Ảnh hưởng của quản lý tài chính và một số khía cạnh tài chính đến lợi nhuận của doanh nghiệp vừa và nhỏ thương mại và dịch vụ trong tỉnh thái nguyên

IMPACT OF FINANCIAL MANAGEMENT ON THE PROFITABILITY OF SMALL AND MEDIUM TRADE AND SERVICE ENTERPRISES IN THAI NGUYEN PROVINCE A Dissertation Presented to The Faculty Graduate School Southern Luzon State University Lucban, Quezon In Partial Fulfillment of the Requirements for the Degree Doctor of Business Administration by PHAM ANH NGOC (RANDY) 2013 ACKNOWLEDGEMENTS I acknowledge Dr Joanna Paula A Ellaga and her assistants from the Southern Luzon State University (SLSU) I also acknowledge Mrs Le Thi Xuan from the Faculty of Foreign Languages of Thainguyen of Economics and Financial (TCEF) for her comments on English in earlier drafts of my disertation In the process of data collection for this research, many people contributed to the task and I am particularly grateful for their contributions I am greatly indebted to Mr Nguyen Quoc Huy and Accounting Faculty of TCEF for their introduction to contacts with the small and medium enterprises (SMEs) community located in Thainguyen city I also wish to thank to Department of Taxation, Department of Investment and Planning for providing secondary data related to the current practices of SMEs in Thaingyen province I would particularly like to thank the following friends for their support related to data collection: Mrs Ha Thi Hương and all teachers of Finance Faculty of TCEF and all my students who worked as fieldworkers for data collection Finally, to my parents and my wife, I wish to extend my loving thanks for their encouragement ii ABSTRACT This dissertation examines the relationship between financial management and profitability of SMEs to determine whether financial management practices and financial aspects impact on SME profitability Specific Objectives of the disertation are: To determine the profile of the respondents in terms of the following 1.1 The form of business organization affiliated with 1.2 Position in the company 1.3 Highest educational attainment 1.4 Attendance to financial management-related trainings To Identify the financial management practices of the company in terms of the following areas: 2.1 Accounting information system 2.2 Working capital management 2.3 Fixed asset management To assess the company in terms of the following financial aspects: 3.1 Liquidity 3.2 Financial leverage 3.3 Activity To know the relationship of financial management practices and financial aspects to the company’s profitability in terms of the following: 4.1 Return on sales 4.2 Return of assets 4.3 Return on equity To develop a model for the SME’s profitability iii To propose solutions to improve the company’s and SME’s profitability In this research, both survey and secondary data methods are used in combination Survey was chosen to investigate financial management practices The secondary data method was used to examine the financial aspects Respondents in this study can be: Owner, Manager, Chief-accountant of SMEs located in Thai Nguyen City The disertation provides descriptive findings of financial management practices and financial aspects and demonstrates the simultaneous impact of financial management practices and financial aspects on SME profitability In addition, the research study provides a model of SME profitability, in which profitability was found to be related to financial management practices and financial aspects With the exception of debt ratios, all other variables including cash ratio, total asset turnover, accounting information systems, working capital management and fixed asset management were found to be significantly related to SME profitability iv TABLE OF CONTENTS ACKNOWLEDGEMENTS ii ABSTRACT iii LIST OF TABLE vii INTRODUCTION 1.1 BACKGROUND OF THE STUDY 1.2 STATEMENT OF THE OBJECTIVES 1.3 HYPOTHESIS 1.4 SIGNIFICANCE OF THE STUDY 1.5 SCOPE AND LIMITATIONS OF THE STUDY 1.6 DEFINITION OF TERMS Chapter REVIEW OF RELATED LITERATURE AND STUDIES 2.1 QUALITATIVE DEFINITIONS OF SMES 2.2 QUANTITATIVE DEFINITIONS OF SMES 2.3 FINANCIAL MANAGEMENT FOR SMES 10 2.4 FINANCIAL MANAGEMENT PRACTICES 13 2.5 FINANCIAL ASPECTS 17 2.6 SME PROFITABILITY 19 2.7 RELATIONSHIPS BETWEEN FINANCIAL MANAGEMENT AND SME PROFITABILITY 22 2.8 THE MODEL OF IMPACT OF FINANCIAL MANAGEMENT ON SME PROFITABILITY 22 2.9 CONCEPTUAL FRAMEWORK 23 Chapter 24 METHODOLOGY 24 3.1 RESEARCH DESIGN 24 v 3.2 LOCALE OF THE STUDY 25 3.3 BUSINESS STRUCTURE AND SMES IN THAI NGUYEN PROVINCE 25 3.4 SAMPLING DESIGN AND TECHNIQUES 25 3.5 DETERMINATION OF SAMPLE SIZE 26 3.6 SUBJECT OF THE STUDY 26 3.7 RESEARCH INSTRUMENT 27 3.8 DATA GATHERING PROCEDURE 36 3.9 DATA PROCESSING METHOD 37 3.10 STATISTICAL TREATMENT 37 Chapter 39 PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA 39 4.1 DESCRIPTIVE OF THE RESEARCH STUDY 39 4.2 ASSOCIATIVE ANALYSIS OF THE RESEARCH STUDY 62 Chapter 71 SUMMARY, FINDINGS, CONCLUSIONS AND RECOMMENDATIONS 71 5.1 SUMMARY 71 5.2 FINDINGS 73 5.3 CONCLUSIONS 76 5.4 RECOMMENDATIONS 77 BIBLIOGRAPHY 79 APPENDIX 82 APPENDIX 2: SURVEY INSTRUMENT 83 SURVEY OF FINANCIAL MANAGEMENT PRACTICES 83 OF SMEs IN THAI NGUYEN CITY 83 APPENDIX 3: REGRESSION 95 APPENDIX 4: CORRELATIONS 97 vi LIST OF TABLE Table 1.1: Classifying enterprise by total capital and number of laborers Table 3.1 Number and percentage of SME sample and population 26 Table 4.1: Structure of SMEs in the sample by form of ownership 40 Table 4.2: Structure of respondent by the position 40 Table 4.3: Structure of respondent by the highest educational attainment 41 The level education 41 Table 4.4: Structure of respondent by the frequency of attendance to 41 Table 4.5: Responsibility – accounting information system 43 Table 4.6: Using computer in accounting information system 44 Table 4.7: Weighted Mean Distribution on Accounting information system 45 Table 4.8: Preparing cash budgets 46 Table 4.9: Cash balance determination 47 Table 4.10: Weighted Mean Distribution on Cash management practices 49 Table 4.11: Sales on credit and credit polices 50 Table 4.12: Frequency of reviewing receivable levels and bad debts 51 Table 4.13: Weighted Mean Distribution on Receivable management practices 52 Table 4.14: Frequency of reviewing inventory levels and preparing inventory budgets 53 Table 4.15: Weighted Mean Distribution on Inventory management practices 54 Table 4.16: Frequency of evaluating investment projects and reviewing efficiency of using fixed assets after investing 56 Table 4.17: Weighted Mean Distribution on Fixed asset management practices 57 Table 4.18: Descriptive statistics of financial ratios of trading and service SMEs 58 Table 4.19: Descriptive findings of SME cash ratios 59 Table 4.20: Descriptive findings of SME Debt-to-equity ratio 60 Table 4.21: Descriptive findings of SME activity ratio 60 vii Table 4.22: Overview of SME profitability 61 Table 4.23: Correlation matrix of PRO and independent variables 63 Table 4.24: SME profitability regression model using profitability as dependent variable 65 Table 4.25: Descriptive finding of relationship between profitability and cash ratio 67 Table 4.26: Relationship between SME profitability and the efficiency of financial management practices 68 T able 4.27: Regression model of SME profitability after removing debt ratio 70 viii Chapter INTRODUCTION This chapter provides a general introduction to the research study The purpose is to establish foundations for following chapters and the study as a whole, by providing a general picture of the study This chapter is structured into ten sections Section 1.1 examines the research background where the research problem is identified Section 1.2 defines the research problem, presents a statement of the problem and expands the research problem in two subsections 1.2.1 and 1.2.2 Subsection 1.2.1 presents research objectives that the study covers in the process of solving the research problem defined Subsection 1.2.2.addresses the research questions that will be respectively answered in chapters of the study Section 1.3 provides hypothesis of this study Section 1.4 and section 1.5 points out the significance and scope of the study Lastly, section 1.6 presents definition of terms 1.1 BACKGROUND OF THE STUDY Vietnam was a strong command-economy system in the mid-1980s The difficulties from years of war and the inefficiency of the command-economy system had led the Vietnam economy to crisis Face with stagnant growth, shortage of food, deficit budgets, increase in inflation and trade imbalances, the Government of Vietnam started an economic renovation policy in 1986 According to Vietnam Chamber Of Commerce And Industry (VCCI), since the government introduced the series of economic reform, the private sector has rapidly grown in terms of the number of businesses, capital and employees From the base of zero in 1991, the number of private businesses, limited companies and joint stock companies had quickly risen to 543.963 in 2011 and almost all are small and medium enterprises (SMEs) SMEs have contributed considerably to growing GDP and creating jobs for labour-age people as follows (VCCI): Total of capital was 6.000.000 billion VND Providing a large number of diversified products, occupying 40 percent of GDP Creating jobs for 26 million people, Mobilizing temporarily unused resources such as land, capital labour and management skills to develop production, and Increasing export volume and lessening trade deficits Originating from recognition of the increasingly important role and contribution of SMEs as well as the recent promotion and supporting policy on developing SMEs, this research study the Impact of Financial Management on the Profitability of Small and Medium Trade and Service Enterprises in Thai Nguyen Province 1.2 STATEMENT OF THE OBJECTIVES The problem that SMEs in Thai Nguyen province face appears to be that inefficient financial management has adversely affected their profitability (Thai Nguyen Young Businesses's Union 2010) Therefore, the problem to be addressed in this research is to investigate effects of Financial aspects and financial management practices on SME profitability, and then, to determine the best measures for improving SME profitability in Thai Nguyen province by using efficient financial management tools 1.2.1 Research objectives In solving the research problem and answering the research questions mentioned previously, this study has the following objectives: 1) To determine the profile of the respondents in terms of the following 1.1) The form of business organization affiliated with APPENDIX 2: SURVEY INSTRUMENT SURVEY OF FINANCIAL MANAGEMENT PRACTICES OF SMEs IN THAI NGUYEN CITY Purpose of the survey: The purpose of this survey is to obtain in-depth information on financial management practices of SMEs located in Thai Nguyen City This information is linked to a project of improving financial management practices and profitability of SMEs Businesses to be surveyed : All small and medium enterprises (SMEs) including joint stock companies, limited liabilities companies and private enterprises Respondents: We ask that this questionnaire should be answered by the owner or key manager (e.g., financial manager or chief-accountant) who is responsible for financial function in your business We would like you to answer each question from the perspective of the business unit that you manage rather than from the general ideas or views and please add any additional comments that you believe are appropriate Non commercialization and confidentiality: Data collected from the survey will be used to test the model relating to a theory developed as a part of a doctoral disertation It does not involve any commercial activities and all information will be treated in strictest confidence How to answer the questions: To answer the questions you simply circle the most appropriate numbers, which are listed, excepting of some cases you are requested to fill the appropriate number into the blanks Thank you for spending time to answer the questionnaire A COMPANY PROFILE (Please circle the appropriate number that best answers to each question) What best describes the form of ownership of your business? Joint stock company Limited company Private enterprise… 83 What is your position in your business? Owner Manager Chief-accountant Other, please specify What is your HIGHEST educational qualification or nearest equivalent? Intermediate Bachelor degree Master degree Higher degree Others, please specify Do you ever attend management training programs related to financial management? Never Rarely (from to attentions) Sometimes (3 to attentions) Often (more than attentions) Always B FINANCIAL ASPECTS Accounting information system 1.1 Who is responsible for the following duties in your business? ChiefDuties Owner Employed External Manager accountant accountant accountant Recording business transactions 84 ChiefDuties Owner Employed External Manager accountant accountant accountant Preparing accounting 5 reports Interpreting and using accounting information 1.2 Does your business ever utilize computers in accounting? Never Rarely Sometimes Often Always 1.3 If yes, which of the following is the most popular application? Recording business transactions Preparing accounting reports Managing assets Controlling payroll Controlling cash flows 1.4 Efficiency of accounting information system (Please circle number that applies on each scale) Here are some statements, which describe how owner/manager may feel about the efficiency of accounting information system Please indicate the most appropriate number that describes your business position on the scale There are no right or wrong answers to these questions Just give your opinion about your business Low regard How you regard about accounting information High regard 85 system in your enterprise? Not frequent at Very frequent all How frequent in preparing accounting reports in your enterprise? Not updated at all Very updated How does your enterprise update the business transactions? Low High involvement involvement What is your manager involved in preparing accounting information? Low High involvement involvement What is your manager involved in interpreting and using accounting information? Very Very acceptable unacceptable How is acceptable about your enterprise’s accounting information system? Not useful at all Very useful How useful is your enterprise’s accounting information in making decisions? 86 Low High computerization computerization How is your computerized in your enterprise’s accounting information system? Working capital management 2.1 Cash management practices a Does your business ever conduct or occur the following ones? Duties Preparing cash budget Never Rarely Sometimes Often Always 5 Determining the target cash balance b How often is the cash budget prepared and reviewed in your business? Duties Never Weekly Monthly Quarterly Semiannually Annually Preparing cash budget c On what basis does your business determine target cash balances? Based on theories of cash management Based on historical data Based on owner/manager’s experience Others, please specify d Efficiency of cash management Low regard How you regard about cash management High regard 87 practices in your enterprise? Not frequent at all Very frequent How frequent does your enterprise in preparing cash budgets in your enterprise? Low involvement High involvement How involved is the manager in preparing cash budgets? Low involvement High involvement How involved is the manager in interpreting and using cash budgets? Not useful at all Very useful How useful are cash budgets in providing information for making decisions? Very poorly Very well How does your enterprise apply theories of cash management in determining the target cash balance? Very unacceptable Very acceptable How acceptable is the target cash balance determined in your enterprise? Low High computerization computerization 88 How computerized are cash management practices in your enterprise? 2.2 Receivable management practices a Does your business ever carry out the things lis ted below? Duties Never Rarely Often Sometimes Always 5 Sell products or services in credit Set up its credit policy to the customers b How often does your business review its levels of receivables and bad debts? Duties Never Weekly Monthly Quarterly Semiannually Annually 5 Review its levels of receivables Review its bad debts c Efficiency of receivable management Low regard High regard How does your enterprise regard receivables management practices? Not regularly at all Very regularly How regularly does your enterprise review debtors’ credit period? Not reasonable at Very reasonable all 89 How reasonable is debtors’ credit period in your enterprise? Not regular at all Very regular 4 How regular does your enterprise review debtors’ discount policy? Not reasonable at Very reasonable all How reasonable is debtors’ discount policy in your enterprise? Not regular at all Very regular How regular does your enterprise review percentage of bad debts? Not reasonable at Very reasonable all How reasonable is the percentage of bad debts in your enterprise? Low High computerization computerization How computerized are receivable management practices in your enterprise? 2.3 Inventory management practices a Does your business ever the following ones ? Duties Never Rarely Sometimes Often Always 90 Duties Never Rarely Sometimes Often Always 5 Review its inventory levels Prepare inventory budget b Efficiency of inventory management Low regard High regard How does your enterprise regard inventory management practices? Not regularly at all Very regularly How regularly does your enterprise review inventory turnover? Not regularly at all Very regularly How regularly does your enterprise review inventory level? Very slow Very fast How fast is inventory turnover of your enterprise? Very unacceptable Very acceptable How acceptable is inventory level of your enterprise? Not useful at all Very useful How are inventory budgets of your enterprise useful in providing information for making 91 decisions? Very poorly Very well How does your enterprise apply theories of inventory management in determining the inventory level? Low High computerization computerization How computerized are inventory management practices in your enterprise? Fixed asset management practices a Related to fixed asset management, does your business ever the following ones? Duties Never Rarely Sometimes Often Always 5 Evaluate its projects before making capital investment decisions Review efficiency of using fixed assets after investing b Efficiency of fixed asset management Low regard High regard How does your enterprise regard fixed asset management practices? Low regard High regard 92 How does your enterprise regard assessing capital project before making investment decisions? Not regularly at Very regularly all How regularly does your enterprise review capital projects? Very Very unacceptable acceptable How acceptable is capital budgeting utilized in your enterprise? Not advanced at Very all advanced How advanced does your enterprise apply techniques of capital budgeting in determining capital investment projects? Very Very unreasonable reasonable How reasonable are fixed assets of your enterprise utilized? Not useful at all Very useful How useful are fixed assets acquired in your enterprise? Low High 93 computerization computerization How computerized are fixed asset management practices in your enterprise? C FINANCIAL ASPECTS Based on the current financial statements of your business, please complete the table as described below? Financial ratio Description Results Cash ratio Cash divided by current liabilities ? Debt-to-equity Total debt/Equity ? Sales/Total assets ? [(Net income/Sales )+(Net income/Total assets) +(Net ? ratio Total asset turnover Profitability income/Equity)]/3 Annual profits Less than 100 million dong 100 to 500 million dong .2 501 to 1.000 million dong More 1.000 million dong Business name: Address: Phone number: Respondent name: Position: Once again thank you very much for your cooperation 94 APPENDIX 3: REGRESSION Variables Entered/Removed b Variables Model Variables Entered Method Removed Fixed asset management practices , Debt-to-equity ratio , Total asset turnover , Enter a Accounting information system , Working capital management, Cash ratio a All requested variables entered b Dependent Variable: Profitability Model Summary Model R R Square 979 a Adjusted R Square 959 Std Error of the Estimate 957 08110 a Predictors: (Constant), Fixed asset management practices , Debt-to-equity ratio , Total asset turnover , Accounting information system , Working capital management, Cash ratio a Coefficients Standardized Unstandardized Coefficients Model B Std Error Coefficients t Beta (Constant) 055 285 Cash ratio -2.093 265 Debt-to-equity ratio 074 Total asset turnover Sig .191 849 -.390 -7.894 000 083 017 887 377 1.091 149 236 7.332 000 Accounting information system 011 003 133 3.692 000 Working capital management 010 003 166 3.827 000 Fixed asset management practices 013 003 160 4.151 000 a Dependent Variable: Profitability b ANOVA Model Sum of Squares Regression Residual Total df Mean Square 17.457 2.910 743 113 007 18.201 119 F Sig 442.348 000 95 a REGRESSION AFTER REMOVED DEBT-TO-EQUITY RATIO VARIABLE Variables Entered/Removed Model Variables Entered b Variables Removed Method Fixed asset management practices , Total asset turnover , Enter Accounting information system , Working capital management, a Cash ratio a All requested variables entered b Dependent Variable: Profitability Model Summary Model R R Square 979 a Adjusted R Square 959 Std Error of the Estimate 957 08103 a Predictors: (Constant), Fixed asset management practices , Total asset turnover , Accounting information system , Working capital management, Cash ratio ANOVA Model Sum of Squares Regression df Mean Square F 17.452 3.490 748 114 007 18.201 119 Residual Total b Sig 531.651 000 a a Predictors: (Constant), Fixed asset management practices , Total asset turnover , Accounting information system , Working capital management, Cash ratio b Dependent Variable: Profitability a Coefficients Model Unstandardized Standardized Coefficients Coefficients B Std Error (Constant) 054 285 Cash ratio -2.058 262 1.119 Accounting information system t Beta Sig .191 849 -.383 -7.857 000 145 242 7.714 000 011 003 133 3.711 000 Working capital management 010 003 167 3.853 000 Fixed asset management practices 013 003 161 4.184 000 Total asset turnover 96 APPENDIX 4: CORRELATIONS Profitability Profitability Pearson Correlation Cash ratio Pearson Correlation Debt-to- ratio equity ratio Total Accounting Working Fixed asset asset information capital management turnover system management practices ** 071 000 442 000 000 000 000 120 120 120 120 120 120 120 ** -.008 -.946 Sig (2-tailed) N Cash -.946 Sig (2-tailed) 000 N 120 ** 822 ** -.769 ** -.845 856 -.789 ** ** 000 000 000 000 120 120 120 120 120 120 071 -.008 150 051 007 044 Sig (2-tailed) 442 929 102 583 944 630 N 120 120 120 120 120 120 120 ** 150 Pearson equity ratio Correlation Total asset Pearson turnover Correlation 822 ** -.769 Sig (2-tailed) 000 000 102 N 120 120 120 ** 051 120 120 120 ** system Sig (2-tailed) 000 000 583 000 N 120 120 120 120 865** -.845** 007 000 000 120 Working Pearson capital Correlation management Sig (2-tailed) N Pearson management Correlation 856 ** ** 120 Correlation -.809 612 000 information ** ** 571 000 Pearson 861 ** 682 000 Accounting practices ** -.809 ** 865 929 Debt-to- Fixed asset ** 861 682 ** 755 784 ** 000 000 120 120 120 571** 755** 836** 944 000 000 120 120 120 120 ** 044 -.789 ** 612 ** 784 000 120 120 ** 836 Sig (2-tailed) 000 000 630 000 000 000 N 120 120 120 120 120 120 120 ** Correlation is significant at the 0.01 level (2-tailed) 97 ... study Lastly, section 1.6 presents definition of terms 1.1 BACKGROUND OF THE STUDY Vietnam was a strong command-economy system in the mid-1980s The difficulties from years of war and the inefficiency... ratio = (Current assets – Inventory) / Current liabilities 17 In general, previous researchers strongly agreed in the use of these two ratios as measures of liquidity and to determine financial