THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING BANKING UNIVERSITY OF HO CHI MINH CITY THE WORKING CAPITAL MANAGEMENT AT HOA PHAT INTERIOR SUPPLY COMPANY LIMITED DURING 2016 - 2020 GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 7340201 Student: NGUYEN HOAI BAO NGOC Class: HQ5 – GE02 Student code: 030805170133 Supervisor: Dr. NGUYEN DUY LINH Ho Chi Minh City, 2021 THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING BANKING UNIVERSITY OF HO CHI MINH CITY THE WORKING CAPITAL MANAGEMENT AT HOA PHAT INTERIOR SUPPLY COMPANY LIMITED DURING 2016 - 2020 GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 7340201 Student: NGUYEN HOAI BAO NGOC Class: HQ5 – GE02 Student code: 030805170133 Supervisor: Dr. NGUYEN DUY LINH Ho Chi Minh City, 2021 ii ABSTRACT Working capital management is a very important component of corporate finance because it directly affects the liquidity and profitability of the company. It is concerned with current assets and liabilities.
For one thing, a traditional manufacturing firm's current assets account for more than half of its overall assets. They account for even more for a distribution company. Excessive amounts of current assets can easily result in a poor return on investment for a company. Efficient working capital management entails preparing and managing current assets and current liabilities in a way that reduces the possibility of not being able to fulfill due short-term commitments and, on the other hand, avoids unnecessary investment in these assets.
Working capital could be at an optimum level for maximizing a company's value. High sales can result from a large inventory and a generous trade credit policy. A greater inventory decreases the probability of a stock-out. Long, Maltiz, and Ravid (1993) and Deloof and Jegers (1996) suggested that trade credit can boost sales by allowing consumers to determine product quality before paying.
Accounts payable is another part of working capital. Delaying payments to suppliers helps a company to determine the quality of goods it has purchased, and it can be a low- cost, versatile source of funding for the company. On the other hand, if the company is given a discount for early payment, late payment of invoices can be very expensive. However, if the costs of increased working capital outweigh the benefits of keeping more inventories and/or granting more trade credit to consumers, corporate profitability could suffer as a result of the cash conversion period.
Better working capital governance is essential to any business's success. Working capital management organizes a company's cash flow, allowing it to operate smoothly. Managing the proper relationship between a firm's short-term assets and short-term liabilities is part of proper working capital management. Short-term assets are those that can be converted into cash within a year same short- term liability we may call such short-term liabilities that have a one-year payment period.
Working iii capital management's primary aim is to ensure that an organization's regular activities can continue and that it has enough cash on hand to offset short-term debt and potential operating expenses. This discussion of the value of working capital management, its various components, and its effect leads us to the problem statement that we will be analyzing. The main objectives of the thesis are to systematize the basic theoretical issues about working capital and using working capital of enterprises, analyze the use of working capital of Hoa Phat Interior Supply Company Limited, determine the successes and problems with the same cause and propose recommendations to improve the efficiency of working capital of this company. Working capital, in general, and working capital, in particular, are factors that ensure that the business's production process runs smoothly and continuously.
However, what is the best way to use working capital? Being successful is a difficult task. The inefficiency of capital would perpetuate the joint deflation of market activities. As a result, the Company must make informed choices on how it can use the capital. The company's working capital use was examined.
The author has finished her graduation thesis on the topic: "Working capital management at Hoa Phat Interior Supply Company Limited”. Any of the following fundamental problems have been solved by the basic thesis: - Provide a comprehensive general and reasonably complete theory of the historical situation of working capital in the market, emphasizing the significance and function of working capital in business helping to make decisions about the company's survival and growth. - Examine the Company's working capital use situation over the previous period, drawing conclusions, assessments, and feedback on accomplishments and flaws that must be addressed. - Make some recommendations for improving the company's working capital performance.
iv It could be seen that Hoa Phat has been promoting its strengths with great policy in managing receivables and improving its previous strict policy to attract customers as well as demonstrating effectiveness in managing expense. On the other hands, there are also some limitation that have been illustrated in this thesis about Hoa Phat. Firstly, the Company has limited capital to compete with other larger corporations in the industry. Secondly, Hoa Phat has a high amount of inventory that also incurred storage costs, inventory management costs, losing the investment opportunities of capital resources.
Lastly, the Company would not be able to cover unexpected expenses and make payment on time due to low liquidity strength. Hoa Phat Interior Supply Company Limited has many opportunities to grow stronger at the moment. Those are the average urban growth rate that leads to the strong growth in housing and office segment, the development of furniture industry and also the technology. However, the Company is now facing some challenges in the difficulty in e-Commerce furniture distributors, the availability of inventory on hand for customers and its strict policies on customers.
The thesis uses different methods as the basis for the research such as: synthesis method, systematization; method of collecting secondary data; comparative method; index method; historical method; interpretation method; SWOT analysis. In detail, in this thesis, there are analysis performed that help improving the company’s working capital management such as: Analysis of working capital structure, working capital turnover, inventory and accounts receivable, cashflow, liquidity and cash conversion cycle… Realizing the current situation of Hoa Phat Interior Supply Company Limited, the author gives some conclusions for the Company as working capital management plays an important role in the company’s daily operation. In 2020, Hoa Phat Interior Supply Company Limited has made some improvements but still faced some challenges, mainly lies in the management of inventory. The thesis proposed several solutions that could be applied in order to optimize the use of inventory, avoid overstocking and thus enhance working capital in general such as inventory v categorization using ABC analysis or EOQ model.
At the same time, the Company should continue making improvement in its accounts receivable so that it can be quickly converted into cash and enhance the Company’s liquidity position. Besides, there are some other recommendations that could be apply for Hoa Phat to improve and develop its operations. While several attempts have been made to study and investigate, due to a lack of knowledge and the inability to learn about the Company's history of using working capital in a short period of time, evaluations and suggestions are difficult to avoid shortcomings. The author only provided a few statements and assessments on the Company's use of stored capital activities before moving on to providing some recommendations for the use of capital.
However, the author hopes that by completing the study, she will be able to assist companies in doing better performance analysis using working capital in order to assist managers and entities involved in the organization in obtaining useful and timely information in order to make the best and most effective decisions. vi STATEMENT OF AUTHORSHIP Except where reference is made in the text of the thesis, this thesis contains no material published elsewhere or extracted in whole or in part from a thesis by which I have qualified for or been awarded another degree or diploma. No other person’s work has been used without due acknowledgements in the thesis. This thesis has not been submitted for the award of any degree or diploma in any other tertiary institution.
Author Nguyen Hoai Bao Ngoc vii ACKNOWLEDGEMENT The author would like to express her sincere her supervisor Dr. Nguyen Duy Linh for his invaluable guidance, comments and suggestions through the course of her thesis. It has created the best conditions for her to complete this thesis. Kindly thanks to Hoa Phat Interior Supply Company Limited has helped the author a lot in applying the principles and knowledge, through which she can possibly add more inadequate knowledge and contribute to developing herself in a professional and challenging working environment.
However, due to the limit of time and understanding, her graduation thesis can not avoid the mistakes or omission. She is very pleased to receive the comments and feedbacks from lecturers to improve this thesis. Author Nguyen Hoai Bao Ngoc viii TABLE OF CONTENTS CHAPTER 1. OVERVIEW OF HOA PHAT INTERIOR SUPPLY COMPANY LIMITED.1 OVERVIEW OF HOA PHAT INTERIOR SUPPLY COMPANY LIMITED.1 General information of Hoa Phat Interior Supply Company Limited.2 History of Hoa Phat Interior Supply Company Limited.2 ORGANIZATIONAL STRUCTURE OF HOA PHAT INTERIOR SUPPLY COMPANY LIMITED.1 Overview of Vietnam’s furniture industry.4 BUSINESS OUTCOMES OF HOA PHAT INTERIOR SUPPLY COMPANY LIMITED DURING 2016 – 2020.
WORKING CAPITAL MANAGEMENT OF HOA PHAT INTERIOR SUPPLY COMPANY LIMITED.1 WORKING CAPITAL STRUCTURE OF HOA PHAT INTERIOR SUPPLY COMPANY LIMITED. ANALYSIS OF WORKING CAPITAL’S COMPONENT OF HOA PHAT INTERIOR SUPPLY COMPANY LIMITED DURING 2016 – 2020 .2 Accounts Receivable management.3 Cash and Cash Equivalents Management.3 REVIEW OF WORKING CAPITAL MANAGEMENT AT HOA PHAT INTERIOR SUPPLY COMPANY LIMITED.1 Review of the world’s wood and furniture industry.2 Vietnam’s furniture industry forecast over 2020 – 2024.3 Analysis of domestic furniture corporations.4 Review of working capital management at Hoa Phat. RECOMMENDATIONS OF WORKING CAPITAL MANAGEMENT AT HOA PHAT INTERIOR SUPPLY COMPANY LIMITED .1 DEVELOPMENT ORIENTATION OF WORKING CAPITAL MANAGEMENT OF HOA PHAT INTERIOR SUPPLY COMPANY LIMITED.1 Furniture market trend in the next five years in Vietnam.2 Hoa Phat’s development orientation.2 RECOMMENDATIONS FOR IMPROVING WORKING CAPITAL MANAGEMENT.1 Inventory categorization using ABC analysis.3 Other recommendations for the Company. 51 x LIST OF ABBREVIATION Acronyms Description Hoa Phat Interior Supply Company Hoa Phat Limited Hoa Phat Interior Supply Company The Company Limited SMEs Small and medium enterprises EOQ Economic Quantity Order xi LIST OF CHARTS AND TABLES LIST OF CHARTS Chart Name of chart Page The organizational structure of Hoa Phat Interior Chart 1.1 2 Supply Company Limited Chart 1.2 SWOT matrix of Vietnam’s furniture industry 6 Chart 2.1 Furniture industry over the world 34 Vietnam’s furniture industry forecast over 2020 – Chart 2.2 35 2024 Revenue from the kitchen furniture market in Chart 2.4 Large firms hold the majority of the market share 37 Chart 2.5 SWOT matrix of Hoa Phat 40 LIST OF TABLES Table Name of table Page Financial information of Hoa Phat Interior Supply Table 1.1 9 Company Limited from 2016 - 2020 Analysis of the financial information of Hoa Phat Table 1.2 9 Interior Supply Company Limited from 2016 - 2020 Working capital structure of Hoa Phat Interior Table 2.1 12 Supply Company Limited during 2016 - 2020 xii Analysis of the working capital structure of Hoa Table 2.2 Phat Interior Supply Company Limited during 2016 13 - 2020 The working capital turnover of Hoa Phat Interior Table 2.3 15 Supply Company Limited during 2016 - 2020 Analysis of working capital turnover of Hoa Phat Interior Supply Company Limited during 2016 - 15 Table 2.4 2020 Ending inventory of Hoa Phat Interior Supply Table 2.5 17 Company Limited during 2016 – 2020 Inventory occurred during the year of Hoa Phat Interior Supply Company Limited during 2016 – 18 Table 2.6 2020 Inventory evaluation criterion of Hoa Phat Interior 20 Table 2.7 Supply Company Limited during 2016 – 2020 Accounts Receivable of Hoa Phat Interior Supply Table 2.