FINANCIAL MANAGEMENT SYSTEM OF VIETNAM POSTS AND TELECOMMUNICATIONS GROUP AND ITS EFFECTS ON FINANCIAL EFFICIENCY OF THE COMPANY

THAI NGUYEN UNIVERSITY SOUTHERN LUZON STATE UNIVERSITY Socialist Republic of Viet Nam Republic of PhilippinesTO THI NGOC LAN ENGLISH NAME: JENNY FINANCIAL MANAGEMENT SYSTEM OF VIETNAM PO

THAI NGUYEN UNIVERSITY SOUTHERN LUZON STATE UNIVERSITY Socialist Republic of Viet Nam Republic of Philippines

TO THI NGOC LAN

(ENGLISH NAME: JENNY)

FINANCIAL MANAGEMENT SYSTEM OF VIETNAM POSTS AND TELECOMMUNICATIONS GROUP AND ITS EFFECTS ON FINANCIAL

EFFICIENCY OF THE COMPANY

DOCTORAL DISSERTATION

AUGUST, 2013

THAI NGUYEN UNIVERSITY SOUTHERN LUZON STATE UNIVERSITY Socialist Republic of Viet Nam Republic of Philippines

TO THI NGOC LAN

(ENGLISH NAME: JENNY)

FINANCIAL MANAGEMENT SYSTEM OF VIETNAM POSTS AND TELECOMMUNICATIONS GROUP AND ITS EFFECTS ON FINANCIAL

EFFICIENCY OF THE COMPANY

DOCTORAL DISSERTATION

ADVISER: DR JOANNA PAULA A ELLAGA

AUGUST, 2013

I am deeply indebted to Dr Nguyen Thanh Hai and Ms Trinh Thi Hieu

-International Training Center, Thai Nguyen University of the Socialist Republic ofVietnam, for their enormous pursuit to provide the Vietnamese people an opportunity

to grow through education Aslo, I would like to thank all the lecturers of DBA1course for helping me to complete this dissertation which I have been their student forthree years

I would like to acknowledge my best friends in the DBA 1 class for reviewing

my dissertation and providing valuable feedback I am grateful to Mr Ngo Anh Cuong and Mr Nguyen Duy Phuong for their help and valuable advice, and for

being great friends throughout my program stint

I am deeply and forever indebted to my family for their love, support, and

encouragement throughout my entire life I would like to thank my husband, Nguyen Trung Kien, who has provided a tremendous amount of love and support throughout

this study On a final note with love are for my five-year old son!

DEED OF DECLARATION

I, To Thi Ngoc Lan (English name: Jenny), hereby submit my dissertation fororal examination, entitled “FINANCIAL MANAGEMENT SYSTEM OF VIETNAMPOSTS AND TELECOMMUNICATION GROUP AND ITS EFFECTS ONFINANCIAL EFFICIENCY OF THE COMPANY”, truthfully declare that the saidpaper is a product of my original research investigation

Signed this ……….2013 at Thai Nguyen University

TO THI NGOC LAN

DBA Candidate

TABLE OF CONTENTS

CHAPTER I: 1

INTRODUCTION 1

1.1 Statement of the objectives 3

1.2 Significance of the Study 4

1.3 Scope and limitation of the Study 5

1.4 Definition of terms 6

CHAPTER II: 9

RELATED LITERATURE 9

2.1 Review of related studies 9

2.1.1 Foreign studies 9

2.1.2 Local studies 10

2.2 Theoretical and conceptual framework 12

2.2.1 Enterprise finance 12

2.2.2 Financial management system 16

2.2.3 Financial efficiency 23

2.3 Research Paradigm 24

CHAPTER III: 28

METHODOLOGY 28

3.1 Research Design 28

3.2 Time and Place of Study 28

3.3 Data collection method 28

3.4 Population, Sample and sampling technique 29

3.5 Research instrument 29

3.6 Data gathering procedure 30

3.7 Data processing method 30

3.8 Statistical treatment 31

CHAPTER IV: 33

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA 33

4.1 Profile of VNPT 33

4.1.1 Type of company 33

4.1.2 Size of company 34

4.2 Current status of financial management system of VNPT from 2010 to 2012 37

4.2.1 Capital mobilization in VNPT 37

4.2.2 Capital management and use in VNPT 47

4.2.3 Asset management in VNPT 59

4.2.4 Management of revenues, expenses and profit distribution in VNPT 71

4.3 Effects of financial management system on financial efficiency of the VNPT .80

4.3.1 Assess the financial efficiency of VNPT 80

4.3.2 Effects of the financial management system to the financial efficiency of VNPT 81

4.4 Problem encountered by financial management system of VNPT 82

CHAPTER V: 83

CONCLUSIONS AND RECOMMENDATIONS 83

5.1 Summary of the findings 83

5.2 Conclusions 87

5.3 Recommendations 88

In the background of deeper and wider regional and international economicintegration, enterprises have to face with more formidable competition from bigmultinational economic organizations in the world In order to adapt to that situation,meeting to demands for economic development and market expansion out of boundary

of countries, many countries are incessantly increase scales of businesses, establishingand developing economic groups Vietnamese enterprises are not out of that trend

The establishment and development of Vietnamese economic groups bothensure the suitability to the development tendency of global economy and exploitinherent competitive advantages of the country, speeding economic growth of thecountry In order to ensure the high efficiency of those economic groups and Stateowned enterprises, it is necessary to improve efficiency of financial managementsystem of economic groups Although this system has taken much progress which hassome certain effects on raising financial efficiency of the economic groups, manytroubles and constraints still exist; for example, Financial management policies andmeasures of the groups are collectivistic, not closing to the actual situation of eachState owned group, which has no small constraint on the financial effectiveness ofeconomic groups in VietNam

To contribute to the enhancement of financial efficiency of economic groups inVietNam in the new situation, it is compulsory to research, innovate financialmanagement system of economic groups

In expectation of contributing some ideas about perfecting financialmanagement system of State owned economic groups, I, the author would like tochoose the subject:

“FINANCIAL MANAGEMENT SYSTEM OF VIETNAM POSTS AND

FINANCIAL EFFICIENCY OF THE COMPANY” for this dissertation.

With such an approach to issues, the main objectives of dissertation is studythe current status of system financial management of VNPT and its effect on financialefficiency of company The specific objectives of this study are: (1) To identify theprofile of the company in terms of the following: Type of the company and Size of thecompany; (2) To determine the current status of financial management system ofVNPT in terms of the following: Capital mobilization, Capital management and use,Asset management, Revenue, expense and profit distribution management; (3) Toassess the financial efficiency of VNPT in terms of the following financial ratios: theasset turnover ratio and the debtor days ratio; (4) To determine the effects of thefinancial management system to the financial efficiency of VNPT; (5) To identify theproblems encountered in carrying out the financial management system of VNPT; (6)

To propose actions that will respond to the problems encountered in carrying out thefinancial management system of VNPT

In order to obtain main objectives of study, the researcher used the descriptivemethod to get data which includes: Primary data was collected by sendingquestionnaires to 169 respondents (CFO of VNPT, director of financial department ofVNPT, deputy director of financial department of VNPT, CFO of VNPT’ssubsidiaries) working in VNPT and its subsidiaries and secondary data: From theannual financial reports of VNPT from 2010 to 2012 For assessing the current status

of VNPT’s financial management system, the dissertation focuses on studying theprofile and the formation and development process of VNPT as well as VNPT’sregulations on capital mobilization, management and use of capital and assets,

management of revenues, expenses and profit distribution, thereby assessing financialmanagement system and its effects on VNPT’s financial efficiency from 2010 to

2012 All this proves that the financial management system of VNPT effectspositively to financial efficiency of the Group

LIST OF TABLES

Table 1 Distribution of the respondents 29

Table 2 Verbal interpretation 30

Table 3 The autonomic level of capital mobilization in VNPT 40

Table 4 The safe level in mobilizing capital of VNPT 41

Table 5 Assets and equity of VNPT from 2010 to 2012 42

Table 6 The autonomic level in mobilizing capital of the VNPT’s subsidiaries 43

Table 7 Clarity and fulfilment in harmonizing capital mechanism of VNPT 44

Table 8 Reasonable level regulated the loan limit at the rate payable on capital not exceeding 3 times: 45

Table 9 The level of autonomy and self-responsibility at VNPT in using and managing capital: 52

Table 10 Level of capital preserve in VNPT 53

Table 11 The level of responsibility in the management and use of the owner’s capital of VNPT 55

Table 12 The effectiveness of investment outsite the sector VNPT 56

Table 13 The transparency of ownership and the right of using assets in VNPT 67

Table 14 The level of conservation of the assets in VNPT 69

Table 15 The level of efficiency in the use of assets in VNPT 70

Table 16 The level of losses and wastage in the use of assets in VNPT 71

Table 17 The clarity and transparency in managing revenues, expenses, and profit distribution in VNPT 75

Table 18 The Level in harmonizing between the interests of the state, corporations and employees in managing revenues, expenses and profits distribution in VNPT 76

Table 19 Revenue of VNPT from 2010 to 2012 77

Table 20 The clarity of the regulations on the distribution of profits which subsidiaries must contribute to VNPT group 78

Table 21 Profits of VNPT from 2010 to 2012 79

Table 22 The asset turnover ratio of VNPT from 2010 to 2012 80

Table 23 The debtor days ratio of VNPT from 2010 to 2012 81

Table 22 The asset turnover ratio of VNPT from 2010 to 2012 86

Table 23 The debtor days ratio of VNPT from 2010 to 2012 86

LIST OF CHARTS

Chart 1 The autonomic level of capital mobilization in VNPT 40

Chart 2 The safe level in mobilizing capital of VNPT 41

Chart 3 The autonomic level in mobilizing capital of the VNPT’s subsidiaries 43

Chart 4 Clarity and fulfilment in harmonizing capital mechanism of VNPT 44

Chart 5 Reasonable level regulated the loan limit at the rate payable on capital not exceeding 3 times: 46

Chart 6 The level of autonomy and self-responsibility at VNPT in using and managing capital: 52

Chart 7 Level of capital preserve in VNPT 54

Chart 8 The level of responsibility in the management and use of the owner’s capital of VNPT 55

Chart 9 The effectiveness of investment outsite the sector VNPT 57

Chart 10 The transparency of ownership and the right of using assets in VNPT 68

Chart 11 The level of conservation of the assets in VNPT 69

Chart 12 The level of efficiency in the use of assets in VNPT 70

Chart 13 The level of losses and wastage in the use of assets in VNPT 71

Chart 14 The clarity and transparency in managing revenues, expenses, and profit distribution in VNPT 76

Chart 15 The Level in harmonizing between the interests of the state, corporations and employees in managing revenues, expenses and profits distribution 77

Chart 16 The clarity of the regulations on the distribution of profits which subsidiaries must contribute to VNPT group 79

LIST OF FIGURES

Figure 1 Research Paradigm 25

LIST OF ABBREVIATIONS

CEO Chief Executive Officer

CFO Chief Financial Officer

FMS Financial Management System

SEG State owed Economic Group

VNPT Vietnam Posts and Telecommunications Group

Thai Nguyen University

Socialist Republic of Vietnam

Southern Luzon STATE University

and submitted by To Thi Ngoc Lan (Jenny) in partial fulfillment of the requirementsfor the degree of Doctor in Business Administration, has been examined andrecommended for acceptance and approval for FINAL ORAL EXAMINATION

Dr JOANNA PAULA A ELLAGA

Adviser

Signature

CHAPTER I:

INTRODUCTION

There are many studies about financial management system in economicgroups under the eyes of theory, situation evaluation as well as summary ofexperience in the country and foreign countries Followings are typical ones:

Firstly, the study, which was published into book, has title:

“Business Groups and financial management system in Business Groups”published in 2003, by author Pham Quang Trung

This study shows many basic theoretical matters about financial managementsystem in economic groups, State owned enterprises as well as descriptions,summaries, analysis of overall picture of actual situation of applying financialmanagement system in economic groups, State owned enterprises in Vietnam in thefirst period when economic groups, State owned enterprises started to go intooperation

Nowadays, with profound changes in economic groups, State ownedenterprises under the changes of State’s policies as well as influences of economicintegration on economic groups, the value of those analysis and evaluation may notkeep intact and need to be updated

Secondly, the study under form of textbook has title “Financial management ofmodern enterprises” published in 2009, author Duong Huu Hanh This study, althoughnot directly mentioning words “financial management system in economic groups”,has contents of financial management in modern enterprises under the view offinancial management of enterprises However, this is study compiled on thebackground of studies of American and Australian professors, having color of a

textbook, so being more theoretical.

Thirdly, the study “Establishment and management of business Groups inVietNam” in 1996 and the author Nguyen Dinh Phan In this study, the author haswritten few pages of financial management in business groups; however, to someextent, the content about this issue is limit and suggestive From that time, theoperation of the State owned enterprises in VietNam has had many alterations, so doesthe financial management system

The issue of financial management system in the economic groups gets theattention of not only scholars in the country but also many foreign economists Forexample, Eugene F.Brigham, a German researcher, in his book "Fundamentals ofFinancial Management" in 2009 also refers to problems in the financial management

of corporations in terms of general theoretical angles about concepts, characteristics,connotation and methods of management

Generally, about financial management system in the economic groups inVietnam, there are some works under the form of books which mention differentangles, but all were released from the 2000 onwards Nowadays under the impact ofregional and international economic integration, and the management of the State forState economic groups inevitably arises many new issues in the financial managementsystem of economic groups in VietNam

Beside that, in recent years, Vietnam economy has gone through a verydifficult period High inflation and interest rates coupled with global economicfinancial crisis and public debt crisis of the European countries have a huge impact onthe business situation of economic groups in Vietnam

In this economic setting, economic groups that want a firm stand in the marketplaceneed to be flexible and ever-innovative Innovative financial management system is

one of the issues of primary concern that directly affects the survival of manyeconomic groups in Vietnam.

In expectation of contributing some ideas about perfecting financialmanagement system of State owned economic groups, I would like to conduct thisstudy

1.1 Statement of the objectives

This study intended to analysis of financial management system of VNPT andits effects on financial efficiency of the Group Specifically, the specific objectives ofthis study are:

1 To identify the profile of the company in terms of the following:

1.1 Type of the company

1.2 Size of the company

2 To determine the current status of financial management system of VNPT

in terms of the following:

2.1 Capital mobilization (focus on financing activities)

2.2 Capital management and use (focus on investment activities)

2.3 Asset management

2.4 Management of revenue, expense and profit distribution

3 To assess the financial efficiency of VNPT in terms of the followingfinancial ratios: the asset turnover ratio and the debtor days ratio

4 To determine the effects of the financial management system to thefinancial efficiency of VNPT

5 To identify the problems encountered in carrying out the financialmanagement system of VNPT

6 To propose actions that will respond to the problems encountered incarrying out the financial management system of VNPT.

1.2 Significance of the Study

Analysis of financial management system is very important in providinginformation for those benefits related to business activities, helping the readers is able

to predict its financial situation in the future as well as risk assessment, quality ofbusiness operations, from which to make financial decisions, decide the mostappropriate management This research will be beneficial for the following:

Investors take an interest in information about the financial efficiency of

VNPT On the one hand, they want to obtain the adequate amount of informationneeded for decision-making about investments in the Group The main attention ispaid to the degree of the risk and return on capital invested On the other hand, ownersand investors want to make sure whether invested resources are properly evaluated

and optimized.

Managers need to know about financial management for current and

long-term decisionmaking Continuous knowledge of VNPT performance allows managers

to make right decisions on gaining of financial resources, on determination ofthe optimum financial structure, on allocation of free finances, on distribution

of profits, and on allocation of trade credits The knowledge of financialmanagement is necessary for both the past and forecasting of future development.Managers make several proposals for policy makers as well as managers of VNPTabout the improvement of the financial management system to enhance the financialefficiency in the new context

Employees are naturally interested in prosperity, economic and financial

stability of VNPT It is concerned with job security, possibilities in wage and socialpolicy, or other benefits provided by the employer

For researcher, provide theoretical knowledge of the financial management

system of economic groups in general and VNPT in particular This study hascontributed to the enhancement of financial efficiency and has given some ideas aboutperfecting financial management system of State owned economic groups in VietNam

in the new situation

1.3 Scope and limitation of the Study

The studying scope of the dissertation is although based on the theoreticalperspective of the financial management system of the State economic corporations ingeneral, when studying the current status of the financial management system in thestate economic groups in VietNam, the author focuses the study on VNPT

The study of current status of financial management system in VNPT isperformed from 2010 to 2012

In my case, Financial efficiency, viewed as dependent variables

Accounting information system practices; Financial reporting and analysispractices; Capital structure management practices; Capital mobilization practices;Capital management and use practices; Asset management practices; Revenue,expense and profit distribution management practices, viewed as independentvariables

But time and my ability is limited, I will focus on: Capital mobilizationpractices; Capital management and use practices; Asset management practices;Revenue, expense and profit distribution management practices, viewed asindependent variables

1.4 Definition of terms

A parent company is a company that controls other companies by owning an

influential amount of voting stock or control Parent companies will typically be largerfirms that exhibit control over one or more small subsidiaries in either the sameindustry or other industries

Capital invested by the State in the Parent Company are the capital directly

taken from the state budget for the parent company in the operation (if any); capitalreceived by the State from other resources as decisions of the competent authorities;additional capital from profit after tax; value of land using rights and other capitalsconsidered as State capital in accordance with the State law

Capital preservation in the parent company means that capital is kept intact

and not be deficit during the operation of the parent company

Capital raised by the parent company is the capital that the parent company

raises under the forms of bonds, bills of credit, debentures; loans from organizationsand individuals in the country and foreign countries; and other capital mobilizingforms that are not prohibited by law

Capital's parent company invested in other enterprises is capital of the

parent company invested in other businesses apart from the parent company

Dependent accounting units are units accounted dependently from the parent

company

Dividends are payments made by a corporation to its shareholder members It

is the portion of corporate profits paid out to stockholders When a corporation earns aprofit or surplus, that money can be put to two uses: it can either be re-invested in thebusiness (called retained earnings), or it can be distributed to shareholders There are

two ways to distribute cash to shareholders: share repurchases or dividends Manycorporations retain a portion of their earnings and pay the remainder as a dividend.

Equity is the residual claim or interest of the most junior class of investors in

assets, after all liabilities are paid If liability exceeds assets, negative equity exists In

an accounting context, Shareholders' equity (or stockholders' equity, shareholders'funds, shareholders' capital or similar terms) represents the remaining interest inassets of a company, spread among individual shareholders of common or preferredstock

Financial efficiency reflects the relationship between the economic benefits

of Capital mobilization; Capital management and use; Asset management; Revenue,expense and profit distribution management that businesses receive with a cost thatbusinesses have to spend to obtain economic benefits

Financial management system is the methodology that an organization uses

to oversee and govern its Capital mobilization; Capital management and use; Assetmanagement; Revenue, expense and profit distribution management with theobjectives of maximizing profits and ensuring sustainability

Governing shares and contributing capital are shares or contributing capital

that company occupies over 50% of the charter capital

Non-productive units are units providing research, training, healthcare

services under the management of the Parent Company

Owner is the State owner of the parent company The Government unifies the

implementation of rights and obligations of the owner to the parent company ThePrime Minister directly performs or authorizes Ministries, the ministerial-levelagencies, the agencies attached to the Government to implement a certain number ofrights and obligations of the owner to the parent company in accordance with the law

Profit is the difference between the purchase and the component costs of

delivered goods and/or services and any operating or other expenses

Revenue is income that a company receives from its normal business

activities, usually from the sale of goods and services to customers In manycountries, revenue is referred to as turnover

Representative is the person which is appointed by the Board of Directors to

represent for capital or to candidate or participate in the Management Board andmanagement in companies which have capital of the parent company

Subsidiary is an independent accounting firm of which charter capital is held

100% by the parent company and being a company that the parent company holdsdominant shares, capital or controlling shareholder through rights of directly orindirectly appointing a majority or all of the Board members, the general director ormanager of that firm or deciding to modify or supplement the charter of that firm

CHAPTER II:

RELATED LITERATURE

This chapter presents the literature related to this Study It includes relatedstudies and definition of finance, contents of financial management system, factorsinfluencing financial management system, criteria for financial efficiency evaluation

of financial management system and definition of financial efficency

2.1 Review of related studies

Authur J Keown, John D Martin, J William Petty, David F Scott, Jr

“Financial management princiles and Application”, 2005

With its exciting introduction of the Harly - Davidson focus company theme,

this book continues to provide a solid, enduring foundation of the tools of moderntheory while at the same time developing the logic behind their use The "10principles of finance" (formerly "Axioms") provide the framework, or "the bigpicture" of the finance, which ties the major concept of the book together A six partorganization covers the scope and environment of financial management, valuation offinancial assets, investment in long term assets, capital structure and dividend policy,working capital management and special topics in finance For an enduringunderstanding of the basic tools and fundamental principles upon which finance isbased.

Nowadays, with profound changes in economic groups, State ownedenterprises under the changes of State’s policies as well as influences of economicintegration on economic groups, the value of those analysis and evaluation may notkeep intact and need to be updated

Duong Huu Hanh , “Financial management of modern enterprises”, 2009.

This study, although not directly mentioning words “financial managementsystem in economic groups”, has contents of financial management in modern

enterprises under the view of financial management of enterprises However, this isstudy compiled on the background of studies of American and Australian professors,having color of a textbook, so being more theoretical.

Kieu Minh Nguyen, “Financial management and profitability of small and

a model of SME profitability, in which profitability was found to be related tofinancial management practices and financial characteristics With the exception ofdebt ratios, all other variables including current ratio, total asset turnover, workingcapital management and short-term planning practices, fixed asset management andlong-term planning practices, and financial and accounting information systems werefound to be significantly related to SME profitability

With the findings as presented above, this research study provides manyimplications for financial management practices and contributes to knowledge offinancial management of SMEs The model of SME profitability can be used asguidance for actions to improve the profitability of SMEs in Vietnam

Vu Anh Tuan, “Financial Management to contribute to increasing the competitiveness of Vietnamese Economic Groups”, 2012

The research has studied and suggested the criteria on analyzing and assessingthe usefulness of the financial management system in the economic groups Althoughthose criteria have not been actually standardized, mentioning them in this research is

a new contribution to suggesting further researching and completing the criteria onassessing the usefulness of the financial management system of the economic groups

The research has further researched the nature of the financial managementsystem as regulated by the state and the actual operations The research has maderelatively comprehensive comments on the state financial management mechanism forthe state economic groups, successes and limitations of this mechanism These can beregarded as new contributions of this research Because this is the first time adocument assessing the state financial management mechanism for the economicgroups has been offered Although there may be many issues that need to be discussedthrough the results on assessing the state financial management mechanism asmentioned by the research, these are suggestive assessments for further researching,completing the state financial management mechanism for the state economic groupsunder the condition of restructuring the state economic groups as guided by the state

2.2 Theoretical and conceptual framework

2.2.1 Enterprise finance

According to Michael C Ehrhardt:

“Finance is the application of economic principles and concepts to businessdecision-making and problem solving The field of finance can be considered tocomprise three broad categories: financial management, investments, and financialinstitutions:

- Financial management: sometimes called corporate finance or businessfinance, this area of finance is concerned primarily with financial decision-making

within a business entity Financial management decisions include maintaining cashbalances, extending credit, acquiring other firms, borrowing from banks, and issuingstocks and bonds.

- Investments: this area of finance focuses on the behavior of financial marketsand the pricing of securities An investments manager’s tasks, for examples, mayinclude valuing common stocks, selecting securities for pension fund, or measuring aportfolio’s performance

- Financial institutions: this area of finance deals with banks and other firmsthat specialize in bringing the suppliers of funds together with users of funds Forexample, a manager of a bank may make decisions regarding loans, managing cashbalances, setting interest rates on loans, and dealing with government regulations”.(Ehrhardt and Brigham, 2008)

2.2.1.1 Basic concepts of financial management

“Finance consists of three interrelated areas: (1) money and capital markets, which deals with securities markets and financial institutions; (2) investments, which

focuses on the decisions made by both individual and institutional investors as they

choose securities for their investment portfolios; and (3) financial management, or

“business finance,” which involves decisions within firms The career opportunitieswithin each field are many and varied, but financial managers must have knowledge

of all three areas if they are to do their jobs well” (Brigham and Houston, 2009)

“Financial management is the broadest of the three areas, and the one with themost job opportunities Capital and generation of cash flow are those of theprerequisites for business foundation and running, so financial management isimportant in all types of businesses, including banks, other financial institutions,governmental operations, or charity organizations Financial managers have the

responsibility for deciding the credit terms, under which customers may buy, howmuch cash should be kept on hand, how much inventory the firm should carry, howmuch of the firm’s earnings to plow back into the business versus pay out asdividends, whether to acquire other firms (merger analysis) or how much and whichtypes of securities to issue for capital raising, and so on” (Brigham and Houston,2009).

“The financial staff’s task is to acquire and then help operate resources so as tomaximize the value of the firm Here are some specific activities:

- Forecasting and planning: The financial staff must coordinate the planning

process This means they must interact with people from other departments as theylook ahead and lay the plans that will shape the firm’s future

- Major investment and financing decisions: A successful firm usually has

rapid growth in sales, which requires investments in plant, equipment, and inventory.The financial staff must help determine the optimal sales growth rate, help decidewhat specific assets to acquire, and then choose the best way to finance those assets.For example, should the firm finance with debt, equity, or some combination of thetwo, and if debt is used, how much should be long term and how much short term?

- Coordination and control: The financial staff must interact with other

personnel to ensure that the firm is operated as efficiently as possible All businessdecisions have financial implications, and all managers—financial and otherwise—need to take this into account For example, marketing decisions affect sales growth,which in turn influences investment requirements Thus, marketing decision makersmust take account of how their actions affect and are affected by such factors as theavailability of funds, inventory policies, and plant capacity utilization

- Dealing with the financial markets: The financial staff must deal with the

money and capital markets Because each firm affects and is affected by the generalfinancial markets where funds are raised, where the firm’s securities are traded, andwhere investors either make or lose money.

- Risk management: All businesses face risks, including natural disasters

such as fires and floods, uncertainties in commodity and security markets, volatileinterest rates, and fluctuating foreign exchange rates However, many of these riskscan be reduced by purchasing insurance or by hedging in the derivatives markets.The financial staff is responsible for the firm’s overall risk management program,including identifying the risks that should be hedged and then hedging them in themost efficient manner” (Brigham and Houston, 2009)

2.2.1.2 Objectives of financial management

- Provide support for decision making Financial management provides

managers with the information and knowledge they need to support operationaldecisions and to understand the financial implications of decisions before they aremade

- Ensure the availability of timely, relevant and reliable financial and financial information Financial management gives managers the information that

non-either forms the basis for calculating financial information, or is used for managementcontrol and accountability purposes

- Manage risks Financial management enables an organization to identify,

assess and consider the financial consequences of events that could compromise itsability to achieve its goals and objectives and/or result in significant loss of resources

- Use resources efficiently, effectively and economically Financial

management is necessary to ensure that an organization has enough resources to carry

out its operations, and that it uses these resources with due regard to economy,efficiency and effectiveness.

- Comply with authorities and safeguard assets Financial management is

essential to ensuring that an organization carries out its transactions in accordancewith applicable legislation, regulations and executive orders; that spending limits areobserved; and that transactions are authorized It also provides an organization with asystem of controls for assets, liabilities, revenues and expenditures These controlshelp to protect against fraud, financial negligence, violation of financial rules orprinciples and losses of assets or public money

2.2.2 Financial management system

2.2.2.1 Definition of financial management system

A financial management system is the methodology that an organization uses

to oversee and govern its income, expenses, and assets with the objectives ofmaximizing profits and ensuring sustainability

2.2.2.2 Contents of financial management system in economic groups (EGs)

According to Vu Anh Tuan, 2012:

Financial management system in the EGs is way of organizing and controllingthe financial activities of EGs The specific contents of the system are as followings:

2.2.2.2.1 Capital mobilization

This is a form, method and tools to mobilize capital in subsidiaries companies

to maximize the mobilization of financial resources to serve the demand forproduction and trading

The mobilization in the EGs is an objective requirement, playing a veryimportant role because the capital is one of the factors that set the premise for

improving the financial performance of EGs As a part of the financial managementsystem, capital mobilization in the EGs is influenced by economic and social factors,and financial and economic mechanism of the State in certain periods.

Mentioning to the capital mobilization in the EGs means mentioning todetermination the funding target, method of raising capital, funding channels,calculations, consideration the issues of raised interest rates Generally, thecharacteristics of raising capital in the EGs are marked by economic models andowning forms of EGs

Nowadays the popular methods of raising capital in the EGs are:

- The issuance of bonds, shares of the EGs

- Method of raising capital in internal EGs

- The mobilization through credit channels of banks

- Through joint venture, affiliate activities or through financial leasingcompanies

2.2.2.2.2 Capital, assets management and use

Management and use of capital and assets mean contents and methods ofcapital and assets management and use in order to achieve the desired efficiency.Management and use of capital and assets of the EGs cover many different issues withcomplicated content In the State owned economic groups (SEG) range, because ofthe characteristic of state ownership about capital and assets of SEG, capital, assetsmanagement has some features of state ownership Those features are both to ensurethe management and control of the State and to promote dynamism and creativity ofthe SEG in the management and use of funds, assets invested by the state Handlingthis relationship requires handling the relationship between ownership and use rights

of capital and assets in the SEG, establishing and implementing powers of

representative bodies of state ownership with rights of the EGs in the management,use of assets allocated by the State This is a very sensitive relationship, if only infavor of the management aspect of the State mechanically, the dynamic and creativity

of the SEG will be eliminated; in contrast, if in favor of the opposite side to ensure thefreedom of self-determination of the SEG, loosening the inspection and supervision ofthe state agencies, wasting and loss of capital and assets may happen Therefore,finding solutions to well handle this relationship in the management of capital, assets

in the SEG is very important The key of handing this relationship is based on theview of considering using effectiveness of capital, assets in the SEG to be animportant matter The management and use of capital, assets in the SEG consist ofthree main issues, namely:

- Decentralization

- Inspection and supervision

- Assess the effectiveness of management and use of capital, assets in theSEG

The essence of decentralization is the assignment of authority andresponsibility of using the capital and assets of the SEG

2.2.2.2.3 Revenue, expenses management and profit distribution in EGs.

Revenue, expenses management and profit distribution are the ways ofRevenue, expenses management and profit distribution ruled by the State and EGsdepending on the nature of ownership of EGs For state-owned EGs, the revenue,expenses management, and profit distribution is decided by the State Whether thestate or EGs regulate, the contents of revenue, expenses management, profitdistribution contain the following issues:

For the issue of revenue management, it is necessary to conduct classification

of revenue It is also to determine the time of arising revenue The determination ofthe time of arising such revenues is not only a matter of calculation but also a matter

of the implementation of obligations to the State; organization of revenue accounting;organization of analysis, evaluation of revenues achieved in a business cycle

For the issue of expenses management including researching, solvingproblems, such as expenses classification, the establishment of economic measuresand techniques to reduce expenses, lower product prices, periodic analysis andexpenses evaluation

Profit distribution in EGs is the expression of settling the interest relationshipamong the state, EGs (parent company, subsidiary companies), employees, andbetween EGs and shareholders, between immediate interests and long-term benefits ofEGs, between accumulation and consumption

Due to the ownership nature of EGs, profit distribution model in the EGs hasdifferent points on the delimitation of profit to portions and the determination of therate for each portion

The problem in the profit distribution in EGs is how to ensure theharmonization of interests, ensure the transparency, make the profit distribution tobecome an economy stimulating tool for EGs

2.2.2.2.4 Financial control of the parent company to subsidiaries companies

The establishment of financial controlling mechanisms of the parent company

to its subsidiaries is generally complex, related to the degree and nature of ownership

of the EGs, and related to capital contribution ratio of parent company into the

subsidiaries companies Therefore, to study and establish financial controllingmechanism, it is required to study the degree and nature of ownership of EGs.

2.2.2.3 Factors influencing financial management system in economic groups

According to Vu Anh Tuan, 2012:

Financial management system in economic groups is a range of regulationsabout the ways and methods of EGs to operate and manage financial managementactivities of EGs The establishment of financial management system is firstly

depended on many internal and external factors of the EGs

2.2.2.3.1 Internal factors of the EGs.

Financial Situation of the EGs is reflected in following aspects:

- The mobilization of financial resources to improve the financial performance

of the EGs

- The status of allocation and use of financial resources of the EGs

- The status of distribution and use of operational efficiency of EGs

2.2.2.3.2 External factors of the EGs.

There are many external factors influencing the forming of the financialmanagement system of EGs which are:

- The guidelines and development policies of the State about the formation anddevelopment of the EGs If the State encourages scale expansion, multi-sectorial,multidisciplinary activities, multi-ownership, the financial management system ofEGs will have to handle not only more relationships including financial relationships

in main activities of the EGs but also many financial relationships in other auxiliaryactivities of the EGs

- Macroeconomic situation and policies of macroeconomic operation of theState.

Current status of the financial management system of EGs is an integral part

of macroeconomic situation (growth, employment, balance of payment, budgetdeficit, inflation ) and guidelines of operating macroeconomic of the State If themacroeconomic situation is instable, the State is necessary to launch measures tostabilize the macro-economy, which will inevitably have a major impact on thestrategies, plans, leading to formidable changes in the financial management system

of the EGs Conversely, if the macro-economic situation is stable, it is inevitable toincrease the production and business activities of the EGs, make the financialactivities of the EGs to be more vibrant, expand the scale of operation, arise manynew financial relationships, requiring EGs to appropriately adjust the financialmanagement system

- Globalization, Integration, opening the economy, collaboration, competitionare also factors having not small impact on the establishment, implementation of thefinancial management system of EGs

Globalization, integration, opening the economy, collaboration, competitionare objective trends in the course of social economic development of each country

As an economic entity, all activities of EGs are influenced by those trends Trends ofintegration, opening the economy, collaboration, competition put the EGs in front ofnot only great opportunities, but also big difficulties and challenges in theimplementation of its operating strategies

2.2.2.4 Criteria for financial efficiency evaluation of financial management system

According to Vu Anh Tuan, 2012:

There are many criteria to evaluate the effectiveness of the financialmanagement system of EGs However, it is general to evaluate the financialmanagement system of EGs based on following criteria:

2.2.2.4.1 Preservation and development of financial resources, asset values of EGs

Preservation and development of financial resources and asset value are bothobjective and means to develop EGs A useful and effective financial managementsystem is a mechanism of which effectiveness is to conserve and develop financialresources and asset values of the EGs

2.2.2.4.2 Assurance of managing financial risks of EGs

In fact, for many objective and subjective reasons, financial performance inEGs is not always smooth but potentially risky Thus the financial managementsystem must make provisions for prevention and treatment of financial risks Suchfinancial management system is considered to be a useful and effective financialmanagement system

2.2.2.4.3 Creating good conditions for EGs to effectively and actively use financial resources and assets as well as for the State to inspect and supervise financial activities of EGs.

Effective use of all financial resources and assets in the EGs is a basis toexpand and scale up activities of the EGs in producing a variety of products for thesociety. A financial management system with the effect of encouraging and creatingpressure for effective business activities of EGs is considered to be a criterion ofevaluating the effectiveness of the financial management system.

2.2.3 Financial efficiency

Definition of Efficiency

A level of performance that describes a process that uses the lowest amount ofinputs to create the greatest amount of outputs Efficiency relates to the use of allinputs in producing any given output, including personal time and energy

Efficiency is an important attribute because all inputs are scarce Time, money andraw materials are limited, so it makes sense to try to conserve them while maintaining

an acceptable level of output or a general production level

Being efficient simply means reducing the amount of wasted inputs

Definition of Finance

The science that describes the management, creation and study of money,banking, credit, investments, assets and liabilities Finance consists of financialsystems, which include the public, private and government spaces, and the study offinance and financial instruments, which can relate to countless assets and liabilities.Some prefer to divide finance into three distinct categories: public finance, corporatefinance and personal finance All three of which would contain many sub-categories

The study of finance can also take many forms, depending on the field or area

of finance which one wishes to study For instance, economics is considered a pillar

of financial science, where both macro and microeconomic factors affect virtuallylevels of financial decisions and outcomes at all levels Additionally, the study ofbehavioral finance aims to study the more "human" side of a science considered bymost to be highly mathematical This illustrates that the study of finance can, at times,

be more art than science

Financial efficiency reflects the relationship between the economic benefitsbusinesses receive with a cost that businesses have to spend to obtain economicbenefits

2.3 Research Paradigm

Figure 1 Research Paradigm

FINANCIAL MANAGEMENT SYSTEM OF VNPT AND ITS EFFECTS ON

FINANCIAL EFFICIENCY OF THE COMPANY