Rationale of the study
Each enterprise is a cell of society, an economic organization that carries out production and business activities, and supplies goods to consumers through the market for profit purposes.
In the current market economy, capital is essential for any business operation The capital structure varies based on specific business characteristics, necessitating a tailored approach To thrive and grow, businesses must focus on effectively creating, utilizing, and managing capital while minimizing costs, all without compromising their overall performance.
Vietnam's economy is transitioning to a market-oriented system and integrating into the global economy, which positively impacts businesses by enabling them to expand into regional and international markets However, this integration also presents challenges for import-export enterprises Currently, the economy faces difficulties, with businesses struggling to find markets for their products and facing ongoing challenges in capital management and organization.
Working capital is a crucial component of a company's overall capital structure, serving as the lifeblood of the business It plays a vital role in the cyclical nature of the production process, making effective working capital management essential for determining a company's operational success and production scale.
Research on working capital reveals that management requirements vary significantly across different types of businesses and their unique environmental conditions As the market economy evolves, the challenges associated with effective working capital management also change, necessitating adaptive strategies for businesses to thrive.
Leveraging the knowledge acquired at the academy and my practical internship experience at Nier Fine Wines Vietnam Company Limited, I have selected the topic of my graduation thesis to be "Working Capital Management at Nier Fine Wines Vietnam Company Limited."
Purposes and Research questions
This article analyzes the working capital management practices at Nier Fine Wines Vietnam Company Limited and proposes several financial strategies to improve its effectiveness By assessing the current state of working capital, the study aims to identify areas for enhancement and recommend actionable solutions that can optimize financial performance and operational efficiency.
Scope of the study
The research focuses on the working capital management of Nier FineWines Vietnam Company Limited in 2019 and 2020.
Data and Research methodology
The primary research methodology employed involves comparative analysis, statistical evaluation, and data synthesis to assess the influence and fluctuation trends of various indicators Additional techniques such as factor analysis and the differential number method are also utilized to enhance the depth of the study.
The methodology of Marxism-Leninism encompasses a comprehensive system of principles and perspectives that guide research and discovery It plays a crucial role in directing and constructing methods, defining their scope, and determining their applicability This framework not only influences the selection and implementation of methods but also provides a clear orientation for scholarly inquiry.
Thesis structure
In addition to the introduction, conclusion, and references.
Chapter 1: Theoretical background of working capital management of a company.
Chapter 2: Situation of working capital management at Nier Fine Wines
Chapter 3: Solution to improving the working capital management at Nier
Fine Wines Vietnam Company Limited.
THEORETICAL BACKGROUND OF
Working capital and financing working capital
1.1.1 Definition and features of working capital
To comprehend a business's working capital, it's essential to define what constitutes an enterprise An enterprise is an organized entity with a recognized name, stable transactions, and assets, operating within legal frameworks to conduct business activities Business activities involve the ongoing execution of various stages of the investment process, encompassing production, sales, and service provision, all aimed at generating profit.
The first concept of working capital could be coming from Karl Mars in 1914, though in a somewhat different form, and the term he used was
“variable capital” Adam Smith, in 1976, mentioned it again, as he started that
Capital can be utilized in two primary ways: as circulating capital, which involves purchasing and reselling goods or labor, and as fixed capital, used for enhancing land or acquiring machinery.
The concept of "circulating capital," while not entirely uniform, serves as a foundational element in defining working capital, as established by Smith However, German economist Lowe critiques Smith's theory, introducing the term "working capital" and highlighting it as a largely overlooked topic in neoclassical economic literature.
Hence Lowe’s distinction between fixed capital is according to this terminology the stock of the unfinished goods which correspond to the output of the stages of each sector.
Working capital is defined as a firm's short-term assets, like inventory, and its short-term liabilities, such as amounts owed to suppliers (Ross et al., 2009) While this definition does not provide a specific formula for calculating working capital, it emphasizes the importance of short-term assets and the financing associated with them Berk and colleagues (2012) support this view and further elaborate that effective working capital management encompasses short-term items including cash and cash equivalents, inventories, and receivables.
To successfully engage in production and business activities, companies require a significant amount of money for purchasing essential production equipment, including machinery, tools, and raw materials This financial resource, utilized for acquiring business assets, is referred to as business capital Within this framework, the portion of business capital allocated for purchasing fixed assets, or long-term assets, is known as fixed capital Conversely, the remaining business capital that is directed towards acquiring working assets, or short-term assets, is termed working capital.
Different from fixed capital, working capital of enterprises has different characteristics Those characteristics are:
-Working capital with fast rotation
- Only engaged in a business process due to the short use of working assets
Working capital manifests through various stages in production and business cycles, evolving from its initial monetary form into raw materials, then into stored goods, unfinished products, semi-finished products, and finally into finished products, before ultimately reverting back to its original monetary form.
The value of labor material is fully transferred to the worth of goods and services produced, and this value is realized when the enterprise receives payment from the sale of its products, goods, and services.
Thus, from the above analysis, we have the concept of working capital:
Working capital refers to the funds a business uses to maintain its current assets and ensure smooth and ongoing operations It represents a complete value transfer that is fully recovered, completing a cycle at the end of the business process.
Working capital refers to the total funds allocated for investing in essential current assets required for daily business operations Essentially, it represents the financial value of a company's current assets.
Working capital in a business frequently transitions through various forms, coexisting in different stages of its lifecycle This continuous and cyclical nature of business activities drives the movement of working capital, highlighting its dynamic role in operational efficiency.
Working capital is rapidly circulating because working assets have a short useful life.
Working capital dynamics evolve throughout various stages of the production and business process, encompassing three key phases: the production reserve phase, the production stage, and the circulation phase This turnover cycle of working capital can be effectively illustrated through a diagram.
• Production reserve period: Cash capital is converted to material reserves (T - H).
• Production stage: Material is converted from reserve materials to unfinished products, semi-finished products and turned into finished products (H - H ').
• Circulation phase Working capital is converted from semi-finished products, finished goods, goods into money (H '- T').
Working capital is fully transferred into the value of goods and services produced, and it is recovered when the business receives payment from the sale of these products or services Consequently, at the conclusion of a business and production cycle, the working capital can effectively complete a full turnover.
The movement of working capital operates as a closed cycle, transforming from one form to another and ultimately returning to its original form with an increased value This working cycle is essential for assessing a company's solvency, production efficiency, and overall capital utilization effectiveness.
Diagram 1: Characteristics of working capital
Effective working capital management is crucial for a business's financial health, as it ensures the rational, economical, and effective use of resources By optimizing working capital, a company can enhance its production capabilities, leading to improved procurement, production, and consumption processes Various types of working capital are involved in the production cycle and frequently change in physical form To manage working capital effectively, it is essential to classify it based on specific criteria.
Diagram 2 : Classification of working capital
- Based on the manifestation form of capital, working capital can be divided into:
• Capital materials and goods: including inventories of raw materials, work in progress, semi-finished products, and finished products.
• Cash and receivables: including cash at the fund, bank deposits, receivables
Based on the role of working capital
Based on the manifestation pattern of
Working capital in production reserve
Capital in cash and accounts receivable
This classification helps enterprises to evaluate the level of inventory, solvency and liquidity of investment assets in the business.
-Based on the role of working capital in the production and business process, working capital is divided into three categories:
• Working capital in production reserve, including:
+Capital of main raw materials: The amount representing the value of materials reserved for production, when participating in production, it constitutes the entity of the product.
+Capital of auxiliary materials: Is the value of reserve materials used in production for the formation of products but not constituting the main entities of the product.
+Fuel capital: The value of fuel reserves for the production of products.
+Spare parts capital: The value of spare parts for replacement each time a fixed asset is repaired.
+Tools and tools capital: is the value of small labor materials with low value, short period of use, not qualified as fixed assets.
• Working capital is in production, including:
+Capital of semi-finished products: is the value of products that have completed one or several stages of the production process and can be sold
+Work in progress: is the value of unfinished products that are still on the production line.
Prepaid expenses refer to costs that are incurred during a specific period but provide benefits over multiple future periods Instead of being fully accounted for in the current period's expenses, these costs are gradually allocated to subsequent periods, ensuring accurate financial reporting and cost management.
• Working capital in circulation, includes:
+Finished product capital: Is the monetary expression of the amount of products stored and prepared for consumption.
+Capital in payment: is the receivable, advance arising in the process of buying and selling materials, goods or internal payments.
Working capital management
1.2.1 Definition and objectives of working capital management
In a competitive market economy, businesses must remain adaptable to thrive amidst challenging conditions Profitability is essential for survival, prompting corporate managers to analyze the factors that influence business outcomes and their trends Effective decision-making and resource management are crucial, making working capital management a top priority This involves selecting, implementing, and organizing decisions to optimize the use of working capital, ensuring that production and business processes operate efficiently and economically.
Working capital management is a part, is the most important content of corporate governance, affecting the production and business process of enterprises.
* Working capital management goals of the business :
Effective working capital management is crucial for optimizing the use of a company's financial resources, ultimately enhancing business performance It reflects how well a business utilizes and manages its working capital in daily operations Proper management of working capital significantly influences a company's sustainability and growth.
Effective working capital management will help businesses:
Be proactive in the shortage of working capital, thereby giving measures to prevent or minimize possible damage.
Minimize dependence on banks and credit institutions, save financial costs and prevent risks.
Proactively use working capital in a flexible way to make full use of the company's resources.
Ensuring the regular, continuous, uninterrupted process of production and business due to insufficient working capital put into production and business or waste of excess working capital.
1.2.2 Contents of working capital management
1.2.2.1 Determining working capital needs and working capital financing a.Working capital needs of the company:
The continuous production and business operations of an enterprise necessitate a sufficient amount of working capital This capital is essential for purchasing supplies, maintaining reserves, and balancing receivables and payables between the business and its customers Ensuring adequate working capital is crucial for the smooth and uninterrupted execution of business processes.
Or to put it another way: "The working capital demand of an enterprise is the minimum capital needed to ensure regular and continuous business operations."
It can be determined by the following formula:
WC requirement = Inventories + Accounts Receivables – Accounts Payables
The selection of funding for working capital is also the enterprises choosing its capital financing model There are three types of capital financing models as follows:
Model 1: Fluctuation current assets are financed through short-term funds whereas permanent current assets and non-current assets are financed with long- term sources.
+) Help businesses limit risks in payment with a higher safety level.
+) Reduce the cost of financing.
+) Enterprises often have to maintain a large amount of regular capital even if it is difficult to reduce the scale of business
Model 2: Long-term funds are used to finance not only non-current assets and permanent current assets but also some fluctuation current assets:
*Advantages: Enhancing solvency for businesses, helping businesses stay at a high safety level.
*Disadvantages: Long-term funds are more expensive and consequently higher cost of financing and therefore reduce profitability.
Model 3: Short-term sources finance are used to finance not only fluctuation current assets but also some permanent current assets and long- term funds are used to finance not only non-current assets but also some permanent current assets.
The third model offers businesses a flexible and cost-effective approach, significantly lowering their overall capital costs By utilizing more short-term credit sources, particularly short-term cyclical capital, enterprises can enhance their financial efficiency.
*Disadvantages: Enterprises face high risks and cannot guarantee solvency, thus required enterprises to be active in organizing capital sources.
Working capital needs can be divided into two categories based on their useful life
Regular working capital is essential for maintaining the ongoing operations of a business Each business scale necessitates a specific amount of working capital to effectively purchase materials, manage inventory, and facilitate product consumption This ensures a seamless production process and the ability to meet market demands consistently.
Demand for temporary working capital: Used to respond to the need to increase stockpiles of supplies, goods or products due to the seasonal nature, due to receiving more orders.
* The meaning of determining the right working capital needs:
Avoid capital stagnation, use it reasonably and economically, improve the efficiency of working capital
Ensuring the business production process of the business is conducted regularly and continuously.
Reducing the risk of the business in payment, improving the reputation with customers.
Doesn't create artificial stress on working capital needs.
* Factors affecting working capital needs of the company:
The firm's working capital needs are a variable quantity and depend on many factors In which, attention should be paid to a number of key factors as follows:
The characteristics and nature of a business, including the business cycle, size, seasonal fluctuations, and advancements in production technology, significantly impact the working capital requirements and the timing of capital deployment.
- The factors of material procurement and product consumption:
+ The distance between businesses and suppliers of goods and materials.
+ The fluctuation in prices of materials and goods that the enterprise uses in its production and business activities
+The distance between the business and the sales market.
+ Conditions and means of transport
Enterprise policies regarding product consumption and credit significantly influence payment terms and the size of receivables The management of consumption and the execution of payment procedures directly impact the enterprise's working capital requirements Understanding the method for determining a business's working capital needs is essential for effective financial planning and resource allocation.
Content: directly determines demand for inventory, accounts receivable, and payables to suppliers and then aggregates them into total working capital needs of the business.
Determine the need for inventory capital:
Includes capital inventory in production storage, production and circulation.
Working capital needs in production reserve:
To calculate the working capital requirements for reserve materials, including raw materials, auxiliary materials, fuel, and spare parts, the general approach involves assessing the average daily capital needs and the number of days reserves are held By multiplying the one-day average capital for each material type by the corresponding reserve days and summing these values, businesses can effectively determine their total working capital needs for production reserves.
To effectively manage inventory, it is essential to calculate the average daily cost of inventory (Mij) by considering the number of inventory types (n) and the required inventory days Additionally, understanding the various stages (m) where inventory is needed helps in determining the optimal amount of stock to maintain By analyzing actual usage patterns and the necessary storage duration, businesses can establish a reasonable reserve period and ensure cost-effective inventory management.
The main materials can be determined by the formula:
Vnvlc: Capital needs to reserve main materials
Mnvlc: Average cost of raw materials per day
The storage duration for main raw materials is calculated by considering several factors, including transportation time, inspection and receipt duration at the warehouse, preparation time before utilization, and the number of days allocated for insurance reserves.
When it comes to auxiliary materials, their diverse types and varying consumption rates necessitate a tailored approach For those materials that are frequently and consistently used, the same formula applied to the main materials should be utilized Conversely, for materials that are utilized infrequently or irregularly, their usage can be assessed based on the percentage of the main material's demand or in relation to the total turnover of these materials during the planning or reporting period.
The need for working capital to be stored in production:
Capital requirements for work in progress and semi-finished goods, along with upfront expenses, are influenced by the average daily production costs and the duration of the production cycle for unfinished products.
Capital needs for unfinished and semi-finished products are determined as follows:
Vsx: Working capital demand for production
Pn: Average production cost of products per day
The Hsp coefficient measures the percentage ratio of the average cost of work in progress and semi-finished products to the total production cost of the final product.
Prepaid expenses are expenses incurred but not fully allocated to the cost of products produced in the period but also to be amortized to the following periods.
Vtt: Demand for upfront costs Pdk: Balance of prepaid expenses at the beginning of the period Pps: Prepaid expenses incurred in the period
Ppb: Prepaid expenses amortized during the period
Working capital requirement in reserve in circulation Includes reserve of finished products, receivables and payables :
Capital demand for finished products refers to the essential capital required to establish an inventory of finished goods that are ready for consumption This inventory level is calculated using a specific formula that helps determine the optimal reserve of finished products.
Vtp: Capital demand for finished products
Zsx: Average production cost of products per day of the planning period Ntp: Number of days to store finished products
Factors determining working management
Determining working capital needs is crucial for businesses, as miscalculating these requirements can result in either excess or insufficient capital This imbalance can negatively impact production and business operations, ultimately reducing the efficiency of capital utilization within the enterprise.
Selecting the right investment plans is crucial for influencing a business's working capital requirements When a company focuses on producing high-quality products and services that align with market demand, it can enhance the turnover of working capital, leading to faster consumption and increased efficiency Conversely, poor investment choices can hinder this process.
Ineffective management at the enterprise level can lead to significant losses and waste of working capital, particularly due to its cyclical nature and various forms throughout the rotation period.
This is a group of factors that affect the entire economy, so businesses cannot completely overcome but must adapt and prevent appropriately It includes the following factors:
In a stable growth economy, businesses can effectively plan for the long term, utilizing working capital to enhance production and operational efficiency due to reduced volatility in production factors Conversely, during an economic crisis, companies face significant challenges as high inflation can erode capital, decrease capital efficiency, and slow the circulation of working capital, leading to stagnation in business activities.
Businesses face significant risks stemming from abnormal challenges in their production and operational processes, particularly in a competitive market environment Additionally, they are vulnerable to natural disasters, including fires and floods, which can further disrupt their activities and financial stability.
The revolution in science and technology is significantly impacting asset values and material costs If businesses fail to adapt promptly to these changes, their products and goods will lose competitiveness, ultimately diminishing overall capital efficiency and specifically affecting working capital.
Changes in state macro policies, such as alterations in legal regulations, taxation, and investment strategies, significantly impact the business environment and conditions These shifts can create unforeseen challenges for businesses, affecting their working capital management and overall governance.
SITUATION OF WORKING CAPITAL
Overview of Nier Fine Wines Vietnam Company Limited
2.1.1 Establishment and Development of Nier Fine Wines Vietnam
-Name of the company: Nier Fine Wines Vietnam Company Limited -International name: NIER FINE WINES VIETNAM COMPANY LIMITED
-Abbreviation name: NIER FINE WINES CO., LTD
-Representative of business: Ms Nguyen Thi Mai Hong - Director
-Address: No 10, BT3 - X2 Linh Dam, Hoang Liet Ward, Hoang Mai District, Hanoi City, Vietnam.
-Email: info@nierfinewines.com.vn
-Charter capital: 1,500,000,000 (One point five billion).
-Main business lines: Trading in beverages.
2.1.1.2 The process of formation and development
Nier Fine Wine Vietnam Co., Ltd., a part of the international Nier Fine Wines group, was founded in 1994 and is headquartered in Austria, with member countries including Germany, Hungary, Slovakia, the Czech Republic, Poland, and Slovenia.
Established in 2008 in Vietnam, head office in Hanoi and branch in Ho Chi Minh City.
Since September 5, 2008, Nier Hao Hao Class Vietnam Co., Ltd has been operating as an independent legal entity, with its Board of Directors comprised of key personnel who have been integral to Nier Excellent Wine Vietnam Co., Ltd since its inception.
Since its inception, the Company has consistently broadened its production and business scope by launching innovative projects focused on product enhancement and designing new offerings tailored to meet the specific needs of each customer.
In addition, the Company recruits more employees suitable for the positions. Since then, productivity has been boosted, accompanied by strict management, so quantity and quality have dramatically increased.
The company boasts a strong workforce, advanced machinery, and skilled management, which have attracted significant investment from partners and clients Recognized as a reputable supplier of high-quality, industry-standard products, the company serves large customers both domestically and internationally Under the guidance of an experienced Board of Directors and a dedicated team of qualified employees, the company continues to experience endless growth and development.
The company's development strategy for the upcoming years focuses on expanding production and business operations by leveraging its strengths and advantages This approach aims to meet the practical demands of socio-economic and sustainable development while creating high-quality standard products The goal is to achieve rapid growth while ensuring efficiency and quality, positioning the company as a leader in its industry.
2.1.1.3 Production organization structure and management:
*Organize the company management apparatus:
On August 21, 2008, the company received its business registration certificate from the Department of Planning and Investment, with the Tax Department of Hoang Mai District overseeing its tax affairs.
Nier Fine Wines Company Limited is an independent economic entity with legal status, as confirmed by its business registration certificate and company charter The company operates with its own bank account and official stamp, adhering to state regulations.
With over 13 years of experience, the company has established a strong presence in the wine industry, specializing in the distribution of high-quality and delicious wines Notable offerings include V8 Malvasia Nera Wine Del Salento IGP and Papale Primitivo Di Manduria Red Wine, showcasing the company's commitment to excellence.
Diagram 6 : Diagram of the company's management apparatus
(Source: Administration Department, Nier Fine Wines Company Limited)
Nier Fine Wines Company Limited is a small and medium enterprise, so the company's system is simple, with few departments.
Board of Directors: The Board of Directors includes the Director and the
Deputy Directors at Nier Fine Wines Company Limited are appointed and dismissed by the Board of Directors Both the Director and Deputy Director possess equivalent powers and serve as legal representatives of the Company, overseeing all business, manufacturing, and operational activities within the Company's jurisdiction.
The effective management, preservation, and development of capital in accordance with the approved plan is essential It is crucial to create a strategy that regulates capital and other resources within the company to facilitate cooperation, capital contributions, and investments.
-Develop strategies, medium-term and annual plans to serve as the basis for assigning plans to companies,
To enhance market solutions and drive technological innovation, we focus on developing comprehensive investment projects, including joint ventures and partnerships These initiatives are then presented to the Members' Council for approval or submitted to relevant state agencies for necessary authorization.
-Decide the appointment, dismissal, removal from office and decide the salary, and consider and handle violations of the titles they appoint.
-Develop capital mobilization plans, annual production and business plans and operating cash flows for industries, sectors, and projects, and organize the implementation when the plan comes into operation.
-Take responsibility before the Board of Members for the efficiency of production and business every year.
The Sales Department plays a crucial role in conducting market research, identifying potential customers, and exploring new markets while analyzing business activities Additionally, it provides vital support to the company's Board of Directors on matters related to promoting the sales of products and services, including international payments, capital mobilization, lending, guarantees, financial consulting, and joint ventures.
-Perform professional work on finance and accounting in accordance with the State's regulations on accounting standards, accounting principles….
-Track and reflect the business capital movement of the business in all forms and advise the Board of Directors on related issues.
-Advising the Board of Directors on the accounting regime and changes of the regime through each period in business activities.
-Together with other departments, create a dynamic and effective information network for human resources, finance, management.
The Department of Organization - Administration serves as a professional division that advises the Director on essential aspects such as personnel management, labor relations, salary administration, and employee recognition Additionally, it oversees discipline, training, planning, and various administrative functions, including clerical tasks, archiving, medical services, military affairs, and internal political protection.
-Propose to the immediate superiors about each creative idea to improve and improve the work quality of the department.
*Organize the finance - accounting department:
The Accounting Department has 3 people with the following positions:
TABLE 1: ORGANIZATION OF THE ACCOUNTING APPARATUS
N.O First and last name Position
1 Ms Ngo Thu Huong Chief Accountant
2 Ms Ngo Thi Nu Warehouse accountant
3 Mr Tran Thi Nhan Treasurer
(Source: Accounting Department, Nier Fine Wines VN Company Limited)
The chief accountant oversees the entire operation of the accounting department, assisting the director by organizing and directing accounting tasks and managing financial information They strategically assign job positions to accountants, closely monitor work progress, and ensure smooth completion of tasks Additionally, the chief accountant is responsible for approving monthly accounting stages and reporting on the company's business performance to the deputy director and other department heads.
In orther, Transactions with Banks
-Keep track of the warehouse
-Tracking accounting records arising operations of the template center.
-Track and record the entire process of goods sales, warehouse management.
-Track inventory of materials, internal inventory, track construction liabilities, track the entire export revenue of the company and all imported materials.
-Revenue and expenditure and monitoring of payments, advance liabilities of branches.
-Checking, monitoring, accounting for salary, Social insurance, Health insurance
* Accounting features of the company:
Nier Fine Wines Vietnam Company Limited is currently utilizing the Vietnamese Accounting System as per Circular No 200/2014/TT-BTC, issued by the Ministry of Finance on December 22, 2014 This includes adherence to the Vietnamese Accounting Standards and all relevant amendments and supplements set forth by the Ministry of Finance.
-Currency unit used in accounting: Financial statements and accounting operations are made and recorded in Vietnam Dong (VND).
-VAT calculation method: deduction method.
-Inventory accounting method: regular declaration method.
-Fixed asset depreciation method: straight-line method
The situation of working capital management at Nier Fine Wines
2.2.1 Working capital and source forming working capital of the
TABLE 5: WORKING CAPITAL AND DISTRIBUTION
2 Provision for devaluation of inventory 0 0 0 0 0 - 0
The data indicates a decline in the enterprise's labor force, with a noticeable decrease in 2020 compared to 2019 Specifically, the working capital at the end of the fiscal year 2020 was over 22,148 million VND, reflecting a reduction of 1,695 million VND or 7.11%.
The working capital structure primarily consists of cash and cash equivalents, followed by accounts receivable and inventory As of the end of fiscal year 2020, cash and cash equivalents experienced a slight increase.
In the fiscal year 2020, the financial report indicated a total revenue of 3,251 million VND, reflecting an increase of 734 million VND, or 29.16% Receivables also saw a modest rise from 7,631 million VND to 7,912 million VND, marking a 3.68% increase However, inventories experienced a significant decline, dropping from 12,345 million VND in 2019 to a reduced level of 9,785 million VND, which represents a decrease of 2,560 million VND or 20.74%.
The company caters to both domestic and international customers, primarily sourcing its products from overseas This reliance on imports results in extended delivery times, compounded by interest factors that affect timely payments Consequently, while accounts receivable from customers may rise, the increase is not substantial.
As of fiscal year 2019, the company's inventory stood at 12,345 million VND, reflecting a significant decrease of 2,560 million VND, or 20.74% This reduction in inventory is a positive indicator, as it suggests efficient business operations and effective sales strategies, leading to lower storage, warehouse, and inventory management costs To maintain this momentum, the company should continue leveraging this advantage to boost sales and minimize excess inventory in the future.
2.2.2 Working capital management situation at the Company.
2.2.2.1 About the organization to ensure working capital.
Enterprises require a sufficient amount of working capital to facilitate the purchase of goods and manage the disparity between receivables and payables, ensuring a smooth and continuous production and business process This represents the regular working capital needs essential for operational efficiency.
The enterprise's method for determining working capital needs lacks a scientific approach, relying instead on subjective feelings and the administrator's personal judgment This absence of a specific formula leads to limitations in effectiveness, significantly impacting the company's inventory planning.
Working capital of the enterprise includes regular working capital and temporary working capital :
Regular working capital = Short-term assets - Short-term debt
Based on the enterprise's balance sheet, capital structure and asset structure, we have:
Regular working capital = 22 148 – 10 091 = 12 057 (milion VND)
Regular working capital = 23 843 – 11 802 = 12 041 (milion VND)
At the end of 2019 and throughout 2020, a positive working capital indicates that the enterprise maintained financial balance, demonstrating a proactive and flexible approach While this strategy ensures stable solvency and safety, it also results in higher capital costs.
We can consider the following model:
TSNH Short-term assets Short-term debt
As of December 31, 2020, the enterprise experienced a decline in short-term capital, indicating that its short-term assets were increasingly financed by long-term capital sources compared to the end of 2019.
Long-term liabilities And Eqiuty
The increasing trend in financing may lead to higher borrowing costs for enterprises; however, it also enhances stability, as long-term capital is typically derived from the owner's equity.
To facilitate the consideration of the volatility of working capital, we analyze the regular working capital source and the temporary working capital source.
Value Proportio n (%) Value Proportio n (%) Value Rate
2 Short-term payables to sellers 4300 42.61 6092 51.62 (1792) (29.42) (9.01)
3 Taxes and other payables to the State 19 0.19 1123 9.52 (1104) (98.31) (9.33)
5 Loan and finance lease debt 4100 40.63 3100 26.27 1000 32.26 14.36
Through the table above, the company's regular working capital at the end of fiscal 2019 was 12,041 million VND and at the end of fiscal year 2020 was 12,057 million VND, all > 0.
Regular working capital increased slightly in the fiscal year 2020 The rate didn’t increase significantly, from 12,041 million VND to 12,057 million VND.
A positive level of working capital, with minimal fluctuations, indicates stable capital financing that aligns well with industry standards, ultimately enhancing business efficiency.
The temporary source of capital at the end of 2019 was 11,802 million dong, by the end of 2020 it decreased to 10,091 million dong, (- 14.5%).
In which, in the structure of temporary working capital, short-term payables accounted for the most, accounting for 42.61% of the proportion of temporary working capital.
Short-term trade payables in 2019 were 6,092 million VND, decreased 1,792 million VND (- 29.42%) (still at a reasonable level, although this is a reasonable appropriation, it is only in the short term term).
Taxes and other state payables tended to drop sharply.In 2019, taxes and other payables to the state were 1123 million VND, decreased 1104 million VND (- 98.31%).
At the end of 2019, loans and finance lease debt significantly impacted the company's temporary working capital, rising to 3,100 million VND, which reflects an increase of 1,000 million VND or 32.26%.
Temporary working capital, or short-term debt, has shown a slight decrease but remains at a sustainable level It is essential for the Company to closely monitor and maintain a balanced approach to temporary and regular working capital in alignment with its production and business goals.
2 Provision for devaluation of inventories 0 - 0 - 0 - -
(Source: Accounting balance sheet 2019-2020) allocated mainly in two criteria: short-term receivables and inventories. Specifically, short-term receivables accounted for 32.01% of the proportion in
2019 and 35.72% in 2020, which means the proportion has increased to 3.72%, along with that, short-term receivables increased by 281 million VND, up by 3.68%
Short-term receivables have seen a slight increase, maintaining stability in line with industry trends Notably, short-term receivables from customers dropped significantly from 4,104 million VND to 489 million VND, reflecting an 88.08% decrease and representing 6.18% of the total short-term payment structure.
The proportion of inventories has changed markedly over 2 years, in
2019, the proportion at 51.78%, by 2020 it was 44.18%, the reduction amount was 2560 million VND, the reduction rate was 20.74%.
Cash capital always accounted for a small proportion in working capital structure, in 2019, accounted for 10.56%, in 2020, accounted for 14.68% (up
734 million VND, rate increased by 29.16%).
In the wine industry, a company's working capital primarily focuses on receivables and inventory, with cash capital comprising a smaller portion This structure aligns with the unique characteristics of the business However, the high levels of receivables and inventory can lead to significant fluctuations that impact overall capital, while limited cash reserves increase the risk of delayed payments Therefore, it is essential to closely examine the working capital structure to identify potential weaknesses and improve financial stability.
Assessment of working capital management at Nier Fine Wines
An analysis of the company's organization, management, and working capital efficiency reveals that it has achieved remarkable success in its production and business activities.
- The solvency of the company tends to increase and always ensures its ability to pay short-term debts to maturity.
- The proportion of cash that accounts for the majority of the capital structure in cash will increase the fast solvency of the business.
- The decrease in cost of goods sold of the company creates conditions to reduce the cost of goods, stimulating the quantity demanded in the market.
The company leverages its brand reputation and competitive pricing to enhance market demand, driving high sales in its production and business activities By the end of 2020, the company reported a significant after-tax profit, reflecting the successful exploitation of its advantages in the marketplace.
1724 million VND, increased 1420 million VND compared to 2019 This is a good business performance and sets the stage for better performance next year.
Effective inventory capital management indicates that the company's capital management issues are improving, leading to reduced capital stagnation and enhanced efficiency in working capital management.
- Working capital is usually positive, the enterprise uses regular working capital to invest in short-term assets Ensuring the cost of capital and financing forms.
- Tracking the provision for devaluation of inventories is given a lot of attention, helping businesses increase their ability to manage inventories.
Despite the positive outcomes achieved, the Company faces several limitations that hinder effective working capital management To improve results, it is essential for the Company to implement necessary measures, proactively develop strategies, and enhance the mobilization and utilization of working capital.