APPLYING MONTE CARLO SIMULATION TO CASH BUDGETING FOR BIMSON CEMENT JOINT STOCK COMPANY

TABLE OF CONTENTSABSTRACT.…4ACKOWLEDGEMENT5LIST OF ABBREVIATIONS6LIST OF FIGURES7LIST OF TABLES8CHAPTER I. INTRODUCTION91.1.Purpose (Statement of problem)91.2.Structure of the thesis11CHAPTER II. THEORETICAL FRAMEWORK122.1.Cash budgeting122.1.1.Overview of cash budgeting122.1.2.The role of cash budgeting in manufacturing firms142.1.3.Cash budgeting techniques152.2.Overview of Monte Carlo Simulation192.2.1.Introduction to Monte Carlo Simulation192.2.2.Monte Carlo simulation in finance202.2.3.Steps in the Monte Carlo simulation212.2.4Using Monte Carlo simulation as cash budgeting tool22CHAPTER III.APPYLING MONTE CARLO SIMULATION TO CASH BUDGETING FOR BIM SON CEMENT JOINT STOCK COMPANY233.1.Introduction about Bim Son Cement Joint Stock Company233.1.1.Brief introduction233.1.2.Main products of the company243.1.3.Financial performance of the company in the last 2 years263.1.4.Position of the company in the industry283.2.Applying Monte Carlo simulation to cash budgeting for Bim Son Cement Joint Stock Company303.2.1.Cash budgeting steps using Monte Carlo simulation303.2.2.Assumptions313.2.3.Process of cash budgeting for the company373.2.4.Result and analysis433.2.5.Recommendations for Vietnamese firms and Bim Son Cement Joint stock Company46CONCLUSION48REFERENCES49APPENDIX A..50

UNIVERSITY OF RENNES 1 (FRANCE)

MASTER THESIS Major: Finance (Treasury)

APPLYING MONTE CARLO SIMULATION TO CASH BUDGETING FOR BIMSON CEMENT

JOINT STOCK COMPANY

Student’s full name: HOANG Thanh Huyen

NGUYEN Thi Kim Thanh Intake: 2015-2016

Supervisor: Assoc Prof., PhD NGUYEN Viet Dzung

Hanoi, August 2016

ACKOWLEDGEMENT 5

LIST OF ABBREVIATIONS 6

LIST OF FIGURES 7

LIST OF TABLES 8

CHAPTER I9 INTRODUCTION 9

1.1 Purpose (Statement of problem) 9

1.2 Structure of the thesis 11

CHAPTER II 11 THEORETICAL FRAMEWORK 12

2.1 Cash budgeting 12

1 Overview of cash budgeting 12

2 The role of cash budgeting in manufacturing firms 14

3 Cash budgeting techniques 15

2.2 Overview of Monte Carlo Simulation 19

a Introduction to Monte Carlo Simulation 19

b Monte Carlo simulation in finance 20

c Steps in the Monte Carlo simulation 20

2.2.4 Using Monte Carlo simulation as cash budgeting tool 22

CHAPTER III 22 APPYLING MONTE CARLO SIMULATION TO CASH BUDGETING FOR BIM SON CEMENT JOINT STOCK COMPANY 22

3.1 Introduction about Bim Son Cement Joint Stock Company 22

1 Brief introduction 22

2 Main products of the company 24

3 Financial performance of the company in the last 2 years 25

4 Position of the company in the industry 27

ii Applying Monte Carlo simulation to cash budgeting for Bim Son Cement Joint Stock Company 29

3.2.1 Cash budgeting steps using Monte Carlo simulation 29

Figure 5: Cash budgeting steps using Monte Carlo simulation 29

30 3.2.2 Assumptions 30

3.2.3 Process of cash budgeting for the company 36

3.2.4 Result and analysis 43

3.2.5 Recommendations for Vietnamese firms and Bim Son Cement Joint stock Company 45

CONCLUSION 47

REFERENCES 48

1.http://cafef.vn 48

2.http://ximangbimson.com.vn (website of BCC) 48

3.http://hnx.vn/web/guest/home (website of Hanoi Stock Exchange) 49

4.Andreas Grau, 2012, How can I implement Monte-Carlo Simulations in MS Excel? http://computeraidedfinance.wordpress.com 49

5.Create a Monte Carlo Simulation using excel 49

http://www.investopedia.com/articles/investing/093015/create-monte-carlo-simulation-using-excel.asp 49

6.http://www.minitab.com 49

7.https://www.riskamp.com 49

8.https://www.lancaster.ac.uk 49 APPENDIX A49

Monte Carlo simulation is a useful capital budgeting tool that allows the user to reflect the uncertainty associated with various cash components The output from the simulation consists of distributions of net cash flows, which can be used for decision-making and risk management However, Monte Carlo simulations are often implemented using specialized software, making them inaccessible to many people because of its difficulties and cost consuming In this thesis, we demonstrate how to implement Monte Carlo simulation to cash budgeting for a manufacturing company using Microsoft Excel which is not only easy to use and understood but also delivering the reliable outputs that will be useful for the managers in cash management and decision making

We would like to express our gratitude to all those who help us to complete this thesis

Especially, we would like to thank our supervisor Assoc Prof., PhD NGUYEN Viet

Dzung for his supervision, time and patience during the course of this thesis We

would also like to thank the lecturers at the University of Rennes 1, Foreign Trade University and our colleagues in the MSc course Finally, we would like to extend our sincere thank to our families and friends for their love, support and encouragement which were extremely important for the completion of this thesis

LIST OF ABBREVIATIONS

LIST OF FIGURES

FIGURE 1 Fluctuation of cash and cash equivalents of BCC from 2006

LIST OF TABLES

TABLE 1 Example of ScenariosAnalysis for cash budgeting 18

CHAPTER I INTRODUCTION1.1 Purpose (Statement of problem)

The difference between a company that succeeds and one that fails is often cash management Having too little cash means a business may have to pass on profitable ventures or take out loans to overcome liquidity issues Too little cash may also mean

a company may be unable to operate at normal levels or be forced to shut down completely With different stages of development, cash is always a vital factor securing for smoothly business operations To avoid these issues, companies rely on cash budget to plan and control cash receipts and payments

Ms Hsin-hui I.H Whited (RBFS Vol 5 No.1 2014) – an Associate Professor of Finance at the Hasan School of Business, Colorado – in her research on short-term financial planning for entrepreneurs has stated that Cash is lifeblood of an entrepreneurial venture Without sufficient cash, a venture cannot stay alive This is the truth for every type of ventures, from manufacturing ones to trading ones

Bim Son Cement Joint Stock Company (BCC) was founded in 1980s, during the starting period of reconstructing Vietnam’s economy and has nearly 40 years of striving and growing Today, Bim Son has its own position as one of the leading enterprises in the domestic cement and clinker market In the context of high competition and fluctuation economy recently, alike other enterprises BCC has to struggle to express itself and improve the effectiveness of the operation As a manufacturing company, BCC always requires a certain amount of cash available satisfying for operating and producing activities As one of the leading cement manufacturers in Vietnam that meets the consumption demand of about 70 million tons per year both for domestic market and exporting market, the cash management and cash budgeting is for sure the integral matter to take into account for the company

By using historical data in the balance sheet of BCC from 2006 to the very first month

of 2016, we have seen the fluctuation of cash and cash equivalents of BCC shown in numbers of minimum value is VND 22 billion, maximum value is VND 352 billion and the standard deviation is VND 63 billion The fluctuation of cash and cash equivalents is shown in the following figure:

Figure 1: Fluctuation of cash and cash equivalents of BCC from 2006 to 2016

“What will be the cash balance for the next quarters? How much we need to borrow?” These are obviously questions that BCC has to answer periodically By some direct interviews with accounting manager of BCC, we have learnt that in fact, BCC estimates and predicts the need of cash in such a very simple way that only answers the question “what will occur and which will occur” by choosing one of the three among “the best, the most likely and the worst case” scenarios They use historical data to average value of some recent periods which can not exactly represent for the fluctuation of the data, and then this method seems to be helpful but sometimes the

estimated results will not be correct in comparision to actual data, because it can not

cover all sources of variability and not estimate based on the distribution of uncertainty input Moreover, this way of performing the cash budgeting task takes

much time and effort to do this In the period of unstable world economy, especially in the cement industry where competetion is increasingly fierce, lacking of cash or surplus of cash will effect directly to any maufacturing firm Any delay in inward cash flow will postpone the production (not enough cash to pay the raw material suppliers/pay salaries to staffs/pay interests to banks, etc) Any unexpected surplus in cash will make the investing decision not exactly, not in time with the opportunity So, obviously, the company should start studying and applying a forecasting method regarding all sources of variability and uncertainty input such as Monte Carlo simulation This method is a statistical approach which is concerned with experiments employing random numbers It is used by proessionals with applications in a wide

Q1/2016 Q4/2006

range of fields including Physics, Finance, Chemistry, Biology and Medicine There are several applications of Monte Carlo simulation in finance setting, one of those is

to predict the cash balance for operating and production activities The uncertainty aspect that affects the cash balance is the sales Since the company was listed in the Hanoi Stock Exchange in 2006, so all the financial statements are published, thus, it is open and freely for us to obtain the historical data, large enough to get reasonable

result For all of those typical reasons, the authors choose Bim Son Cement Joint

Stock Company to study in this thesis.

Being aware of the important role of the cash budgeting in a firm and the significance

of applying simulation for better forecasting the potential cash flows in the future, we

have chosen the topic “Applying Monte Carlo simulation to cash budgeting for

Bim Son Cement Joint Stock Company” to study and assess in this thesis in order to

provide some possible recommendations and solutions to improve the cash budgeting

in this manufacturing firm With the historical data from 4 th quarter of 2006 to 1 st

quarter of 2016, we also would like to know whether Monte Carlo simulation can

work efficiently to predict and help to reduce effort and time for BCC in performing cash budgeting or not

1.2 Structure of the thesis

This thesis includes three chapters, focusing on three parts: introduction, theoretical and empirical section:

Chapter 1: Introduction

Chapter 2: Theoretical framework

Chapter 3: Applying Monte Carlo simulation to cash budgeting for Bim Son Cement Joint Stock Company

Despite our effort, as this is our first touch on this subject, shortcomings are about to

be expected Hopefully, it can still provide some practical knowledge on and inspiring initial to cash budgeting for Bim Son Cement Joint Stock Company by applying Monte Carlo simulation

CHAPTER II

THEORETICAL FRAMEWORK2.1 Cash budgeting

1 Overview of cash budgeting

At first, let’s take a look at what is budget At its most basic level, a budget is a plan

It is a plan for owners and managers to achieve their goals for the company during a specific period of time A budget allows businesses to meet specific goals by creating

a system of saving and spending money efficiently Simply defined, a budget is a plan for using corporate funds in a way that best meets the firm’s wants and needs The plan includes a recorded entry of expected income, expenses, and savings over a specified period of time The idea of the cash budget is simple: it presents estimates of anticipated cash receipts and disbursements for a specified period It provides for effective use of funds by anticipating potential excesses of cash as well as possible shortages

Cash budgeting – also called cash planning/cash controlling technique - is one

section among cash management duties Cash management is concerned with minimizing unproductive balances, investing temporarily cash advantageously and to making the best possible arrangement to meeting planned and unexpected demand on the firm’s cash It involves managing of cash flows in and out of the firm that is cash flows within the firm and cash balances held by the firm at a point of time

Cash management must be thought of in terms of the overall liquidity needs of the firm, specifically its current assets and liabilities In order to reduce the influence of uncertainties with regard to cash needs and to ensure adequate liquidity, firm has to gauge the need for protective liquidity It it necessary for business to maintain a certain amount of cash in hand of bank always, even if the other current assets are at sustained figure Cash is both beginning and the end of the working capital cycle – cash, inventories, receivables and cash Cash is the basic input need to keep a business running on a continuous basis It is also the ultimate output expected to be realized by selling the services or product manufactured by an enterprise Cash management assumes more importance than other current assets because cash is the most significant and the least productive asset that a firm holds The aim of cash management should be maintain adequate cash position to keep the firm’s operations

in profitable manner Cash management is required for smooth running and maximum profitability of the business

CASH BUDGET is the most significant device to plan for and control the cash receipts and payments A cash budget is a summary statement of the firm’s expected cash inflows and outflows over a projected time period It gives information on the timing and magnitude of expected cash flows and cash balances over the projected period This information helps the financial manager to determine the future cash needs of the firm, plan for the financing of those needs and exercise control over the cash and liquidity of the firm We need to differentiate the two terms: cash forecasting and cash budgeting Cash forecasts are needed to prepare cash budgets Cash forecasting can be done on short term or long term basis Generally, forecasts conferring periods of one year or less considered short-term Those extended beyond one year are considered long-term Short term forecasts are uses to:

 Determine operating cash requirements

 Anticipate short term financing

 Manage money market investments

Cash budgeting is a time phased schedule of cash receipts and cash disbursements, and show the estimated cash inflows and outflows over a certain period It is a tool of planning cash need of business concern and serves as a cash control device The cash budget report aims at ascertaining deviation of actual operations from budgeted ones and making it possible to compare actual with estimated cash balances at the end of each plan period If there is a marked difference between the actual and projected balances, the cash budget for succeeding period should be revised and included in the report

The cash budget is important because it helps the business owner manage the net working capital of the company Business owners normally prepare a cash budget every month, although some business owners choose to prepare the cash budget quarterly Cash budget as a short-term financial instrument The cash budget document, therefore, tells how much cash is available to the firm at the end of each month/each quarter Those activities that increase cash are called sources of cash Those activities that decrease cash are called uses of cash Sources of cash always involve increasing a liability (or equity) account or decreasing an asset account This makes sense because increasing a liability means that we have raised money by borrowing it or by selling an owner-ship interest in the firm A decrease in an asset means that we have sold or otherwise liquidated an asset In either case, there is a cash inflow Uses of cash are just the reverse A use of cash involves decreasing a liability

by paying it off, perhaps, or increasing assets by purchasing something Both of these

activities require that the firm spend some cash in hand.

2 The role of cash budgeting in manufacturing firms

The cash budget is management’s approximation of cash on hand at the beginning of a budget period and the estimated cash inflows and outflows The cash inflows may include those that result from cash sales, the sale of assets, the collection of accounts receivable, borrowing cash or stock issuance The cash outflows may include disbursements for material purchases, debt repayment, asset acquisition, taxes, manufacturing costs and dividends The cash budget highlights a company’s probable income or deficit for a period, the latter of which the company must address by increasing expenditures The importance of the cash budget lies in its ability to identify a company’s future financing needs, highlight the need for corrective actions and evaluate a company’s performance A cash budget is important for a variety of reasons It allows the firm to make management decisions regarding its cash position (or cash reserve) Without the type of monitoring imposed by the budgeting process, firm may be unaware of the cash flow through its business

cash deficit might exist and the extent of that shortfall In turn, the budget indicates when a difference between budgeted and actual values might need to be made up borrowing Short-term financing might be required to acquire inventory, promote products or pay monthly expenses By predicting cash requirements, a company can also evaluate future business opportunities in part based on an opportunity’s probable financing needs and costs For instance, financing costs will influence the profitability of a merger and product development This process allows a company

to select only those organization goals that are financially feasible

cash necessary to meet upcoming obligations and to trigger corrective actions if a company’s actual figures don’t match the budget estimates For example, a company experiencing cash-inflow problems may need to borrow money in the short term for emergency equipment repairs, the payment of taxes or a monthly payroll In addition, the company may need to borrow money in the long term for the introduction of a new product to the market or the replacement of equipment The company might also need to respond to a sharp decline in market sales by adjusting spending or prices or negotiating more favorable terms with lenders

 Company performance: A cash budget is used to illustrate a company’s financial

position to internal and external stakeholders - individuals with an interest in the

company - including investors, suppliers and company leadership For example, increasing cash flow may indicate strong demand for the company’s products and opportunities for company expansion, which are positive signals to current and potential investors In contrast, if company expenses are significantly more than the company’s cash inflow, the investment risk is high and may deter additional investment in the company Declining cash flow may also make it more difficult for a company to obtain additional vendor credit or pay its existing debt, which might force the company into bankruptcy.

3 Cash budgeting techniques

2.1.3.1 Data for cash budgeting

To prepare a cash budget, we need to use data from the past events, they are:

(1) Income statement: An income statement is a financial statement that reports a

company’s financial performance over a specific accounting period Financial performance is assessed by giving a summary of how the business incurs its revenue and expenses through both operating and non-operating activities It also shows the net profit or loss incurred over a specific acccounting period

(2) Balance sheet: A balance sheet is a financial statement that summarizes

company’s assets, liabilities and shareholders’ equity at a specific point of time These three balance sheet segments gives investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders

(3) Statement of cash flow (CFS): This is the report that records the amounts of cash

and cash equivalents entering and leaving a company It is derived from the income statement and the balance sheet The CFS allows investors to understand how a company’s operations are running, where its money is coming from, and how it is being spent The CFS is distinct from the income statement and balance sheet because

it does not include the amount of future incoming and outgoing cash that has been

PAST EVENTS

INCOME STATEMENT

CASH FLOW

recorded on credit Statement of cash flow is used to predict the future cash flow,

which helps with matters in budgeting

2.1.3.2 Constructing a cash budgeting

Building a cash budget is a short-term financial planning which concentrates on a

company’s cash needs and involves constructing the schedules of sales, inventory purchases and other cost Financial statements including income statements, balance sheets and statements of cash flows over a short period are also forecasted Furthermore, it stipulates the major contributor for the cash position during this period Each cash budgeting depends on the nature of business, the predictability of account receivable, etc To build up a simple cash budget, small steps are arranged in

an orderly fashion and presented as below process:

Figure 2: Five steps for a cash budgeting

2.1.3.3 Cash budgeting techniques

 Non-simulation budgeting technique :

The net difference between estimated cash inflow and outflow for corresponding months/quarters is the net cash flow The value of the net cash flow for each month/quarter is then compared to the desired cash balance and, if the net cash flow minus the desired cash balance is negative, the financial decision maker attempts to arrange for the necessary financing If the difference between the net cash flow and the desired cash flow is positive, the financial decision maker may plan strategies in order to reduce the cash balance, which is dividend payment, purchase of marketable securities or stock repurchase However, this technique does not successfully account

for the uncertainty of the forecasts The forecast mostly based on the treasurer’s

experience only So, a more comprehensive way to deal with uncertainty in cash

budgeting is that, the treasurers apply the Scenario Analysis or What If Scenario

This helps to produce several cash budgets based on several forecasted scenarios (e.g., persimistic, most likely, optimistic)

Table 1: Example of ScenariosAnalysis for cash budgeting Unit: Billion VND

As per example, we have some possible outcomes from which the treasurer can determine the amount of financing necessary to cover the most adverse situation However, in reality, the variable will not only move within a certain range of pessimistic-most likely-optimistic That requires another way to deal with uncertainty – simulation, which will be described below

 Simulation technique:

The uncertainty of estimation must be considered in order to provide the decision maker with a more accurate description of this decision environment Many authors (Stancill, James McN., Scranton 1971; VanHorne, James C., Englewood Cliffs, 1971) have suggested calculating the cash budget based on a number of forecasts, i.e,

optimistic, most likely and pessimistic forecasts Other authors (Budin Morris, Gitman Lawrence J., Lerner, etc 1971-1973) have suggested the use of simulation in order to develop a range of possible outcomes and associated probabilities Eugine M Lerner,

in 1968, illustrated the application of simulation to cash budgeting utilizing a simple example Lerner emphasized the use of simulation to develop expected monthly values of a firm’s cash balance The standard deviation of the cash balances was also provided The main short-coming of Lerner’s approach was the failure to utilize fully the information provided After Lerner, David F.Scott made improvement to the technique by adding parameters of a simulated distribution His approach involved simulating a firm’s gross cash inflows and gross cash outflows and then netting these figures to obtain net cash flow The author believes it would be more reasonable to develop a mathematical model to explain the resulting gross cash flows and then to generate the key stochastic variables and measure their effects on the net cash flow

“But the major shortcoming seen in Scott’s work lies in the mathematical model and the variables simulated” (Thomas M.Cook, Lawrence J.Gitman and Charles Defelice, Simulation of a corporate cash budget: Application and Validation)

A special simulation named Monte Carlo simulation was first used in 1930s, when

Enrico Fermi used Monte Carlo in the calculation of neutron diffusion Nowadays, Monte Carlo simulation are used in finance and mathematical finance to value and analyze complex instruments, portfolios and investments by simulating the various sources of uncertainty affecting their value, and then determining their average value over the range of resultant outcomes This is usually done by help of stochastic asset

models The advantage of Monte Carlo methods over other techniques is that

reliability increases as the dimensions (sources of uncertainty) of the problem increase

2.2 Overview of Monte Carlo Simulation

a Introduction to Monte Carlo Simulation

The name Monte Carlo simulation (MCS) comes from the fact that during the 1930s

and 1940s, many computer simulations were performed to estimate the probability that the chain reaction needed for the atom bomb would work successfully The Monte Carlo method was coined then by the physicists John von Neumann, Stanislaw Ulam and Nicholas Metropolis, while they were working on this and other nuclear weapon projects (Mahattan project) in the Los Alamos National Laboratory It was named in homage to the Monte Carlo Casino, a famous casino in the Monaco resort Monte

Carlo where Ulam’s uncle would often gamble away his money.

MCS lets you see all the possible outcomes of your decisions and assess the impact of risk, allowing for better decision making under uncertainty

MCS, or probability simulation, is a technique used to understand the impact of risk and uncertainty in financial, project management, cost, and other forecasting models.When developing a forecasting model – any model that plans ahead for the future –

we have to make certain assumptions These might be assumptions about the investment return of a portfolio, the cost of a construction project, or how long it will take to complete a certain task Because these are projections into the future, the best

we can do is estimate the expected value In finance, the range of values might be

known via the distribution of possible values through the mean and standard

deviation of variable By using a range of possible values, instead of a single or few

guess, we can create a more realistic picture of what might happen in the future

When a model is based on ranges of estimates, the output of the model will also be a range

When we have a range of values as a result, we will begin to understand the risk and uncertainty in the model The key feature of a Monte Carlo simulation is that it can

tell you – based on how you create the ranges of estimates – HOW LIKELY THE

RESULTING OUTCOMES ARE.

b Monte Carlo simulation in finance

In Corporate Finance, a company often needs to value a project, which for example may involve an initial outlay with future expected profits If these future profits can be estimated accurately then the firm can determine whether these profits will outweight the costs and can then decide whether to proceed with the project or not The factors affecting the future profits could consist of many variables, including but not limited

to interest rate fluctuation, currency exchange rate changes, macro ecomonic factors, labour costs, environmental issues or advancements in technology Since each one of

these factors can be multi-dimensional there could be a very large amount of parameters to be estimated, each having its own distribution Therefore, MCS can

be implemented Monte Carlo simulation provides flexibility and can handle multiple

sources of uncertainty In the concept of this thesis, we focus on cash budgeting for

a manufacturing firm, with the uncertainty called “net sales”

c Steps in the Monte Carlo simulation

As per Paul Sheehy and Eston Martz in “Doing Monte Carlo Simulation”, an article based on a presentation delivered at the ASQ Lean Six Sigma Conference in Feb

2012, depending on the number of factors involved, simulations can be very complex But at a basic level, all Monte Carlo simulations have five simple steps:

Figure 3: Steps to follow Monte Carlo simulation

 Step 1: Identify the transfer equation

To do a MCS, you need a quantitative model of the business activity, plan, or process you wish to explore The mathematical expression of your process is called the “the transfer equation” This may be a known engineering or business formula, or it may be based on a model created from a designed experiment or regression analysis

 Step 2: Define the input parameters

For each factor in your transfer equation, determine how its data are distributed Some inputs may follow the normal distribution, while others follow a triangular or uniform distribution You then need to determine distribution parameters for each input For instance, you would need to specify the mean and standard deviation for inputs that follows a normal distribution You can test the distribution of data by using some software like Minitab

 Step 3: Create random data

To do valid simulation, you must create a very large, random data set for each input – something on the order of more than 10,000 instances These random data points simulate the values that would be seen over a long period for each input This can be done in MS Excel by using function RAND() or in Minitab by using Calc=>Random Data=>Normal

 Step 4: Simulate

Let the computer help you Most of the input data and the reporting should be place in

MS Excel and Macro function in MS Excel will do the task Or you can use Minitab software to perform simulation

 Step 5: Analyze process output

With the simulated data in place, you can use your transfer equation to calculate simulated outcomes Running a large enough quantity of simulated input data through your model will give you a reliable indication of what the process will output over time, given the anticipated variation in the inputs

2.2.4 Using Monte Carlo simulation as cash budgeting tool

We have run through 5 steps of doing a cash budget and 5 basic steps to perform a Monte Carlo simulation Now what we have to do is mapping the cash budget with the simulation, determine the object for the model, which is must be “uncertainty”, and generates variables randomly In cash budgeting, almost important components as collection from sales, accounts payable on payments, etc are calculated indirectly through Net sales of products and services There are many factors that affect the sales

of the company, including both subjective and objective factors Then, sales are highly variable and only partially predictable In addition to this characteristic, basing on the construction of cash budget, we can see that the “uncertainty” in the model is the net sales in each quarter and this should be determined by a random sample from a normal distribution with mean and standard deviation The problem is, we need to check whether this object follows a normal distribution or not If yes, we can directly use the value Otherwise, we need to use the logarithm of net sales to make the data follow normal distribution Details for this will be in the next chapter when we go into specific data of BCC

CHAPTER III APPYLING MONTE CARLO SIMULATION TO CASH

BUDGETING FOR BIM SON CEMENT JOINT STOCK COMPANY3.1 Introduction about Bim Son Cement Joint Stock Company

1 Brief introduction

Bim Son Cement Joint Stock Company (BCC) is located in Thanh Hoa province of Viet Nam and was founded in 1980 with the core business of manufacturing and distributing cement and clinker Over more than 35 years of development, BCC today becomes one of the leading companies in the cement industry of Vietnam with the charter capital of VND 956,613,970,000 BCC was listed on Hanoi Stock exchange (HNX) from 24/11/2006 and the company is also one of the companies having largest market capitalization out of the cement companies listing on HNX They are operating under the Vietnam Cement Industry Corporation (VICEM) who is holding 73% charter capital of BCC Bim Son Cement Joint Stock Company has one subsidiary named CRC Central Cement JSC which is located in Dung Quat economic zone - Quang Ngai province of Vietnam The core business of this subsidiary is manufacturing and trading cement with the factory’s designed capacity of 500,000 tons per anum Up to now, the ownership of BCC in this company is 76,8%.

The furnace was put into operation.

Starting the renovation project to modernize No.2 line of Bim Son Cement Plant, transferring wet technology to dry technology, increasing the capacity of the No 2 furnace from 1,750 tonnes of clinker per day to 3,500 tonnes of clinker per day

2 Main products of the company

• Core activities:

 Production and distribution of cement and clinker;

 Other products and services

• Breakdown of sales by products and services for the year 2014, 2015 and the first 6 months of 2016

Table 2: Breakdown of sales from 2014 to 6M/2016 Unit: million VND

% of Sales 6M/2016

% of Sales

Cement and clinker are the main products of the company, accounting for 99.8%, 99.79% and 99.95% of net sales in 2014, 2015 and the first 06 months of 2016 respectively In year 2015 and the first six months of 2016, cement is always accounting for more than 92% of net sales.

Figure 4: Breakdown of sales by geographical areas for the year 2014 and 2015

Sales revenue of the company in Thanh Hoa province is always accounted for the largest proportion of sales which is 23,62% of sales in 2014 and 27,12% of sales in

2015 The second one is Hanoi, accounting for 10,37% of sales in 2014 and 11,86% of sales in 2015

3 Financial performance of the