Corporate finance and corporate finance management
1.1.1 Corporate finance and corporate finance decisions
Corporate finance refers to the economic relationship that emerges from the creation and utilization of a company's financial resources, aimed at maximizing business value.
Corporate finance focuses on a corporation's financial structure, encompassing its funding strategies and management actions aimed at maximizing corporate value It includes the methodologies and research necessary to effectively organize and allocate financial capital The primary objective of corporate finance is to enhance a company's value by preparing and executing capital strategies, all while managing the balance between profitability and risk.
The financial relationships of an enterprise encompass the economic interactions related to the creation, distribution, and utilization of corporate monetary funds These relationships are essential for understanding the overall financial dynamics within a business.
The relationship between enterprises and the State is characterized by state funding for operational businesses and the financial obligations of these companies, which include the payment of taxes and fees.
- Relationships between enterprises and other economic entities: This involves payment relationships for borrowing and lending, capital investment,purchasing or selling of properties, products, goods and other services.
The dynamics of relationships within enterprises encompass interactions between businesses and their employees, shareholders, and internal departments This includes the payment of salaries, wages, bonuses, and fines to workers, as well as the allocation of post-tax income among different company departments Additionally, it involves the distribution of dividends to shareholders and the establishment of corporate funds, highlighting the intricate connections that influence financial management and stakeholder engagement within organizations.
Financial managers play a crucial role in maximizing business value through strategic financial decisions They constantly navigate the tension between risk and profitability while balancing stakeholder interests To enhance business value, it is essential for managers to focus on maximizing profitability and minimizing risks for owners Key financial decisions include investment choices, capital allocation, and profit distribution, all of which are vital for achieving the organization's goals.
Corporate finance has three major decisions:
Investment decisions pertain to the overall value of assets, encompassing both short-term and long-term assets These decisions are primarily linked to the left side of the balance sheet, which reflects the company's financial health and resource allocation.
- Decisions on short-term assets investments: Inventories, policy on selling goods, and short-term financial investments, etc.
- Decisions on long-term assets investments: New fixed assets purchase, old fixed assets replacements, project investments and long- term financial investments, etc.
- Decisions on structure of short-term and long-term assets: Operating leverage usage and break-even point, etc.
Capital decisions include decisions about which funding sources to choose to provide investment decisions Major capital mobilization decisions of enterprises include:
- Decisions on short-term capital mobilization: Short-term loan or commercial credit usage and short-term bank loan or corporate bills usage, etc.
- Decisions on long-term capital mobilization: Long-term debt or equity, long-term borrowing from banks or corporate bonds issuance, etc.
The company's profit distribution decision, referred to as its dividend policy, involves the CFO choosing between allocating after-tax profits for dividends or retaining them for reinvestment Additionally, the CFO must determine the appropriate dividend policy and assess its impact on the business's overall value and stock market price.
1.1.2.1 Definition and roles of corporate finance management
Corporate financial governance involves the selection, decision-making, and organization of financial strategies to maximize enterprise value This process encompasses the planning, implementation, adjustment, and control of financial resources, focusing on the creation, distribution, and utilization of monetary funds to fulfill the operational needs of the business.
1.1.2.2 Tasks of corporate finance management
Corporate financial management is a crucial component of corporate governance, significantly influencing all facets of business operations Decisions made in corporate governance are often derived from financial evaluations, highlighting the essential role of financial management in guiding business strategies and outcomes.
Firstly, corporate financial management helps to mobilize capital, ensuring the normal and continuous operation of the business.
Capital is essential for business operations, as it supports both short-term and long-term needs for production, investment, and development Insufficient or untimely capital mobilization can hinder business activities Financial managers must analyze the company’s financial resources to establish effective capital mobilization strategies tailored to the business’s operational characteristics and available funds This approach aims to leverage capital advantages while minimizing risks and enhancing overall business value.
Secondly, corporate financial management helps organize and use capital economically and effectively, contributing to improving the efficiency of business operations.
Effectively organizing and mobilizing capital in a timely manner enables businesses to seize opportunities and enhance revenue and profits By selecting the right methods and forms of capital mobilization, companies can lower their capital costs, boost capital efficiency, and ultimately increase profits for their owners.
Thirdly, Corporate Financial Management helps to comprehensively inspect and supervise all aspects of production and business activities of enterprises.
By thoroughly reviewing and analyzing the financial revenues and expenditures, financial managers can effectively oversee all operational aspects of a business This process enables them to identify shortcomings, limitations, and untapped potentials, allowing for the proposal of targeted solutions and adjustments to business operations, ultimately ensuring the achievement of established business objectives.
Corporate financial management is essential for strategic and tactical decision-making, relying on the analysis and evaluation conducted by financial managers It significantly enhances the efficiency of production and business operations within enterprises today.
1.1.2.3 The content of corporate financial management
Corporate financial governance includes the following main contents:
Firstly, participate in the evaluation and selection of investment decisions.
The prospect of a business in the future depends greatly on its investment decisions, especially long-term decisions with large capital scale.
To come to an investment decision, it is required that the financial administrator to counterattack the economic, technical and financial aspects.
In the financial sector, managers must assess the viability of investment opportunities by analyzing key metrics such as cash inflow, cash outflow, and net cash flow This evaluation is crucial for determining the profitability and financial efficiency of potential investments.
Secondly, determine capital needs and mobilize capital to promptly and adequately meet capital needs for business activities.
Financial situation of an enterprise
1.2.1 Definition of financial situation of a company
Evaluating the financial situation of an enterprise involves analyzing financial management outcomes through financial statements, utilizing various methods and analytical techniques This assessment helps identify the company's strengths and weaknesses, enabling the development of targeted strategies to enhance production and business quality.
Financial activities have a direct relationship with the production and business activities of an enterprise Therefore, assessing the financial situation of enterprises needs to achieve the following objectives:
A comprehensive evaluation of an enterprise's financial situation is essential for management, tax authorities, auditors, and employees This assessment should encompass various critical aspects, including capital structure, asset management, solvency, cash flow analysis, asset utilization efficiency, profitability, and the identification of financial risks.
- Orient the decisions of the managers in the direction suitable to the actual situation of the enterprises
- Build a basic premise for financial forecasts, helping analysts predict the financial potential of the business in the future.
A performance management tool enables businesses to monitor their activities by comparing actual results with planned objectives This approach facilitates the identification of strengths and weaknesses within the organization, ultimately guiding informed decision-making for enhanced operational efficiency.
To accurately and fully reflect the financial situation of an enterprise, it is necessary to study and analyze the following indicators:
Analyzing a company's asset situation allows investors to gain insights into how effectively capital is allocated, helping them assess whether the utilization of raised funds aligns with the business's objectives.
The analysis of asset structure involves calculating and comparing the fluctuations in the proportions of various asset categories, such as current and non-current assets, receivables, inventories, and cash, between the analysis period and the base period, relative to total assets.
Analyzing the proportion of each asset is crucial for finance managers and investors to evaluate capital allocation and usage; however, understanding the factors influencing fluctuations in asset structure remains challenging To gain deeper insights, a combination of horizontal and absolute analysis, along with an assessment of each asset type in relation to total assets, is essential for identifying trends over time This comprehensive evaluation must consider the nature of the business and the variations within different segments of the enterprise Additionally, it should utilize historical data from the company and insights into the industry's overall structure and competitors from recent years.
1.2.2.2 Sources of capital and capital structure a Scale and structure of equity
Equity represents the capital owned by business owners, joint venture members, or shareholders in joint stock companies, encompassing both the initial investments and any additional contributions made during the business process It also includes various components such as undistributed after-tax profits, corporate funds, revaluation differences, and exchange rate differences, all of which are integral parts of equity.
Liabilities represent the capital that a business borrows for its operations, distinguishing them from equity It is crucial for businesses to manage and fulfill their payment obligations responsibly Liabilities can be categorized in various ways, but they are most commonly classified based on payment terms into short-term and long-term liabilities.
Analyzing the capital structure enables managers to comprehend the mobilization of capital and their responsibilities to investors, suppliers, and employees regarding asset financing This analysis also reveals the financial independence of the enterprise and the trends in capital mobilization fluctuations.
Analyzing capital structure involves assessing and comparing the fluctuations in the proportion of each capital source relative to total capital during the analysis period versus the base period.
Equity ratio = Totalliabilities∧ Totalquity Equity ∗100=1− debt ratio
Analyzing capital structure fluctuations enables managers to evaluate mobilized capital; however, understanding the factors influencing these fluctuations remains challenging To gain deeper insights, it is essential to conduct a horizontal analysis of both absolute and relative figures, as well as an examination of each capital type Additionally, assessing fluctuations over time is crucial for optimizing rationality, enhancing business efficiency, and ensuring financial security A comprehensive review of capital proportion changes by source over the years, in comparison with the industry’s overall structure, provides valuable context for informed decision-making.
The analysis enables managers to evaluate both the financial capacity and independence of the business A high equity proportion relative to total capital indicates strong financial self-sufficiency and independence, while a significant liability proportion suggests unsustainable financial security for the enterprise.
Analyzing a company's capital structure allows financial analysts to assess key indicators such as the debt-to-equity ratio, debt ratio to total capital, and funding coefficient These metrics reveal the business's financial independence: a higher debt-to-equity ratio and debt ratio indicate lower financial independence, while a higher funding coefficient signifies greater financial autonomy.
To evaluate financial security and the effectiveness of capital allocation, finance executives must closely examine capital mobilization and investment policies during each business period Understanding the capital structure model is essential for informed decision-making.
In the business sector, the collaboration between liabilities and equity is crucial for optimizing external capital while ensuring financial stability Client sponsorship policies can be evaluated to assess the resource support available for corporate growth and market activities.
Net working capital = Long term capital – Long term assets
= Short term assets – Short term capital
Factors determining the financial situation of a company
Usually, people classify the factors that affect the financial status of the business into subjective and objective factors.
Subjective factors originate from within the enterprise, allowing businesses to address negative influences and leverage positive aspects to enhance their financial performance Key subjective factors include various internal elements that significantly impact the company's overall financial health.
The qualifications and capabilities of corporate finance administrators are crucial for the success and growth of a business Effective financial management encompasses financial planning, decision-making, implementation of strategies, and evaluation of performance, all of which require skilled financial managers to guide the organization's development A professional and adaptable management approach enhances capital efficiency, while inadequate financial management can result in severe repercussions for a company's operations and financial health.
The effectiveness of management decisions heavily relies on the qualifications of the corporate financial manager, but these decisions are ultimately executed by a dedicated team of skilled employees involved in production and profit generation It is essential for businesses to assemble a contingent of talented and virtuous individuals committed to a shared goal Conversely, a workforce lacking in skills and prioritizing personal interests can lead to a decline in human resources, adversely impacting operational productivity and financial management.
Strong enterprise relationships with customers, suppliers, and partners significantly impact capital mobilization, production efficiency, and sales performance A company that builds a solid market reputation can foster valuable connections with customers, suppliers, and investors, leading to increased market share, cost savings, and enhanced revenue and profits Additionally, a positive reputation facilitates easier capital mobilization to support production and business objectives.
Businesses face uncontrollable external factors that consistently influence their operations, presenting both opportunities and challenges in achieving their objectives To navigate these dynamics effectively, companies must understand these factors and their impact on overall production and business activities Key objective factors include economic trends, market conditions, and regulatory changes, which require timely responses to enhance the financial health of the enterprise.
+ The volatility of the economy
The economy in the state of hot growth, high inflation, recession, and unemployment all have profound and clear effects on the financial situation of the business.
+ Economic policies of the Party and State
As a legal entity within the national economy, an enterprise is required to adhere to state regulations The government creates a business environment and legal framework that supports the establishment and growth of enterprises, which is regularly updated to reflect current conditions These evolving regulations can significantly influence a business's growth potential, either encouraging or inhibiting its development.
As our country deepens its international economic integration, competition among businesses intensifies, leading to reduced market share, revenue, and profits However, this fierce rivalry also drives companies to innovate and enhance their technological capabilities, ultimately strengthening their market position To thrive in this competitive landscape, it is essential for financial management systems to possess strong management skills, and for workers to be highly skilled and open to innovation, thereby boosting overall competitiveness.
Businesses inevitably face the impacts of natural disasters, fires, and epidemics, which significantly affect their financial health and overall industry stability These events are considered force majeure, and companies must be prepared to navigate their consequences For instance, the outbreak of the Covid-19 pandemic in early 2021 led to widespread economic disruption, resulting in thousands of business closures and over 10,000 job losses This crisis had a profound effect on the financial situations of many enterprises, necessitating the implementation of effective recovery strategies to restore their financial stability post-crisis.
Overview of Anh Ngoc Steel Limited Liability Company
2.1.1 The establishment and development of Anh Ngoc Steel Limited
- Company name: Anh Ngoc Steel Limited Liability Company
English name: Anh Ngoc Limited Company
Head office: 130 Ngo Gia Tu street, Duc Giang ward, Long Bien district, Hanoi city.
- Email: phongkinhdoanh.thepanhngoc@gmail.com / thepanhngoc@gmail.com
- Anh Ngoc Steel Limited Liability Company was established in 2002 and has
With 15 years of experience in trading and processing metal products, ANS boasts an extensive distribution network and a comprehensive warehouse system, enabling it to effectively meet customer demands The company operates four warehouses covering over 20,000 m² and has a dedicated processing workshop ANS supplies both domestically produced steel and imported metals to trading companies and industrial construction projects Specializing in various types of steel, including shaped steel, pipe steel, sheet steel, and fabricated steel, ANS is committed to developing a modern commercial system that ensures exceptional service and maximum customer satisfaction.
2.1.2 Operational characteristics of Anh Ngoc Limited Liability
Business organization of the company:
- Scope of business (Code 2592): Mechanical processing; metal coating and treatment
Economic type: Limited liability 2 or more members
Type of organization: Economic organization producing, trading, services, goods
Details: Manufacturing and mechanical processing of steel structures.
+ Steel pipes (Cast pipes - Welding pipes)
Chi branch of Anh Ngoc Steel Limited Company in Thanh Hoa
Address: House of Mr Vu Huy Nhu, Hamlet Te Do, Hoang Phuc Commune, Hoang Hoa District, Thanh Hoa Province.
Legal representative: Ngo Xuan Minh
Warehouse 1: Alley 53/109, Duc Giang street, Long Bien district, Hanoi. Warehouse 2: Km 7, Son Dong commune, Son Tay town, Hanoi.
Factory manufacturing mechanical processing - steel structure, Hoang Minh commune, Hoang Hoa district, Thanh Hoa.
Organize the company management apparatus:
Anh Ngoc Steel Company operates as an independent accounting entity with legal status, structured under a streamlined online framework The company upholds a single leadership model, fostering autonomy among its staff to enhance operational efficiency.
- The company's organizational structure is shown in the following chart:
Diagram 2.1:Organizational structure chart of Anh Ngoc Steel Company
- The function of each part.
VICE DIRECTOR OF THE COMPANY
The Director of the company holds the highest authority and is responsible for overseeing all production and business operations This role requires strict adherence to state policies and legal regulations, ensuring compliance while being accountable for the company’s performance and results to the public and stakeholders.
The company director plays a crucial role in organizing functional departments and workshops, coordinating labor efforts, and establishing the quality policy Additionally, they are responsible for overseeing the maintenance of a quality and efficient system within the organization.
The company deputy director plays a crucial role in supporting the CEO by managing specific areas of the business Key responsibilities include approving production plans and overseeing the procurement of input materials from suppliers to ensure efficient production processes.
The finance and accounting department plays a crucial role in an organization by managing all accounting tasks, including recording, processing, and preparing financial statements and reports This department ensures that all bookkeeping activities are conducted efficiently, providing essential data to stakeholders for informed decision-making.
+ Make notes of import - export, make accounting books of pigs to track imports - exports, inventory
+ Synthesize data from invoices and vouchers
+ At the end of the month, pay salaries to employees, business bosses,
+ Prepare periodic financial statements to synthesize and publicize, present the financial situation of the company
+ Provide data related to the financial situation of the company to the Director as well as State management agencies.
+ Strictly implementing the settlement reporting regime, standards and circulars issued by the State.
+ Responsible for market research, finding customers, searching for new markets, analyzing business activities, then making plans for exporting and importing goods to submit to the director
The Marketing Department plays a crucial role in conducting market research to identify potential customers and promote the company's products It focuses on maintaining relationships with existing customers while fostering long-term, sustainable connections between clients and the company.
+ Product quality inspection, dispatching and sales department: is responsible for controlling and regulating goods in stock and responsible for writing goods receipt note.
The after-sales service and marketing department plays a crucial role in managing the transportation of goods to warehouses and delivery locations This department ensures the quality and quantity of products during transit, while also addressing any issues that may arise with customers.
+ In addition, the Business Planning Department is also responsible for accounting of sales invoices (Revenue).
The Organization and Administration department serves as a vital advisory resource for company leaders, overseeing essential work areas such as personnel organization, labor management, salary administration, and grassroots trade union matters Additionally, it focuses on labor safety and hygiene within the industry, while managing nursing staff and executing administrative tasks across the company This department is also responsible for implementing employee policies within the factory, ensuring a well-structured and compliant workplace environment.
The Local Trade Union's Labor and Wages Division is responsible for planning labor organization, overseeing recruitment and resignation processes, and ensuring compliance with labor contracts It develops and implements training programs to enhance professional qualifications, manages labor-related aspects such as wages and labor norms, and organizes wage increases for employees Additionally, it maintains staff records and oversees emulation, rewards, discipline, and social work initiatives.
The Office Administration Department plays a crucial role in managing and executing administrative tasks within the company It oversees the utilization of company assets, including properties, vehicles, tools, and office equipment, to support various business operations Additionally, this department is responsible for handling both internal and external affairs, facilitating events such as conferences, meetings, and company celebrations.
+ Market demand fulfillment department: is responsible for monitoring the markets to transact and sell with partners Responsible for the performance of economic contracts.
The Technical Operations Department is dedicated to upholding the technical specifications for product quality while also managing the maintenance and repair of company assets Collaborating closely with the organization department, it develops plans to enhance employee skills and ensure operational excellence.
The organizational and management structure of Anh Ngoc Steel Limited Company assigns specific functions to various departments, ensuring mutual oversight across all company operations Each workshop has defined responsibilities that contribute to a streamlined and efficient production process Additionally, workshops provide statistical reports to the accounting department, which facilitates the synthesis and preparation of financial statements for the company director.
Organize the financial - accounting management apparatus:
The organizational structure of the financial and accounting management apparatus of the company is shown in the following chart:
Diagram 2.2: Organizational structure and management structure of Finance - Accounting of Anh Ngoc Steel Limited Company.
- The function of each part:
Chief Accountant cum Head of Finance - Accounting Department:
+ Take full responsibility to the Director of the company, the Company and the State for the financial and accounting work of the company.
+ Monthly, quarterly and annually to make periodic financial settlement reports together with all management reports according to the regulations of the State and the Company.
+ Directly sign and approve receipts, payment checks and other payment documents.
+ Make short-term and long-term financial plans for the company's short-term and long-term business and investment plans.
Chief Accountant cum Head of Finance - Accounting Department
Tax accounting and materials Bank accountant
+ Track and record the entire process of goods sales, warehouse management. + Check, control, save documents on sales policy of the company.
+ Track inventory of materials, internal inventory, track construction liabilities, track the entire export revenue of the company and the entire segment of imported materials.
+ Tracking accounting records arising operations of the template center.
+ Revenue and expenditure and monitoring of payments, advance liabilities of branches.
+ Check, monitor, account for salary, social insurance, health insurance, trade union budget.
+ Do the accounting and monitor the entire process of importing accessories, materials, packaging, tools and tools in the country.
+ Doing procedures to buy warehouse rental contracts, factory rentals.
+ Track and account the import process
+ Combine with the planning - business department to compare agent debts. + Keep track of the warehouse.
Transactions with banks (take sub-books, send payment orders and documents to the bank).
+ Keep track of cash receipts and payments.
+ Accounting of receipts and payment receipts for the company.
Steel production involves a melting, refining, and alloying process conducted at approximately 1,600°C (2,900°F) in a molten state During this process, multiple chemical reactions occur, either sequentially or simultaneously, to achieve the desired chemical composition and temperature.
+ This process consists of many interlocking reactions, requiring the use of process models to help analyze options, optimize responses to arrive at the most efficient process.
Steel is derived from iron ore or scrap metal, with iron ores consisting of various minerals that can be transformed into iron The quality of iron ore is primarily influenced by its composition, where a high iron content coupled with low levels of sulfur and phosphorus is considered ideal.
The financial situation of Anh Ngoc Steel Limited Liability Company
2.2.1 The company’s capital and capital structure :
The analysis of Anh Ngoc Steel Limited Liability Company's capital structure reveals significant fluctuations in its size and capital sources, as detailed in the Balance Sheet By examining the data, we can identify trends in equity and debt financing, highlighting the company's financial stability and growth potential This assessment provides valuable insights into the company's ability to manage its capital effectively while adapting to market changes.
Table 2.1: Analysis of the size and structure capital in 2020
(Source: Financial Statements 2020 of Anh Ngoc Steel Company Limited)
Difference 2020/2019 Amount of money Proporti on (%) Amount of money Proporti on (%) Amount of money Ratio
1 Short-term payables to sellers
3 Taxes and other payables to the State
10 Short- term loans and financial lease debts
8 Long-term borrowings and financial lease debts
According to Table 2.1, which analyzes the fluctuations in the size and structure of the Company's capital between 2019 and 2020, there was a noticeable decrease in capital size by the end of this period.
By the end of 2020, the company's total capital decreased to 53,540,325,173 VND, reflecting a 3.69% decline from 2019's total of 55,594,067,243 VND This reduction indicates that the medium-sized company is experiencing challenges in its production and business processes, leading to a diminished market presence and reduced competitiveness.
The Company sources its capital from liabilities and equity, both of which have seen a decrease, leading to a reduction in total capital Liabilities constitute over 53% of total capital, and their growth rate matches that of equity This decline highlights the company's commitment to a balanced financial policy, essential for maintaining stable capital in challenging economic conditions With significant capital demands for production and business and owner equity falling short of liabilities, the company is compelled to seek external funding to support its operations and expand its market The strong confidence of creditors in the company's financial position underscores its solid reputation among partners.
Diagram 2.3: Fluctuations in capital structure of company in 2019 and
To evaluate whether the enterprise’s capital mobilization policy is reasonable or not, we should consider the following items:
(Source: Financial Statements 2020 of Anh Ngoc Steel Company Limited) Debts always accounting for a high proportion of over 53% of the total capital of the business, specifically in 2019, liabilities will reach
In 2020, the company's liabilities amounted to 28,627,729,188 VND, reflecting a decrease of nearly 1.2 billion VND from 2019, with a reduction rate of 4.28% This decline indicates a pressing need for capital to support the expansion of production and business activities, as equity capital remains insufficient The significant financial risks and potential payment challenges could lead to insolvency or bankruptcy if the company encounters difficulties Moreover, the ineffective use of financial leverage may result in heightened risks in the coming years, as liabilities consist of both short-term and long-term debt.
Short-term debt In 2 years, there was no big change, specifically in
In 2019, short-term debt exceeded 29 billion VND, but by 2020, it decreased to over 28 billion VND, reflecting a reduction rate of 3.20% This decline was primarily attributed to a decrease in short-term loans, which constituted approximately 86% of the total short-term debt Specifically, short-term loans fell from nearly 25 billion VND at the end of 2019 to around 22 billion VND by the end of 2020, marking a significant decrease of nearly 3 billion VND or 12.02% Conversely, payables to sellers showed an increasing trend, rising by 44.08% compared to the beginning of 2020 As the company relies heavily on loans for funding, the reduction in short-term loans and debts is expected to lower borrowing costs.
In 2019, long-term debts represented a mere 1.98% of total liabilities, amounting to nearly 600 million VND However, by 2020, this figure declined significantly to over 250 million VND, which accounted for only 0.87% of total liabilities This indicates a decrease of more than 300 million VND in long-term debt from the previous year.
In 2019, the enterprise experienced a significant reduction in long-term debt, achieving a decrease rate of 57.81% The primary components of this long-term debt include financial loans and other obligations; however, it constitutes a minor fraction of the total liabilities and is demonstrating a downward trend.
2020 This shows that firms reduce loans and long-term financial lease debt to reduce borrowing costs, focus resources on production and business activities.
Businesses are increasingly opting for short-term debt reduction while reallocating capital to minimize long-term debt, as high interest expenses associated with long-term loans can elevate overall costs Although maintaining low profitability may ease short-term payment pressures, it can lead to greater long-term debt obligations This trend highlights a strategic focus on investing in technical facilities, enhancing labor productivity, and expanding operational fields, which collectively aim to boost business benefits and promote growth.
At the end of 2020, equity accounted for a smaller proportion of total liabilities, decreasing to 24,912,595,985 VND from 25,684,992,743 VND in 2019, marking a decline of 772,396,758 VND or 3.01% This slight reduction primarily stemmed from equity investments, which constituted nearly 90% of the total equity, while the owner's charter capital remained stable at 22,600,000,000 VND, representing 90.72% of equity The decrease in undistributed retained profits, which fell by 25.04%, led enterprises to allocate more funds for investment and development in 2020 compared to the previous year Despite the challenges, the business's ability to generate profits suggests potential for higher future returns for shareholders, even as the growth of payable debt mirrored the decline in equity, indicating ongoing financial difficulties Nevertheless, the limited decrease in equity reflects the business's resilience in a challenging economic environment.
In 2020, the company's debt ratio decreased to 0.5347, a reduction of 0.0033 from 2019, indicating a 0.22% decline in liabilities This trend reflects the company's strategy to manage business leverage cautiously, which can enhance profits but also poses risks of insolvency and bankruptcy if mismanaged The relatively low debt ratio suggests that the enterprise is effectively controlling its leverage within a safe range, a crucial approach in the current challenging economic climate as the business focuses on maintaining stability and minimizing risks.
The equity ratio is experiencing a decline, as the growth rate of equity lags behind that of total capital At the end of 2019, the equity ratio was 0.4620, which slightly increased to 0.4653 by the end of 2020, reflecting a decrease of 0.0033 or 0.61% This indicates that the business maintains a balanced use of loan capital and equity, which is essential for financial autonomy and solvency To enhance safety and ensure financial independence, enterprises should focus on increasing their equity.
D/E ratio at the beginning of 2020, the debt guarantee ratio is 1.1645 times, reflecting a loan guaranteed by 1.1645 VND of equity By the end of
In 2020, the debt guarantee ratio stood at 1.1491, indicating that each unit of equity supported 1.1491 VND in loan capital This ratio has decreased by 0.0153, or 1.32%, suggesting a rising financial risk for the business, despite having sufficient equity to cover its liabilities Maintaining a stable equity level is essential for ensuring financial security and preserving the company's credibility with creditors in future financial planning.
The business has increased its capital scale by focusing on mobilizing long-term debt to expand operations, enhance production lines, and upgrade machinery and facilities This strategy aims to replace short-term bank loans, alleviating immediate payment pressures However, it may lead to higher capital costs and increased financial risk in the long run, potentially impacting profitability and future borrowing capacity.
2.2.2 The company’s assets and Assets structure:
To evaluate the reasonableness of fluctuations in investment levels, business size, capacity, and financial resources, we analyze the variations in asset size and structure This assessment helps determine the effectiveness of the implemented investment policies within the business's capital investment process.
Table 2.3: Analysis of the size and structure of assets in 2020
Amount of money (%) Amount of money (%) Amount of money
1 Short- term receivables from customers
Short-term prepaymen ts to sellers 518,952,186 4.90% 0.00% 518,952,186 - 4.90%
II Other long-term assets 0 0.00% 313,817,461 2.27% -313,817,461 -100% -2.27%
(Source: Financial Statements 2020 of Anh Ngoc Steel Company Limited)
Assessment of financial situation of Hanoi agricultural construction and export –
The analysis of Hanoi Agricultural Construction and Export-Import Joint Stock Company from 2018 to 2019 reveals a comprehensive overview of its financial situation Despite numerous changes in business operations during this period, the company achieved notable results.
In both analyzed years, the absence of revenue deductions indicates the company's commitment to enhancing the quality of its work Achieving zero revenue deductions signifies that the business has successfully met customer requirements This strategy is a prudent approach in today's competitive landscape, aimed at ensuring customer satisfaction with its projects.
In 2018 and 2019, the company prioritized debt management in response to declining revenue from production and business activities By promptly diversifying income sources to settle liabilities, the company effectively increased its capital scale, enhanced its debt repayment capacity, and boosted overall profitability.
Recent indicators, including the quick ratio and interest coverage ratio, indicate progress in companies' financial health These improvements reflect enhanced capabilities to meet short-term debt obligations and cover interest expenses, while also demonstrating effective labor turnover As a result, enterprises are positioned to achieve higher and more stable revenue in the future.
Maintaining a minimal cash reserve can reduce "dead" money within a business; however, it often leads to a lower capacity for meeting immediate debts compared to industry standards To ensure financial stability and avoid missing out on investment opportunities, businesses should strategically increase their cash holdings to enhance solvency and effectively manage due debts.
The extension of debt repayment periods is leading to a longer average repayment timeframe, allowing businesses to utilize capital more effectively However, this practice can negatively affect the company's image and damage cooperative relationships among stakeholders.
Thirdly, the coefficients that reflect the performance and efficiency of the business are lower than the industry average and tend to decrease.
Due to limited capital management in businesses and low capital utilization efficiency, there is a pressing need for managers to enhance their skills to improve operational effectiveness and overall business performance.
SOLUTIONS TO IMPROVING THE FINANCIAL SITUATION OF
ANH NGOC STEEL LIMITED LIABILITY COMPANY
3.1 Objectives and strategic development directions of Anh Ngoc Steel Limited Liability Company
The socio-economic context plays a crucial role in the existence and growth of enterprises, as business operations significantly influence and are influenced by the overall economy Despite facing numerous challenges amid complex global economic developments, the Vietnamese economy achieved notable success in 2019 and 2020, demonstrating resilience and adaptability in the domestic business and production landscape.
Vietnam boasts the highest growth rate in ASEAN and ranks among Asia's fastest-growing economies, with significant improvements in its business environment and a 10-place increase in competitiveness since 2018 The national credit rating has also been upgraded, positioning Vietnam as a leading nation in global competitiveness According to the General Statistics Office of Vietnam, the GDP in the fourth quarter of 2020 rose by nearly 5% year-on-year, despite the ongoing recovery from the impacts of Covid-19 Additionally, Vietnam is recognized for its stable political environment and robust security systems, which contribute to a favorable economic development landscape free from political instability or unrest.
Despite some achievements, our country's economy faces significant challenges In early 2020, global economic growth decelerated, with major economies like the US, China, Japan, and the European Union experiencing declines Crude oil prices plummeted amid tensions between Saudi Arabia and Russia, while the ongoing US-China trade war and escalating geopolitical tensions with Iran added to the uncertainty Additionally, the Covid-19 pandemic, which emerged in early 2020, has since spread worldwide, impacting all sectors and the global population.
The construction industry is experiencing its fourth consecutive year of deceleration, with growth rates dropping from approximately 9% in 2019 to just 6.67% in 2020 This slowdown, exacerbated by a declining real estate market and the influx of foreign contractors, intensifies competition among domestic firms and shrinks profit margins for construction enterprises As the market becomes increasingly congested, small and medium-sized enterprises face significant challenges The entry of private and foreign companies is eroding the monopoly of state-owned construction firms, heightening competition and resulting in a fragmented Vietnamese construction market that places additional pressure on local contractors.
In 2021 and beyond, Vietnam's economy is expected to remain a "bright spot" in the global landscape, fostering a favorable environment for domestic businesses As we move past 2020, this positive trajectory will continue to support economic growth and opportunities for local enterprises.
In 2021, leading organizations like Fitch Ratings predict a decline in the iron and steel market, essential materials for the construction industry The lingering effects of the Covid-19 pandemic have resulted in a slowdown in real estate and construction activities, leading to an oversupply of raw materials However, if the construction sector can align with its business cycle, there may be opportunities to capitalize on the availability of inexpensive raw materials in the market.
To conclude, in the context of a volatile world and domestic economy, the growth rate of all industries is at very low numbers, even negative growth.
The construction industry is currently experiencing a slowdown, characterized by a challenging market landscape influenced by the aftermath of Covid-19 and intense competition Key issues such as a decelerating real estate market, an imbalance between total debt and available capital, and rising loan costs are significantly impacting business profitability and efficiency To navigate these difficulties, it is crucial to develop strategic plans and solutions aimed at improving the financial health of the construction sector and the broader economy, while simultaneously fostering business growth and economic development.
3.1.2 Objectives and strategic development directions of Anh Ngoc Steel Limited Liability Company
To enhance corporate governance in alignment with market trends, it is essential to improve staff skills and meet the growing demands for worker competencies This involves making strategic decisions to reform and assign roles, prioritizing capable individuals to foster talent By creating a positive and motivating environment, the organization can encourage a culture of excellence and continuous improvement throughout the enterprise.
- Renovate equipment, improve production capacity of enterprises, gradually apply scientific and technical technologies to production and construction of works to bring higher efficiency and shorten examination time public.
- Actively look for effective construction projects that are suitable to the company's capacity to ensure the sustainable development of the business and create more jobs, increase income for employees .
To achieve our production targets and business plans for 2020 and beyond, we are committed to ensuring technical progress and maintaining high work quality in alignment with our project investor and general contractor Our priority is to guarantee the utmost safety for both personnel and machinery throughout the process.
The year 2020 posed significant challenges for the economy and the construction industry, particularly for companies specializing in residential building In response, the company has developed a strategic business plan for 2021 aimed at navigating these difficulties and fostering recovery.
Table 3.1 Operational plan targets of the company in 2022
Average income VND/per month 8,600,000
In the near future, enterprises aim to enhance production and business activities, improve access to projects, and actively pursue new job opportunities to drive revenue growth This impressive progress over the past two years encourages job seekers to maintain traditional relationships while actively exploring new markets.
To establish an effective debt monitoring system, a company should assemble a dedicated team of specialized staff focused on timely debt collection The Finance and Accounting Department can designate a qualified individual for this role, emphasizing the need for professional training and a strong sense of responsibility.
To establish reserve funds for bad debts, it is essential to address overdue debts that have surpassed six months The allocation should follow a rate of 20-30% of the total debt value The creation and utilization of these provisions must adhere to the regulations set forth by the Ministry of Finance Additionally, for any irrecoverable debts, the company must clearly identify the underlying causes.
3.2 Solutions to improving financial situation of Anh Ngoc Steel Company limited
Firstly, strengthen the management of receivables and minimize the amount of capital occupied.
In the construction industry, having receivables is unavoidable, but excessive and prolonged receivables can negatively impact a business's financial health Therefore, it is crucial to enhance receivables management, with a primary focus on customer receivables To effectively manage receivables, companies should implement strategic recommendations aimed at optimizing cash flow and minimizing outstanding debts.
To enhance financial stability, the company should implement a robust debt recovery policy targeting overdue and bad debts while maintaining a competitive edge through commercial credit By adopting flexible customer policies, such as allowing deferred payments for construction projects, the company can safeguard its operations It is essential to clearly outline sanctions for any payment term violations, ensuring that customer appropriations do not disrupt the company's overall performance.
- Implement the customer classification policy before signing the contract:
+ For traditional customers, check the debt situation to make sure the customer has no history of bad debt and is able to pay off the debt.
+ For large value contracts, require customers to deposit a percentage of the contract value, from 10-30% of the total value.
+ For new customers, before signing the contract, it is necessary to carefully understand customer information, especially the solvency and commercial reputation.