Working capital and some solutions to improve its management efficiency at agricare vietnam co ltd

LIST OF TABLESTable 2.1 Business performance results of Agricare Viet Nam from 2012 to2014 Table 2.2 Cash and cash equivalents Table 2.3 Cash management efficiency ratios Table 2.4 Recei

I here with formally declare that this thesis is the presentation of result

of my own research during the time of internship in Agricare Viet NamCo.,Ltd, and has not been submitted for a degree to any other universities orinstitutions To the best of my knowledge, the thesis does not contain materialpreviously published or another people, except where due acknowledgement

is made in the text

Ha Noi, 9 May, 2016

Student

Dinh Thi Thien Hue

ACKNOWLEDGEMENTS During graduation thesis, I have collected a lot of knowledge about

working capital at Agricare Viet Nam Co.,Ltd First of all, I would like tothank all professor lecturers whose experience helped me a lot in developingthe thesis

I also express my great gratitude to my supervisor M.A Tran Thu Hoaifor her inspiring guidance, suggestions and critical evaluation of the work forthe successful completion of my thesis

Secondly, I would like to give thanks to all lecturers at Academy ofFinance for their enthusiasm through the teaching and support process

Thirdly, I would like to express my sincere thanks to all staff of AgricareViet Nam Co Ltd for giving me assistance and corporation that helped me inwriting this thesis

Last but not least, I would like to thank my parents and friends for theircare, support, encouragement, without which my thesis would not have beenaccomplished

In the context of development of global economy, Vietnam enterpriseshave less competitive advantages than international companies Agricare VietNam Co.Ltd, as many other companies, has to face many difficulties fromglobalization In this study, author analyzed working capital management ofAgricare Viet Nam Co.Ltd to assess its efficiency and effectiveness From theresults, author drew out the current situation of working capital management,identified strength, weakness and other outstanding points In the end of studyare some recommendations that might be applied to improve the efficiencyand effectiveness of working capital management

LIST OF ABBREVIATIONS

LIST OF TABLES

Table 2.1 Business performance results of Agricare Viet Nam from 2012 to2014

Table 2.2 Cash and cash equivalents

Table 2.3 Cash management efficiency ratios

Table 2.4 Receivables management efficiency ratios

Table 2.5 Inventories management efficiency ratios

LIST OF FIGURES

Figure 1.1 Classification of working capital

Figure 1.2 Typical inventory cycle

Figure 1.3 EOQ and Inventory Cost

Chart 2.1: Structure of current asset of Agricare Viet Nam in 2014

Chart 2.2: Comparing working capital from 2012 to 2014

Chart 2.3: Comparing working capital with fixed capital and total capitalChart 2.4: Cash and cash equivalent in total working capital

Chart 2.5: Proportion of receivables in total working capital

Chart 2.6: Proportion of inventories in total working capital

TABLE OF CONTENT

2.1.1 History of the company’s establishment and development 26

2.1.3 Organizational structure of Agricare Viet Nam Co.Ltd 28

2.2 Working capital management situation in Agricare Viet Nam Co., Ltd 31

2.2.2 Cash management situation in Agricare Viet Nam Co., Ltd 362.2.3 Account receivable management situation in Agricare Viet Nam Co.,

2.2.4 Inventory management situation in Agricare Viet Nam Co., Ltd 422.2.5 Other management situation in Agricare Viet Nam Co., Ltd 44CHAPTER III SOLUTIONS FOR IMPROVING WORKING CAPITAL

3.2.3 Inventory management 49

1 Rationale of the study

In the market economy, capital is one of the most important factors forenterprises to survive and develop beside others factors such as humanresources, the inventions, patents, technical management Generally, in thecommercial activity and particularly in the commercial enterprises, capital isalso an effective tool to enhance the competitiveness of enterprises.Therefore, every business which wants to exist and develop has to concernabout the capital creation and management

Working capital is one of the two components of capital For commercialbusinesses, working capital accounts for a large proportion of the total capitalapproximately 75% - 95% Working capital management is an important area

of financial management in every business function Working capitalmanagement deals with the administration of the liquidity components offirms’ short-term current assets and current liabilities (Baker and Powell,2005; Brigham and Ehrhardt, 2005; Gitman, 2009) The most importantcurrent assets are cash, debtors or account receivables, stock or inventory andcurrent liabilities consisting of creditors or account payables, accruedexpenses, taxation liabilities, short-term debt such as commercial bills, andprovisions for current liabilities such as dividends declared but not yet paid This is the reason why working capital management has become a hot topicfor all enterprises, and improving working capital efficiency is the target forall business

Recognizing the important of working capital management in the firm’ssurvival , growth and after my internship time in Agricare Viet Nam Co.Ltd, Ihad a chance to work in Finance- accounting department where had overall

responsibility for using, managing capital, and contributing to company

growth and profitability I choose the topic “Working capital and some

solutions to improve its management efficiency at Agricare Vietnam Co.Ltd” as topic of the thesis.

2 Aims of the study

The main objective of the study is to analyze the working capitalmanagement and suggest some methods to improve the efficiency of theprocess The specific aims of the thesis include:

● To provide a source of information on capital conceptsencompassing definition capital, the importance of working capital

● To get a better understanding of working capital management at Agricare Viet Nam Co.Ltd

● To evaluate the current situation of organization andmanagement of working capital at Agricare Viet Nam Co.Ltd

o To offer business management recommendations on managing workingcapital

3 Method of the study

For this study the following approach was adopted Firstly, relevantliterature, publications and studies are reviewed in order to get in-depthinformation on fixed capital management in general and this concept atAgricare Viet Nam in particular The company’s background is also studiedand reviewed Secondly, data related to working capital management at thefirm including financial statements and other required documents will becollected and examined Finally, the information obtained is analyzed,processed to evaluate the working capital management efficiency

4 Scope of the study

Due to the limited time and the scale, this dissertation emphasizes onworking capital management at Agricare Viet Nam Co.Ltd in the period from2012-2014 and propose some solutions for improvement

5 Organization of the study

Apart from the Introduction, Conclusion, Reference and Appendix, thethesis is divided into three main parts as follows:

● Chapter 1: LITERATURE REVIEW This chapter providesgeneral background on capital and working capital management

● Chapter 2: THE STUDY This chapter gives the data andanalysis of the enterprise’s working capital management

● Chapter 3: SOLUTIONS AND RECOMMENDATIONS Thischapter suggests some recommendations to improving working capitalmanagement efficiency at Agricare Vietnam Limited Liability Company

CHAPTER 1 LITERATURE REVIEW OF WORKING CAPITAL MANAGEMENT 1.1 Introduction of working capital in enterprises

1.1.1 Definition of working capital

In accounting and financial statement analysis, working capitalinvolves a firm’s current assets and current liabilities that have maturities ofless than one year and are needed for a normal business cycle The networking capital is the difference between current assets and currentliabilities The current assets primarily include cash and short-terminvestments in marketable securities, inventories of raw materials, work-in-progress and finish goods as well as accounts receivables If the currentassets excess the current liabilities, this indicates that the firm has ability tomeet its short-term financing obligations The greater the net workingcapital is the more liquid or solvent the firm is

According to a financing perspective, working capital is the amount afirm invests in short-term or current assets that required for day-to-dayoperation Current assets regularly turn over and play a key role for a firm tocontinuously operate If consider a business as a machine, the current assetscould be seen as “lubricating oil” helping the “engine” of non-current assets

to well function

1.1.2 Classification of working capital

The amount of funds needed for meeting requirements normally variesfrom time to time in every business

However, business always needs a certain amount of assets in the form

of working capital if it is to carry out its functions

This permanent need and the variable requirements are the basis for aconvenient classification of working capital as regular, permanent, or variable

as follows:

Figure 1.1 Classification of working capital

1.1.2.1 Permanent or fixed working capital

A part of the investment in current assets is as permanent as theinvestment in fixed assets It covers the minimum amount necessary formaintaining the circulation of the current assets Working capital invested inthe circulation of the current assets and keeping it moving is permanentlylocked up

The permanent or fixed working capital is of two kinds:

(a) Regular working capital

It is the minimum amount of liquid capital required to keep up thecirculation of the capital from cash to inventories to receivables and backagain to cash This would include a sufficient amount of cash to maintainreasonable quantities of raw materials for processing into finished goods toensure quick delivery etc

(b) Reserve margin or cushion working capital:

It is extra capital required to meet unforeseen contingencies that mayarise in the future These contingencies may crop up on account of rise inprices, business depression, strikes, lock-outs, fires and unexpectedcompetition It is needed over and above the regular working capitalrequirements

1.1.2.2 Variable working capital

The variable working capital fluctuates with the volume of business Itmay be sub-divided into: Seasonal and Special working capital.

(a) Seasonal working capital:

It refers to liquid capital needed during the particular season According

to Gestenberg( 1959:282), “Beyond initial and regular working capital, most

businesses will require at stated intervals a large amount of current assets to fill the demands of the seasonal busy periods”.

During the season, the business enterprises have to push up purchase ofraw materials (sugarcane by sugar mills, wool by woollen mills) and employmore people to convert them into finished goods and thus require largeamount of working capital

(b) Special working capital:

It is a part of the variable capital which is needed for financing specialoperations such as the organisation of special campaigns for increasing salesthrough advertisement or other sale promotion activities for conductingresearch experiments or execution of special orders of the Government thatwill have to be financed by additional working capital

The distinction between permanent and variable working capital isimportant in arranging the finance for an enterprise Permanent workingCapital should be raised in the same way as fixed capital is procured

It is undesirable to bring regular working capital into business on a term basis because a creditor can seriously handicap the business by refusing

short-to continue lending permanently Its only recourse is short-to curtail operationsunless another lender can be found Variable capital requirement can,however be financed out of short term loans from the banks or inviting publicdeposits

1.1.3 Role of working capital

Working capital may be regarded as the lifeblood of the business.Without insufficient working capital, any business organization cannot runsmoothly or successfully In the business the working capital is comparable tothe blood of the human body Therefore the study of working capital is ofmajor importance to the internal and external analysis because of its closerelationship with the current day to day operations of a business Theinadequacy or mismanagement of working capital is the leading cause ofbusiness failures Working capital is a prevalent metric for the efficiency,liquidity and overall health of a company It is a reflection of the results ofvarious company activities, including revenue collection, debt management,inventory management and payments to suppliers This is because it includesinventory, accounts payable and receivable, cash, portions of debt due withinthe period of a year and other short-term accounts.

The needs for working capital vary from industry to industry, and they caneven vary among similar companies This is due to several factors, includingdifferences in collection and payment policies, the timing of asset purchases,the likelihood of a company writing off some of its past-due accountsreceivable

1.1.4 Structure of working capital

Working capital structure refers to the elements of working capital and itshows which of the components is responsible for the sizeable amount ofworking capital It is encapsulated in the concept of working capitalmanagement, which refers to the financing, investment and control of netcurrent assets within the policy guidelines It may be regarded as the lifeblood

of the business and its effective provision can do much to ensure the success

of the business, while its inefficient management or lack of attention may lead

to the downfall of the enterprise

According to Peter and Eddie (2006), working capital in terms of fivecomponents:

● Cash and equivalents:

This most liquid form of working capital requires constant supervision

A good cash budgeting and forecasting system provides answers to keyquestions such as: Is the cash level adequate to meet current expenses as theycome due? What is the timing relationship between cash inflow and outflow?When will peak cash needs occur? When and how much bank borrowing will

be needed to meet any cash shortfalls? When will repayment be expected andwill the cash flow cover it?

● Accounts receivable:

Many businesses extend credit to their customers If you do, is theamount of accounts receivable reasonable relative to sales? How rapidly arereceivables being collected? Which customers are slow to pay and whatshould be done about them?

Inventory is often as much as 50 percent of a firm's current assets, sonaturally it requires continual scrutiny Is the inventory level reasonablecompared with sales and the nature of your business? What's the rate ofinventory turnover compared with other companies in your type of business?

Financing by suppliers is common in small business; it is one of themajor sources of funds for entrepreneurs Is the amount of money owedsuppliers reasonable relative to what you purchase? What is your firm'spayment policy doing to enhance or detract from your credit rating?

● Accrued expenses and taxes payable:

These are obligations of your company at any given time and represent a

future outflow of cash.

1.1.5 Factors affecting working capital

● Nature of Business:

The requirement of working capital depends on the nature of business.The nature of business is usually of two types: Manufacturing Business andTrading Business In the case of manufacturing business, it takes a lot of time

in converting raw material into finished goods Therefore, capital remainsinvested for a long time in raw material, semi-finished goods and the stocking

of the finished goods

Consequently, more working capital is required On the contrary, in case

of trading business the goods are sold immediately after purchasing orsometimes the sale is affected even before the purchase itself Therefore, verylittle working capital is required Moreover, in case of service businesses, theworking capital is almost nothing since there is nothing in stock

● Manufacturing Cycle:

Working capital requirement of an enterprise are also influenced by themanufacturing cycle It refers to the time involved to make finished goodsfrom the raw materials During the process of manufacturing cycle funds aretied up longer the manufacturing cycle, the larger will be working capitalrequirement and vice-versa

● Production Policy:

Working capital requirement is also determined by its productionpolicy If a firm produces seasonal foods, its production and sales volumefluctuate with different seasons This type of fluctuating policy affects theworking capital policy of the firm

Credit policy affects the working capital of a firm Working capitalrequirement depends on terms of sales Different term may be followed bydifferent customers according to their credit worthiness If the firm followsthe liberal credit policy, then it requires more working capital Conversely, if

a firm follows the stringent policy, it requires less working capital

● Availability of Credit:

Availability of credit facility is another factor that affects the workingcapital requirement If the creditors avail a liberal credit terms, the firm willneed less working capital and vice-versa In other works, the firm can getcredit facility easily on favorable conditions Thus, it requires less workingcapital to run the firm otherwise more working capital is required to operatethe firm smoothly

● Growth and Expansion:

Growth and expansion also affects the working capital requirement offirm However, it is difficult to precise; determine the relationship betweenthe growth and expansion of the firm and working capital needs Therefore,the other things being the same growing firms needs more working capitalthan those static ones

● Price level Change:

Price level change also affects the working capital requirement of a firm.Generally, a firm requires maintaining the higher amount of working capital,

if the price level rises Because the same level of current assets needs moredue to the increasing price,it will affect to working capital of a firm Inconclusion, the implications of changing price level of working capitalposition will vary from firm to firm depending on the nature and anotherrelevant consideration of the operation of the conserned firm

● Operating Efficiency:

Operating efficiency is also an important factor, which influences theworking capital requirements of the firm It refers to the efficient utilization ofavailable resources at minimum cost Thus, financial manager can contribute

to strong working capital position through operating efficiency If a firm hasstrong operation efficiency then it needs lesser amount of working capital andvice-versa

● Profit Margin:

The level of profit margin differs from firm to firm It depends upon thenature and quality of product has a sound marketing management and enjoythe monopoly power in the market, then it earns quite high profit and vice-versa Profit is sources of working capital because it contributes towards theworking capital as a policy by generating more internal funds

● Level of Taxes

The level of taxes also influences working capital requirement of firm.The amount of taxes to be paid in advances is determined by the prevailingtax regulations But the firm’s profit is not constant, or can not bepredetermined Tax liability in a sense of short-term liquidity is payable incash Therefore, the provision for tax amount is one of the important aspects

of working capital planning If tax liability increase, it needs to increase theworking capital and vice-versa

Effective co-ordination between production and distribution can reducethe need for working capital The availability of credit to a firm depends on itscreditworthiness in the money market If a firm has good reputation withbanks, suppliers and investors, it can get credit easily and with favorableterms, which means less working capital is required

1.2 Working capital management

1.2.1 Working capital management and its objectives

Working capital management is the process of managing andmonitoring activities related to working capital

There are two main objectives of working capital management It helpsmanaging effectively the day-to-day activities of the business to improve thefirm’s profitability and it ensures that the firm has sufficient liquidity to meetits short-term obligations

Working capital decisions related to maintaining an optimal balance ofeach working capital components, allowing sufficient resources for theoperation and growth The two important decisions associated with the level

of investment in working capital and the sources for financing workingcapital, are required serious attention of firms’ managers Managerial

decisions of working capital is short-term decisions, for instance, the decision

of whether to offer credit for customers, if yes, how many days and what level

of discounts are relevant? Another example of working capital decisions isrelated to question: What should the firm do with the temporary surplus cash?

1.2.2 Managing working capital

Peter and Eddie (2006) mentioned in their book some methods tomanage working capital as the following:

1.2.2.1 Cash management

Cash is the most important current asset and is considered as the

“lifeblood” of a business, helping the business run a continuous basis Theterm cash includes currency, checks and balance in bank accounts

The goal of cash management is:

● To maintain an adequate level of cash on hand to meet the dailycash requirement in operation

● To maximize the amount of money that are available forinvestments and obtain the maximum of interest earned on excess cash whileensuring the safety

The management of cash concerns with three important aspects:

● Firstly, a firm should manage the cash balance It is veryimportant to find an optimal holding cash balance in order to maximize theinterest earned on funds that are not immediately needed and reduce the costassociated with the delays in transmission of funds Holding a small amount

of cash can increase the opportunity to invest the excess cash with a goodreturn but it also increases the risk of insolvency, financial distress and thusbankruptcy When deciding the relevant cash holding levels, it is necessary toconcern with liquidity and risk of insolvency Both excess and inadequatecash can consequently degenerate a firm into problems With insufficient cash

in business, firms are unable to continuously operate and cannot repayobligations, resulting in insolvency problem and may lead to thedisruption of manufacturing operation On the other hand, with too muchcash on hand, firms lose opportunities of earning interests on the investments

of unused cash Thus, firm needs to ensure the safety when deciding the level

of cash hold

● Secondly, a firm should controll the collections anddisbursements of cash The objective of the managing is to speed up thecollections and slow down the disbursements of cash Firms aim atmaximizing the cash receipts and speeding up the collections of cash byreducing the time it takes customers to pay their bills and the time money iscollected Firms also want to delay their payments so that they can keep cash

to put in the bank or invest in money market as long as possible These helpfirms to increase the cash balance and allow them to use temporary surpluscash for profitable investments

● Thirdly, the cash budget that involves the forecasts of the cashreceipts and payments for the next planning period, is used to improve themonitor of all cash flows, estimate the cash needs for business and anticipatecash surpluses or deficits The cash inflows of a firm mainly consist of cashsales and collection of accounts receivable and sometimes include interests.The primary cash outflows include payments on purchases, labor costs,repayments of loans, capital expenditures (i.e fixed asset purchases) anddividends

The optimal cash balance may vary in different firms and in differentperiod of time It depends on the following factors:

● The forecasts of future cash inflows and outflows of companies

● The efficiency of the firms’ cash flow management

● The availability of liquidity assets to the firms

● The companies’ borrowing capacity

● The companies’ tolerance of risk

1.2.2.2 Inventory management

1.2.2.2.1 Inventory costs

A business may hold inventories for various reasons, the most common

of which is to meet the immediate day-to-day requirements of customers andproduction It will normally seek to minimize the amount of inventories heldand the cost of holding inventories

These are some methods to manage inventories:

Just-in-time inventory management is the first and typical method In

recent years, many businesses have tried to eliminate the need to holdinventories by adopting “Just-in-time “(JIT) inventory management Theessence of JIT is, as the name suggests, to have supplies delivered to abusiness just in time for them to be used in the production process or in a sale

By adopting this approach the inventories holding costs rest with suppliersrather than with the business itself On the other hand, a failure by a particularsupplier to deliver on time could cause enormous problems and costs to thebusiness Thus JIT can save cost, but it tends to increase risk

Second, it is the budgeting future demand One of the best means of a

business trying to ensure that there will be inventories available to meet futureproduction and sales requirements is to make appropriate plans The budgetsshould deal with each product that the business makes and/or sells It isimportant that every attempt is made to ensure that plans are realistic, as theywill determine future ordering and production levels

1.2.2.2.2 Inventory management model

The most popular inventory management method is Economic OrderQuantity (EOQ) This method is used to calculate the optimal inventory level,

at which the carrying costs and ordering costs are minimized

Figure 1.2 Typical inventory cycle

The model’s assumptions associated with certainty, for example,demand for each year is known and there is a constant replenishment Theinventory’s usage and delivery can be predicted Thus, stock-out costs areavoided and inventory management only concerns to achieve the optimalbalance between ordering costs and carrying costs

Figure 1.3 EOQ and Inventory Cost

The carrying costs increase when the order quantity increases whereasthe ordering costs decrease when the ordering frequency decreases and largerorders are made The EOQ model allows to calculate an economic order- isthe optimum size of order at a minimum total cost combined of the carryingcosts and ordering costs.

● Total annual = Number of order per period x Cost of each orderordering cost

= (Total annual demand/Order size) x Cost of each order

= (D/Q) x F

● Total carrying cost = Carrying costs per unit x Average inventorylevel per period (in units)

= C x (Q+0)/2 = C x Q/2

● The total cost is: TC = F x D/Q + C x Q/2

The economic order quantity EOQ or Q* is determined to give thelowest total cost The Q* corresponds to the minimum total cost is calculateddifferentiating total cost with respect to Q and equating to zero Thesolution is provided as:

EOQ = Q* = 2DF / C

Where:

Q: is size of inventory

D: is total annual demand

F: is the cost of each order (fixed cost of reordering) C: is carrying cost perunit

1.2.2.3 Receivable management

Account receivables are assets representing amounts owed to the firm as

a result of the sale of goods or services in the ordinary course of business.Kelly and McGowen (2010) suggest that credit customers who pay late ordon’t pay at all only aggravate the problem Thus, it is important for thefinancial manager or account receivables manager to establish a good policythat controls the advantages of offering credit with the associated costs Thefirm should establish its receivables policies after carefully considering boththe benefits and costs of different policies Three factors should be analyzed:

● Profits The firm should investigate different possibilities and

forecasts the effect of each on its future profits The cost of funds tied up inreceivables, collection costs, bad debt losses, and money lost discounts forearly payment should be compared with additional sales or losses of sales as aresult of each proposed policy

● Growth in sales Sometimes firms are willing to accept short

term setbacks with respect to profits if a new policy enables the firm toincrease its sales significantly A firm may adopt a certain policy to gain afoothold in previously closed market Because growth is so important 16aside from profits, it should be viewed as a separate factor in determiningreceivables policies

● Possible problems In spite of increase sales and profits, some

policies may be accompanied by obvious and annoy problem

1.2.3 Working capital management efficiency ratios

1.2.3.1 Classification of ratio

Basically on the basis of working capital management it can becharacterized into following ratios

● Activity Ratio: Activity ratio is an indicator of how rapidly a

firm converts various accounts into cash or sales The sooner managementcan convert assets into sales or cash, the more actively the firm run This ratio

is also called Asset Management Ratio As the assets basically categorized asfixed assets and current assets and again further the current assets classifiedaccording to individual components of current assets Inventories, Debtor,and Receivables

1.2.3.1 Working capital allocation ratios

Van and Ninh (2013) mentioned in corporate finance some financialratios for the purpose of working capital management:

● Cash to working capital

This ratio indicates which proportion of cash and marketable securities accounts in

working capital.

● Receivable to working capital:

Receivable to working capital = Receivable X100

Working capital

This ratio indicates which proportion of account receivable in working capital.

● Inventory to working capital:

Working capital

This ratio indicates which proportion of inventory accounts in working capital.

1.2.3.2 Cash management ratios

point, though it does not necessarily mean bankruptcy High ratiomay indicate not maximizing return on working capital

● Quick (or Acid- Test) ratio:

Current assets - Inventory Quick ratio =

Current liabilities

The quick ratio is more conservative than the current ratio Liquid assetsmean current assets minus those, which are not quickly realizable Inventory

and sticky debts are generally treated as non-quick assets The relationship of1:1 between quick assets and current liabilities is considered ideal, but, likecurrent ratio, it also varies from industry to industry, depending on thepeculiar conditions of a particular industry.

● Absolute liquidity(or Cash) ratio:

Absolute liquidity ratio= Cash and marketable securities

Current liabilities

Absolute liquidity is represented by cash and near cash items It is a ratio

of absolute liquid assets to current liabilities A standard of 0.5 : 1 absoluteliquidity ratio is considered an acceptable norm That is, from the point ofview of absolute liquidity, 0.5 unit worth of absolute liquid assets areconsidered sufficient for one unit worth of liquid liabilities However, thisratio is not in much use

1.2.3.3 Inventory management ratios:

● Days Sales Outstanding (DSO):

Receivables turnover

This ratio reflects the average number of days firms take to collect fromtheir debtors A long average collection means poor credit control and hencecash flow problems may occur The normal stated credit period is 30 days formost industries Changes in the ratio may be due to improving or worseningcredit control The actual collection period can be compared with the statedcredit terms of the company If it is longer than those terms, this indicatessome insufficiency in the procedure of collecting debts The higher thenumber of days, the higher its investment in accounts receivable andaccordingly higher the investment in working capital.

1.3.3.5 Working capital management efficiency ratios:

● Working capital turnover:

Average working capitalThis ratio reflects how effectively a company is using its workingcapital to generate sales It helps management in maintaining working capital.which is adequate for the planned growth in sales In a general sense, thehigher the working capital turnover, the better because it means that thecompany is generating a lot of sales compared to the money it uses to fund thesales

● Days working capital:

Days working capital = 360 days

Working capital turnover

This ratio describes how many days it will take for a company to convertits working capital into revenue The faster a company does this, the better itsperformance is

● Working capital to sales ratio:

Working capital to sales ratio =

Averager working capital

Net sales

The working capital to sales ratio shows a company's ability to pay costsrelated to generating new sales without the need to take on additional debt.Although borrowing money to finance new equipment or other initiatives

to help increase sales is not bad on its own, a company must still be able toeasily pay down its debt and maintain enough liquid assets to finance theongoing operations of the company Conversely, if a company maintains anexceedingly high working capital to sales ratio, it may be holding on to toomany assets that would be better used to finance new growth or additionalsales

● Return on working capital

Return on working Capital = EBT(or NI)

Average working capital

CHAPTER 2 CURRENT SITUATION OF WORKING CAPITAL

MANAGEMENT AT AGRICARE VIET NAM CO.LTD

2.1 General overview of Agricare Viet Nam Co., Ltd

2.1.1 History of the company’s establishment and development

The enterprise name is Agricare Viet Nam Limited Company (Agricare VietNam Co., ltd) Its headquarters is located in 4th Floor Building 2T 9 PhamVan Dong, Hanoi, Vietnam

Agricare Viet Nam Co., Ltd is founded in 2007 with the business license No

0102016469 of Ha Noi planning and investment department

● Legal name: Công ty trách nhiệm hữu hạn Agricare Viet Nam

● International trading name: Agricare Viet Nam Co.Ltd

● Address: 4th floor, 2T building, No.09 Pham Van Dong street,

Ha Noi - Viet Nam

● Tell: + +84 4 3763 1484

● Fax: + +84 4 3763 1485

● Website: www.agricarevietnam.com

● President and CEO: Mr Dam Quang Thang

2.1.2 Business fields and products

Agricare Vietnam is one of the leading trading companies in pesticide inVietnam Undergone 10 years of formation and development, AgricareVietnam is proud to provide the market with best products and services inagrochemical Growing with the motto “Leading you to success”, AgricareVietnam aspires to accompany with local and international agriculturalenterprises for a win-win partnership For the time being, Agricare Vietnamhas been the exclusive representatives of key pesticide manufacturers from

many countries in the world including Spain, France, USA, Japan, China,India, etc From the first and also headquarter office in Hanoi, AgricareVietnam has proliferated to all over Vietnam with a network of more than 100dealers and 2000 retailers This accomplishment can be attributable toendeavor of more than 100 employees continuously to update progressivetechnical knowledge and their availability to support and promote products togrowers, dealers and retailers

ISO 9001:2008 standard certified by Bureau Veritas for quality controlsystem demonstrated Agricare Vietnam’s commitment to supplying bestquality goods and services Agricare Vietnam is also honorable to become amember of Vietnam Cooperative Alliance and Hanoi Association of Smalland Medium Enterprises

In 2012, Agricare Vietnam made a breakthrough step in successfullybuilding production and distribution system of high quality rice under thebrand “Truly Viet Sensed Rice” including more than 20 lines of local ricewidely allotted in grocery stores, supermarkets, online channels and exported

to Laos andCambodia

Contemporarily, Agricare Vietnam is deploying the project of Agriculturee-Commerce Exchange representing “thitruongnongnghiep.vn” website andSystem of High-tech Agriculture Development Support consisting of 100domains, satellite websites domesticallly and internationally with a view tonarrowing the gap between S&M manufacturers and potential customers,creating an opportunity to promote, exchange and collaborate amongagribusinesses Additionally, Agricare Vietnam engages in building internalculture by supporting numerous social charity programs and bondingactivities with partners

Exportation is always paid much attention to in Agricare Vietnam.Today, beside exportation, we also import many agricultural materialproducts such as plant seeds, fertilizers, pesticides Agricare Vietnam is aswell an exporter of many produce like lychee, longan, rice etc Theseproduceare planned upon production areas and strictly controlled fromfertilizer and pesticide usage to harvesting, preservation – processing,packaging in order to bring about SAFE and HIGH QUALITY products tomeet severe requirements from the most selective foreign markets

Pesticides: More than 30 exclusive pesticide brands

Fertilizers: Agricare Vietnam distributes high-quality fertilizers.

Plant seeds: Exclusively distributing seeds of high productivity and

quality under the brand of Agricare

2.1.3 Organizational structure of Agricare Viet Nam Co.Ltd

2.1.4 Financial situation of Agricare Vietnam Co.Ltd