THEORETICAL BACKGROUND OF WORKING CAPITAL AND
Working capital and the sources of working capital
1.1.1 Definition and characteristics of working capital
Every enterprise engaged in production and business activities must possess current assets in addition to fixed assets The structure of current assets varies across different types of businesses In manufacturing enterprises, current assets are typically divided into two categories: operating current assets and circulating current assets.
Operating current assets encompass assets involved in the production process, including essential raw materials, auxiliary materials, and fuels, as well as assets that are currently in production, such as semi-finished and unfinished products.
Circulating current assets: include products/goods whose have not been consumed (inventories), cash and receivables
In the manufacturing and operational processes, current assets and circulating current assets are constantly in flux, transforming and interchanging To maintain a seamless manufacturing and operational flow, businesses must possess a sufficient quantity of current assets Consequently, enterprises need to allocate working capital in advance to establish and sustain these essential assets.
So, the enterprise’s working capital is the advance money that enterprise use to invest in setting up current assets which are necessary for enterprise‟s manufacturing and operating activities
When joining in manufacturing business operation, working capital incessantly changes morphological expression From the form of money to different forms and when finishing product consumption process, working capital comes
The movement of working capital through stage is described as follows:
Work-in- progress and finished goods
This movement of working capital is called “capital circulation”
When joining in manufacturing business operation, since dominated by the characteristic of current assets, working capital has following characteristics:
- Working capital in the rotation process always changes the forms of expression
- Working capital transfers all the values right in a time and get a full refund after each business cycle
- Working capital completes a circuit after a business cycle
- Working capital is very liquid for it can be converted as cash any time without losing anything
- Investments in current assets such as working capital come with less risk for it is just for short term
Effective working capital management involves establishing a capital quota for each product unit and manufacturing cycle However, in a market economy, accurately determining the working capital requirements for each production cycle can be challenging Therefore, the primary focus should be on optimizing the efficiency of working capital to achieve the most economical use of resources.
Effective management of working capital is crucial for enterprises, as it significantly impacts their financial activities By ensuring the economical and efficient use of working capital, businesses can enhance their production capabilities, leading to improved procurement, production, and consumption processes Given that working capital encompasses various types that frequently change in material form, it is essential to categorize and manage it according to specific criteria for optimal results.
Capital in cash and receivables:
- Cash: includes cash on hand, bank deposits and cash in transit
- Accounts receivables: includes mainly accounts receivables and advance payments
Capital in materials and goods: includes materials, work in progress, semi-finished products and finished products
This classification helps the business assess the level of inventory reserves, the solvency and liquidity of the investment assets in enterprise
1.1.2.2 Based on the role of working capital in the production process
Working capital in the reserved state includes the types of capital such as material capital, additive material capital fuel capital, tool & instruments,…
Working capital in the production process includes types of capital, such as: goods in process, homemade end- product, prepare items…
Working capital in circulation includes finished product, cash, short-term investment and the capital during the payment process
This classification highlights the significance of each type of working capital (WC) in production and business processes, enabling businesses to select the right capital structure for investment It ensures a balanced production capacity across various stages of enterprise operations.
Working capital management of business
1.2.1 Definition and objectives of working capital management
1.2.1.1 Definition of working capital management
In a market economy, the operational mechanism establishes essential requirements and growth directions To seize opportunities and tackle challenges while maintaining a competitive edge, businesses must make informed decisions regarding the creation and management of their overall manufacturing capital, particularly focusing on working capital efficiency, to maximize profitability.
“Working capital management is the process of managing and monitoring activities related to working capital” (Vu Van Ninh, 2014)
1.2.1.2 Objectives of working capital management
First, effectively manage the day-to-day activities of the business to firstly improve the firm‟s profitability
Timely and effective capital mobilization enables firms to capitalize on business opportunities, boosting revenues and profits Selecting the appropriate methods for capital mobilization can lower capital costs, enhancing profitability and return on equity (ROE) Additionally, maximizing working capital in manufacturing operations helps firms avoid losses from tied-up funds and improves inventory turnover and receivables, ultimately leading to increased after-tax profits.
Second, ensure the firm has sufficient liquidity to meet its short-term obligations
Working capital is essential for the smooth operation of a business, particularly for developing corporations Timely and adequate mobilization of capital is crucial; without it, a firm's operations may face significant challenges and disruptions Therefore, ensuring continuous and efficient business operations heavily relies on effective capital mobilization strategies.
1.2.2 The content of working capital management
1.2.2.1 Determining working capital requirements and the methods
Permanent working capital is the essential minimum amount needed to maintain the smooth and uninterrupted operation of a business Falling below this threshold can hinder production and may even lead to operational disruptions.
But if above the necessary level, the situation of capital stagnation and capital use is wasteful and inefficient
Working capital requirements is the minimum capital, necessary trade and is determined by the formula:
In which Inventory requirements is the minimum capital needed to store raw materials, fuel, work in progress, semi-finished products, finished products of the enterprise
To determine working capital requirements, we can use direct method and indirect method: a) Direct method:
This method directly identifies the demand for capital for inventory, accounts receivable, accounts payable to suppliers and then aggregates into the working capital total of enterprises
Determine capital demand for inventories: including inventories for production reserve stages, production stages and circulation stages
Working capital requirements for production reserving involve calculating the reserve capital needed for primary materials, auxiliary materials, and fuel This calculation is based on the average daily capital usage and the number of reserve days for each material type By determining these factors and aggregating the results, businesses can effectively manage their working capital to ensure smooth production operations.
M ij : The average daily amount of consumption for i Inventory
N ij : Reserves days of i Inventory n : Types of inventories in need of reserves m : Stages need to reserve inventories
Working capital requirements in producting (Working capital requirements to create unfinished products, semi-finished products, prepaid expenses ):
V sx : Operating working capital requirements
P n : Average Production costs of products per day
CK sx : Producing cycling (day)
H sd : Ratio of unfinished product and semi-finished products (%) Working capital requirements in Circulating (including finished products reserves, account receivables, account payables):
Determine fnished products requirements: is the minimum capital used to form the inventory of finished products in stock, waiting for consumption, determined according to the formula:
V tp = Z sx x N tp In which:
Z sx : Average Cost price per day planning period
N tp : Reserves days of finished products + Determine account receivables requirements:
V pt = D tn x N pt In which:
D tn : Average sales per day
N pt : Average period (day) Determine account payable requirements:
V pt = D mc x N mc In which:
V pt : Account payables for planning year
D mc : Purchasing sales the average day of the planned period
N mc : Average payment period for suppliers
Direct method have advantages and disadvantages following below:
The advantages of this approach include a clear reflection of the working capital demands for various materials and goods at each stage of the business process, allowing for an accurate evaluation of the capital needs of enterprises.
Disadvantages: complex calculation, take more time to determine working capital requirements b) Indirect method:
This method involves analyzing the company's actual working capital utilization during the reporting year, considering changes in business size and the turnover rate of working capital By examining these factors, it helps to assess the working capital needs for the upcoming planning year, taking into account fluctuations in working capital demand based on the previous year's performance.
Using adjusted rate of WC requirements between reporting and planning year :
This method focuses on adjusting working capital (WC) requirements based on the current year's demand, aligning them with the size of the business and projected WC turnover for the upcoming year, using a specific formula.
V KH : Working capital of planning year ̅̅̅̅̅ : Average using actual working capital of reporting year
: Working capital rotation of planning year
: Working capital rotation of reporting year t% : Rate of shorten rotation period working capital of planning year
One of the most effective methods for estimating working capital is to consider the specific business or industry context A longer working capital operating cycle typically indicates a greater demand for working capital, while a shorter cycle suggests the opposite This approach allows for a more accurate assessment of financial needs.
WC turnover in next year
Advantages: this method is simple It can help firm to evaluate instantly working capital requirements for planing year, so as to determine resonable soures
Disadvantages: the result of this method isn‟t high exactly
The Percentage of Sales Method is the simplest approach for calculating a company's Working Capital Requirement (WCR) This financial planning technique operates on the principle that historical trends tend to recur, suggesting that projected sales will influence various financial variables on both the balance sheet and income statement By relying on forecasted sales, this method establishes a clear connection between sales predictions and financial outcomes.
This method offers a straightforward approach to predicting working capital (WC) needs, as it does not account for future changes in factors that may affect the WC to turnover ratio Consequently, it is particularly well-suited for forecasting working capital requirements.
One significant disadvantage of this method is that it necessitates the operator's comprehensive understanding of the company's business characteristics, as well as the intricate rules governing the relationship between revenue, assets, resources, and profit allocation within the enterprise.
1.2.2.2 The allocation of working capital
Working capital (WC) is essential for the smooth operation of businesses, making its effective organization crucial for enterprise efficiency and growth Proper allocation of WC at various stages—such as purchasing raw materials and managing production and product consumption—enhances capital rotation and reduces the working capital cycle This strategic distribution not only improves production efficiency but also supports the overall development of the enterprise.
The working capital (WC) structure varies across different businesses due to their unique characteristics, making its analysis essential By examining the allocation and proportion of capital at each rotation stage, companies can identify critical aspects of their working capital and discover methods for efficient utilization tailored to their specific conditions This strategic approach ultimately enhances the production and business efficiency of the enterprise.
Working capital structure reflects the proportional relationship between the working capital components in the total working capital of the enterprise at a given time
Analyzing the structural framework of resource allocation enables us to assess the distribution of capital during the rotation period, identify essential management strategies for explosives, and discover optimal methods to enhance the efficiency of working capital under specific conditions.
Some of factors affecting to structure of working capital:
CURRENT SITUATION OF WORKING CAPITAL MANAGEMENT
Overview of ANSV CO., LTD
- Vietnamese name: Công ty TNHH thiết bị viễn thông ANSV
- English name: Advanced networks System VietNam Limited Company
- Headquater: No 124 Hoang Quoc Viet Street, Nghia Tan ward, Cau Giay District,
- Email: info@ansv.com.vn
- Legal capital of ANSV: VND 96.261.399.223
2.1.1.2 The process of foundation and development
ANSV was established in July 1993 in the joint venture cooperation between Alcatel Group (now Alcatel-Lucent) and Vietnam Post and Telecommunications Corporation (now the VNPT group)
In 1997, the Company expanded its production, extending its operation time to July 2016;
In 2000 Alcatel transferred new technology to produce 1000 E10 systems;
In 2006 Alcatel transferred the production technology of MSAN;
Since August 24, 2011, VNPT Technology has taken full control of Alcatel-Lucent's operations at ANSV, holding a 51.2% stake in the company, while VNPT retains 48.8%.
- The name of the company is changed from Alcatel Network Systems VietNam to Advanced Networks System VietNam ;
- The operating period is extended from to 20 years to 50 years starting from 05 July 1993
2.1.2.1 Function, business aspect – main products:
- Manufacture, install and carry out services relating to Alcatel 100E10 public switching, PABX internall switchboard and other new generation of telecommunication and information technology network systems;
We offer specialized technical services in GSM mobile communication and transmission, alongside informatics and electronics applications in telecommunications Our expertise encompasses the study, development, manufacturing, and sales of software applications and network solutions tailored for the telecommunications industry and various information technology sectors.
- Consult, design, install and maintain information technology and telecom systems (including hardware and software)
- Research and develop application software products and network solutions in communication sector and other information technology sectors
- Wholesale and retail telecommunication electronic and information technology components
The principle activities of the Company are to research, develop, manufacture, distribute product and provide services related to telecommunication and information technology products
ANSV, a key distributor of telecommunication products from VNPT Technology, emphasizes a strong portfolio of domestically produced goods, which make up a significant portion of its offerings In addition, the company sources imported products from reputable global manufacturers and distributors based in countries like France, Finland, and the USA Many of ANSV's suppliers are longstanding partners, reflecting a commitment to long-term collaboration and quality in the telecommunications sector.
In addition to material factors, investing in science and technology, modern equipment, and skilled human resources provides enterprises with a competitive edge This investment allows for the continuous introduction of new telecommunication products that offer better quality at lower prices in the market.
ANSV is a reputable long-term player in the Vietnamese telecommunication market, offering high-quality products at competitive prices The company distributes its products nationwide through provincial telecommunications and a network of thirty agents and stores Currently, ANSV operates two branches and serves all sixty-four provinces in Vietnam In addition to its domestic success, the company is expanding internationally, exporting its products to countries such as Myanmar, Laos, and Cambodia.
2.1.2.2 The organization of business operations
ANSV has the organizational structure of a model of Company Limited which is reasonable with full functions departments suitable to the business and production activities of the enterprise:
The Board of Members serves as the highest management authority within the Company, possessing full decision-making power regarding matters aligned with the Company's objectives and obligations as outlined in its regulations and applicable laws Currently, the Company comprises three members on the Board, each serving a five-year term.
The board of directors, appointed by the board of members, is responsible for overseeing and managing all operational activities of the company in alignment with the organization's mission and the strategies approved by the board of members Each member of the board of directors serves a term of five years.
The General Director serves as the legal representative of the Company, appointed and dismissed by the Board of Members This role involves direct oversight of the Company's manufacturing and operational activities, with the General Director being accountable for the rights and responsibilities associated with this position.
There are three Vice directors accredited by Board of members under request of General Director
The company is structured into ten key functional departments, which include the Financial Accounting Department, Human Resources Department, Business and Market Development Center, General Services Center, Industry Department, Quality Department, Technology Business Center, and Technical Support Center.
2.1.2.3 Human resourse and structure of ANSV company:
- Worker: 10 Staff perform contracts and technical support: 262
- Center for receiving and processing information: 5
- Technical support specialist: 41 Center for software research and development: 67
2.1.3 An overview of financial situation
2.1.3.1 The advantages and disadvantages in operating process a) The advantages :
ANSV boasts a highly esteemed human resource team, characterized by significant expertise and experience The company collaborates with leading researchers in Vietnam, ensuring a strong foundation for innovation Notably, an impressive 96% of the staff hold bachelor's degrees, reflecting the organization's commitment to quality and professionalism.
Material facilities are invested with advanced and modern technologies which satisfy international standards
The company's distribution network spans the entire country, with a particular focus on expanding its market presence in the Central and Southern regions, as well as exploring opportunities in foreign markets such as Laos and Myanmar.
The Company can have stability and initiative in buying input products based on forehead plans as well as the good relationship with suppliers;
ANSV has competitive price policy for a large number of main products that are with stable price in the recent time;
Because of taking full advantages of committing import and exclusive distribution, the Company has achieved high revenue from types of products in the recent years
The Head office of the Company is located in Hanoi which bring benefits for traffic, saving time and decreasing shipping cost b) The disadvantages:
The company is currently experiencing intense competition in the domestic market, particularly with its core products like ONT, OLT, smartphones, and smart boxes This competition is exacerbated by the presence of unreliable and counterfeit products, which significantly negatively affects the company's business performance.
In Vietnam, the reliance on imported technology products, which constitute 90% of the market, combined with unpredictable fluctuations in material prices and exchange rates, significantly increases the cost of goods sold This situation makes it challenging for companies to find competitive pricing for their exports Additionally, the instability of the local currency adds further risk, creating a substantial burden for businesses operating in this environment.
The company faces significant challenges in recruiting and retaining staff due to intense competition from major telecommunications firms like Viettel and Vingroup, leading to a tough working environment and competitive salary demands.
The company faces challenges in securing capital from banks due to stringent lending interest rate regulations and excessive bureaucratic hurdles, making it difficult for enterprises to obtain the planned amount of funding.
current situation of working capital management at ansv company
To evaluate the effectiveness of working capital management, we analyze the Company's working capital requirements and financing policies from 2016 to 2018, focusing on the assessment of projected needs versus actual demand during these years.
Working capital requirements was determined to formula following:
= Inventories + Account receivables - Account payables
ANSV determines its working capital requirements using the indirect method known as the Percentage of Sales Method This approach evaluates the fluctuations in the turnover ratios of the company's working capital components during the reporting year to establish the necessary working capital based on projected revenue for the upcoming year.
This method was carried out to following as:
Determining the average balance of aggregate the working capital requirements in the reporting year
Determining the ratio of above to net revenue in the reporting year, based on that, determine the ratio of the working capital requirements for net income to net revenue
Determining the working capital requirements in the planning year
Below is a summary of the actual and expected working capital requirements of the company over the years:
Table 2.5 The actual working capital requirements 2016, 2017, 2018 of ANSV company
Table 2.6 The expected working capital requirements determined on the basis of actual net of revenue in 2016, 2017, 2018 of ANSV company
1.Net revenue of planning year 1,150,000,000,000 2,588,292,000,000 2,695,000,000,000 2.Actual net revenue of previous year 1,128,347,779,401 2,236,394,806,850 2,709,810,466,321 3.Difference of net revenue (1-2) 21,652,220,599 351,897,193,150 (14,810,466,321) 4.The rate of the average of current assets on net revenue
5 The rate of the liabilities on net revenue 56% 50% 29%
6 The rate of working capital requirements (4-5) 10% 8% 7%
7 The working capital requirements forecast increase/decrease (3 x 6)
8.The actual working capital requirements of previous year
9.The expect working capital requirements
The forecast of working capital requirements for the company shows significant discrepancies compared to actual figures Utilizing the percentage of sales method, which relies on the correlation between revenue and net sales of the reporting year, is crucial for determining working capital needs in the planning year This method's accuracy largely hinges on revenue forecasts for upcoming years and the established relationship between turnover and business assets To understand the reasons behind forecasting deviations, it is essential to analyze net revenue projections over the years, as evidenced by the calculation table indicating a decline in working capital requirements based on actual net revenue.
The actual net revenue reveals a significant discrepancy between current working capital requirements and projected needs While the percentage method of revenue offers a straightforward approach, assuming that working capital will fluctuate in line with revenue changes and that financing and dividend policies will remain stable, this assumption often proves inaccurate For instance, certain asset categories may not increase at the same rate as revenue, and variations in the receivable debt cycle can arise from shifts in sales strategies, payment discount policies, or enhanced production technologies that accelerate inventory turnover These factors contribute to inaccuracies in forecasting working capital requirements.
The current method of determining working capital requirements is inadequate, leading to potential capital waste To improve accuracy and efficiency, the company should implement an extended forecasting method that includes a robust statistical system to better predict working capital needs This approach will allow for timely adjustments in response to fluctuations in production and business processes, ensuring that the working capital requirements align more closely with material needs and enhance overall operational efficiency.
2.2.2 Current status of working capital
To evaluate the management of working capital, we need to consider the reasonability of the allocation of working capital
Table 2.7 The allocation working capital in 2016, 2017 and 2018 of ANSV company
Amount (VND) Rate (%) Amount (VND) Rate (%)
II Short-term financial assets
2 Short-term advances to suppliers
3 The other short- term receivables
4 Provision short- (13,418,088,570) -1.46% (10,566,020,472) -1.90% (7,968,364,020) -1.61% 2,597,656,452 -24.59% 2,852,068,098 -21.26% term doubtful debt
5 Deficits in assets awaiting solution
2.Provision for devalution of inventories
V The other short- term assets
3 Taxes and other receivable from the state budget
Resourse: Financial statement in 2016, 2017 and 2018 of ANSV company
Working capital was allocated as follow:
By the end of 2017, the company's cash and cash equivalents decreased by VND 9,239,015,820, reflecting a 6.6% decline from the beginning of the year This downward trend continued into 2018, with a significant 64.6% reduction, totaling VND 83,954,375,102 The sharp decline in cash reserves was primarily due to the company's efforts to repay short-term loans, thereby alleviating interest burdens Despite the rapid decrease, the company maintained a balanced cash flow to ensure a minimum cash balance while effectively managing financial costs related to interest.
At the end of 2018, accounts receivable represented a significant portion of the working capital structure, accounting for 58.77%, down from 70.75% in 2016 and 56.22% in 2017 The decrease of VND 59,482,749,383, or 10.7% from the beginning of the year, was primarily due to a rapid reduction in short-term trade receivables This decline indicates that the company effectively implemented receivables recovery measures, negotiating more favorable payment terms with customers and expediting project acceptance to enhance cash flow.
In 2017, inventories rose significantly by 24.34%, amounting to VND 58,288,373,362, which represented 30.12% of the company's working capital structure This increase was driven by the company's acquisition of additional goods to support upcoming projects set for early January 2018 However, by the end of 2018, inventories experienced a slight decline, decreasing by 3.89% to VND 11,577,545,278.
Other short-term assets: Accounting for a small proportion of the total working capital structure, at the end of 2018 short-term assets accounted for 1.15%
Table 2.7 illustrates that the working capital allocation of the telecommunications company has been appropriate in the past, primarily consisting of receivables, followed by inventories and cash The nature of the company's commercial projects, which involve installation services across the country and the phased implementation of telecommunications equipment systems, leads to extended debt recovery periods, resulting in a high proportion of outstanding debts Consequently, the conversion time from inventory to cash is significant, contributing to a relatively high inventory proportion within the working capital Additionally, ANSV's low equity capital, despite high revenue, results in ongoing cash scarcity, as evidenced by a cash ratio of only 5% in 2018.
2.2.3 Current status of working capital financing
Chart 2.4 Capital financing model of ANSV company at 31/12/2016
Chart 2.5 Capital financing model of ANSV company at 31/12/2017
Chart 2.6 Capital financing model of ANSV company at 31/12/2018
Table 2.8 Working capital resourse of ANSV in 2016, 2017, 2018
Amount (VND) Propor tion (%) Amount (VND) Propor tion (%) Amount (VND) Rate (%) Amount (VND) Rate (%)
1, Long-term capital resourses 201,609,941,803 246,289,339,268 220,270,339,325 (26,018,999,943) -10.56% 44,679,397,465 22.16% a, Non-current liabilities 254,835,445 0.13% 599,621,077 0.24% 254,835,445 0.12% (344,785,632) -57.50% 344,785,632 135.30% b, Equity 201,355,106,358 99.87% 245,689,718,191 99.76% 220,015,503,880 99.88% (25,674,214,311) -10.45% 44,334,611,833 22.02%
II, Temporary working capital resources 1,129,358,852,680 86.96% 791,559,611,796 80.07% 665,965,144,338 78.86% (125,594,467,458) -15.87% (337,799,240,884) -29.91%
2, Short-term advances from customers 7,876,328,612 0.70% 48,683,801,544 6.15% 23,889,940 0.00% (48,659,911,604) -99.95% 40,807,472,932 518.10%
3, Taxes and payable to the state budget 42,363,715,089 3.75% 16,769,092,830 2.12% 6,078,195,411 0.91% (10,690,897,419) -63.75% (25,594,622,259) -60.42%
7 Short-term loans and obligations under finance leases 14,231,992,099 1.26% 180,351,131,088 22.78% 56,377,295,869 8.47% (123,973,835,219) -68.74% 166,119,138,989 1167.22%
8.Bonus and welfare funds 4,032,829,070 0.36% 17,492,820,421 2.21% 35,761,895,099 5.37% 18,269,074,678 104.44% 13,459,991,351 333.76% Total working capital resourse 1,298,649,283,978 100% 988,603,209,538 100,00% 844,523,768,886 100,00% (144,079,440,652) -14.57% (310,046,074,440) -23.87%
Resourse: Financial statement in 2016, 2017 and 2018 of ANSV company
To evaluate the organization's financial health and the effectiveness of its working capital financing model, we categorize working capital based on the timing of capital mobilization and utilization.
Over the three-year period from 2016 to 2018, the Company adopted a high-risk capital financing model, relying on working capital to temporarily support its operations Analysis of the financial structure reveals that both fixed and part of the current assets were consistently financed through temporary capital, while regular labor costs and all temporary assets were backed by stable capital Although this approach has the potential to yield high returns on investment, it also exposes the Company to significant risks, including challenges related to supplier credit policies, customer repayment practices, and overall credit management Additionally, the reliance on bank financing has altered the Company's production and business operations, introducing further risks.
In 2017, the source of regular power resources increased, but in 2018, it declined significantly due to a substantial drop in the company's net profit after tax Despite a decrease in the overall value of permanent working capital resources, the company managed to maintain its production and business activities without facing overdue debts from suppliers, including banks The capital source showed a steady increase in proportion over the years, with figures of 13.04%, 19.93%, and 21.14% for 2016, 2017, and 2018, respectively To mitigate financial risks, the owner opted to increase retained earnings for reinvestment in the company.
Between 2016 and 2018, temporary working capital resources constituted a significant portion of total working capital, accounting for 86.96%, 80.07%, and 78.86%, respectively This downward trend suggests that the company is prioritizing financial safety by reducing its reliance on excessive financial leverage and capital appropriation Notably, the gradual decline in short-term trade payables over these years is a positive indicator, reflecting the company's prudent approach to managing financial resources with minimal risk.
2.2.4.1 The situation of cash management
In summary, expert interviews with the General Director, Chief Financial Officer, and Cashier reveal that the company is focused on optimizing cash fund reserves and strategically planning weekly cash flow expenditures This approach ensures timely debt payments and prevents overdue liabilities Additionally, the company is exploring further measures to enhance cash flow, positioning itself to capitalize on emerging business opportunities.
ANSV uses a method of determining reasonable cash reserves by taking an average daily amount of money multiplied by the number of days reserved
The company strategically plans its cash flow by forecasting both cash inflows and outflows on a weekly, monthly, and quarterly basis, adapting its approach from general to detailed time frames As a telecommunications product provider, the company's sales policy involves signing contracts followed by the delivery, installation, and commissioning of equipment, making cash flow predictions challenging due to varying project timelines and customer needs To enhance cash flow forecasting, the company anticipates borrowings and other capital gains For managing out-of-pocket expenses, it relies on revenue plans, payroll, tax budgets, and supplier repayment schedules By comparing income sources with cash expenditures, the company implements measures to maintain a balance between revenue and spending Additionally, strict cash management practices are in place to prevent losses and misuse of funds.
Firstly: All cash revenues and expenditures of the company are made through funds, not collected outside the fund, self-collected and self-financed
Second: The Company strictly manages all advances, advance levels, and payment terms so that it can recover the advance payment promptly
- Thirdly: The company uses SMS banking and internetbanking tools of banks accounting, supplier accounting accounting, bank accounting accounting , chief accountant, General Director to manage cash flow in and out
In order to better understand the situation of managing cash of the Company, we analyze table 2.9 on the situation of cash of ANSV Company:
Table 2.9 The situation of fluctuations by cash of ANSV Company in 2016, 2017 and 2018
Amount (VND) Propor tion (%) Amount (VND) Propor tion (%) Amount (VND) Rate
Resourse: Notes to the financial statements in 2016, 2017 and 2018
The above analysis shows that in the beginning of 2017, cash equivalent has increased by 46.100.000.000 VND, from 0% to 35.46% and to the end of the year
Evaluating the management of working capital
The company maintains financial balance by fully financing long-term assets with long-term funding, while also utilizing a portion of long-term capital to support short-term assets This approach ensures that the working capital remains positive, fostering stability and safety, and effectively minimizing payment risks in the company's operations.
The organization has implemented effective policies to maintain a positive working capital (WC) status, ensuring the seamless continuity of production and business operations This approach focuses on establishing a secure financial structure that aligns with the goals of expanding production scale and enhancing capital efficiency.
Effective cash management has led to strong solvency ratios for the company over the past three years, aligning closely with those of other telecom equipment providers Despite utilizing financial leverage, the company has maintained a healthy debt situation A reduction in cash and cash equivalents has contributed to decreased corruption and enhanced company prestige Additionally, managing business transactions efficiently allows for quicker, safer financial operations while minimizing transaction time and costs.
Effective accounts receivable management is evident in the rising debt receivables and a shorter average collection period compared to industry peers The company employs flexible trade and credit policies while adhering to regulations for bad debt provisions, ensuring a stable foundation for business growth Additionally, capital appropriation from key suppliers contributes to cost savings, enhancing overall financial health.
Effective inventory management is essential for the company, as it implements various policies to enhance material usage, boost production, and minimize costs associated with reserved materials Furthermore, the company has successfully increased its sales volume, leading to reduced expenses in managing finished goods.
In the previous year, the company successfully utilized the effective indirect method to forecast and determine its working capital requirements for 2017, enabling it to remain agile in various business scenarios and ensuring continuous and efficient operations.
The profit margin of the Company is quite high
Despite significant achievements, ANSV company still has many shortcomings of
The approach used to assess the working capital needs for the company's operational year is not aligned with the scale of its production and business activities, potentially impacting critical financial decisions.
Temporary working capital plays a significant role in maintaining production and business activities without incurring bad debts However, a high proportion of liabilities in the capital structure can increase the risk of payment issues.
Effective cash management is crucial, as poor management can lead to significant payment risks, particularly concerning the company's large payables Over the years, the quick payment ratios and immediate payment ratios have steadily declined, with the current ratio consistently falling below 0.2 This decline not only heightens payment risks but also jeopardizes potential business opportunities.
Accounts receivables management: although the receivables turnover of the
The company's account receivable ratio remains favorable compared to the telecommunication industry average, yet its high capital occupation leads to increased financial risks, management costs, and reduced business efficiency Effective external capital appropriation has resulted in a larger payable than receivable, but this may pose financial risks if the company fails to settle its debts, potentially damaging its market reputation The narrowing difference between liabilities and receivables has decreased working capital efficiency, particularly due to poor short-term debt management, which may lead to bad debts Notably, the company's inventory turnover from 2016 to 2018 was high compared to industry averages, but this has also led to increased storage costs and stagnant capital, highlighting the need for optimized working capital turnover and better management of outdated and obsolete telecommunications products.
The company has underutilized its working capital, leading to decreased capital efficiency A significant factor contributing to this issue is the high proportion of HTK and receivable debts within the power plant's financial structure.
Effective working capital management has improved the company's performance in recent years, yet the low turnover of working capital is leading to increased financial costs and risks To mitigate these challenges, the company must adopt more efficient management strategies.
The company maintains a reserve of high-value raw materials and significant capital, which incurs storage costs, preservation expenses, and challenges in debt recovery Additionally, rising selling and administrative expenses must be taken into account To mitigate risks, it is crucial for the company to promptly assess strategies to reduce inventory levels and enhance debt recovery efforts.
Besides those drawbacks mentioned above, ANSV also has many other problems in working capital management such as weakness in finding and preventing potential risks, training staff, competition…
There are many reasons why ANSV has had those shortcomings
In 2018, the economy experienced growth, with GDP surpassing the forecast at 7.38%, marking the highest increase in seven years However, challenges remain due to the lingering effects of the economic crisis from a decade ago, which has hindered a full recovery and left many enterprises struggling to overcome ongoing difficulties.
The Ministry of Information and Communication, along with its network, has been a significant client for the company, impacting both the revenue generated from new contracts and the timeline for contract collection and deployment.
Competition in the area and areas with branches of the Company is increasingly fierce, even with unequal competition, affecting the development of the whole company and users
The period of 2018 is the last years of 4G telecommunications technology, so operators limit the expansion of equipment investment