Working capital management – A case study of Ha Phong Export Garment Joint Stock company

MINISTRY OF FINANCE ACADEMY OF FINANCE  NGUYEN VAN CHUONG UNDERGRADUATE THESIS TOPIC: WORKING CAPITAL MANAGEMENT: A CASE STUDY OF HA PHONG EXPORT GARMENT JOINT STOCK COMPANY Major : Corporate Finance Code : 11 Supervisor : Assoc Prof PhD Nguyen Thi Ha Ha Noi - 2019 MINIST RY OF FINANCE ACADEMY OF FINANCE  NGUYEN VAN CHUONG Class: CQ53/11.06 UNDERGRADUATE THESIS TOPIC: WORKING CAPITAL MANAGEMENT: A CASE STUDY OF HA PHONG EXPORT GARMENT JOINT STOCK COMPANY Major : Corporate Finance Code : 11 Supervisor : Assoc Prof PhD Nguyen Thi Ha Ha Noi - 2019 Academy of Finance Graduation Thesis DECLARATION I hereby declare that this thesis is my own work and effort It has not been submitted anywhere for an award Where other sources of information have been used, they have been acknowledged Graduation thesis author Nguyen Van Chuong Date: May 27th Nguyen Van Chuong Class: CQ53/11.06 Academy of Finance Graduation Thesis ACKNOWLEDGEMENT I would like to express my deep gratitude to all those who have given me the possibility to complete this graduation thesis In preparing this graduation thesis, I have had generous and advice from my teachers, my colleagues, my family and my friends I would like to express my great thanks to all of them First of all, I would like to express my deepest gratitude to my supervissor, Assoc.Prof PhD Nguyen Thi Ha, lecturer of Academy of Finance, who has given immeasurable help, constant guidance with many careful instructions, comments and valuable advice to me whenever I need Without her support, I would not be able to complete my thesis And I really appreciate her patience in reading and correcting my thesis Second, I wish to show my sincere thanks to all my teachers at Academy of Finance, who have provided me with worthy lessons thoughout four years of study Moreover, I would like to thank Chief accountant - Mr.Nguyen Thanh Thuy, General accountant- Mrs Nguyen Thi Lan and the staffs of Ha Phong Export Garment Joint Stock company for their valuable supports during the internship period Without their helps, it would be impossible for me to finish this work Last but not least, I would like to send my love thanks to my family, friends and classmates for their great love and care in both spirit and health during preparation for the graduation thesis TABLE OF CONTENTS Nguyen Van Chuong Class: CQ53/11.06 Academy of Finance Graduation Thesis DECLARATION i ACKNOWLEDGEMENT ii Table of contents iii LIST OF ABBREVIATIONS vi ABSTRACT vii INTRODUCTION CHAPTER 1: THEORETICAL BACKGROUND OF WORKING CAPITAL AND WORKING CAPITAL MANAGEMENT .5 1.1 Working capital and the sources of working capital .5 1.1.1 Definition and characteristics of working capital 1.1.2 Classification of working capital 1.1.3 Working capital policies 1.2 Working capital management of business 12 1.2.1 Definition and objectives of working capital management 12 1.2.2 The content of working capital management .13 1.2.2.1 Determining working capital requirements and organizing working capital sources 14 1.2.2.2 The allocation of working capital 18 1.2.2.3 Cash management 20 1.2.2.4 Receivables management .21 1.2.2.5 Inventory management 23 1.2.3 Measurement for working capital management efficiency 34 1.2.4 Factors affecting working capital management efficiency 40 CHAPTER 2: CURRENT SITUATION OF WORKING CAPITAL MANAGEMENT AT HA PHONG EXPORT GARMENT JOINT STOCK COMPANY 44 2.1 Overview of Ha Phong Export Garment Joint Stock Company 44 Nguyen Van Chuong Class: CQ53/11.06 Academy of Finance Graduation Thesis 2.1.1 Foundation and development .44 2.1.2 Characteristics of business operations 46 2.1.3 An overview of financial situation 57 2.2 CURRENT SITUATION OF WORKING CAPITAL MANAGEMENT AT HA PHONG EXPORT GARMENT JOINT STOCK COMPANY 72 2.2.1 The situation and allocation of working capital 72 2.2.2 The situation of working capital financing policies 77 2.2.3 The situation of determining working capital requirements .83 2.2.4 Cash management .83 2.2.5 Receivables management 91 2.2.6 Inventory management 102 2.2.7 The situation of productivity and efficiency of working capital management 108 2.3 Discussion about the management of working capital 111 2.3.1 Achievements .111 2.3.2 Shortcomings and reasons 113 CHAPTER 3: SOME SOLUTIONS TO IMPROVE EFFICIENCY OF WORKING CAPITAL MANAGEMENT AT HA PHONG EXPORT GARMENT JSC 117 3.1 Orientations and objectives for future development at Ha Phong Export Garment JSC 117 3.1.1 Economic-Social context 117 3.1.2 Orientations and objectives for the future development of Ha Phong Export Garment Joint Stock company 120 3.2 Some solutions to improve working capital management at Ha Phong Export Garment Joint stock company 122 Nguyen Van Chuong Class: CQ53/11.06 Academy of Finance Graduation Thesis 3.2.1 Improving the efficiency of the use of funding sources, always ensuring solvency 122 3.2.2 Determining the demands of working capital reasonably 123 3.2.3 Determining a reasonable level of cash reserves and speed up the rotation of cash .129 3.2.4 Improving the efficiency of inventory management 130 3.2.5 Improving the efficiency of receivables management 131 3.2.6 Strengthening the management and improvement of personnel organization 132 3.2.7 Improving the management of cost 133 3.2.8 Improving the rotation of working capital by promoting access to new technologies in manufacturing .133 3.3 The conditions for implementing the measures 133 CONCLUSION 135 REFERENCE APPENDICICES ` Nguyen Van Chuong Class: CQ53/11.06 Academy of Finance Graduation Thesis LIST OF ABBREVIATIONS BEP CA Basic Earnings Power Current Assets CL Current Liabilities EOQ Economic Order Quantity JSC NWC ROA ROE VND Joint Stock Company Net Working Capital Return on Assets Return on Equity Viet Nam dong WC WCM Working Capital Working Capital Management WCR Working Capital Requirements Nguyen Van Chuong Class: CQ53/11.06 Academy of Finance Graduation Thesis LIST OF TABLES TABLE 2.1 : CHARACTERISTICS OF LABORS OF THE COMPANY ON MARCH 1ST ,2019 57 TABLE 2.2: THE CAPITAL AT HA PHONG EXPORT GARMENT JSC IN THE PERIOD FROM 2017 TO 2018 59 TABLE 2.3: THE CAPITAL SOURCES AT HA PHONG EXPORT GARMENT JSC IN THE .62 PERIOD FROM 2017 TO 2018 62 TABLE 2.4: INCOME STATEMENT IN 2017 AND 2018 64 TABLE 2.5: SOME OF MAIN FINANCIAL INDICATORS IN 2017 AND 2018 .68 TABLE 2.6: THE ALLOCATION OF WORKING CAPITAL IN STAGE OF 2017-2018 74 TABLE 2.7: THE FLUCTUATION OF PERMANENT WORKING CAPITAL IN 2018 78 TABLE 2.8: THE FLUCTUATION OF TEMPORARY WORKING CAPITAL IN 2018 80 TABLE 2.9: DETAIL SITUATION OF CASH AND CASH QUIVALENTS IN THE STAGE OF 2017-2018 85 TABLE 2.10: LIQUIDITY RATIOS IN 2017 AND 2018 87 TABLE 2.11: INDICATORS ABOUT THE SPEED OF CONVERSION INTO CASH IN 2017-2018 90 TABLE 2.12: DETAIL OF ACCOUNT RECEIVABLES IN THE STAGE OF 2017 AND 2018 92 TABLE 2.13: THE EFFICIENCY OF ACCOUNT RECEIVABLES MANAGEMENT IN 2018 97 Nguyen Van Chuong Class: CQ53/11.06 Academy of Finance 134 Graduation Thesis CONCLUSION Working capital is not only one of the prerequisites, important for the establishment of enterprises as well as the operation and development of enterprises Good management and use of capital help businesses maximize profits, improve the value of enterprises Recognizing the importance of working capital, in recent time, Ha Phong Export Garment JSC has continuously implemented measures to improve the effectiveness of working capital management and achieved remarkable results However, besides achievements, the company still has some limitations in the working capital management Therefore, in the coming time, the company should try to overcome the shortcomings and improve the efficiency of using capital to increase profits and develop in the future Deriving from the actual situation in the company and the knowledge learning from university, I made the research on the working capital management efficiency of the company Thereby, I recommended some solutions to improve the efficiency of working capital at Ha Phong Export Garment JSC However, improvement of working capital management efficiency is a complex problem It needs investigating deeply and approaching realistically So during internship and writing this essay, mistakes are unavoidable I look forward to receiving valuable contribution from the lecturers and other readers Student Nguyen Van Chuong Nguyen Van Chuong Class: CQ53/11.06 Academy of Finance Graduation Thesis REFERENCE Bibliography: - Annual Financial Statements of Ha Phong Export Garment JSC in 2017 and 2018 - Circular on guidelines for accounting policies for enterprises       - No.200/2014/TT-BTC Website: http://vnexpress.net/ http://www.cafef.vn/ http://www.cophieu68.vn / https://www.accountingformanagement.org https://www.myaccountingcourse.com https://www.worldbank.org Textbook: Asso.Prof Ph.D Bui Van Van - Asso.Prof Ph.D Vu Van Ninh (2015), “Corporate Finance”, Academy of Finance - Asso.Prof Ph.D Nguyen Dinh Kiem- PhD Bach Duc Hien (2008), “ Corporate Finance” - Brealey Myers Marcus , Fundamentals of Corporate Fianace, Third Edition, McGraw Hill Higher Education - Dr Vu Van Ninh (2014), “Coporate finance textbook”, Academy of Finance, - PhD Pham Thi Quyen- PhD Nguyen Thi Thanh (2015),“Corporate Finance Analysis Exercises” - Prof Dr Ngo The Chi – Ass.Prof Ph.D Nguyen Trong Co (2015), “Corporate Finance Analysis” - Prof Dr Ngo The Chi- Dr Truong Thi Thuy (2010), “Financial Accounting” - Ross Westerfield Jordan (2008), “Fundamentals of Corporate Fianace, 10th Edition”, McGraw-Hill Nguyen Van Chuong Class: CQ53/11.06 Academy of Finance Nguyen Van Chuong Graduation Thesis Class: CQ53/11.06 Academy of Finance Graduation Thesis APPENDICICES Table 1: Liquidity ratios Terms Unit Current ratio Times Current asset 31/12/2018 31/12/2017 Difference Rate (%) 2.0491 1.3094 0.7398 56.50% VND 347,618,054,227 230,151,573,816 117,466,480,411 51.04% Current liabilities VND 169,641,820,258 175,771,939,703 (6,130,119,445) (3.49%) Quick ratio Times 1.3252 0.8509 0.4744 55.75% Inventories VND 122,804,426,022 80,594,317,804 42,210,108,218 52.37% Cash ratio Times 0.4744 0.1186 0.3558 299.94% Cash and cash equivalents VND 80,475,339,745 20,848,908,418 59,626,431,327 285.99% Nguyen Van Chuong Class: CQ53/11.06 Academy of Finance Graduation Thesis Table 2: Capital sources ratios Terms Debt ratio Liabilities Unit 31/12/2018 31/12/2017 Difference Rate (%) % 37.09% 52.56% (0.15) (29.44%) VND 340,651,483,980 Total resources VND 918,473,177,254 824,652,990,910 93,820,186,344 11.38% Equity VND 577,821,693,274 391,208,624,157 186,613,069,117 47.70% Short-term asset ratio Times Current assets VND Long-term asset ratio Times Non-current asset VND 347,618,054,227 0.62 570,855,123,027 0.28 230,151,573,816 0.72 594,501,417,094 0.15 (21.41%) % 0.38 47.44% (92,792,882,773) Equity ratio Nguyen Van Chuong 62.91% 433,444,366,753 32.61% 0.10 35.61% 117,466,480,411 (0.10) 51.04% (13.79%) (23,646,294,067) (3.98%) Class: CQ53/11.06 Academy of Finance Graduation Thesis Table 3: Coefficient of operating performance Terms Unit 2018 2017 Difference Rate (%) Inventory turnover Times 8.05 9.16 (1.11) (12.16%) Costs of goods sale VND 818,602,813,195 739,985,118,396 78,617,694,799 10.62% Avarage inventory VND 101,699,371,913 80,749,208,987 20,950,162,927 25.94% Day’s sales in inventory Days 44.72 39.28 5.44 13.85% Times 10.94 9.85 1.09 11.07% 284,477,166,539 28.09% 312,924,883,193 28.09% Accounts receivable turnover Net revenue from good sold and services rendered Net revenue from good sold and services rendered (add 10% VAT) Nguyen Van Chuong 1,012,796,790,85 VND 1,297,273,957,389 VND 1,427,001,353,128 1,114,076,469,935 Class: CQ53/11.06 Academy of Finance Graduation Thesis Avarage account receivable value VND Days sales outstanding (DSO) Days 32.91 36.55 (3.64) (9.96%) Working capital turnover Times 4.4906 4.4936 (0.003) (0.07%) Avarage working capital VND The time of working capital rotation Nguyen Van Chuong Days 130,438,538,170 288,884,814,022 80.17 113,103,805,210 225,387,457,124 80.11 17,334,732,961 63,497,356,898 0.05 15.33% 28.17% 0.07% Class: CQ53/11.06 Academy of Finance Graduation Thesis Asset turnover Times Avarage total asset or capital sources VND Performance of using fixed capital and other long-term capital Average fix assets and other long-term capital in period Nguyen Van Chuong Times VND 1.49 871,563,084,082 2.23 582,678,270,061 1.26 806,510,967,509 1.74 581,123,510,385 0.23 18.53% 65,052,116,574 0.48 8.07% 27.75% 1,554,759,676 0.27% Class: CQ53/11.06 Academy of Finance Graduation Thesis Table 4: Profitability ratios Terms BEP Unit 2018 2017 Difference Rate (%) % 29.83% 14.69% 0.15 103.00% EBIT VND 259,987,717,147 118,513,816,190 Average total assets VND 871,563,084,082 806,510,967,509 ROS NI Net revenue from good sold and services rendered % 17.30% 8.97% 141,473,900,957 119.37% 65,052,116,574 0.08 8.07% 92.80% VND 224,380,401,362 90,858,966,298 133,521,435,064 146.95% VND 1,297,273,957,389 1,012,796,790,850 284,477,166,539 28.09% ROA % 25.74% 11.27% 0.14 128.52% ROE % 46.31% 25.86% 0.20 79.12% 133,098,517,708 37.87% Average equity Nguyen Van Chuong VND 484,515,158,716 351,416,641,008 Class: CQ53/11.06 Academy of Finance Graduation Thesis Table 5: Indicators about the speed of conversion into cash Terms Average days receivable (ADR) Unit 2018 2017 Days 36.20 40.20 Difference Amount Rate (%) (4.01) (9.96%) Average accounts receivable VND 130,438,538,170 113,103,805,210 17,334,732,961 15.33% Average daily net revenues VND 3,603,538,771 2,813,324,419 790,214,351 28.09% Average days payment (ADP) Days 10.48 Average accounts payables to 13.18 VND 23,837,852,757 27,085,302,864 Average daily costs of goods sold VND 2,273,896,703 2,055,514,218 Average days inventory(ADI) Days 44.72 Average inventories VND suppliers Nguyen Van Chuong 101,699,371,913 39.28 80,749,208,987 (2.69) (20.44%) (3,247,450,107) (11.99%) 218,382,486 10.62% 5.44 13.85% 20,950,162,927 25.94% Class: CQ53/11.06 Academy of Finance Cash conversion cycle (ADR + ADI - ADP) Graduation Thesis Days 70.44 66.31 4.13 6.23% Table 6: Indicators about estimating the situation of working capital management Terms Unit 2018 2017 Difference Rate (%) Net revenues VND 1,297,273,957,389 1,012,796,790,850 284,477,166,539 28.09% EBIT VND 259,987,717,147 118,513,816,190 141,473,900,957 119.37% Average WC VND 288,884,814,022 225,387,457,124 63,497,356,898 28.17% Profit before tax VND 240,601,521,441 96,510,744,657 144,090,776,784 149.30% Profit after tax VND 224,380,401,362 90,858,966,298 133,521,435,064 146.95% WC turnover Times 4.4906 4.4936 (0.0030) (0.07%) Time of WC circulation Dates 80.1670 80.1143 0.0527 0.07% Coeffient to WC Dong 0.2227 0.2225 0.0001 0.04% Nguyen Van Chuong Class: CQ53/11.06 Academy of Finance Profit before tax to average WC ratio 10 Profit after tax to average WC ratio 11 The amount of WC saves Nguyen Van Chuong Graduation Thesis % 83.29% 42.82% 40.47% 94.50% % 77.67% 40.31% 37.36% 92.67% VND 189,903,956 Class: CQ53/11.06 ... of chapters: * Chapter 1: Theoretical background of working capital and working capital management * Chapter 2: Current situation of working capital management at phong export garment joint stock. .. of Ha Phong Export Garment Joint Stock company? ?? as my graduate thesis title Aims of the study The aims of the study is to examine, analyze, and evaluate the efficiency of working capital management. .. WORKING CAPITAL MANAGEMENT AT HA PHONG EXPORT GARMENT JOINT STOCK COMPANY 44 2.1 Overview of Ha Phong Export Garment Joint Stock Company 44 Nguyen Van Chuong Class: CQ53/11.06 Academy of