The effect of liquidity on firm performance of manufacturing industry case of vietnam

The impact of liquidity and other factors on firm performance of manufacturing industry... To help business managers better manage their companies and shareholders gain deeper understand

BANKING ACADEMY ADVANCED PROGRAM FINANCE FACULTY

Topic:

THE EFFECT OF LIQUIDITY ON FIRM PERFORMANCE OF MANUFACTURING

INDUSTRY: CASE OF VIETNAM

Supervisor Nguyen Quynh Trang Student name Luong Ha Giang Student code 23A4010171

Hanoi,2nd of May,2024

ACKNOWLEGDEMENT

During the period of completing my thesis, I would like to express my gratitude for the dedicated guidance from my supervisor, Dr Nguyen Quynh Trang Thanks to her guidance, I was able to identify the shortcomings of my thesis as well

as my own deficiencies in the process Her guidance helped me recognize areas where

my thinking and presentation could be improved, leading to the continual refinement

of my thesis

Additionally, I would like to thank the support and instruction from the faculty

at the Banking Academy Although they did not directly supervise me during the thesis process, the foundational knowledge I gained from courses at the university provided me with the necessary background and expertise to successfully complete

my thesis Their dedication to imparting knowledge to successive generations of students not only aided me in completing this final task of my student life but also instilled in me attitudes towards work, collaboration, and facing life's challenges that

I believe will accompany me in future endeavors

Finally, I am grateful for the invaluable opportunity I experienced during my internship, which greatly contributed to my thesis work I would like to thank the business department of Yuanta Vietnam Limited Liability Securities Company for providing me with the opportunity to apply the theoretical knowledge learned in school and for imparting practical knowledge to newly graduated students

In conclusion, I sincerely thank my family, the colleagues in the business department who guided me, the members of the "Nhảy nút nào" and "Hết kỳ đi food tour Hải Phòng" groups who accompanied me throughout the thesis process, and I extend my deepest gratitude to the "incredibly special sister" Luong Phuoc Nguyen for her tremendous support

With the assistance of everyone, I can successfully complete my thesis I am truly grateful for everything

DECLERATION

I, as the student conducting this study, solemnly declare that the topic "The

effect of liquidity on firm performance of manufacturing industry: case of Vietnam"

is my own research based on the guidance of Dr Nguyen Quynh Trang, lecturer of

the Finance Faculty I affirm that this research is not plagiarized from any other study

I assure that this research was conducted diligently and the data used is honest, with

proper citation All information in the thesis is cited according to the regulations set

by the Finance Department of the Banking Academy

If any dishonesty is discovered, I take full responsibility for this declaration

The student conducted the research

(Signed and clearly stated full name)

(Signed)

Lương Hà Giang

THE ABBREVIATION LIST

THE ABBREVIATION LIST

THE TABLE LIST

Chart 1: The Index Industrial for Production 2019-2023 32

Table 1: Variables in the model 35

Table 2 The data overview result 38

Table 4 The multicollinearity checks 40

Table 6: The OLS regression model with ROE dependent variable 42

Table 7: The OLS regression model with ROA dependent variable 44

Table 8: FEM model with the dependence ROE 45

Table 9: REM model with the dependence ROE 48

Table 10 FEM model with the dependence ROA 50

Table 12 The Hausman test FEM, REM for ROE 54

Table 13 The Hausman test FEM, REM for ROA 56

Table 14 Summary the result 57

THE CHART LIST Chart 1: The Index Industrial for Production 2019-2023 32

TABLE OF CONTENTS

ACKNOWLEGDEMENT i

DECLERATION ii

THE ABBREVIATION LIST iii

THE ABBREVIATION LIST iv

THE TABLE LIST v

THE CHART LIST vi

INTRODUCTION 9

1 Necessity of the thesis: 9

2 Objective and Scope of Study 9

2.1 Objective of Study 9

2.2 Research Scope: 10

2.2.1 Method of research 10

2.2.2 Research Space: 10

3 Research Structure 10

CHAPTER I: THEORETICAL OVERVIEW ON THE IMPACT OF LIQUIDITY ON FIRM PERFORMANCE 12

1.1 Oversea researches 12

1.2 In Vietnam researches 16

1.3 Introduction to liquidity and firm performance 17

1.3.1 Introduction of liquidity risk 17

1.3.2 Liquidity measurement in a corporate 19

1.3.3 Ways to calculate liquidity in a business 21

1.4 Firm performance 24

1.4.1 Definition of firm performance 24

1.4.2 Criteria for valuating the performance of a firm 24

1.5 Criteria for evaluating the operations of a company in the manufacturing sectors 26

1.5.1 Inventory turn over: 27

1.5.2 Return on sales (ROS) 27

1.5.3 Firm size 28

1.5.4 Firm age 29

1.6 The impact of liquidity and other factors on firm performance of manufacturing industry 30

2.1 Reality of manufacturing industries in Viet Nam from 2019-2023 32

Chart 1: The Index Industrial for Production 2019-2023 32

2.2 Research data description: 33

2.3 Research method and research model 34

2.4 Research methodology 37

CHAPTER III: MODEL OF TESTING THE IMPACT OF LIQUIDITY ON FIRM PERFORMANCE OF MANUFACTURING INDUSTRY 38

3.2 The multicollinearity models 40

3.3 The Ordinary Least Square (OLS) regression model 41

3.4 The fixed Effects Model (FEM) and Random Effects Model (REM) 45

3.5 The Hausman test 53

3.6 Summaries the research results 57

CHAPTER IV: CONCLUSION AND SOME RECOMMENDATIONS OF LIQUIDITY MANAGEMENT AND ENHANCING THE MANUFACTURING INDUSTRY’S FIRM PERFORMANCE 59

4.1 Conclusion 59

4.2 Limitations of the research model and proposed future research directions 61

4.3 Some recommendation to improve liquidity of Vietnam manufacturing sectors for the enterprises: 62

4.4 Some recommendation to improve liquidity of Vietnam manufacturing sectors for the governments: 64

REFERENCES: 67

Appendix: Companies in this study 71

INTRODUCTION

1 Necessity of the thesis:

The efficiency of corporate operations stands as a paramount concern for both managerial

personnel and investors due to its pivotal role in optimizing corporate outcomes Various factors,

intrinsic to operational efficiency enhancement, exert influence over a company's performance

These factors necessitate astute analysis and measurement by seasoned management to craft

optimal strategies

Moreover, in the aftermath of the Covid-19 crisis, the global and Vietnamese economies

have embarked on a trajectory of recovery and growth Nonetheless, the resultant repercussions

have left numerous enterprises, both domestic and foreign, grappling with resource scarcities and

insufficient resilience to sustain operations Hence, this dissertation endeavors to scrutinize the

impact of liquidity on operational effectiveness and delineate the quantifiable metrics of such

influences

Presently, extensive research, domestically and internationally, has been conducted on this

matter However, the heterogeneous nature of economic events and distinct economic landscapes

among nations underscore the varying degrees of liquidity's influence Consequently, how

liquidity will shape the effectiveness of corporate operations in Vietnam, particularly within

sectors ripe with growth prospects like the manufacturing industry, warrants exploration Despite

their current minor contribution to the national GDP, these industries exhibit comparatively tepid

growth as well as other industries

To help business managers better manage their companies and shareholders gain deeper

understanding of their businesses, the chosen topic for the thesis by the author is " The factors that

impact of liquidity on firm performance of manufacturing industry: Case of Viet Nam "

2 Objective and Scope of Study

2.1 Objective of Study

The thesis graduation focuses on the impact of the assessments that affect to the liquidity

factors: such as the average inventory turnover period, average accounts receivable collection

period, average accounts payable payment period, and cash conversion cycle on key performance indicators including return on assets, return on equity, quick ratio, inventory turnover ratio, current ratio and operating cash ratio; subsequently formulating recommendations

With the aforementioned research objective, the author delineates the following issues necessitating explication in this study:

(1) Reviewing the theoretical basis on the factors that impact of liquidity

on firm performance of manufacturing industry

(2) Measuring the impact of factors on liquidity on firm performance of

manufacturing corporates in Viet Nam

(3) Proposing solution based on the model’s conclusion to decrease the

impact of the factors in the future

2.2 Research Scope:

2.2.1 Method of research

Research Methodology: The article utilizes Stata17 software to compare various statistical models such as Pearson correlation matrix, ordinary least squares regression (OLS), random effects model (REM), and fixed effects model (FEM) to assess the impact of liquidity on firm

performance of the corporate sector

2.2.2 Research Space:

In term of space, the article focuses on companies listed of Ho Chi Minh Stock Exchange (HOSE) within the manufacturing sectors As for the time, the research utilize data from companies that have been working during the time from 2020 to 2023

3 Research Structure

The structure of the research included 5 chapters, namely:

Chapter 1: Literature review:

Chapter 2: Theoretical overview on the impact of liquidity on firm performance

Chapter 3: Research methods and research data:

Chapter 4: Model of testing the impact of liquidity on firm performance of manufacturing industry: Chapter 5: Conclusion and some recommendations of liquidity management and enhancing the manufacturing industry’s firm performance:

CHAPTER I: THEORETICAL OVERVIEW ON THE IMPACT OF LIQUIDITY ON

FIRM PERFORMANCE

The manufacturing industry in Vietnam has experienced significant growth over past few decades that not any industry in the society can not replaceable This is a particularly influential sector affected by the fluidity of cash flow within its operational cycle Hence, the question arises: does a company's liquidity affect the operational outcomes of the industrial sector? Depending on how we approach this question and the assumptions we make, liquidity may or may not influence the operational results of industrial enterprises

1.1 Oversea researches

The liquidity of businesses has caught the attention of researchers, who often use it as a key factor in their studies To be easy to understand, liquidity refers to the ease and quickness with which the assets can be converted to cash (without significant loss in value).1If something in the condition of highly liquid, you can sell it fast without losing much money, usually lots of people are buying and selling it Companies usually like to invest in stuff that’s easy to sell, like things with high liquidity These assets, which from a substantial part of a company’s holdings, are crucial for managing risks and ensuring smooth operations

The purpose of this paper is to explore the payment capabilities of businesses, a crucial consideration for contemporary enterprises In addition, it seeks to determine whether it is more advantageous for companies to invest in highly liquid assets or less liquid ones Above that, many authors still have been auguring that firms maintain excess liquidity to take advantage of profitable future investment opportunities, the others argues that firms maintain excess liquidity to meet unexpected contingencies.2

First and foremost, lets mention about one of the most famous researches that mention about the theory of liquidity By Keynes (1936), he published “The General Theory of Employment, Internet and Money”, stated that three reasons for the desire why people holding cash, which are (1) transactions, (2) precautionary, and (3) speculative Keyne’s theory has become the cornerstone of subsequent research conducted by numerous other authors in the fields

CW Waswa, MS Mukras, D Oima (2018), conducted research on the impact of liquidity

on the financial performance of the Sugar Industry in Kenya Their results reveal that a company’s ability to cover short-term debts with liquidity assets is high and tends to worsen firm performance The research also suggests that maintaining plenty of easily accessible cash on hand doesn’t necessarily make a company financially stronger Additionally, when a company’s ability to cover current debt is low, it negatively affects firm performance The research implies that companies

in Kenya’s sugar industry often struggle with low or negative cash flow, high debt levels, and a lack of effective strategies for managing assets and liabilities, all of which hurt their financial performance

Kariuki, Muturi, and Njeru (2021) examined the influence of liquidity on the financial performance of insurance companies in Kenya The research concluded that liquidity poses its most significant threat to insurance companies during major disasters, when they experience a surge in insurance claims or face the possibility of large claims To address these situations, insurance companies implement strategies such as additional insurance coverage and risk diversification Furthermore, the study found a positive correlation between liquidity and financial performance metrics, specifically Return on Assets (ROA) and Return on Equity (ROE), among insurance companies In comparison to the banking industry, liquidity in life insurance companies

is considered less of a threat due to the higher frequency of monetary transactions inherent in banking operations

Farooq, Omar, and Fatima Zahra Bouaich (2012) conducted research on liquidity and firm performance in the MENA (Morocco, Egypt, Saudi Arabia, United Arab Emirates, Jordan, Kuwait, and Bahrain) region Utilizing a large dataset covering the period from 2007 to 2009, which coincided with the onset of the global economic recession, the study found that higher levels

of liquidity are associated with improved firm performance Additionally, the research indicates that investors prefer to invest in stocks that provide ample information about the company, as this reduces the perceived risk of managerial misconduct Investors can easily sell their stocks if they suspect any unethical behavior from management, leading to lower risk and higher stock prices compared to less liquid stocks The study also provides evidence suggesting that in civil law

countries, which typically have weaker investor protections and governance mechanisms compared to common law countries, investors place greater importance on liquidity due to concerns about managerial exploitation

In their study, Yameen, Farhan, and Tabash (2019) examined how liquidity affects the profitability of pharmaceutical companies listed on the Bombay Stock Exchange (BSE) They used two measures of liquidity: the current ratio and the quick ratio Along with liquidity, they also looked at other factors such as leverage, company size, and age, which were found to negatively affect pharmaceutical company profits Interestingly, the study found that while factors like leverage, company size, and age had a negative impact on profitability, both the current ratio and quick ratio had a significant positive impact on profitability, as measured by return on assets

R Charmler et al (2018), with the study about the impact of liquidity on performance of commercial Bank in Ghana, conducted revealed a positive correlation between liquidity and bank performance, particularly emphasizing a stronger association with return on assets compared to return on equity Despite a statistically insignificant association, liquidity assets to interest-bearing liabilities showed a negative correlation with return on equity While Lartey et al (2013) they pronounced that their study giving a weak positive association between bank liquidity and profitability in listed bank in Ghana with the time period from 2005-2010 The positive correlation

is attributed to the fact that increased liquidity diminishes the risk of liquidity shortages and financial crises for banks This enhances the bank's ability to endure unexpected disruptions and maintain profitability T Wuave et al (2020) examines the effect of liquidity management on financial performance of banks in Nigeria reveals that loan to deposit ratio and cash reserve ratio have negative but significant effect on the financial performance of the banks as measured by return on assets, return on equity and net interest margin

Abubakar et al (2023) assessed liquidity risk by analyzing the standard deviation of the quick ratio among non-financial firms listed on the Nigerian Stock Exchange They discovered that there was no significant correlation between liquidity risk and firm performance Conversely, they found a notable negative impact of the current ratio on the performance of non-financial firms

in Nigeria Firms are required to efficiently manage both current assets like inventories,

receivables, marketable securities, and cash, as well as short-term debts including loans, overdrafts, payables, and other obligations with near-term maturity dates This dual management approach aims to mitigate the potential for losses or liquidity risks In essence, to address liquidity risk, the standard deviation of the current ratio was employed to gauge the extent to which firms struggle to fulfill their short-term financial obligations

Bambang Sudiyatno and Titiek Suwarti (2022) conducted a study on 123 manufacturing companies in Indonesia from 2019 to 2021, focusing on the impact of liquidity on firm performance Their findings indicate that liquidity has a detrimental effect on firm performance, suggesting that it hampers performance

We all understand the impact of Covid-19 on the world economy, but there is very little research aimed at measuring its impacts on the entire economy S Devi et al (2020) analyzed

"The impact of the COVID-19 pandemic on the financial performance of firms on the Indonesia Stock Exchange," giving results that showed a decrease in leverage ratio and activity ratio, but an increase in liquidity ratio and profitability ratio in public companies during the COVID-19 pandemic There was no significant difference in the liquidity ratio and leverage ratio, but there was a significant gap between public companies before and during the COVID-19 pandemic in terms of liquidity ratio and leverage ratio

The research by Sonal Kumar and Leila Zbib (2022) on "Firm performance during the Covid-19 crisis: Does managerial ability matter?" found that firms led by CEOs with high managerial ability tend to be more resilient and perform better during crisis periods due to their higher liquidity and larger cash reserves Additionally, they concluded that firms managed by CEOs with managerial prowess experienced higher raw and cumulative abnormal returns during the Covid-19 pandemic compared to those led by CEOs with lower managerial acumen

Shiwei Hu and Yuyao Zhang (2021) for the research about “Covid-19 pandemic and firm performance: Cross-country evidence” found the ROA of the firm is negatively associated with the number of cumulative covid-19 cases, and they also proof that the countries with better healthcare, financial system and better governance can thrive amid the pandemic

W Shahimi et al (2021) with “The impact of Covid-19 on the Financial Performance of PN17 and GN3 Status Firms: Does it Add Salt Into the Wound?” In their studied, they investigate how liquidity, financial leverage and the pandemic period influence the financial performance of financially distressed firms in Malaysia, Their findings suggest that both liquidity and financial leverage affect significantly the performance of financial distressed firms, urging managers to take heed of theses factors Interestingly, the study advice the managers to consider their liquidity and financial leverage position carefully in managing the performance of financially distressed firms, with less concern about the pandemic’s influence

1.2 In Vietnam researches

Building on previous foreign studies, Vietnam also conducted some important research on the influence of liquidity on corporate efficiency For instance, Ho et al (2020) investigated factors such as profitability, particularly finding that liquidity has a positive impact on a company's financial performance, with a P-value coefficient of 0.001 < 0.05 The results indicate that while the impact of liquidity may be small, it can be explained by the fact that when companies maintain this index at excessively high levels (by depositing too much cash in banks or holding high inventory levels), it leads to resource wastage as capital is not invested, thereby reducing the company's operational efficiency

Truong Hong Trinh et al (2016) emphasized two critical variables affecting corporate liquidity: profitability and capital expenditure They found that both cash holdings and the cash conversion cycle have statistically significant relationships with profitability and capital expenditure Profitability was positively correlated with cash holdings but negatively correlated with the cash conversion cycle, particularly in the real estate industry, where profitable firms tend

to invest more cash to seize future opportunities and handle unexpected events, yet invest less in working capital due to their negotiation capabilities for favorable payment terms

Nguyen Thi Ngoc Lan and Nguyen Van Cong (2020) with their publish about “ The Determinants of Profitability in Listed Enterprises: A study from Vietnamese Stock Exchange” have shown that the firm size has a significant positive impact on ROA but the slight impact on Return on sales (ROS) While the liquidity takes a good sign of impact on both ROA and ROE

but a negative impact on other profitability ratios like ROS or solvency The research also advice that for listed companies in Vietnam, the bigger the size of the enterprises, the better the profitability of the businesses As well as, the enterprises will develop better without depend on debts to maintain their operating capital as it led to negative impact on both ROE and ROS, the worse case that the companies my meet the bankruptcy situations

For instance, Cuong Thanh Nguyen et al (2021) research on the “Stock market returns and liquidity during the COVID-19 outbreak: evidence from the financial services sector in Vietnam” Their researches investigate how Vietnamese government’s response to the COVID-19 pandemic affects the financial services sector, focusing on listed companies The researches confirm a notable negative impact of worsening COVID-19 situation on the stock returns and market liquidity.Particularly, there is a significant negative relationship between the growth rate of daily Covid-19 cases and stock return before lockdown period Although the effect on market liquidity during such times appears minimal A noteworthily discovery is the significant positive impact of COVID-19 lockdowns on the stock returns and liquidity of Vietnamese banking, finance and insurance companies This attribute will help to increased investor confidence in the government’s disease control and effective containment measures, particularly during lockdown periods

The most recent study by Thuy Thi Cam Nguyen et al (2024) investigated 100 leading financial companies listed on the Vietnamese market, showing a significant positive impact of liquidity on profitability Additionally, the research confirms a significant negative relationship between financial leverage and profitability, as well as the positive effects of asset growth rate and asset structure on corporate liquidity, while the debt ratio negatively affects corporate liquidity, with other independent variables showing no correlation

Therefore, this is the rationale for choosing this research topic, as it aims to fill the gap in understanding the impact of liquidity on corporate efficiency in Vietnam and to build upon previous research findings to provide valuable insights for both academics and practitioners

1.3 Introduction to liquidity and firm performance

1.3.1 Introduction of liquidity risk

The liquidity of an assets means how quickly it can be transformed into cash When referring to company, liquidity one usually means its ability to meet its current liabilities and is usually measured by different financial ratios (Priya, 2013) The measure of a company's liquidity lies in its capacity to utilize current assets, including cash, inventory, accounts receivable, securities, and short-term assets, to fulfill short-term obligations

Cash is the most liquid asset due to its ease of conversion into other assets like stocks, real estate, or various investments Unlike other assets, cash can be readily spent or exchanged without additional steps, while other assets typically require a longer time to be converted back into cash

When short-term asset prices are minimally influenced by market changes, often due to inflation, their liquidity is elevated as their value preservation is challenging Particularly, in more stable markets, asset liquidity tends to be higher

Amidst the substantial expansion of the market, many scholars have formulated new interpretations to correspond with the economic transformations witnessed in recent decades, thereby fostering the proliferation of diverse asset categories within financial markets Specifically, the concept of capital, previously lacking precision, has now undergone refinement under the term " market liquidity." Assessing liquidity entails considering factors such as the activity within the stock market:

 Transaction costs in stock markets are determined by the variance between purchase and selling prices Stocks with high liquidity exhibit minimal differences between purchase and selling prices, indicating high liquidity Conversely, if the bid price surpasses the selling price, it suggests a low liquidity ratio for the stock

 The stock market boasts immense breadth, with no restrictions on transaction volume or price, enabling traders to engage in transactions of any desired quantity and value

 The market's capability to recover from shocks encountered during trading flows is considered reliable, as it possesses its mechanism to rebalance any harm inflicted upon it These features greatly affect how market liquidity is demonstrated in numerous global markets, which helps investors and managers easily determine whether those assets have liquidity

or not By organizing transactions of financial assets within legal boundaries and openly sharing them, fairness among investors is guaranteed, along with a commitment to providing verified information about the assets being traded and their publishers

1.3.2 Liquidity measurement in a corporate

Liquidity plays a significant role in the successful functioning of a business firm (Priya, 2013) After many studies and research efforts, we can conclude that there are two main factors that affect the liquidity of a business firm: short-term assets (STAs) and long-term assets ( LTAs)

1.3.2.1 Short-term assets

Short-term assets include cash, cash equivalents, and assets readily convertible to cash or sale within a year or the standard operational cycle.As being stated in operate Finance of Banking Academy (2019), they represent the collective value of cash, cash equivalents, and other assets with short conversion periods at the reporting time, comprising cash and cash equivalents, short-term financial investments, accounts receivable, inventory, and other short-term assets

(1) Cashes and cash equivalents constitute a component of short-term assets, existing in the form of monetary funds This includes cash in hand (the amount of money held by the company in various forms such as Vietnamese currency, checks, receipts, treasury bills, gold and silver, precious metals, jewelry, etc.), as well as cash at bank (the total amount of money held by the company in bank accounts, whether current or deposit accounts, or in institutions like the Vietnam State Treasury or financial investment organizations) These are recorded on the balance sheet under current assets, which may consist of Vietnamese currency, checks, receipts, treasury bills, gold and silver, precious metals, jewelry, and other similar assets Cash

in transit (which had been out of the corporate fund, is the secure, physical transportation of money, including banknotes, Vietnamese currency from the cash at bank of its own corporate

to different cash at bank account of another corporate while still not receiving the bank statement) Cash equivalents are any short-term investment securities with maturity periods for around 3 months or less These investments have high liquidity and periodically convert to

cash so when the payment term approaches, they are risky due to the price changes when the interest rate fluctuates

(2) Account receivables: is one of a series of accounting transactions dealing with including: receivables from customers, internal receivables, pledged or mortgaged amounts, deposits, etc It can be known that all account receivable reflects the amounts owed to the business and provide insight into the payment status of these obligation arising from the business’s production and commercial operations

(3) Inventories: Inventory within a business often comprises tangible assets under the ownership of the enterprise and utilized in its manufacturing, commercial endeavors, or service provision These assets encompass raw materials, primary materials, auxiliary materials, labor tools, packaging materials, finished goods, and work-in-progress items earmarked for sale or integration into the business’s operational processes throughout the fiscal period Evaluating inventory holds paramount importance as it profoundly impacts the assessment of a business's revenue generation capabilities and overall financial performance

(4) Short-term financial investments: represent business investments wherein the overall value, adjusted for the depreciation provisions of business securities, encompasses securities held for business objectives, held-to-maturity investments, and various other investment instruments These could include loans, leases, joint venture capital contributions, and securities trading Notably, all such investments are characterized by a maturity period not exceeding 12 months from the reporting date

(5) Other short-term assets: are those assets that do not fall under the categories listed above These assets include short-term assets with a recovery or utilization period of no more than 12 months at the reporting date, such as short-term prepaid expenses, deductible VAT, tax receivables, repurchase transactions of government bonds, and other short-term assets recorded at the reporting date

1.3.2.2 Long-term assets

Long-term assets, distinguished from short-term assets by their extended recovery or utilization period surpassing 12 months at the time of financial statement reporting, encompass

various asset types These include term receivables, fixed assets, investment real estate, term financial accounts, long-term financial assets, and other long-term products Such assets play

long-a crucilong-al role in bolstering the finlong-ancilong-al helong-alth long-and stlong-ability of long-an orglong-anizlong-ation, serving long-as enduring investments with prolonged timelines for return or utilization

(1) Long-term receivables: embay long-term receivables from customers, long-term prepayments to sellers, suppliers, etc Long-term receivables represent the business's debt collection rights with debtors, debt unit for a period of more than 12 month

(2) Fixed assets: are substantial assets utilized by enterprises for an extended duration

to facilitate their business operations, encompassing activities in commerce, services, and other sectors, typically over a period exceeding one year These assets are integral to facilitating business activities and generating sustained revenue and cash flow

(3) Investment property: involves the utilization of real estate, including the right to use the land, houses, or a part of the houses or both houses and the land; the infrastructure either owned by the landlord or held by the tenant under a financial lease agreement These assets are held primarily for generating rental income or capital appreciation, rather than for production, provision of goods or services, management purposes, or sale during regular business operations

(4) Short-term financial investments: refer to investment in these assets such as: stocks, real estate, investment funds, bonds, joint venture capital contributions and other financial products with an investment horizon exceeding one year at the time of financial statement reporting These investments are made with the objective of gaining profits in the future (5) Other long-term assets: are those assets that do not fall under the categories listed above These assets include long-term assets with a recovery or utilization period of more than

12 months at the reporting date, such as : long-term prepaid expenses, deferred tax assets, and other long-term assets

1.3.3 Ways to calculate liquidity in a business

To ascertain whether a company's financial capacity is sustainable, factors related to liquidity, especially short-term liquidity, help the company, including investors and managers,

determine the direction for handling and developing the company's borrowing and ensuring the company's financial resources remain stable in case of any difficulties

The measure to define the liquidity of a corporate is define by 3 sectors include:

It's important to note that sometimes a higher current ratio doesn't reflect all aspects of a company's abilities For instance, if the company decides to borrow over the long term to raise funds, in the short term, there would be an increase in cash from the issuance proceeds and an increase in long-term debt Current liabilities would not be affected; thus, the current ratio would rise Therefore, a seemingly low current ratio may not be a negative sign for a company with a large reserve of untapped borrowing power

 Quick ratio (Acid-test ratio)

The quick ratio, also known as the Acid-test ratio, evaluates a company's ability to settle its short-term debts using assets that can be swiftly converted into cash Inventory, often the least liquid current asset, is also the least reliable measure of market value because it doesn't consider inventory quality Some inventory may later be found to be damaged, obsolete, or lost Larger inventories often indicate short-term trouble, suggesting that the company may have

overestimated sales and overbought or overproduced as a result Consequently, a significant portion of the company's liquidity may be tied up in slow-moving inventory This is why inventory

is excluded from this formula, as using cash to purchase inventory does not affect the current ratio

The quick ratio formulas is:

𝑄𝑢𝑖𝑐𝑘 𝑟𝑎𝑡𝑖𝑜 =𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

If a company's quick ratio drops below 0.5, it suggests that the company might struggle to pay its bills, indicating a lower liquidity ratio On the other hand, if the quick ratio of the company stays between 0.5 and 1, it means that the company's ability to cover its expenses is stable, indicating a higher liquidity ratio

 Operating cash flow ratio:

The operating cash flow ratio evaluates a company's capacity to settle its debt using its current cash flow It becomes especially valuable when assessing a company's liquidity amid economic turmoil, such as when inventory is stagnant and accounts receivable are challenging to recover However, in stable economic conditions, depending solely on the operating cash flow ratio for liquidity assessment might result in inaccuracies This is because a company could possess a substantial amount of untapped financial assets, suggesting ineffective capital utilization

The formulas of operating cash flow ratio is:

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑖𝑜 = 𝐶𝑎𝑠ℎ & 𝐶𝑎𝑠ℎ 𝑒𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

If the ratio is greater than 1.0, it indicates that the company is in a strong position to pay its debt without incurring additional liabilities In contrast, if the ratio is smaller than 1, it means that the company is at risk of not having enough cash to pay short-term debt flexibly

 Cash Conversion Cycle (CCC):

This is a new ratio invented by Verlyn Richards and Eugene Laughlin in 1980 with the title

A cash conversion Cycle approach to Liquidity Analysis So, this ratio is a metric that expresses

the length of time (in days) that it takes for a company to convert its investments in inventory and other resources into cashflow from sales

The cash conversion Cycle is calculated as:

𝐶𝐶𝐶 = 𝐷𝐼𝑂 + 𝐷𝑆𝑂 − 𝐷𝑃𝑂 Where:

DIO = Day of inventory outstanding (also know as days sales of inventory)

DSO = Days sales outstanding

DPO = Days payable outstanding

The cash conversion cycle (CCC) serves as an enhanced metric aimed at addressing the limitations of the three liquidity ratios mentioned earlier It aids in evaluating a business's liquidity position, recognizing that it is dynamic and influenced by real-world business conditions

1.4 Firm performance

1.4.1 Definition of firm performance

Firm performance is a measure of performance of a company that may not only depends

on the efficiency of the company itself but also on the market where it operates There are different financial measures that can be used in order to evaluate the performance of a company such as: revenue, return on equity, return on assets, profit margin, sales growth, capital adequacy, liquidity ratio, and stock prices, among others As for manufacturing industry, the total unit sales, return on assets and inventory turnover may be key ratios to monitor (Jorge A.Romero, 2016)

1.4.2 Criteria for valuating the performance of a firm

1.4.2.1 Return on Assets:

Return on assets (ROA) is a measure that reflects a company's profitability relative to its total assets, serving as an indicator of how effectively the company utilizes its assets to generate earnings

The formulas of ROA is:

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐴𝑠𝑠𝑒𝑡𝑠 (𝑅𝑂𝐴) = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒

𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

A consistently high and stable ROA ratio over a long period is a positive indication of how efficiently a company utilizes its assets and maximizes its resources Different industries have varying requirements for the composition of their asset structures For instance, companies operating in heavy industries like metal or cement often need a significant amount of fixed assets, resulting in a lower ROA ratio On the other hand, companies in technology or consumer goods sectors typically do not require as many fixed assets to conduct their operations, potentially leading to a higher ROA ratio

1.4.2.2 Return on Equity:

Return on Equity (ROE) is a financial ratio that measures of the profitability of a business

in relation to its equity The ROE formula is calculated as:

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 (𝑅𝑂𝐸) = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒

𝑂𝑤𝑛𝑒𝑟′𝑒𝑞𝑢𝑖𝑡𝑦The ROE ratio evaluates the efficiency of a company's capital utilization, indicating how much profit the company generates for each unit of capital invested A higher ROE suggests more effective capital utilization by the company However, whether an ROE is considered good or bad depends on the industry in which the company operates, as certain industries may require more equity capital to operate effectively

1.4.2.3 Gross Profit Margin (GPM)

Gross Profit Margin or Gross Margin (GPM) is a metric used to assess a firm’s financial heath GPM is calculated as the formula:

𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 =𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠 − 𝐶𝑂𝐺𝑆

𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠

A high GPM indicated that a company is capable of generating higher profits from its production, business, and sales activities Conversely, a low GPM suggests that a company may face challenges in generating profits and may need to consider increasing product prices or

reducing production costs and personnel to improve profitability However, it's important to note that GPM, whether high or low, only provides partial assessment as it also depends on the overall economic conditions and industry trends that may influence how the company operates

1.4.2.4 Debt to Equity ratio

Debt-to-equity ratio (D/E) indicated how much debt a company is using to finance its assets relative to the value of shareholders equity

It is found by the below formula:

a low D/E ratio suggests that the company does not face significant financial pressure as it has abundant equity capital and indicates efficient business operations

The level of D/E ratio varies depending on different industries The D/E ratio is also influenced by economic cycles and the specific market conditions that a company operates in For example, in the service industry, the D/E ratio may not be as high as in manufacturing sectors

The D/E ratio is affected by various market factors, and its significance varies across different economic periods and industries

1.5 Criteria for evaluating the operations of a company in the manufacturing sectors

Liquidity is one of the essential factors for companies, especially those in the manufacturing sector It not only helps companies balance orders from customers but also enables them to control inventory levels Therefore, for manufacturing companies, measuring additional factors alongside financial ones is important These factor is most famous measurements are used

to rate the firm performance of manufacturing companies, which are:

1.5.1 Inventory turn over:

Inventory Turnover ratio is a financial ratio showing how many times a company turned over its inventory relative to its cost of goods sold (COGS) in each period

It is found by the below formula:

𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑 𝑠𝑜𝑙𝑑𝑠

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦When the business has an increasing inventory turnover ratio, this is meaning that the business is selling more quickly or the methods that the corporate using to manage their inventories However, if the company maintain the inventory turnover ratio too high, its affects that, the company is missing their opportunities in promoting their products and they might not get enough the products to provide their customers

In contrast, if their businesses have low inventory turnover ratio, its showing that the corporates buying too much inventories than the real demand of the businesses The inventory turnover ratio numbers are especially important to the product that easy to be broken or easily being out trend of the economics like: foods, drinks, fashions, cars… These products demand the business have to maintain a high inventory turnover ratio, if the businesses can not sell in one period, if can turn into a dead inventory or obsolete inventory

In conclusion, with low-margin industries often have higher inventory turnover than margin industries Because low-margin industries have to compensate lower per-unit profits with higher unit sales volumes

high-1.5.2 Return on sales (ROS)

Return on sales is a financial metric used to assess a company’s profit generation

efficiency relative to its revenue It is indicating the proportion of profit earned from a

company’s production and business activities relative to its revenue In essence, it indicates how much profit is generated per unit of revenue earned by the company

The formulas of the return on sales equal to:

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑠𝑎𝑙𝑒𝑠 = 𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝑏𝑒𝑓𝑜𝑟𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑡𝑎𝑥𝑒𝑠

𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠This ratio is being influenced by the selling price and production costs of the enterprise If the selling price and productions high or management effectively controls production costs, or both, then this ratio will be high Conversely, if this ratio decreases, the cause may be that the enterprise is losing control over production costs or is implementing discount policies, reducing prices for customers As managers of a company, we can utilize the ROS results to gauge the effectiveness of our sales strategies For manufacturing companies, this metric significantly influences marketing initiatives, enabling informed decisions aimed at optimizing company profitability ROS serves as a valuable metric for aligning sales strategies with the financial objectives of the organization

1.5.3 Firm size

A company with large-scale are enterprise with high technical level and large-scale production capacity This will lead to the ability that the companies will obtain high profitability With a large-scales enterprise, the companies will have a higher chance in approach new producing technologies of the world, diversifying business operations, producing many types of products, doing business in many industries, creating changes in the market and abroad The size

of a company can be proxied with the capitalized value of its shares in the capital market

While enterprises with small-scales will still maintain with traditional production method

As they have a limited workforce, focusing on a specific type of product, and lacking extensive research organization in the market Especially, with the manufacturing companies, the larger the scales of the enterprises, the better the firm performance will increase

On the other hand, the small-scales companies have advantages that the administrators can easily control capital and human resources management If a large-scale enterprise has poor management, its production and business activities may not be as effective as a small-scale enterprise So, it is better for manufacturing companies maintain a high and large scale of firm size as it will help them to provide better products for their customers

1.5.4 Firm age

For businesses, building a brand and reputation is a demanding process that requires effort and dedication over a long period Companies with extensive experience in business operations are typically long-standing enterprises with a strong industry tradition However, the operational timeframe for companies in the manufacturing sector is more distinctive compared to other industries In the realm of information technology enterprises, the duration of a company's operation is less crucial; what matters is the ability to stay updated with technology ahead of competitors Conversely, in the manufacturing sector, companies with longer operational histories have an advantage in reputation through their production activities, enabling them to streamline costs and achieve higher profits for other businesses

On the other hand, firm age also limits the desired diversity of large companies in their product portfolios and encourages them to focus more on process innovation, especially for firms with family traditions They rarely choose to improve their firm environments and diversify their products as they believe customers prefer the old products over inventing new ones

In conclusion, firm age has a significant impact on financial performance, both directly and indirectly, for companies Depending on how the managers of the firms choose whether the firms remain traditional or diversify to fit with market trends, it will influence the firm’s profitability results

1.5.5 Tangible assets

Tangible asset is an asset that has a finite, transactional monetary value and usually a physical form Tangible assets can typically always be transacted fore some monetary value though the liquidity of different markets will vary Tangible assets are the opposite of intangible assets which have a theorized value rather than a transactional exchange value Tangible assets divided into two main type: current assets and fixed assets As they are used in the daily operations

of the business and collateral to obtain loans Comparing to manufacturing sectors, tangible assets are important to these companies as it can reduce agency costs in choosing a capital structure

because tangible assets can be collateralized easily to take advantage of financial performance (Rajan & Zingales,1995)

With manufacturing companies, they generally have more tangible assets Mostly, their tangible assets are: fixed assets, inventory Therefore, based on the theory and the Vietnam Accounting Standard (VAS), the formulas the author using for calculating the tangible assets is:

𝑇𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝑎𝑠𝑠𝑒𝑡𝑠 = 𝑁𝑒𝑡 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠

𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠Tangible assets create the security for funding activities, helping students access external finances They provide a reliable way to assess value with asymmetric information Also, the company can determine whether the loss should be recorded in the income statement related to goodwill

1.6 The impact of liquidity and other factors on firm performance of manufacturing

industry

The relationship between liquidity and operational efficiency of companies has been a topic

of significant interest among researchers, especially in the aftermath of the global economic crisis caused by Covid-19 In this study, the authors assess the liquidity of companies through four factors: current ratio, quick ratio, inventory turnover ratio, and operating cash ratio However, each research study employs different measurement methods to evaluate the relationship between these two factors

Representative previous studies analyzing the impact of the Covid-19 pandemic on liquidity and operational efficiency include domestic research by Hong Thi Xuan Nguyen (2022)

on “The Effect of COVID-19 Pandemic on Financial Performance of Firms: Empirical Evidence from Vietnamese Logistics Enterprises”, which found that Covid-19 has affected the operational efficiency of enterprises as measured by the average ROA

Foreign studies mentioning the impact of Covid-19 on liquidity include research by Shaharuddin et al (2021), which only used the first two quarters of company reports in 2020 and did not show significant impacts of Covid-19 on company operational efficiency with variables

such as ROA and ROE Amnim et al (2021), Rashata, H (2021), all found that Covid-19 had a significant impact on various industry sectors, with many companies lacking sufficient liquidity

to withstand the effects of the pandemic and disappearing from the market

Conversely, a study by Xu et al (2022) on Exploring the impact of the COVID-19 pandemic on firms’ financial performance and cash holding: New evidence from China’s agri-food sector did not find any impact of the Covid-19 pandemic on the operational efficiency of agri-food sector companies in China

Based on these previous research findings, it can be concluded that, liquidity has some degree of influence on the operational efficiency of companies Especially when the major disasters breaking out , companies are more heavily affected as liquidity plays a crucial role for them

CHAPTER II: RESEARCH METHODS AND RESEARCH DATA

2.1 Reality of manufacturing industries in Viet Nam from 2019-2023

Chart 1: The Index Industrial for Production 2019-2023

(Source: General Statistic Office of Viet Nam) The manufacturing sector has become one of the significant contributors to Vietnam's economy in recent years Many areas within the industry have achieved rapid growth rates, such

as electricity, electronics, information technology, textiles, construction, and so on In the first recent years before the Covid-19 pandemic impact, the IIP of Vietnam using 2016-2019 is still developed stability

However, in 2020, despite the more promising growth rate of the Industrial Production Index (IIP) compared to previous years, the industrial sector suffered significant damage as key manufacturing sectors experienced declines compared to the same period in previous years For instance, sugar production decreased by 22.9%, beer by 13.9%, liquefied petroleum gas by 13%, crude oil extraction by 12.6%, natural gas by 11.5%, synthetic fiber textiles by 8.9%, motorcycles

by 7.7%, regular clothing by 4.9%, leather footwear and automobiles by 2.9%, and animal feed

by 2% Consequently, this had a considerable impact on the overall supply for the country's economy

Under the precise guidance of the Party and the state, Vietnam has restored its development momentum This can be seen in the continuous growth of the IIP index from 2021 to 2023, reaching the following milestones: 4.82 (2021), 7.89 (2022), and 13.17 (2023) This not only demonstrates that the Vietnamese government is directing favorable policies for businesses engaged in production, especially for foreign direct investment (FDI) enterprises but also reflects the strong recovery of the domestic manufacturing industry in 2023 amidst the global decline in total demand This growth is a testament to the government's relentless efforts in removing obstacles and supporting businesses to restore and develop their production activities

In summary, the manufacturing sector faced numerous difficulties and challenges during the period of 2020-2023 However, with strong support, close coordination, decisive direction, and flexibility from the Party and Government, along with collaboration from ministries, departments, and local organizations, the health of the sector has improved compared to previous years This collective effort has enabled the manufacturing sector to surpass the initial targets set forth Moving forward, to further promote manufacturing activities, specific solutions are needed

to support industrial production, overcome challenges, and foster production development

2.2 Research data description:

As of July 28, 2023, there were 409 businesses listed on the Ho Chi Minh Stock Exchange (HOSE), equivalent to over 141 billion shares outstanding (CafeF) The article utilizes secondary data, with a research sample comprising information provided in the financial reports of 133 companies out of 137 in the manufacturing sector listed on the Ho Chi Minh Stock Exchange over

a 4-year period from 2019 to 2023

A total of 133 continuously operating and listed corporates over the 2020-2023 period were included in the research model The data would be better if we can analyze all 137 companies But during the data processing, these four companies did not meet the required criteria for the data and the research purposes to be achieved, including: Lam Son Sugar Joint Stock Corporation, Thanh

Thanh Cong – Bien Hoa Joint Stock Corporation and Siba High – Tech Mechanical Group Joint Stock Company have not publicly audited financial reports for 2023 at the time that the author collected the data Sai Gon Vien Dong Technology Joint Stock Corporation run out their inventory since 2020, so the data of the company did not meet the requirement of the variables

The data collected by the authors for the research model include items such as current assets, current liabilities, inventories, total assets, shareholders' equity, cost of goods sold, net income, net fixed assets, and cash and cash equivalents All data were obtained from the websites

of issuing organizations based on continuously updated databases: companies that provide all the above-mentioned items and operate and list continuously over 4 years from 2020 to 2023, with complete and reliable information taken from audited financial reports

2.3 Research method and research model

The research method is based on comparing and combining econometric models from previous studies to identify the relationship between liquidity indicators of enterprises and their operational efficiency

The research process follows these steps:

Step 1: Research and model development:

The research process is based on previous studies and individual understanding, combined with analysis and synthesis to compare and examine factors in Vietnam and other countries to identify differences

This approach involves reviewing existing literature and economic models to understand how various factors affect liquidity and operational efficiency Researchers then adapt these models to the specific context of Vietnamese enterprises, considering any unique characteristics

or differences compared to other countries This process may involve statistical analysis, econometric modeling, and theoretical frameworks to develop a comprehensive understanding of the relationship between liquidity indicators and operational efficiency

Step 2: Analyze and validation research:

By combining the findings of previous research studies by Hong Nguyen Thi Xuan (2022)

on "The Effect of COVID-19 Pandemic on Financial Performance of Firms: Empirical Evidence from Vietnamese Logistics Enterprises," which measured the impact of COVID-19 across different stages, K Li et al (2020) with “ Liquidity and firms’ financial performance nexus: panel evidence from non-financial firms listed on the Ghana Stock Exchange” utilizing the Hausman test with Fixed Effects Model (FEM) and Random Effects Model (REM), and finally R Ismail (2016) on "Impact of liquidity management on profitability of Pakistani firms: A case of KSE-100 Index" using the Cash flow ratio in their researches, a research model and methodology for calculating variables have been proposed as follows:

 About the researches model, the author chooses these factors to be the measures that fit to the situation of the manufacturing corporates in Viet Nam which is: The Return on Assets and Return on Equity as the Dependent Variables, The Current ratio, Quick Ratio, Inventory Ratio and Quick ratio as Independence Variables Finally, the author chooses Firm size, Inflation rate and GDP growth rate as the Control variables

Table 1: Variables in the model

Classify variables Variables Index Formula

Inventory Turnover Ratio ITO 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑 𝑠𝑜𝑙𝑑𝑠

During the data processing, the inclusion of variables CR, QR, ITO, and CFR in the regression model does not yield precise results Their values lack accuracy due to variations in the scale of businesses Consequently, the author opted to use the logarithm of the above variables to render the data more appropriate for research endeavors

Step 3: Complete the model

Additionally, the other variables, including Return on Assets and Return on Equity, are being collected and processed into percentage form

 On the main research findings mentioned above, combining the OLS regression model to measure the impact of corporate liquidity on firm performance Using the FEM and REM model with the Hausman test to check whether the variables have been fit to the model or not After the summaries, the author has concluded the model as follows:

𝑅𝑂𝐴𝑖𝑡 = 𝛽0+ 𝛽1𝐶𝑅𝑖𝑡 + 𝛽2𝑄𝑅𝑖𝑡+ 𝛽3𝐼𝑇𝑂𝑖𝑡 + 𝛽4𝐶𝐹𝑅𝑖𝑡+ 𝛽4𝑇𝐴𝑖𝑡 + 𝛽5𝐹𝑍𝑖𝑡+ 𝛽6𝐼𝑅𝑖𝑡 + 𝛽7𝐺𝐷𝑃𝑖𝑡

+ 𝜀𝑖𝑡𝑅𝑂𝐸𝑖𝑡 = 𝛽0+ 𝛽1𝐶𝑅𝑖𝑡+ 𝛽2𝑄𝑅𝑖𝑡 + 𝛽3𝐼𝑇𝑂𝑖𝑡+ 𝛽4𝐶𝐹𝑅𝑖𝑡+ 𝛽4𝑇𝐴𝑖𝑡+ 𝛽5𝐹𝑍𝑖𝑡+ 𝛽6𝐼𝑅𝑖𝑡+ 𝛽7𝐺𝐷𝑃𝑖𝑡

+ 𝜀𝑖𝑡