Corporate finance and corporate financial management
1.1.1 Corporate finance and corporate finance decisions
The textbook of Corporate Finance of the Academy of Finance published in
Corporate finance refers to the economic relationship that emerges from the creation and utilization of monetary resources within a business, playing a crucial role in its operational activities.
Corporate finance refers to the management of monetary funds involved in the creation, distribution, utilization, and mobilization of resources related to business operations Essentially, it manifests as cash flows generated during these processes However, the underlying essence of these cash flows represents the economic relationships and value exchanges between enterprises and entities in the distribution of financial resources.
1.1.1.2 Financial decisions of the company
Corporate finance encompasses various interpretations, yet there is a consensus that it primarily focuses on three key decisions: investment decisions, capital structure decisions, and profit distribution decisions.
Investment decisions involve determining the total value of a company's assets, including both fixed and liquid assets, significantly impacting the asset side of the balance sheet Key investment decisions that companies must make include evaluating and allocating resources to enhance overall asset value.
- Decisions on investment in liquid assets: decisions on inventory, decisions on inventory, decisions on sales policies, decisions on short-term financial investments
- Decision on investment in fixed assets: decision to purchase fixed assets, decide on project investment, decide on long-term financial investment
- Deciding on the structural relationship between investment in liquid assets and investment in fixed assets: Deciding to use leverage and deciding break-even point.
Investment decisions are crucial in corporate finance as they significantly influence a company's value Making the right investment choice enhances business value and boosts asset worth for owners, while poor investment decisions can harm the company's value and result in financial losses for business owners.
Financing decisions involve selecting the appropriate sources of capital to support investment initiatives, significantly impacting the liabilities and equity sections of the balance sheet Key capital raising choices made by businesses play a crucial role in determining their financial structure and overall growth potential.
- Decision to mobilize short-term capital: decision to borrow short-term or use commercial credit.
Long-term capital mobilization involves strategic decisions such as utilizing long-term debt through bank loans or corporate bonds, issuing equity in the form of common or preferred shares, and determining the optimal debt-to-equity structure for financial leverage Additionally, it includes choices about whether to borrow funds for property acquisition or to opt for leasing options.
Financial managers need to understand the pros and cons of capital mobilization tools to make informed financing decisions They must evaluate the current market conditions and accurately predict future price movements before deciding to raise capital.
Dividend decisions are crucial as they involve determining the distribution of profits between dividends and reinvestment Financial managers must decide whether to allocate a significant portion of after-tax profits for dividends or retain them for future growth These choices impact the company's dividend policy and raise questions about their influence on the firm's overall value and stock price in the market.
Corporate financial management involves making strategic financial decisions and organizing their implementation to enhance a company's financial performance The primary goals are to maximize profits, consistently increase enterprise value, and boost the business's competitiveness in the market.
1.1.2.2 The role of corporate financial management
The role of financial governance in business operations is reflected through the following main aspects: a) Raising capital to ensure the normal and continuous operation of the business:
Monetary capital is essential for business operations, encompassing both short-term and long-term financial needs for daily activities and investments Inadequate or delayed capital mobilization can hinder or even halt business functions Thus, the effective organization of capital mobilization within corporate finance is crucial for maintaining normal and continuous business activities.
The financial manager of the enterprise evaluates the financial market conditions, capital requirements, and the unique circumstances of the business to make informed decisions about mobilizing internal and external capital sources A well-structured financing strategy not only reduces financial risks but also significantly enhances the ability to achieve the goal of maximizing business value Additionally, organizing capital utilization in an economical and effective manner plays a crucial role in improving the overall efficiency of the enterprise's operations.
Financial managers enhance capital efficiency by carefully selecting investment projects based on a thorough analysis of the rate of return, cost of capital mobilization, and associated investment risks.
Timely and effective capital mobilization enables businesses to seize opportunities, boost revenue, and enhance profits By selecting the appropriate forms and methods of capital mobilization, companies can optimize their capital structure, reduce capital costs, and ultimately increase profitability and return on equity.
Maximizing the utilization of existing capital in business operations can help companies prevent losses from capital stagnation, enhance asset turnover, and minimize loan amounts, leading to reduced interest payments This strategy ultimately contributes to an increase in after-tax profits Additionally, it is crucial to conduct comprehensive inspections and supervision of all aspects of the enterprise's production and business activities.
The financial situation of a company
1.2.1 Definition of financial situation of a company a) Definition of financial situation of a compay
Assessing a company's financial situation involves various methods to evaluate its historical and current financial health while forecasting future performance This assessment aids managers in making informed decisions that align with their strategic objectives The primary goal of corporate financial assessment is to provide insights that support effective management and drive business success.
The goal of assessing the financial position of a business is different for each audience Specifically:
Business managers require crucial insights into the financial status of their organization to effectively manage operations and guide production processes This information aids in making informed investment decisions, structuring financial resources, and distributing profits Additionally, it allows for the assessment of business performance, enabling timely adjustments to strategies By maintaining financial balance, profitability, and solvency, managers can identify potential risks, particularly financial risks, and develop accurate forecasts and plans Ultimately, this knowledge facilitates efficient inspection and control within the business.
Investors require comprehensive financial assessments to understand a business's growth potential and accurately estimate its stock value in the financial market This information is crucial for making informed investment decisions that aim for significant future profits.
Lenders assess the immediate solvency of a business for short-term loans, focusing on its ability to meet loan maturity obligations In contrast, for long-term loans, they evaluate the profitability of borrowed and invested capital, as well as potential payment risks and long-term financial threats, to determine the business's capacity to repay both principal and interest, ultimately guiding their loan decisions.
Individuals with salaried positions in a business enjoy significant advantages, including stable income and opportunities for career advancement By evaluating their financial status, they can effectively plan their career paths and make informed investment decisions for a secure financial future.
State management agencies, such as tax and financial inspection authorities, rely on corporate financial assessments to monitor and evaluate business performance within the economy This information enables them to propose appropriate policies, management mechanisms, and financial solutions tailored to the specific circumstances of businesses By fostering a supportive legal environment, these agencies aim to enhance the efficiency of production and business operations for enterprises.
Evaluating the financial position of a business serves as an essential management tool, offering valuable insights that aid management in making informed decisions to protect and enhance their interests To effectively conduct corporate financial analysis, it is crucial to follow a systematic sequence of steps.
To accurately analyze corporate financial situation, analysts need to follow 3 main steps: Information gathering, information processing, prediction and decision.
Financial analysis relies on a variety of information sources to assess and reveal a business's current financial condition, which is essential for accurate financial forecasting This analysis encompasses both internal and external data, with corporate financial statements serving as crucial sources of accounting information.
Effective information processing requires systematic and scientific handling of collected data Users approach analysis with distinct objectives, employing various methods to calculate, compare, explain, evaluate, and identify causal relationships This structured approach is essential for accurate process prediction and informed decision-making.
Financial analysis is essential for informed decision-making, particularly for business owners focused on growth, development, and maximizing value For lenders and investors, it serves to guide financing and investment choices The process of corporate financial analysis involves a systematic sequence of steps to effectively evaluate a company's financial health and prospects.
To accurately analyze corporate financial situation, analysts need to follow 3 main steps: Information gathering, information processing, prediction and decision.
Financial analysis relies on a variety of information sources to assess and reveal a business's current financial status, aiding in the financial forecasting process This encompasses both internal and external data, with corporate financial statements serving as crucial sources of accounting information.
Effective information processing requires a systematic and scientific approach to handling collected data Users of this information employ various analytical methods tailored to their specific objectives, allowing them to calculate, compare, explain, evaluate, and identify causal relationships This rigorous analysis is crucial for accurate process prediction and informed decision-making.
Financial analysis serves as a crucial tool for informed decision-making, enabling business owners to pursue growth and maximize value For lenders and investors, it facilitates strategic financing and investment choices Key documents utilized in corporate financial analysis play a vital role in this process, providing essential insights for effective financial planning and evaluation.
In order to be able to accurately and comprehensively assess an enterprise's financial position, analysts need to use a combination of documents including external and internal documents:
* Documents outside the enterprise: are financial ratios, industry averages, legal documents prescribing the accounting regime, management regime for each business line.
Internal corporate documents include quarterly and annual financial statements, comprehensive accounting records, and business plans for each reporting period Among these, the financial statements are the most crucial, serving as key indicators of the company's financial health and performance.
Accounting balance sheet: is the main financial statement, which generally reflects the entire situation of assets and sources of asset formation at a given time.
Reporting business results involves creating a comprehensive financial report that details the performance and outcomes of an enterprise's activities over a specific accounting period This report typically covers various aspects of business operations, including sales, service provision, financial activities, and other relevant activities.
Determinants of financial situation of a company
1.3.1 Subjective factors affecting corporate financial management
1.3.1.1 Management awareness of the importance of corporate financial analysis
Corporate finance is essential for business managers, serving as a critical tool for evaluating the current status and capabilities of their organizations Despite its importance, many businesses remain unaware of the value of financial analysis To ensure stability and growth, business leaders must enhance their understanding of corporate financial analysis and management.
1.3.1.2 The quality of information sources used in corporate financial analysis
Accurate information is crucial for ensuring the reliability of analysis results Management must consistently oversee information flow and gather precise data to effectively assess the financial health of the business.
1.3.1.3 Personnel performing corporate financial analysis
Effective corporate finance analysis necessitates that financial managers possess a clear vision, sharp analytical skills, extensive experience, and a solid understanding of corporate finance principles These qualifications are crucial for a comprehensive evaluation of financial aspects, making professional expertise in corporate financial management essential in today's economy.
Analytical organization is a factor that has a combined impact, it connects personnel factors, information, analysis methods, facilities, related to mobilization and coordination of sources force to perform financial analysis
The analytical method serves as a powerful tool for achieving analytical objectives By applying these methods flexibly and judiciously, one can effectively integrate their advantages while acknowledging their limitations and drawbacks, leading to a thorough and precise analysis.
1.3.2 Objective factors affecting corporate financial management
The industry average indicator system is a measure of the business's indicators when analyzed It indicates the place of business in its line of business.
To assess an enterprise's financial health, it is essential to compare its performance against competitors or the industry average This comparison provides an objective and comprehensive understanding of the business's current standing relative to its peers.
The legal system significantly influences financial analysis, both positively and negatively Legal documents can facilitate business growth, while state regulations may restrict business capabilities A stable legal framework is essential for businesses to confidently manage finances and pursue development goals.
Technology plays a crucial role in enhancing analytical processes and internal governance within enterprises It enables businesses to efficiently track inventory, monitor cash flow, and assess debt levels By utilizing information technology tools, administrators can significantly reduce the time spent on data analysis and synthesis However, for optimal effectiveness, companies must invest uniformly in their management systems to strengthen overall operational efficiency.
Overview of HaNoi Construction Association One Member Limited
2.1.1 The establishment and development of HaNoi Construction Association One Member Limited Liability Company
* COMPANY'S NAME: HANOI CONSTRUCTION ASSOCIATION ONE
* ADDRESS OF HEAD OFFICE: 21A BA LA STREET - PHU LUONG WARD
- HA DONG DISTRICT, HANOI CITY
- Open at the bank: BIDV Bank, Ha Tay branch
-Consultancy, appraisal and review of economic, scientific, technical and technological issues of projects, investment in civil and industrial construction, foundation treatment, transportation infrastructure and irrigation, power lines below 35KV.
Our consulting services encompass comprehensive project implementation, including meticulous planning, preparation of pre-feasibility and feasibility reports, topographic surveys, and assessments of hydrology and geology We specialize in overall design, detailed design, construction design, and accurate cost estimation Additionally, we assist in the preparation of bidding documents and provide expert construction supervision to ensure project success.
- Verification and evaluation of the quality of construction works in terms of investment efficiency, technical safety and environmental protection.
- Research technical measures, maintenance and upgrades, construction works.
- Production and trading of construction materials.
- Supervision and construction of civil, industrial, infrastructure, transportation, cultural and sport works
- Designing and planning for construction, civil and industrial works
- Designing and surveying cultural and sport works.
- Construction of civil engineering works, transport technical infrastructure, foundations, irrigation, civil engineering, small and medium industry, power lines up to 35KV
- Construction of cultural works (restoration, restoration and restoration)
Hanoi Construction Association Company Limited, previously known as Ha Tay Construction and Consulting One-member Co., Ltd., was established following the reorganization of state-owned enterprises and originated from the Ha Tay Branch of Hong Ha Construction Company.
On November 27, 2008, the Ha Tay Construction Association and the Hanoi Construction Association held a consolidation congress This event led to the implementation of Decision No 03/2009/QD-HXD, issued on March 20, 2009, which facilitated the transfer of Ha Tay Construction and Consultant One-Member Limited Company to the Hanoi Construction Association, resulting in its rebranding as Hanoi Construction Association One Member LLC.
Hanoi Construction Association One Member LLC, established in accordance with enterprise law, received its 10th change registration certificate from the Hanoi Department of Planning and Investment on November 20.
2013 Is an enterprise with full legal status, own seal, open an account at BIDV, Ha Tay branch Account number: 4501 00000 12397
All production and business activities of the company are subject to the State's Enterprise Law, issued No 13/1999 / QH10 of June 12, 1999.
2.1.2 The business characteristics of the company
2.1.2.1 Function and business lines of the company
Limited Liability Company One Member Hanoi Construction Association excels in civil and industrial construction, transportation, irrigation, design consultancy, and construction quality supervision With a strong reputation and extensive experience in the construction market, the company also engages in urban projects and construction material production, serving clients in Hanoi and various provinces across the country.
Figure 2.1: Organizational structure operating of the company
Deputy Director Nguyen Trong Minh
Electricity and water construction team
The function of each part:
The Administrative Council is responsible for overseeing the execution of all company production activities, formulating long-term development strategies, and supervising the actions of the Board of Directors and other management personnel.
- Board of manager: Responsible for managing and operating all production and business activities of the company, responsible for direct management of activities of departments in the company.
- Functional departments : These departments are responsible for implementing and advising the director on the tasks within the scope of functions, implementing the goals and strategies of the Company.
A financial accountant plays a crucial role in overseeing the company's financial activities, monitoring production and business transactions, and accounting for expenses to assess overall performance They provide timely information regarding assets to the board of directors, aiding the company president in making informed decisions Additionally, financial accountants establish robust accounting processes to manage assets, financial indicators, and documentation while developing capital plans to ensure the company's financial health Effective organization of financial and accounting management is essential for the company's success.
The Company utilizes a centralized accounting structure, where all accounting functions are managed within the Finance and Accounting Department This department is responsible for processing documents, maintaining detailed and general accounting, generating financial reports, and conducting audits to ensure accurate accounting practices throughout the organization.
Figure 2.2: The company's accounting system
The Chief Accountant oversees subordinate departments and monitors the company's financial status, ensuring accurate accounting and financial reporting This role is accountable to the Director and upper management for the company's financial indicators.
+ The division accountants are in charge of the separate areas and support the work of the Chief Accountant.
+ The cashier is responsible for preserving cash, collecting cash and paying cash when the director's voucher is available.
2.1.2.2 Business performance characteristics of the company a Production engineering process
The construction process involves a complex production technology that spans from bidding to project completion and warranty It begins with the investor submitting bidding documents to the contractor, after which the project department assesses the documents in collaboration with the design team to analyze technical feasibility from financial, economic, and social perspectives If deemed feasible, the company prepares a bid, and upon winning, undertakes essential tasks such as site clearance and construction in accordance with project timelines and quality standards Finally, the completed project is handed over to the investor.
(Fixed assets, money accounting, debt accounting)
Depending on the unique characteristics of each construction work item, the construction process will be different, but generally follow a process including the following work steps:
Stage 1: Bidding (appointing contractor) and signing economic contract. Stage 2: Construction planning.
Stage 4: Acceptance and handover of the project. b Technical facilities
The company utilizes advanced office and laboratory equipment, along with modern construction machinery, to ensure efficient and precise production processes, particularly for the examination company The innovative use of bored piles with reinforced concrete in foundation construction represents a significant advancement in construction technology, enhancing the quality of the company's products and earning market trust Additionally, the company is committed to supplying high-quality materials.
Input materials are mainly construction materials such as cement, iron, steel, stone, sand, construction bricks, floor tiles, decorative bricks, asphalt, explosives, fuel
The domestic supply of input materials for the construction and building materials industry remains abundant, surpassing demand significantly in 2015, which posed challenges for the sector Despite this, the relatively stable and slightly decreasing prices of raw materials present an opportunity for the Company to lower production costs, ultimately enhancing profitability Additionally, the Company's competitive position in the consumer market is strengthened by these favorable conditions.
The company is actively engaged in investment, construction, and design projects across various provinces in the country, including Hanoi, Ha Nam, Son La, Tuyen Quang, Quang Nam, Thai Nguyen, Thai Binh, Hai Duong, Hung Yen, Thanh Hoa, and Nghe An.
An especially the major investment projects in Hanoi
The construction industry is characterized by numerous large companies with robust financial capabilities, including Song Da Corporation, Hanoi Construction Corporation, Thang Long Construction Corporation, Lung Lo Construction Corporation, and Vinaconex Corporation, all of which specialize in civil construction and road and bridge projects Despite the intense competition within the sector, these companies have successfully maintained their market positions, with profits showing consistent growth over the past three years.
The total manpower involved in the Company is 200 people, including officers, experts and collaborators, contract employees, collaborators as follows:
Director, deputy directors in charge of expertise
- Evaluation and review consulting team.
- Construction division of construction teams.
- Engineers for design, supervision, construction of irrigation works, hydroelectricity, water supply and drainage: 15
- Engineer design, supervision, construction of industrial civil works: 20
- Engineer design, supervision, construction of traffic works: 14
- Engineers for design, supervision and construction of thermal systems projects: 11
2.1.2.3 The advantages and disadvantages in the process of operations of the company
The company's Board of Directors is steering the organization towards successful development by stabilizing its management structure, which ensures flexible and effective operations.
- The company has a team of construction engineers, architects, irrigation and transport engineers and specialized engineers with good qualifications and experience in management and construction.
The financial situation of Hanoi Construction Association One
2.2.1 The company’s assets and Assets structure
The balance sheet data reveals significant insights into the asset size and structure fluctuations of the Hanoi Construction Association One Member Limited Company Analyzing the asset section through a detailed table highlights the trends and variations in the company's financial position over time.
Table 2.2: Analysis of the size and structure of assets in 2020
1 Short-term receivables from customers
Short-term prepayments to sellers 1,461 15.04% 450 6.13% 1,011 224.74% 8.91%
VI.Other long-term assets 219 2.68% 314 3.48% -94 -30.09% -0.79%
(Source: Compiled from 2019 and 2020 financial statements of the Company)
As of the end of 2020, the total assets of HaNoi Construction Association One Member Limited Liability Company reached 42,472 million, reflecting a slight increase from 40,109 million in 2019, marking a growth of 2,363 million or 5.89% This increase indicates a modest expansion in capital size, with the company focusing on expanding its production and business operations, particularly through a greater rise in short-term assets compared to long-term assets.
Figure 2.3: Fluctuations in capital assets in 2019 - 2020
(Source: Compiled from the financial statements of 2019 and 2020 of the Company)
At the end of the year, the proportion of short-term assets for the construction company rose by 10.34%, while long-term assets saw a decline of 9.41% This significant shift in asset structure necessitates a thorough analysis to understand the underlying causes behind the increase in asset size and the changes in asset composition.
Short-term assets at the end of 2020 reached 34,294 million VND, an increase of
As of the end of 2019, the company's total assets reached 3,212 million VND, reflecting a growth rate of 10.34% and a 3.25% increase in the proportion of short-term assets This fluctuation is attributed to the company's strategic investments in working capital, aimed at enhancing operational capacity Notably, the company has relaxed its commercial credit policy for customers, which has successfully boosted consumption revenue and resulted in a substantial cash reserve by year-end.
At the end of 2020, cash and cash equivalents totaled 15,312 million VND, reflecting a decline of 1,355 million VND or 8.13% compared to the end of 2019 This decrease resulted in an 8.97% reduction in the proportion of cash within short-term assets, raising concerns about the company's ability to meet its debt obligations and hindering potential new investment opportunities.
By the end of 2020, short-term receivables accounted for the largest share of short-term assets, totaling 9,716 million VND, reflecting a significant increase of 2,376 million VND or 32.37% from 2019, and representing 4.72% of total short-term assets The primary component of these receivables is accounts receivable from customers, highlighting the company's focus on credit sales to boost revenue and expand market reach However, it is essential for the company to evaluate the effectiveness of its credit policies, as excessive capital tied up in receivables can lead to increased costs and reduced profitability Additionally, prepayments to suppliers surged to 1,461 million VND by the end of 2020, marking a remarkable growth of 224.74% due to advance payments for construction materials, aimed at mitigating risks associated with price volatility in a fluctuating market.
At the end of 2020, the company's inventory rose to VND 9,183 million, reflecting an increase of VND 2,407 million or 35.51% from the beginning of the year, with a slight increase in inventory proportion by 4.98% This moderate inventory level is suitable for the company, which primarily engages in low-value construction works such as local bridges and civil housing projects The inventory mainly consists of production costs for ongoing projects, necessitating careful monitoring to ensure timely completion, quality, and efficient use of raw materials to minimize investment costs Effective management of construction materials is crucial to avoid excessive stockpiling and potential losses due to inventory devaluation Additionally, the company must implement preservation measures for export tools to prevent waste By managing inventory effectively, the business can reduce construction costs, enhance competitiveness in bidding, and increase opportunities for winning contracts and generating revenue.
At the end of 2020, long-term assets totaled approximately 8,178 million VND, reflecting a decline of 849 million VND or 9.41% from the end of 2019 This decrease resulted in a 3.25% reduction in the proportion of long-term assets within total assets, bringing it down to 19.25% The decline in long-term assets was primarily attributed to a reduction in fixed assets at the year's end.
As of the end of 2020, the historical cost of fixed assets has decreased compared to the end of 2019, indicating a trend of reduced investment in fixed assets by enterprises Notably, the investment in tangible fixed assets represents 100% of the total, amounting to 7,958 million VND This allocation of fixed capital aligns with the current production and business conditions of the company.
The increase in accumulated depreciation of fixed assets at the end of 2020 is the main cause leading to the decrease in the value of fixed assets of the enterprise.
By the end of 2020, accumulated depreciation is projected to total 8,969 million dong, reflecting an increase of 755 million dong since the start of the year, which corresponds to a growth rate of 9.5% This increase primarily stems from the depreciation of tangible fixed assets.
To effectively manage substantial investments in tangible fixed assets, enterprises must prioritize asset management by implementing robust maintenance and repair strategies for equipment and transportation to minimize wear and tear It is essential to align operational activities with the designed capacity of machines and equipment while also establishing effective measures for managing the depreciation fund This approach supports the reproduction of assets and the execution of long-term investment plans.
In 2020, the company's total assets saw a significant increase by year-end compared to the beginning of the year, with a notable rise in short-term assets and a decrease in long-term assets The growth in short-term assets was driven by an increase in cash, a rapid rise in receivables, and substantial inventories Consequently, effective management of cash, accounts receivable, and inventories will be crucial for the company's working capital management moving forward Conversely, long-term assets, particularly tangible fixed assets such as machinery, equipment, and transportation means for construction activities, experienced a decline in proportion to total assets by the end of 2020.
2.2.2 The company’s Capital and Capital structure
To analyze the variation in the size and structure of capital sources for Hanoi Construction Association One Member LLC, we utilized the data from the Balance Sheet's Capital Sources section This analysis highlights the changes in capital composition and overall financial health of the organization, providing insights into its funding dynamics and strategic financial management.
Table 2.3: Analysis of structure capital in 2020
(Source: Compiled from 2019 and 2020 financial statements of the Company)
Debt ratio: Debt ratio in 2020 is 0.425, a decrease of 0.105 times compared to
In 2019, the company achieved a significant reduction in its liabilities, with a decrease rate of 19.78%, indicating a strategic move towards lower business leverage While effective financial leverage can enhance profits for owners, mismanagement may lead to insolvency and potential bankruptcy It is crucial to evaluate whether the declining debt ratio positively or negatively affects the company's financial health An analysis reveals a notable decrease in short-term debt payments, contributing to the overall reduction in liabilities.
2019 Thus, the decrease in debt ratio is a good sign that needs to be maintained, proving that the business has a business strategy to reduce short-term payables.
The equity ratio has shown significant volatility, with its growth rate outpacing that of total capital By the end of 2019, the equity ratio stood at 0.105, but surged to 0.575 by the end of 2020, reflecting a substantial increase of 22.32% This rise indicates a shift in enterprises' financing strategies, favoring equity over loans compared to the previous year Such a high equity ratio enhances financial autonomy and liquidity for businesses To further strengthen their financial safety and independence, companies should focus on increasing their equity.
General assessment of the financial situation of Hanoi Construction
Based on the analysis of the company's financial situation, several key achievements should be highlighted for promotion in the coming years, alongside identifying shortcomings that must be addressed to enhance production, business results, and overall financial health.
Over the past year, the real estate market has shown signs of recovery despite economic challenges, while the construction material market remains uncertain with rising input prices Nevertheless, through the dedication of the staff and the Board of Management, Hanoi Construction Association One Member Limited Liability Company has achieved notable success in its production and business activities.
The funding model is robust, as the Net Working Capital (NWC) remains consistently positive, adhering to the principle of financial balance and ensuring the company's financial safety This stability supports uninterrupted production processes Despite a rising trend in NWC over the years, it continues to be positive, enabling the company to lower capital costs and enhance profitability and operational efficiency Furthermore, the company has consistently maintained a balanced capital structure, with liabilities representing a manageable portion of the total capital.
In 2020, the company's solvency and liquidity significantly improved compared to 2019, as evidenced by key financial indicators The current solvency ratio rose to 2.3511, an increase of 0.4651 from the previous year, reflecting a growth rate of 24.66% Additionally, the instantaneous solvency ratio reached 0.8810, marking a rise of 0.0712, or 8.79%, from 2019 This enhancement is attributed to the company's strategic increase in short-term asset investments, primarily in cash and accounts receivable, which bolstered liquidity and enhanced the ability to meet due debts while minimizing payment risks.
Despite its accomplishments, Hanoi Construction Association One Member Limited Liability Company faces several shortcomings that necessitate prompt corrective actions to bolster and enhance the company's financial capabilities.
In 2020, receivables reached 9,716 million dong, reflecting an increase of 2,376 million dong from the end of 2019, with a growth rate of 4.72% This category consistently represents the largest share of short-term assets, with trade receivables making up 72.43% of the total by year-end This indicates the company's strong focus on its sales strategy to boost revenue, expand market presence, and enhance profitability, although the overall results showed an increase without a corresponding rise in profits.
By the end of 2020, the Company significantly reduced its partner occupancy as suppliers and customers, resulting in appropriated accounts totaling only 7,480 million VND—a decline of 2,368 million VND from 2019 Notably, appropriated accounts from suppliers amounted to just 7,272 million VND, which is relatively low for a construction sector business This situation necessitated reliance on bank loans to meet financing needs, consequently increasing capital costs and heightening the risk of payment stress for the company.