF FOREIGN LANGUAGES AND INFORMATION TECHNOLOGY (HUFLIT) SCHOOL OF FOREIGN LANGUAGES Cc>oi!lJl~ THEME: ANAL YllNG AND PLANNING FINANCIAL MANAGEMENT AT GARMEX SAIGON COMPANY ADVISOR STUDENT CLASS : NGUYEN THI QUYNH, MSBA : VO THUY VAN KHANH : KA9602 HO CHI MINH CITY JULY, 2000 -~~ , - ~ ~~ HO CHI MINH CITY UNIVERSITY OF FOREIGN LANGUAGES AND INFORMA TION TECHNOLOGY (HUFLIT) SCHOOL OF FOREIGN LANGUAGES &ailleoG\ ~~~fE))~~T![fJi~l~~~e~ THEME: ANALYllNG AND PLANNING FINANCIAL MANAGEMENT AT GARMEX SAIGON COMPANY ADVISOR STUDENT CLASS i : NGUYEN THI QUYNH, MSBA : VO THUY VAN KHANH : KA9602 r";:"OOFurJ N"" kif' [1 ::; 'i I HO CHI MINH CITY JULY, 2000 ~ ~ 'I ACKNOWLEDGEMENTS First of all, I gratefully acknowledge my deep indebtedness to Ms Nguyen Thi Quynh, who advised, provided materials for my study, reviewed and made comments on present paper I would also like to thank President Huynh The Cuoc, Dean Luong Thi Ly, Vice Dean Le Thi Thu Hang for their helpful comments and advice In addition, I wish to express thanks to Chief Accountant Nguyen Thi Chinh, Ms Nguyen Thi Hanh and the whole staff of the Garmex Saigon Company for their valuable experience and guidance from which I have benefited greatly in the writing of this report Last but not least, I also wish to express my great appreciation to my friend's supports and encouragement COi'rrEN'rs List of Tables List of Figures Abstract Introduction Page I Chapter 1: General Introduction about Garmex Saigon Company 1.1 The History and Development of Garmex Saigon 1.2 The Functions, Tasks and Production Technology 1.2.1 Functions 1.2.2 The Tasks of Garmex Saigon 1.2.3 Products Categories and Business MarkeL 1.204 Production Technology 1.3 Organizational Structure of Garmex Saigon 1.3.1 The Management Structure of Garmex Saigon 1.3.2 The Tasks, Functions and Relations between Departments 104General Analyzing of Garmex Saigon II II 12 16 104.1 The Situation of Business at Garmex Saigon 16 1.4.2 The results of Business Activities through years 17 104.3 Market structure 18 1.5 SWOT Analysis 19 1.5.1 Strengths 19 1.5.2 Weakness 20 1.5.3 Opportunities 20 1.5A Threats 21 1.6 Strategy for the year 2000 and the Future 21 1.6.1 Garmex Saigon's goals for 2000 21 1.6.2 Planning for Future 22 Chapter Chapter 2: Analyzing Financial Statement at Garmex Saigon 24 2.1 Analyzing the Garmex Saigon's Financial Statements 24 2.1.1 The Balance Sheet 24 2.1.2 The Income Statement 29 2.2 Financial Ratios Analysis 32 2.2.1 Liquidity Ratios 33 2.2.2 Leverage Ratios 34 2.2.3 Activities Ratios 34 2.2.4 Profitability Ratios 36 3: Future Strategies and Measurerto improve capital use efficiency and Financial Ratios 44 3.1 Planning 44 3.2 Measure to improve capital use efficiency 52 3.2.1 Direction for the improvement of fixed assets 3.2.2 Direction for a stricter and more Effective Management Current Capital 3.3 Financial Measure Chapter 52 of 53 53 3.3.1 The Liquidity Ratios 53 3.3.2 The Activity Ratios 54 3.4 Measure to Improve Garmex Saigon's Business Operation 55 3.5 Measure to Human Resources 59 4: Suggestion and Conclusion 4.1 Suggestion 61 61 4.1.1 To the company 61 4.1.2 To the Government 63 4.2 Conclusion 64 LIST OF TABLES *** Table 1.1 Business Performance, 1997 - 1999 Page 17 Table 1.2 Annual Growth Rate of Sales, 1997 - 1999 17 Table 1.3 Garmex Saigon's export growth rate in 1999 18 Table 2.1 Balance Sheets of Garmex Saigon, 1995 - 1999 26 Table 2.2 Income Statements 30 of Garmex Saigon, 1995 - 1999 Table 2.3 Garmex Saigon Ratios Analysis, 1995 - 1999 38 Table 2.4 Financial Ratios for Garmex Saigon and Industry Average 40 Table 3.1 Selected Financial Statement 45 Items as a Percent of Sales Table 3.2 Pro forma Financial Statement for Garmex Saigon, 2000 - 2005 47 Table 3.3 Selected Financial Statement as Percent of Sales 48 Table 3.4 Pro forma Financial Statement 51 ••• LIST OF FIGURES *** Figure 1.1 Process of Production Technology Figure 1.2 Process of Clothes Manufacturing Figure 1.3 Organizational Page at Garmex Saigon Structure 10 Figure 1.4 Accounting Structure 14 Figure 1.5 Accounting System Overview 15 Figure 1.6 Growth Rate of Sales, Income, Workforce, Given to Budget, 1997 - 1999 17 Figure 1.7 Sales Proportion Figure 2.1 Generation from Exporting of a Balance Sheet Figure 2.2 Comparison in percentage 25 of components of Total assets (a) and of Total Liabilities and Equity (b) Figure 2.3 Generation 18 of an Income Statement 28 29 Figure 2.4 Sales of Garmex Saigon, 1995 - 1999 30 Figure 2.5 Net Income of Garmex Saigon, 1995 - 1999 31 Figure 2.6 Time Trends of Garmex Saigon Financial Ratios 39 Figure 3.1 Forecasted 47 Sales and Expenses, 2000 - 2005 Figure 3.2 Forecasted Total assets and Liabilities, 2000 - 2005 51 I I I I I J •• The company's management want business is good Therefore, to understand effectiveness activities a company's exists and as its financial studying finance is necessary to those who performance, develops and then can evaluate the of its finance For that reason, this study involves analyzing and forecasting financial management at the Garmex Saigon Company The study begins an introduction development, about Garmex Saigon, such as history, function tasks, and organizational structure Based on the general analysis of Garmex Saigon, the study also mentions the SWOT analysis Besides that, the study states the strategy for the year 2000 and the future In general, this part provides necessary information about Garmex Saigon's business situation The management second part discusses the major criteria for analyzing financial To deal with this problem, data from 1995 to 1999 at Garmex Saigon shown in Balance Sheets and Income Statements brings a further understanding of Garmex Saigon's performance over time especially liquidity, leverage, activity, profitability ratios In addition, industry average data is also taken into account in order that we can have better look on this issues The third part presents plan for the future, and measures improving capital and financial ratios On the basic of the financial ratios, we forecast the income statements and balance sheets for six years to achieve what we would like to The last part concerns suggestion to the company and government that we have got during the time doing this research Moreover, the proposes would make great contribution to our enterpreneurs, financial activities at Garmex Saigon and promote more rapid and efficient Introduction INTRODUCTION Since the "Doi main policy, which was a call for foreign introduced ten years ago, sources of capital investment was flowing into Viet Nam have rapidly increased each year Besides, being situated in the dynamic economic region of the Asia - Pacific, our business people have many opportunities in the business sector However, they are facing several challenges due mainly to effects of the regionally financial crisis They have to deal with low consumer demand, a shortage of capital, high level of debt and low profit In this case, finance is a main solution in problem solving Finance is not as specialized or complex as you might think In fact, it is a daily concern of people and organization, such as businessmen and government The study of finance can benefit anyone Especially, to exit and develop in the competitive market, most enterprises now use finance "as the most effective tool in their competition But what methods contribute to the success of their financial management? And how can they analyze financial activities logically and effectively? As a matter of fact, financial management plays a central role in the company If marketing is considered as a bridge linking information from factory to market; financial analyzing and planning are decisive factors that influence the operation of the enterprise Financial activities are looked upon as blood flowing into the body of organization, any interruption will affect the business operations The main objective of this research is to analyze a company's so that we can have a better understanding financial activities of corporate finance, which is the basic of a business enterprise Introduction This research focuses on the financial situation at Garmex Saigon Company The intensification of financial analyzing and planning is a main factor in helping Garmex Saigon achieve its financial goal, and profit maximization The organization overview of Garmex of this research is as follows: Chapter I introduces the general Saigon functions, organizational described including the company's history structure, and business performance in this chapter and development, The SWOT analysis is also Chapter shows the basic criteria for analyzing Garmex Saigon's financial situation Financial statements from 1995 - 1999 are also analyzed in this chapter In chapter 3, come effectiveness of using capital the making and improving plan and measures the financial ratios of raising Conclusions the and suggestions from the research are stated in chapter Chapter Future Strategies and Measures - Enhance the ability of employees to operate machines Frequently improve their skills and encourage them to study and accumulate knowledge as well as experiences related to their work 3.2.2 Directions for a Stricter and more Effective Management of Current Capital - Identify the demand in current capital of each period of business operation so as to make appropriate production plans - Speed up the circulation of current assets Current assets are apportioned in the sections of storing, producing and selling Therefore, in order to quicken the circulation of current assets, proper planning and controlling should be taken in every section + Choose suitable and stable material suppliers Make up a good business process of buying raw materials Have exact suitable relationship with them + Have a well-organized plans for using inventory in order to a void the stagnancy of inventory + Unload and check goods as well as preserve materials need further care 3.3 Financial Measures We have shown how financial ratios are used to understand Garmex Saigon's financial position, we see that the liquidity and activity ratios are not good and need to be improve as soon as possible 3.3.1 The Liquidity Ratios Garmex Saigon is a profitable company, however the company finds itself short of cash The company can increase the liquidity by several options as follows Garmex Saigon needs to increase current ratio and quick ratio as high as industry a verage by reducing current liabilities 53 Chapter Future Strategies and Measures Reduce account receivable by decreasing collection period Increase sales without a disproportionate increase in costs and expenses Increase the use of debt, but only to the extend that it does not danger the company's financial position Obtain new external financing Among other things Garmex Saigon should arrange loans, lease or rent assets, or use venture capital financing Because affect capital structure, they must be made in conjunction these choices can with the company's capital structure policy Reduce the spending cash speed Together with increase the cash collection speed, the company can get profit through reducing spending cash speed For instance, instead of using money to pay earlier delivery bills, we should postpone payment to put money in more profitable investments Remember financial expenses for investment are lower than profit getting from slow payment In summary, there are many factors to consider before making these decisions Managers must weigh the benefits and cost of each alternative carefully before deciding on a course of action The most important problem will not cure itself 3.3.2 The Activity Ratios After studying the average collection period, we see that the Garmex Saigon is ineffectively managing receivables As a result, the company need to have perfect credit policy, such as stricter credit standards, sales on credits with shorter time, and higher discount for sooner payment, etc 54 Chapter Future Strategies and Measures Garmex Saigon should pay attention to fixed assets and total assets turnover ratios From our ratio analysis, we know that the company is excessive account receivables fixed assets The following improvements are mentioned to increase and the company's activity ratio Garmex Saigon to improve average collection period, fixed assets turnover and total assets turnover to be at least as equal as industry average I Increase the sales relative to the assets base by reducing the amounts invested III company fixed assets Sell assets: If there are any idle assets that are not required to be operate in the company, they can be sold for setting cash Such an alternative would need to be analyzed as a capital budging project under capital rationing Increase machine's productivity by producing new items Diversify products, manufacture creative products, and seek for new markets and new customers Do not spend cash in buying equipments, which may lead to the shortage of cash 3.4 Measure to Improve Garmex Saigon's Bus!ness Operation Along with carrying out the process contracts for exported products, the company should put forward strategies for production and for self-produced exportation under the label of the company In order to carry out these strategies the company should - Increase capital by either borrowing loans from the government or issuing stocks - Put forward strategies of "Marketing Mix" to prepare for exporting These strategies will be identified through as follows: 55 Chapter Future Strategies and Measures * Product Strategies In general, garment products are very variable The garment tastes change from country to country, so it is vital to change or renew them In different markets, we should introduce different patterns Therefore, the company should frequently improve the form of products so that they can suit various kinds of consumers to create a competitive advantage in the garment market The Garmex Saigon should invest more in the production design, and send its experts abroad to research about products and a reference for different fashions Readymade clothes for export need to be checked carefully to avoid being sent back There should be simple symbols on the products, telling consumers what they need to notice when washing, ironing As for the markets where people's use domestic materials income is not very much the company should to reduce the prices Nevertheless, the company may import materials for more expensive products Garment products should be ironed and packaged rightly We can use transparent nylon bags, cardboard boxes or plastic boxes for packing We can also use non-fade ink and embossed letters to make them more eye-catching The form of packages should be a design suitable to customer demand and before mass printing them, it should be checked as well The label of Garmex Saigon now is Saga's, but the company also needs to think of some more and choose the best one, which can be registered and legally recognized 56 Chapter Future Strategies and Measures According to the different kinds of customers, the company should provide various services, such as sales on hire - purchase, door-to-door distribution, market information consultation for customers because garment products are rather simple, there should be supplementary after sales services Garmex Saigon needs to solve the problem of idle equipment by producing goods for local market * Pricing Strategies To evaluate price for export product, the company should consider factors, which impacts the costs of goods sold In addition, Garmex Saigon should consider conditions of market and consumer habits, such as: - Average income per capital - Price changes - Consumer behavious and consumption of Garmex Saigon's products in the future - Social and cultural characters as well as customs and practices in dressing - Educational level and life style * Placing Strategies With the present financial situation the company finds it hard to make direct production in a foreign country Therefore, investment and distribution However, the company can apply the form of indirect that form is just good for small-scale production because the company is not able to control, and expand the market In the long term, once the company has adequate from foreign market, the investment funds and experiences gained and distribution of the company should be changed into the direct form as follows: 57 Chapter Future Strategies and Measures - Marketing people: They are Garmex Saigon's employees, who are sent abroad to collect information about foreign markets, and to customers in order to build up a good relationship in foreign countries These employees must be well - qualified, and faithful to the company - Foreign agents: They will help the company introduce markets of their countries gradually In this business relationship products to the new the company should discuss, negotiate and sign particular contracts with them In addition, Garmex Saigon can cooperate with big central stores supermarkets, so that the products can come near to the consumer directly The company should frequently supervise the operation of agencies and distribute goods, and establish a strong tie with them Garment products are subject to Fashion Changes, so quick means of transportation should be used The company uses planes to transport urgent lots of products, and use ships for those, which are not seasonal or temporary fashion to decrease the transport costs * Promotion Strategies The company can advertise the products by mass media, such as television, radio, newspaper, etc The company should take part in trade fairs, and international exhibition to introduce the products to customers The Garmex Saigon can also advertise the product in fashion magazines, shows or coordinate with television studios to broad cast self-introduction fashion programs Regarding new foreign partners, the company can promote them by lower prices or supply them with samples The company should usually invite those partners with great 58 Chapter Future Strategies and Measures potential to visit Garmex Saigon, and the company's manager should also visit them frequently The company needs to have a good relationship with the public and international organizations by raising fund for charities or sponsoring sport events 3.5 Measure to Human Resources To solve the existence problems in business activities, the company needs to have a great number of qualified employees who has knowledge, skill and enthusiasm One of the strengths university of Garmex degrees Saigon is a large number of managers and higher degrees However, who have obtained our economy develops regulations and rules in financial accounting, and business are changeable day by day, That is why the company needs to encourage managers to be creative, and and try their best in their work Besides that, the company needs usually update the employee's holding discussions between employees and professionals for increasing the knowledge of employees knowledge by Therefore, it lays a foundation in the company, which contributes to developing production, and get the highest business performance In addition, to the improvement improve the process of recruitment of the company managers and training to have enthusiastic the company should and well-qualified employees to measure up to the demand of the work by: - Recruitment should be carried out seriously Applicants have to be tested on their abilities and practical skills - Training: As for leaders, they should take courses, which enable them to improve their professional abilities As for employees, the company should organize education classes and skill contests to enhance their competitiveness general in work, and find 59 Chapter Future Strategies and Measures those employees who are not very good at their jobs so they can be trained to improve their skills The company exchange should hold discussion ideas about difficulties on technical issues between in the work in order to adopt appropriate factories to policies In which workers can sew different kinds of products and can use several kinds of machines 60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 8" ~ ~ ~ ::; ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ l~J ~ ~ ~ A ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ m ~ -I ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ l~ ~ ~ ~ ~ ~ ~ -_J A lJ ~ ~ ~ r~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Chapter Suggestion and Conclusion SUGGESTION fiND CONCLUSION 4.1 Suggestion 4.1.1 To the company The Garmex Saigon should strengthen self-produced export because it will bring about more advantages to the company; the company can look for partners actively not dependent countries on foreign The company should enhance advertisements III diversified forms to attract the attention of both foreign and domestic customers The company should pay more attention to the local market with a population of 76 million people, which is very attractive for the garment sector Since being recognized as Vietnam high quality products in 1998, the products of the company with labels "Saga's" have received more attention by customers Thus, the company should invest more in the local market in the first stage of self-produced export to lay the foundation for the exportation in the future In competitive Financial managers markets, extremely large profits simply can not exist for very long focus on estimating earns, and where to local for profitable difficult to find, the most common differentiate cash flows, determining projects Although way to making markets what the investment competition makes them less competitive is to the product If products are differentiated, consumer choice is no longer made by price alone For example, many people are willing to pay at:a premium for Thanh Cong pullover They simply want pullover's style and price is not important Service and quality are also used 61 l Chapter Suggestion and Conclusion to differentiate products For instance, Vii.)t Tie'n Garment company has long prided itself on the quality of its shirts Similarly, the Garmex Saigon should pay more attention to its essential products, such as jacket and T-shirts with high-quality and good services As a result, the consistency of the product brings customer back and enable the company to maintain its market share As for human resources of the company, beside policies for direct production and exportation there should be a restructure in the import-export department Because there are only eight employees in this department to undertake too extensive functions, such as drawing plans of export, researching market, looking for customers, etc, which partly delays the operation of the company The business scale of the company is becoming larger and larger whereas company has no marketing marketing department researchers Therefore, it is really necessary to share the work with the import-export department the to set up a so that this department can spend more time on their specialized duties: Moreover, there should be supervisors of activities between the company and its workshops Especially, there should be common rules applied to the whole company of the contracts with customers so that the financial accounting department about production plans and exportation plans Therefore, can get information they will evaluate and forecast the company's finance efficiently As for the exportation, the company should diversify its forms of export The company mainly export its products in the forms FOB and import goods in the form of CIF (Cost Insurance and Freight) These forms are rather simple, but can not bring about economic efficiency as the company can not hire ships and buy goods insurance actively 62 l Chapter Suggestion and Conclusion Otherwise, if the company is a regular partner of a transport company, it will be given a commission and a cheaper freight This will help the company save an amount of foreign currency and contribute to develop the navigation Aviation, and insurance sectors in Vietnam 4.1.2 To the Government In order to develop the import-export sectors of the country and bring about socialeconomic efficiencies, the government should positively support the operation of import- export businesses in general and the garment in particular - The entrepreneurs government should sign more trade agreements to enable domestic to export their garments - The government should keep on improving administrative procedures, especially in "granting offices ", minimize cumbersome procedures - The process of the import and export should be quickly carried out at the Customs Office Custom Officers should regulate the time for procedures Enquiries of business to the Customs Office should be answered in a fixed time - Vietnamese business people face a burden of paper work formalities when they look for new market So, it is necessary for the State to ease procedures for businesses seeking new markets, and to supply more market information about business in different categories and in different countries Also, it is important to have more open mechanism in custom, and export tax, and to give preferential treatment to business to help them expand exports - The State should support business with funds to set up representative abroad on a non-profit basis and to cover expenses in advance, offices and collect them later through export earning 63 ~ Chapter Suggestion and Conclusion In addition, the Government manufactured should develop from domestic materials, a price support policy for export and the Ministry of Finance should give VAT exemption - The State should allow state-owned independently They need to be independent enterprises to deal with their finances in selling the State assets (that they have managed) to supplement their capital, not to submit to the State budget - In textile-garment privileged commercial invested operation, besides general measures such as mcrease of capital, reduction of interest rate of loans offered by State-owned banks, the government should carry out export encouragement structure It composes of awarding quota bonus to business exporting products in large quantities to the non-quota export market, exporting new products, etc - Now the Garmex concerned authorities Saigon meets difficulties due to shortage of capital The should consider and grant more capital to the company limited borrowing money from the banks with high interest 4.2 Conclusion This research was carried out to access the Garmex Saigon's financial situation The findings were based on the balance sheets, the income statement from 1995 to 1999 using financial ratios analysis, and forecast from year 2000 to 2005 The data was collected from Garmex Saigon's file sources The balance sheets provides a picture of the company's assets, liabilities, and owner equity ona particular date, whereas the income statement reflects the net income from the company's operations Financial ratios provide a popular way to evaluate the company's over a given period financial performance 64 l Chapter Suggestion and Conclusion The percent of sales method of financial forecasting also provides us a very useful tool for estimating its future financing needs Is was found that the effectiveness of Garmex Saigon's business operation depends not only on the production process, human resources, but also on financial performance means that financial managers bring the company business effectiveness It by working out what is worth to invest, when evaluating the company's use of assets, and how to prepare a budget logically and accurately However, because Vietnam still has not had a stock market, Garmex Saigon can not issue stocks thus we can not know exactly the return on equity Not only the financial managers but also lenders (banks, Financial companies) can use financial data to advise investors and provide loans For instance, based on the Garmex Saigon's performance, Through the pro-forma we can evaluate statements, that the company we forecast the company's is getting profit performance in order to make good decision for management At present, we are aware of the exciting and dynamic practice of financial statement analysis, as well as financial ratios for the Garmex Saigon's financial condition Therefore, financial analysis are valuable aids in both planning and controlling all aspects of the company's financial management The growth of our economy, the increasing number of multinational corporation, and the increase in foreign trade itself underscore the importance of the study of finance For that reason, we suggest the findings from this research should be used as a case study for learning how to analyze the company's business activities 65 REFERENCES Lawrence D.Schall and Charles W Haley (eds) 1991 Introduction to Financial Management (6th ed.) 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