The working capital management at Hoa Phat interior supply company limited during 2016 - 2020: Bachelor thesis of Banking and Finance / Nguyen Hoai Bao Ngoc ; Nguyen Duy Linh supervisor

THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY OF HO CHI MINH CITY

Ho Chi Minh City, 2021

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

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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

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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

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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.

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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

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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.