1

Chapter I

PROBLEM AND ITS SETTING

1. Introduction

Since the date of starting “Economic,” Vietnam's economy was changed into the

trend of market oriental; almost enterprises were self-control in business and operation.

Now, in the rough competitive market, each enterprise shall find a most suitable way

by itself that focus on improving business effectiveness, competitive capability to attain a

fixed position in the market.

The finance is the most difficult factor in three key activities (investment,

manufacture, and finance) for an enterprise. A healthy financial state is mean that it is

meet criteria systems such as: good solvency, reasonable financial structure under its

industry or business field. It would be shown as a heavy industrial enterprise usually gets

a major ration of long-term fixed assets. To the contract, a commercial enterprise should

get its major ration of short-term working capital. Owned capital in total capital is the

evidence as if an enterprise is independent on others or not. Otherwise, a healthy financial

situation of an enterprise would be illustrated in profitable criteria system that the

required profitable rate of average total assets should be approached the level of the

industry. The owners who usually hope that the profitable rate of owned assets is higher

than the chance cost as comparing to the capital is sent as savings in bank. The reason is

when there is a capital investment; the risk is often higher than in bank, especially in

State bank. On other hand, risk analyzing criteria is important information for related

person because almost person do not want risk.

 2

Working capital is Cash available for day to day operations of a firm. Strictly

speaking, one borrows cash (and not working capital) to be able to buy assets or to pay

for obligations. Also called current capital.Amount of available working capital is a

measure of a firm's ability to meet its short-term obligations. Ample working capital

allows management to avail of unexpected opportunities, and to qualify for bank loans

and favorable trade credit terms. In the normal trade cycle of a firm, working capital

equals working assets.(http://www.businessdictionary.com)

Tung Phuong Ltd Co. was established on 15th September 2000 based on Decision

No 1902000028 of Vinh Phuc provincial department of planning and investment. The

charter capital of the company was 20 billions dong . Business areas: producing

TUYNEL bricks and constructing works.

In 2002, the company set up TUYNEL brick factory with the capacity of 10

million bricks/per year. In 2004, it established TUYNEL brick factory No2 with ITALIA

technology and capacity of 20 million bricks/per year. In 2006, it established its

production line No3 with capacity of 30 million bricks per year.

Today, Tung Phuong Ltd Co. includes two factories: Daithinh brick factory No1

and Daithinh brick factory No2.

Although it is early established, it continually develops and achieves increasing

profits. It is a prestigious company in term of producing construction materials in

Vietnam. During 2005 – 2007, it had been received noble awards of high quality by the

ministry of science and technology.

1.2. Background of the study

 3

In Vietnam, financial analysis is the urgent and took much attention of related

parties. Financial analysis will meet the financial information demand of managers,

suppliers, investors, even labor, etc.

One of the main causes leading to the failure of enterprises is the financial

management capacity limitations, especially in planning long-term financing and working

capital management, reflected the lack of capital, loss of liquidity. In the framework of

this article, the author would like to mention that some enterprises managers to keep in

mind in working capital management, (Hoai, 2008).

Working capital is an index related to the amount of money a company needs to

maintain manufacturing operations, business often. Analysts often take this index as a

basis for measuring performance and financial strength of companies in the short term.

Investment in working capital is often relatively high proportion of total assets, so

they need to be used effectively. The fair use, saving working capital showed first at the

speed of rotation of working capital business. Capital cycle as fast as the public capital

flow and reduce working capital is used more efficiently. Managers should focus on

controlling each of the key elements of working capital are cash, inventory, receivable,

accounts payable.

Tung Phuong company today with a total capital of 250 billion VND. Which

equity accounting for two thirds of the total capital. According to a study of the Hoai

(2008). TUNGPHUONG company do not invest sufficient resources and in monitoring

policy implementation and the collection of debts, although this accounts in no small

share of total capital. Debt recovery time makes the company easier to return capital.

Easy to shorten the average time from the sale until the debt is collected from customers,
 4

the manager of the company should offer a comprehensive solution from the policies,

systems, people and tools to support technical energy, debt collection process.

Another important problem is set out for the management of enterprises that must

has a background about finance management, analysis and selection of a financial

management is best suited for your business to Management can make it to the best and

effective, a strategy is indispensable in the current phase of a business idea that is finance

management. Starting from the actual situation, the author selected topics: Improving the

working capital management of Tung Phuong Company Limited in Vinh Phuc province.

The reality of financial situation of Tung Phuong Company Limited gets some is

unforeseen problems. These problems are shown on some financial ratios such as

solvency, quick payment index, the capital cycle, fixed assets cycle, etc.

The research is carried out at Tung Phuong Company Limited. From the

research's result, the company could define its strengths and weakness, opportunities and

challenges in current market.

The analysis would help the company restructures its finance to find the optimal

way of using capital, reducing cost, and increasing profit.

1.3. Statement of the Problem

1. What is the perception of managers and counters on working capital management

Practices of Tung Phuong Ltd Company in Vinh phuc Province with respect to:

1.1. Current Assets:

a. Cash and liquidity management

b. Account receivable management

b. Inventory management
 5

1.2. Current Liabilities management:

a. Accounts payable management

b. Short - terms loan management

3. What is the perception of respondents on problems and limitations of working

capital management implemented by Tung Phuong Ltd Company in terms of:

3.1. Cash management

3.1.1. Cash and liquidity management;

3.2.2.Account receivable management;

3.3. 3. Inventory management.

3.2. Current Liabilities Management

3.2.1. Accounts payable management

3.2.2. Short term loan management

4. Is there a significant difference on the perception of managers and counters on

working capital management implemented by the Tung Phuong Ltd Company Vinh

Phuc Province ?

5. Is there a significant difference on the perception of managers and counters on

problems and limitations of working capital management implemented by the Company?

6. What recommendations can be made to improve the Working capital

management Practices of Tung Phuong Ltd Company?

1.4. Hypotheses

1. There is no a significant difference in the perception of managers and counters

on the Working capital management Practices of Tung Phuong Ltd Company.

 6

2. There is no a significant difference in the perception of managers and counters

on problems and limitations on the Working capital management Practices of Tung

Phuong Ltd Company.

1.5. Significance of the study

This study will benefit the followings:

The owners of Tung Phuong Company, they will have the objective assessment of

the real situation and practices of working capital management, in which solutions can be

possibly adapted. For managers, this study will help them open up many new ideas for

better management and administration of company’s capital towards increasing its

business effectiveness. This will provide them assessments and direction to the future of

the organization. For Tung Phuong company, research will help the company in building

up the image, competitive advantage through superior innovation, improve and meet

expectations of customers. For the researcher, research will help the researcher acquire

skills in research method, to obtain useful knowledge of capital management in business

firms. Results of this research will be the foundation for the researcher to propose

suitable capital solutions for the company. It is also a necessary requirement for the

learner to graduate from the business management master course. And lastly for other

researchers, research will help other researches to collect necessary information and data,

which relates to their research fields. Other researches will also consider the limitations

of this research to avoid or in case of that they will conduct the research in same fields.

Other researches can improve these research’s results to reach better ones.

1.6. Scope and De limitation of the Study

 7

This study focused on the perception of the respondents on the capital

management practices of Tung Phuong company Limited in Vinh Phuc Province for the

Calendar Year 2009.

The researcher considered the extent of application of strategic decisions of

working capital management practices with respect to Current Assets and Current

Liabilities management.

The study utilized the descriptive method with the researcher – made

questionnaire checklist as the main tool in data gathering.

1.7. Definition of Terms

Working capital: Current assets minus current liabilities. Working capital

measures how much in liquid assets a company has available to build its business. The

number can be positive or negative, depending on how much debt the company is

carrying. In general, companies that have a lot of working capital will be more successful

since they can expand and improve their operations. Companies with negative working

capital may lack the funds necessary for growth. also called net current assets or current

capital.

Counters: are staffs of the company who are responsible for accounting, finance.

Current Assets: A balance sheet item which equals the sum of cash and cash

equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and

other assets that could be converted to cash in less than one year. A company's creditors

will often be interested in how much that company has in current assets, since these

assets can be easily liquidated in case the company goes bankrupt. In addition, current

assets are important to most companies as a source of funds for day-to-day operations.
 8

Liquid Assets: Cash and other assets (such as accounts receivable, demand and

time deposits, gilt edged securities) that can be converted into cash in a short time, with

little or no loss in value. In some countries, precious metals (usually gold and silver) are

considered also liquid assets.

Inventory: Value of materials and goods held by a firm (1) to support production

(raw materials, sub-assemblies, work in process), (2) for support activities (repair,

maintenance, consumables), or (3) for sale or customer service (merchandise, finished

goods, spare parts). It is often the largest item in the current assets category, and must be

accurately counted and valued at the end of each accounting period to determine a firm's

profit or loss. Firms whose inventory items have a large unit cost generally keep a day to

day record of changes in inventory (called perpetual inventory method) to ensure accurate

and on-going control.

Debtors: Duty or obligation to pay money, deliver goods, or render service under

an express or implied agreement. One who owes, is a debtor or debitor; one to whom it is

owed, is a debtee, creditor, or lender. Use of debt in a firm's financial structure creates

financial leverage that can multiply yield on investment provided returns generated by

debt exceed its cost. Because the interest paid on debt can be written off as an expense,

debt is normally the cheapest type of long-term financing.

Current liabilities: In accounting, current liabilities are considered liabilities of

the business that are to be settled in cash within the fiscal year or the operating cycle,

whichever period is longer. In accounting, current liabilities are considered liabilities of

the business that are to be settled in cash within the fiscal year or the operating cycle,

whichever period is longer.

 9

Cash, it refers to money and any other negotiable instrument that is payable in

money and acceptable by the bank for deposit and immediate use (Valix, 2007). In this

study, it refers to the money used in making transactions. In other hand. Cash is Ready

money. For accounting purposes, cash includes money in the cash pan, petty cash, cash in

the locker, bank account balance, customer checks, and marketable securities. It may also

include the un-utilized portion of an overdraft facility or line of credit.

• Cash management. Identify the cash balance which allows for the business to

meet day to day expenses, but reduces cash holding costs.

• Inventory management. Identify the level of inventory which allows for

uninterrupted production but reduces the investment in raw materials - and

minimizes reordering costs - and hence increases cash flow; see Supply chain

management; Just In Time (JIT); Economic order quantity (EOQ); Economic

production quantity

• Debtors management. Identify the appropriate credit policy, i.e. credit terms

which will attract customers, such that any impact on cash flows and the cash

conversion cycle will be offset by increased revenue and hence Return on Capital

(or vice versa);

• Short term financing. Identify the appropriate source of financing, given the

cash conversion cycle: the inventory is ideally financed by credit granted by the

supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to

"convert debtors to cash" through "factoring".

Accounts receivable: is Sales made but not paid-for by the customers (trade

debtors). Accounts receivables are shown as current (short-term) assets in a balance sheet
 10

and are, in fact, unsecured promises by customers to pay in the future. These sums are a

key factor in determining a firm's liquidity and may be discounted used in raising a short-

term bank loan, or sold to a factor. A provision is usually made in the accounts of a firm

to offset uncollectible accounts receivable (bad debts) as losses.

 11

Chapter 2

REVIEW OF RELATED LITERATURES AND STUDIES

This chapter discusses the literatures and studies which have relevance in the conduct

of the study. It will build up theories and concept from different sources that aid in

answering the posted problem.

2.1.Related Literatures

2.1.1 Defining Working Capital

Working capital is the capital that managers can immediately put to work to

generate the benefits of capital investment. Working capital is also known as current

capital or circulating capital. (Frank J. Fabozzi , 2005)

Firms invest in current assets for the same reason they invest in long-term, capital

assets: to maximize owners’ wealth. But because managers evaluate current assets over a

shorter time frame (less than a year), they focus more on their cash flows and less on the

time value of money. How much should a firm invest in current assets? That depends on

several factors:

■ The type of business and product

■ The length of the operating cycle

■ Customs, traditions, and industry practices

■ The degree of uncertainty of the business

The type of business, whether retail, manufacturing, or service, affects how a firm

invests. In some industries, large investments in machinery and equipment are necessary.
 12

In other industries, such as retail firms, less is invested in plant and equipment and other

long-term assets, and more is invested in current assets such as inventory.

The firm’s operating cycle—the time it takes the firm to turn its investment in

inventory into cash—affects how much the firm ties up in current assets. The operating

cycle comprises the time it takes to: manufacturer the goods, sell them and collect on

their sale. The net operating cycle considers the benefit from purchasing goods on credit;

the net operating cycle is the operating cycle less the number of days of purchases. The

longer the net operating cycle, the larger the investment in current assets.

Other define a bout Working capital. Working capital is the money that allows a

corporation to function by providing cash to pay the bills and keep operations humming.

One way to evaluate working capital is the extent to which current assets, which can be

readily turned into cash, exceed current liabilities, which must be paid within one year.

Some working capital is provided by earnings, but corporations can also get infusions of

working capital by borrowing money, issuing bonds, and selling stock.. (L. Gole, 1987)

The term working capital refers to the amount of capital which is readily available

to an organisation. That is, working capital is the difference between resources in cash or

readily convertible into cash (Current Assets) and organisational commitments for which

cash will soon be required (Current Liabilities). Current Assets are resources which are in

cash or will soon be converted into cash in “the ordinary course of business”‘. Current

Liabilities are commitments which will soon require cash settlement in “the ordinary

course of business”. Thus:

WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES

 13

In a department’s Statement of Financial Position, these components of working capital

are reported under the following headings:

Current Assets:

Liquid Assets (cash and bank deposits)

Inventory

Debtors and Receivables

Current Liabilities:

Bank Overdraft

Creditors and Payables

Other Short Term Liabilities

2.1.2. Approaches to Working Capital Management

The objective of working capital management is to maintain the optimum balance

of each of the working capital components. This includes making sure that funds are held

as cash in bank deposits for as long as and in the largest amounts possible, thereby

maximising the interest earned. However, such cash may more appropriately be

“invested” in other assets or in reducing other liabilities.

Working capital management takes place on two levels:

Ratio analysis can be used to monitor overall trends in working capital and to

identify areas requiring closer management

The individual components of working capital can be effectively managed by

using various techniques and strategies. When considering these techniques and

strategies, departments need to recognize that each department has a unique mix of

working capital components. The emphasis that needs to be placed on each component
 14

varies according to department. For example, some departments have significant

inventory levels; others have little if any inventory.

Furthermore, working capital management is not an end in itself. It is an integral

part of the department’s overall management. The needs of efficient working capital

management must be considered in relation to other aspects of the department’s financial

and non-financial performance

The Importance of Good Working Capital Management

Working capital constitutes part of the Crown’s investment in a department.

Associated with this is an opportunity cost to the Crown. (Money invested in one area

may “cost” opportunities for investment in other areas.) If a department is operating with

more working capital than is necessary, this over-investment represents an unnecessary

cost to the Crown.

2.1.3. Working capital management

Working capital management implicates the administration of current assets as

well as current liabilities. It is the main part of a firm’s short-term financial planning

since it encompasses the management of cash, inventory and accounts receivable. These

three components and the way in which they are managed determine some of a

company’s most vital financial ratios, e.g. the ‘inventory turnover’, the ‘average

collection period’ and the ‘quick ratio’. Hence, working capital management reflects a

firm’s short-term financial performance. Given that current assets usually account for

more than half of a company’s total assets– an average 66% of the total assets of this

study’s sample firms – and owing to the fact that “this investment tends to be relatively

volatile”, the study of working capital management deserves special attention. According
 15

to Weston & Copeland, working capital management is of great importance especially to

small firms. This is due to most small firms’ large amount of current liabilities resulting

from restricted access to long-term capital. Furthermore, Weston & Copeland claim that

current assets represent a major investment for small firms because they can not be

avoided in the same way as investments in fixed assets can be prevented by renting or

leasing, for instance.

In the following, the three components of working capital management, i.e.

inventory management, cash management and credit management will be discussed.

Thereafter the concept of working capital policy will be presented.

2.1.3.1 Inventory management

The inventory of a firm can be divided into three groups: ‘raw materials’, ‘work

in process’ and ‘finished goods’. The inventory of ‘work in process’ can only be reduced

to a certain level by “speeding up the manufacturing process” but it can not be

completely avoided. The other two types of inventory, however, are not unavoidable and

therefore they are subject to the company’s decision. It should be noted that inventory

size is obviously not completely in the firm’s sphere of influence but rather considerably

determined by its output and by the product’s manufacturing process and attributes. Thus,

the average level of inventory can vary significantly between different industry sectors.

However, the conveniences and disadvantages of relatively large inventories are always

similar:

Large inventories allow the company to produce and purchase economically by

avoiding production stoppages and taking advantage of decreased ordering costs.

 16

Furthermore, the firm can easily adapt to customers’ demands and satisfy these. The

firm’s enhanced flexibility thus is the main advantage of large inventory.

The downside of large inventory comprises several aspects. Besides the apparent

cost of handling and storage, there is also the relative cost of capital tie-up and the threat

of obsolescence. In this regard, the decision maker’s task is to strike a balance between

the above mentioned benefits and costs of inventory in order to find the optimal inventory

size.

Although inventory management is not within the typical field of responsibility of

a financial manager, the ‘economic order quantity’ (EOQ) model which is a simple

concept for determining a company’s optimal inventory level and order size will be

introduced. It is mentioned in a great deal of relevant literature and can also be applied to

cash management. An understanding of the EOQ model will therefore facilitate the

comprehension of the cash management model as well as the basic issue of working

capital management. Since a discussion of the complete EOQ model would go beyond

the scope of this work, only the first step, namely the decision on inventory level, shall be

examined. The second stage which deals with order size and inventory usage is not of

importance for the achievement of this paper’s purpose.

2.1.3.1.1 Optimal inventory size

The EOQ model can be applied to all kinds of inventory, i.e. raw materials, work

in process as well as finished goods. In order to ensure the applicability of the EOQ

model, several assumptions must be taken into consideration. First, the usage of the

stored product is assumed to be steady. Second, ordering costs are assumed to be

constant, i.e. the same amount has to be paid for any order size. Finally, the carrying
 17

costs of inventory which are composed of costs of storage, handling and insurance “are

assumed to be constant per unit of inventory, per unit of time”. The EOQ model in its

simplest conception therefore merely takes variable costs into consideration, although it

can easily be extended so as to include fixed costs.

In order to spare the algebraic deduction, the EOQ shall be determined

graphically. The following graph illustrates the relationship between order size and

associated costs for the purpose of determining the EOQ, i.e. the optimal order size:

Figure 2.1. Graphic determination of the optimal size of inventory (draft)1

Self-evidently, the optimal inventory size can be found at the global minimum of

the total costs graph. It is also the point of intersection between the carrying and ordering

costs curves. Fixed inventory costs which are not contained in this diagram can easily be

taken into consideration by including a linear function and adding the data to the total

costs graph. However, the addition of fixed costs does not have an impact on the EOQ; it
 18

merely increases the total costs of inventory and its corresponding curve by a certain

constant amount.

2.1.3.1.2 Significance of the inventory model

The EOQ model is a very simple approach and it certainly has strict limitations as

many more related costs could be imagined, but it exemplifies the trade off between the

risk of running out of inventory and the profits earned by keeping the level of inventory

low and thus minimizing its costs. As will be shown later on, this trade off between risk

and earnings is common to all three components of working capital management.

Therefore, the basics of the EOQ model can be applied to all current assets.

2.1.3.2 Cash management

Cash management. Cash is the life blood of a business enterprise. In a sence, cash is

the fuel that keeps a business alive. With cash, employees and suppliers can be paid,

loans can be repaid, and the owners can receive dividends must have an adequate amount

of cash, none of these can happen. In simple terms, a business must have an adequate

amount of cash to operate. For these reasons, decision makers pay close attention to a

company’s cash position and the events and the transactions causing that position to

change. An additional highly important function of cash is that it provides protection

against unexpected claims on liquidity. Events like strike, or fire may rapidly deplete

cash (Larson et al, 1995)

Cash is a “non-earning asset”. It is needed to pay for labor and raw materials, to buy

fixed assets, to pay taxes, to service debts, to pay dividends, and so on, Thus, the goal of

manager is to minimize the amount of cash the firm must hold for use in conducting its

normal business activities, yet, at the same time to have sufficient cash. It is the most be
 19

conducted for relatively short periods for the firm to respond effectively to day-to-day

situations affecting cash. An affective control system for cash is needed to avoid

misappropriation and handling losses in the normal course of business. The objective of

control system for cash is not so much to optimize the cash balance as to minimize the

actual losses associated with misappropriations and improper handling of cash (Brigham

and Gapenski, 1997)

Cash assets are susceptible to management. It has real cost, and failure to utilize cash

efficiently will affect the return on investment. In most firms, cash serve a variety of

needs or purposes. Most firms find it convenient to keep on hand small amounts of petty

cash. If the daily cash receipts almost exactly match the daily outflow, the total cash

balances would not have to be very large to meet the purely, operational needs (Hunt et

al., 1971).

The key to successful cash management is planning. Money can be earned not only

through the manufacture or distribution of products but also through the management of

all assets that it employs. Through is cash budgets, a company can decide on the funds

that it will have available for short term investment. If the business is seasonal or trade is

cyclical, cash budgets will show when the surplus funds are available and what length of

time will elapse before they are required (Samuels et al., 1999).

Due to Weston & Copeland, cash management has emerged from “the relatively

high level of interest rates on short-term investments [which] has raised the opportunity

cost of holding cash”. Van Horne states that “cash management involves managing the

monies of the firm in order to maximize cash availability and interest income on any idle

funds”. In order to achieve this, cash management encompasses the following functions,
 20

as established by Van Horne: Managing Collections, Control of Disbursements,

Electronic Funds transfers, Balancing Cash and Marketable Securities and Investment in

Marketable Securities. Cash budgeting – although not being a part of cash management

but rather an element of short-term planning – constitutes the starting-point for all cash

management activities as it represents the forecast of cash in- and outflows and therefore

reflects the firm’s expected availability and need for cash.

In the following, merely the element of cash management which deals with the

problem of determining the optimal investment in cash shall be discussed. For this

purpose a cash management model which is based on the EOQ model will be presented.

It should be noted that for this purpose, a distinction between cash and cash equivalents,

i.e. marketable securities is crucial. Similarly to the previous section on inventory

decisions, merely the first step, i.e. the decision on the optimal cash level, i.e. the balance

between cash and marketable securities, will be treated. The other functions of cash

management are not of significance for the achievement of this work’s objective and a

discussion of these would go beyond its scope.

2.1.3.2.1 Optimal cash level

The EOQ model for inventory can be applied to cash management so as to explain

a firm’s demand for cash and find a balance between investment in marketable securities

and holding of cash. In 1952, William Baumol was the first researcher to present such a

cash management model. The procedure is very similar to the EOQ model for inventory

size but it deals with different variables. It is assumed that the firm holds a portfolio of

marketable securities which can easily be converted into cash. In the Baumol model, the

financial manager has to decide on the repartition of liquid funds between cash and
 21

marketable securities. Once again, there is a trade-off which constitutes the basis for the

calculation. Yet, this trade-off is related to the opportunity costs of holding cash which

increase along with the cash level and the trading costs which incur with every

transaction and which decrease when the cash level increases. The opportunity costs

represent the interests foregone for funds which are held in cash instead of being

invested. The trading costs correspond to fixed costs which incur when a company

decides to either buy or sell marketable securities. If a company decides to maintain a low

cash level it will have to carry out many transactions leading to high trading costs but low

opportunity costs because there are little idle cash funds. If it maintains a high level of

cash, the firm’s opportunity costs will be higher due to the relatively large amount of

uninvested cash but the trading costs will decrease since only few transactions will be

necessary. In line with the EOQ model for inventory, the graph for determining the

optimal level of cash will appear as follows:

 22

Figure 2.2. Graphic determination of the optimal cash level (draft)

The optimal cash level has been determined graphically by identifying the

minimum point of the total costs curve which again is defined by the addition of the

opportunity costs and trading costs. This point can also be determined algebraically by

differentiating the total costs equation which is defined as the addition of the two costs

equations.

2.1.3.2.2 Significance of the cash management model

The Baumol model presents an approach for determining the optimal balance

between cash and marketable securities. Therefore, it can be useful in order to illustrate

the crucial elements of the issue of cash management. This issue consists in finding a

balance between a firm’s cash holdings and the investment in marketable securities in

order to optimize the availability of cash while maximizing the interest income for idle

cash.

As it basically deals with the decision on the repartition of funds between

investments of different liquidities, the model can be applied to the decision on the

overall cash level, i.e. including cash equivalents. The associated costs would be similar,

but a decision would have to be made between the investment in cash including cash

equivalents and less liquid investments. Opportunity costs would be the same only that

the foregone would be related to any form of investment, with the exception of cash

equivalents such as marketable securities. Trading costs would also be similar and would

have to be generalized so as to contain all kinds of costs which occur when it is decided

to liquidate an asset in order to generate cash.

2.1.3.3 Credit management

 23

Credit management deals with the firm’s decision on whether to grant credit to its

customers and if so to determine the credit policy as well as the collection policy. In this

respect, decisions regarding credit management will have an impact on the selling firm’s

level of accounts receivable. This is due to the fact that the terms of credit have an impact

on its customers’ with less generous terms leading to decreased payment delays and thus

augmented investment in accounts receivable and vice versa.

2.1. 3.3.1 Credit policy

Credit policies can vary significantly depending on the industry sector, the

country of origin or the business’ seasonality. The terms of sale feature the due date for

net payment and an optional cash discount for payments within a certain period. For

instance, terms of sale stated as ‘2/10, net 30’ imply that either a 2 percent cash discount

can be taken advantage of by the buyer if payment occurs within 10 days from the

invoice date or net payment should occur within 30 days. The longer the payment target

and the higher the cash discount, the more generous the terms of sale. The terms of sale

therefore reflect the selling firm’s credit policy and its generosity. The selling firm’s

motivation for granting cash discount in this respect is to accelerate collections in order to

optimize cash availability.

2.1.3.3.2 Optimal credit policy

Granting credit will have a positive impact on the firm’s turnover by stimulating

sales but it will also generate costs of holding accounts receivable and create the risk of

losses due to bad debts. The more generous the credit policy, the stronger the positive

impacts on the firm’s sales as well as on the associated costs. Therefore, the financial

manager’s task is to find the optimal credit policy which minimizes the total costs of
 24

credit. The total costs of credit are defined as the addition of opportunity costs which

arise from lost sales and carrying costs of accounts receivable. Opportunity costs

decrease when credit is extended to customers as more and more customers are attracted

to the company which generate increasing sales and therefore decrease opportunity costs

of foregone sales. Carrying costs, however, increase in line with the credit extension

since these costs incur due to the cash collection delay, the relative cost of capital tie-up,

the increased probability of bad debt losses and the costs of managing credit, all of which

are positively related to credit extension. In this respect, the EOQ model is applicable to

credit management by relating credit policy to associated costs. Similarly to the model for

inventory, the illustration shows decreasing opportunity costs and increasing carrying

costs for increasing level of credit policy generosity. The optimal credit policy can be

found at the minimum point of the total costs curve. The following graph illustrates this

relationship in a way similar to the models for inventory and cash:

 25

Figure 2.4. Graphic determination of the optimal credit policy (draft)

 26

This graph demonstrates the basic relationship between credit policy generosity

and associated costs which once again reflects the trade-off between risk and return

which is common to all three types of current asset which are administered in working

capital management. It should be noted that credit policy can influence several aspects of

working capital management which are not contained in this simplified model and that

the actual interrelation between the different variables is far more complex than this

model suggests. Different more elaborate models which can incorporate many more

aspects are at the disposal of the financial manager in order to decide on the firm’s

optimal credit policy. However, the purpose of the above illustration is merely to

demonstrate the basic effect of credit policy on the associated carrying and opportunity

costs and hereby establish a relationship between these costs.

2.1.3.3.3 Collection policy

Collection policy deals with the issue of collecting overdue receivables. This

aspect copes with monitoring receivables and taking appropriate actions when the

account is overdue. If a firm has an effective collection policy, this will reduce the

probability of bad debts and decrease the cash collection period, hence decreasing the

carrying costs of accounts receivable. This again will have an impact on the optimal

credit policy. In other words, if the firm collects its accounts receivable efficiently, it can

resort to a more profitable credit policy. The ‘average collection period’ or ‘days sales

outstanding’ is a financial ratio which reflects the collection policy effectiveness by

measuring “the average amount of time required to collect an account receivable”. By

comparing the average collection period to the terms of sale the firm can keep track of its

collection policy.
 27

2.1.3.4 Working capital policy

The overall way of managing working capital can differ significantly from firm to firm.

Weston & Copeland refer to a company’s approach as “working capital policy”. Working

capital policy involves the decision on the level of current assets held by a company as

well as the decision on how these current assets ought to be financed. The latter will not

be treated in this section as it is not of importance to the topic. Merely the investment in

current assets and the optimal policy concerning the level of current assets will therefore

be discussed in this section.

2.1.3.4.1 Investment in current assets

As shown above, the three components of working capital management imply separate

yet similar associated costs and benefits. Therefore, it is evident that the level of current

assets has an impact on the firm’s profitability. For instance, a large inventory ties up

capital but it prevents the company from detrimental production stoppages due to stock-

out. A high level of current assets therefore means less risk to the company but also lower

earnings due to capital tie-up. Weston & Copeland refer to this interrelation as the “Risk-

Return Tradeoff for Current Asset Investments”.

2.1.3.4.2 Optimal working capital policy

In order to determine the optimal policy, Ross et al. propose to integrate the

different costs which are associated with the level of current assets in a model which then

features carrying costs as well as shortage costs. Carrying costs are those costs which

augment analogically with the level of current assets, e.g. opportunity costs. Shortage

costs are those costs which decrease when the level of current assets increases, i.e. costs

which incur when current assets level is low, e.g. costs of running out of cash or
 28

inventory. If integrated in a diagram, these costs form curves which are similar to those in

the above discussed models. The optimal investment in current assets can be found at the

minimum point of the total costs graph. Evidently, if “carrying costs are low or shortage

costs are high”, the optimal level of current assets will be higher than in the opposite

case.

2.2. Related Studies

2.2. 1.Foreign Studies

As All tied up — Working capital management report 2009. In the current challenging

economic and financial conditions, companies have been focusing more than ever before

on effective management of working capital, with the proportion reporting ongoing or

new initiatives in this area rising sharply year-on-year. Despite these heightened efforts,

Ernst & Young’s latest working capital report indicates plentiful opportunities for most

companies to release liquidity from working capital — an aggregate total of up to US$1

trillion for the leading 2,000 corporations in the US and Europe. Compared with the

previous year’s findings, our analysis also reveals unprecedented year-on-year changes in

working capital performance. There were also wide variations in working capital

performance between companies, industries and countries. Companies are now

scrutinizing their balance sheets and actively seeking out ways to release cash, both to

support operational cash flow demands and to underpin committed or essential capital

expenditure. As companies strive to optimize cash in this way, they know that working

capital is the cheapest form of finance as well as a valuable — and largely untapped —

source of liquidity. The Q4 and year-end reports we analyzed were full of examples of

companies significantly increasing their focus on working capital management. This

 29

year’s analysis of working capital reveals that the 2,000 largest companies in the US and

Europe could still have up to US$1 trillion of cash unnecessarily tied up in working

capital — an amount which is equivalent to 6% of sales for these businesses. In other

words, for every US$1 billion in sales, the opportunity for working capital improvement

is, on average, US$60 million. In our experience, most businesses with a structured “root

and branch” approach to improving working capital have achieved additional liquidity

equivalent to more than 5% of their annual sales.(http://www.ey.com/Publication)

The objectives of cash management are straightforward – maximise liquidity and

control cash flows and maximise the value of funds while minimising the cost of funds.

The strategies for meeting such objectives include varying degrees of long-term planning

requirements. Also, like everywhere in the world, much treasury activity in the Czech

Republic is concentrated on cash management. This includes financing the corporation,

administration of debts (loans, bonds, commercial papers, etc.), good relationships with

the banks, payments to suppliers and collections from customers, control of foreign

currency and interest positions according to the company’s needs for finance, and finally

the reporting and technical support of all these functions. The use of cash pooling as a

global standard for concentrating cash into the main bank account of the firm, has very

quickly found favour in corporates in the Czech Republic.(Petr Polák, Kamil

Kocurek’,2007)

As Polák and Kotora (2000) argued, over the past two and half decades,

institutional investors in financial markets worldwide have begun to fill the role

commercial banks have been gradually vacating. Costly mandatory reserve requirements

and regulatory impositions have consigned bank credit to blue-chip companies to a

 30

decidedly uncompetitive position. Banks’ added value remains in the case of credit

facilities to low-visibility, privately-held or unseasoned corporates containing a high level

of non-market, idiosyncratic risk, which the bank may be more adept at evaluating than

institutional investors.

Inventory management, According to Medina (1999), this concept refers to the

formulation and administration of plans and policies to efficiently and satisfactorily meet

manufacturing and merchandising requirements and minimize costs relative to

inventories. The size of inventory is related to the size and frequency of purchase orders

purchases are made less often but in bigger volumes. Inventory must be at a lower level

thereby giving rise to more ordering costs but less handling costs. This is not mentioning

the possibility of stock outs and the corresponding stock out cost.

An excellent inventory management ensures that a sufficient level of inventory is

maintained by a firm. A sufficient stock of inventory is required to support sales target of

the firm. This requirement, however, will depend on the availability of resources. An

unsaved portion of demand may mean lost revenues for the firm.

Firm often hold inventory with the expectation of lowering the substantial fixed costs

that accrue when ordering and/or producing additional inventories in the even of an

unanticipated shortfall. A high inventory level implies that orders are placed less often in

bigger quantities so that more carrying costs are incurred when ordering and stock out

cost minimized. When holding very large inventories, a firm loses the opportunity to use

the funds in other productive investments. On the other hand, when the inventory is

maintained at a lower level, the implication is that orders are placed more often thereby

bringing about more ordering costs and stock out costs and less of carrying costs.
 31

Consequently, a financial manager would like to keep inventory levels at a minimum to

reduce working capital tied up in inventory and the subsequent handling cost and

opportunity costs of control (Weston and Copeland, 1992).

Accounts receivable management. Firms, would, in general, rather sell for cash than on

credit, but competitive pressures force most firms to offer credit. A sale on account

cannot be avoided most of the time. Management must face the difficulty squarely and it

makes work to the advantage of the firm. This is important because when account

receivables are not properly managed, the financial viability of the firm may be impaired

(Brigham and Gapenski, 1997).

In line with the accounts receivable, it involves credit management which focuses on

the following decision areas; (1) analyzing credit risk, (2) setting standards for accepting

or rejecting the credit risk, (3) specifying credit terms, (4) deciding how to finance

accounts receivable-the credit extended, (5) determining who bears the credit risk, (6)

establishing collection policies and practices, and (7) avoiding suds optimization by

individual departments (Weston and Copeland, 1992).

Credit analysis should be given consideration because it seeks to determine who shall

receive credit and under what conditions. In addition, the firm will make its decisions. In

order to do this, a firm traditionally considers the five C’s of credit: character, capacity,

capital, collateral, and conditions. When judging, information on the vive C’s of credit is

obtained from a number of sources, including the firm’s experience with the customer

(Weston and Copeland, 1992).

Credit standards, on the other hand, refer to the strength and creditworthiness a

customer must exhibit in order to qualify for credit. It will help the firm determine
 32

whether or not the customer will receive credit. A number of factors are involved and

some weak customer may be granted credit under specified conditions. If a firm makes

credit sales to only strongest customer, it will experience only small amounts of bad debt

losses. On the other hand, it would probably lose sales, and the profit it foregoes on these

lost sales may be greater than the costs it avoids. If a customer does not qualify for the

regular credit terms, it can still purchase from the firm, but under more restricted terms

(Weston and Copeland, 1992).

When there are no credit standards, when all applicants are accepted sales are

maximized, but they are offset by lager bad debt losses as well as by the opportunity

costs of carrying a very lager receivable position. As credit standards are initiated and

applicants are rejected, revenue from sales declines, but so the average collection period

and bad dent losses decrease at a decreasing rate. Fewer and fever bad credit risks are

eliminated. Because of the combination of these influences, total profits of the firm

increase at a diminishing rate with stricter credit standards up to a point, after which they

decline (Van Home, 1984). A “loose” credit standard will increase sales but will also

increase the amount on funds tied up in receivable and could increase bad debts because

of credit extended to “marginal” customers. A “tight” standard reduces these two

problems but may prevent the company from optimizing on its sales potential (Saldana,

1985).

Meanwhile, credit extensions policies provides guidelines for granting credit, the

terms of payment, and the amount of credit to extend to a customer. The purpose of credit

extension to cliendts is to maximize sales. Thus, if more sales is required by the firm,

more credit is extended. Increased sales, however, is not an end itself. An advantage
 33

gained in extending credit to customer may be offset or even surpassed by problems

brought about by bad debt losses and the consequent tie-up of funds in receivables

(Medina, 2007).

Extending credit can be a sales tool for stimulating revenues and thereby increasing

the cash flows or returns to fixed asset investment. Moreover, a credit policy may be

needed to prevent erosion on market share. If competitors offer credit on better terms, for

example, a firm is forced to follows suit simply to maintain its sales level. In contrasts,

restricting credit through more stringent standards or terms may produce net benefits if

any reduced sales or more than offset by lower credit costs (Rao, 1995).

In establishing a credit policy, a firm formulates its credit standards and its credit

terms. Credit standards that are too strict will lose sales while credit standards that are too

easy will result in excessive bad debt losses. A deterioration of the aging schedule of

accounts receivables should signal the firm to investigate its credit policy but it does not

necessarily indicate that the firm’s collection policy had deteriorated (Brigham and

Gapenski, 1997).

Collection policies provide guidelines for ensuring that customers pay their bills

according to the credit terms. Customer’s payment patterns determine the level of

investment in receivables and its return. For instance, a slow pattern leads to an excessive

investment in receivables and a lower rate on return. To manage its receivables

efficiently, a firm must monitor and evaluate its receivables collections to detect any

changes in their status and composition and to take corrective actions when appropriate.

Monitoring the receivables investment means evaluating and controlling the quality of

the total receivables investment in order to detect any problems and to suggest corrective
 34

actions. However, collection efforts can be expensive so they must remember that the

objective of a collection is not to minimize the bad debt losses but to maximize the firm’s

value (Rao, 1995).

Because a receivable is only as good as a likelihood that it will be paid, a firm

cannot afford to wait too long before initiating collection procedures. On the other hand,

if it initiates procedures too soon, it may anger reasonably good customers who, for some

reasons, fail to make payments by the due date. Thus, key decisions for management

include how long to wait before labeling on account overdue and initiating the collection

procedures and how aggressively to pursue these accounts. Aggressive collection efforts

may reduce future sales and profits if customers are chased off to competitors changing

business conditions may alter payment patterns, and often an otherwise creditworthy

customer may allow a bill to become overdue for a good reason, perhaps through

oversight or misplacement of the bill (Rao, 1995).

2.2.2. Local Studies

In study of Dung (2008), working capital needs of a business in Vietnam. Because:

• Businesses with a lot of cash sales and few credit sales should have minimal trade

debtors. Supermarkets are good examples of such businesses;

• Businesses that exist to trade in completed products will only have finished goods

in stock. Compare this with manufacturers who will also have to maintain stocks of raw

materials and work-in-progress.

• Some finished goods, notably foodstuffs, have to be sold within a limited period

because of their perishable nature.

 35

• Larger companies may be able to use their bargaining strength as customers to

obtain more favourable, extended credit terms from suppliers. By contrast, smaller

companies, particularly those that have recently started trading (and do not have a track

record of credit worthiness) may be required to pay their suppliers immediately.

• Some businesses will receive their monies at certain times of the year, although

they may incur expenses throughout the year at a fairly consistent level. This is often

known as “seasonality” of cash flow. For example, travel agents have peak sales in the

weeks immediately following Christmas.

In study of Hong (2009) with topic “Management of working capital in small and

medium enterprises in Vietnam during the economy crisis”. She were present:

1. Receivable Management Many SMEs do not invest sufficient resources and in

monitoring policy implementation and the collection of debts, although this accounts in

no small share of total capital. Debt recovery time shorter the business more money to

return capital. To shorten the average time from the sale until the debt is collected from

customers, SME managers should offer a comprehensive solution from the policies,

systems, people and tools to support skills, debt collection process.

Policy

Regulation on conditions for customers eligible for debt, debt limit, after checking

Hierarchy assessment for each specific criteria on liquidity, expected revenue, payment

history, facilities ... of each client.

Employees

Enterprise should have a division specializing in debt collection management and

debt tracking, divided according to business customers, geographic location or the value
 36

of liabilities. These employees are trained in communication skills over the phone, the

ability to persuade customers to pay or payment commitments, how to handle difficult

situations, proficient use of software support ...

Tools should be invested enterprises accounting software is part of the (module) to

support debt management. The software application can make the synthesis report also

reported more liabilities to customers under management criteria, to help save time,

improve the performance of debt collection staff.

2. Cash Management. Cash connecting all activities related to finance your

business. Therefore, managers need to focus on cash management to minimize the risk of

liquidity, more efficient use of money, and prevent of false financial within a other

enterprise .Cash Management is the process of cash include cash flow management in

funds and payment accounts at the bank,control spending, forecasting cash needs of the

enterprise, to offset budget deficits, tackling surplus or shortage of cash in the short term

and long time.SMEs can use the method or model Baumol Miller Orr image to determine

a reasonable cash reserve. After determining the flow of cash reserves often, businesses

1. Whatadopt
should is the policies
perception
andofprocedures to mitigate risks as well as the loss in activity.
managers and counters Defined perception
on the working
(http://www.saga.vn) capital
management and its of respondents on
2.3.limitations of
Conceptual Framework the working capital
Company with respect to:
management
Figure 1 presents the conceptual model of the study
1.1. Current Assets: implemented by the
a.Cash and liquidity
Input Process Output
management Company
b.Account receivable
management Recommendations
c. Inventory management - Data gathering can be made to
1.2. Current Liabilities Evaluation through improve the
management: questionnaire Working capital
a. Accounts payable management
management - Evaluation through
questionnaire.
Practices of Tung
b. Short - terms loan Phuong
management. - Analysis and Ltd Company
interpretation of the data
Feed back
 37

The conceptual model was used to guide the researcher in conducting this study. The

conceptual model includes three parts: input, process and output. The input includes the

perception of respondents on working capital management implemented by the

Company.

The process includes the data gathering, distribution and retrieval of questionnaire

checklist and analysis and interpretation of data.

The output is the determined perception of respondents on the working capital

management implemented by the Company and recommendations can be made to

improve the working capital management of the Company.

The arrow represents the feedback which means the interaction among the three

frames.
 38

Chapter III

RESEARCH METHODOLOGY

This chapter discusses the research design, the setting of the study, subject of the

study, sources of data, procedures of the study, and statistical treatments used by the

researcher.

3.1. Research Design

Type of Research in use

In this study, the researcher basically used the qualitative methods for it is the

appropriate method in determining the financial analysis of Tung Phuong Company

Limited.

This method according to Sanchez, refers to the collection of data from the

members of a population in which direct contact is made through systematic means as in

survey questionnaire, checklist and the interview schedules. It involved the description

recording, analysis and interpretation of the nature and status of a group of persons or any

other phenomena that way wish to study.

The study will analyze factors to collect variables related to capital resources,

assets etc. then analyzing the factors to find out the interaction between factors,

sensibility of ratios. The statistical approach involving finding a way of condensing the

information contained in a number of original variables into a smaller set of dimensions

(factors) with a minimum loss of information (Hair et al., 1992).

This research will be carried out at Tung Phuong Ltd Company in its head office

at Binh Xuyen district, Vinh Phuc Province. The officers and employees of the company
 39

will be the respondents of the study. They are the work force of the company working

since 2002. With their experience and longer time in the company, they have the

adequate observation on the financial management of the company. Hence, they can

share the appropriate answers needed in the research.

3.2. Method of collecting data and Development of Research Instrument

3.2.1. Method of collecting data

• Primary data collection

This method involves the gathering of data directly from respondents through the

use the survey (using questionnaire and interview).

3.2.2. Development of Research Instrument

The approval from the management of the Tung Phuong Company Limited

management will be secured before the conduct of the study. Gathering of some relevant

information about the company for establishment of the background of the study will also

be secured.

The researcher will then prepare the questionnaire. Ask for the approval and

checking of the adviser. Modification will follow. Validation and testing for reliability

will be secured. Pre testing of the questionnaire.

Final draft and distribution to the chosen samples.

The researchers used the self-constructed questionnaires to get the primary data.

The questionnaires composed of two parts.

Part 1 will the perceptions of the respondents on the Working capital management

Practices of Tung Phuong Ltd Company .

 40

Part 2 will the problems and limitations of the Working capital management

Practices . The responses to the questions will be in the form of Linkert - scale using the

five-point scale with five as the highest and one as the lowest. The ranges of scales and

its verbal interpretation are presented in the following table.

Scale Verbal Range of scall

interpretation
5 Always 4.2 – 5.0
4 Often 3.4 – 4.1
3 Sometimes 2.6 – 3.3
2 Rarely 1.8 – 2.5
1 Never 1.0 – 1.7

3.3. Population and Sampling design

3.3.1. Population

The subjects of the study were the workers and managers in the company. They

were chosen at random to determine their perception as to the extent of application of

strategic decisions of Working capital management Practices of Tung Phuong

Ltd Company in being implemented.

The subjects of the study were the 118 workers and 30 managers in the different

Tung Phuong company Limited in Vinh Phuc Province. They were chosen at random to

determine their perception as to the extent of application of strategic decisions of

Working capital management Practices of Tung Phuong Ltd Company being

implemented.

3.3.2. Sampling design

The probability method of sampling technique will be used so that every

population will have equal chances of being selected. The cluster sampling technique will
 41

be used. The managers and employees in department of accounting s will be clustered by

. Sample size:

The sample size from the population was computed using the formula of solving

as given by Sevilla, et.al/,(1998as illustrated bellow:

n=N/(1+N*e2)

N= population size; n =sample size; e is level exactly (set e=5%)

Title Total Sample percentage

Manager 32 30 73
Counters 12 11 27
Total 44 41 100

3.4. Statistical Treatment of data

Step Methodology Type of Data Requirement

Perception of respondents Weighted Mean Survey
Differences in respondents’ perception T-test Survey

• To determine the perception of respondents on Working capital management

Practices of Tung Phuong Ltd Company, weighted mean mean was utilized.

• To determine the significant difference in the perception of the respondents on the

Working capital management Practices of Tung Phuong Ltd Company in terms of

the different aspects, t-test was used.

 42

Chapter 4

Presentation Analysis and Interpretation of Data

This chapter presents the analysis and interpretation of data based from the sub-

problems presented in the study.

4.1. Perception of managers and counters on working capital management

practices of Tung Phuong Ltd Company in Vinh Phuc province

Perception of respondents on Working Capital management practices of

Tung Phuong Company in terms of Current Asset Management and Current

Liabilities Management

Table 1

Perception of the Two groups of Respondents on Working Capital management

practices of Tung Phuong Co.

in Vinh Phuc in Terms of Cash and liquidity management

A. Current Asset Management Managers Counters Overall

Mean Rank VI Mean VI Mean VI
I. Cash and liquidity
3.1 S 2.6 R 2.9 S
management
1. Maintains a large amount of
3.3 2 S 2.6 3 S 3.1 2 S
cash and marketable
2. Speed up collection of received
3.0 3 S 2.8 2 S 3.0 3 S
checks
3. Maintain disbursement of cash
3.7 1 O 3.3 1 S 3.6 1 O
to the lowest possible level.
4. Decreasing of cash
2.8 4 S 2.2 4 R 2.7 4 S
disbursements.
5. Maintain a periodic Cash budget 2.5 5 R 2.0 5 R 2.4 5 R
 43

which is based on forecasted

figures.
Average 3.1 S 2.6 R 2.9 S
Legend: 4.20-5.00 Always

3.40-4.19 Often

2.60-3.39 Sometimes

1.80-2.59 Rarely

1.00-1.79 Never

Data represented on table 1 shows us about Assessment of the Two groups of

Respondents on Working Capital management practices of Tung Phuong Co.

in Vinh Phuc in Terms of Cash and liquidity management.

With respect to “maintain disbursement of cash to the lowest possible level”, two

groups of respondents highly appreciated it at 1st rank, corresponding to level O . They

also agreed to give the issue “maintain a periodic cash budget which is based on

forecasted figures” lowest score and 5th rank, corresponding to level R.

Considering all issues of cash and liquidity management, managers evaluated

them with an average score of 3,1 corresponding to level S. But counters evaluated them

with an average score of 2,6 corresponding to level R.

For overall, with respect to whole five issues of cash and liquidity management,

two groups of respondents evaluated with an average of 2,9 corresponding to level S. Of

which, two groups evaluated the issue “Maintain disbursement of cash to the lowest

possible level” with highest score and 1st rank corresponding to level O. The lowest score

belongs to the issue “Maintain a periodic Cash budget which is based on forecasted

figures” corresponding to level R.

Table 2
 44

Perception of the Two groups of Respondents on Working Capital management

practices of Tung Phuong Co.

in Vinh Phuc province in Terms of Account Receivable Management

A. Current Asset Management Managers Counters Overall

Mean Rank VI Mean VI Mean VI
II. Account Receivable
2.5 R 2.3 R 2.5 R
Management
1. Provide cash discount to early
2.8 1 S 2.6 1 S 2.7 1 S
payee
2. There is a credit criterion that

determines the capability of the 2.5 2 R 2.3 2 R 2.4 2 R

creditor to pay.
3. The billing of a customer for

goods and services he/she has 2.3 3 R 2.0 3 R 2.2 3 R

ordered is on time
Average 2.5 R 2.3 R 2.5 R

Data represented in table 2 shows us about perception of the two groups of

Respondents on Working Capital management practices of Tung Phuong Co. in Vinh

Phuc province in Terms of Account Receivable Management.

For the group of managers: they highly the issue ‘provide cash discount to early

payee” with an average score of 2,8, corresponding to level S. The lowest score belongs

to the issue “the billing of a customer for goods and services he/she has ordered is on

time”. For whole 3 issues of account receivables management, this group evaluated them

with an average score of 2,5 corresponding to level R.

For the group of counters: they also highly appreciated the issue ‘provide cash

discount to early payee” with an average score of 2,8 corresponding to level S. The
 45

lowest score belongs to the issue the billing of a customer for goods and services he/she

has ordered is on time”. For whole 3 issues of account receivables management, this

group evaluated them with an average score of 2,3 corresponding to level R.

For overall, two groups of respondents highly appreciated the issue “provide cash

account to early payee” with an average score of 2,7 corresponding to level S. Regarding

to all issues, two groups evaluated them with an average score of 2,5 corresponding to

level R.
 46

Table 3

Assessment of the Two groups of Respondents on Working Capital management

practices of Tung Phuong Co.

in Vinh Phuc province in Terms of Inventory Management

A. Current Asset Management Managers Counters Overall

Mean Rank VI Mean VI Mean VI
III. Inventory Management 3.1 S 2.8 S 3.0 S
1. Minimizing the sum of costs
3.6 2 O 3.5 1 O 3.6 1 O
associated with inventory
2. Decrease the storage and
3.0 3 S 2.5 3 R 2.9 3 S
tracking costs
3. Inventory is monitored regularly 3.6 1 O 3.4 2 S 3.6 1 O
4. Inventory turnover ratio is at
2.2 4 R 1.9 4 R 2.1 4 R
ideal level
Average 3.1 S 2.8 S 3.0 S

Data represented on table 3 shows us about Assessment of the Two groups of

Respondents on Working Capital management practices of Tung Phuong Co.in Vinh

Phuc province in Terms of Inventory Management.

For the group of managers: they highly appreciated the issue “inventory is

monitored regularly” with an average score of 3,6, 1st rank corresponding to level O.

They gave lowest score for the issue “inventory turnover ration is at ideal level”.

Considering to all issues, this group gave them an average score of 3,1, corresponding to

level S.

For the group of counters, they highly appreciated the issue “Minimizing the sum

of costs associated with inventory” with an average score of 3,5 corresponding to level O.

This group gave the issue “inventory turnover ration is at ideal level” the lowest score of
 47

1,9 corresponding to level R. Considering to all issues, this group gave them an average

score of 2,8 corresponding to level S.

For overall, two groups of respondents highly evaluated the issues Inventory is

monitored regularly and Minimizing the sum of costs associated with inventory. The

issue 4th was evaluated with lowest score. Considering all issues, two groups evaluated

them with an average score of 3,0 corresponding to level S.

Table 4

Perception of the Two groups of Respondents on Working Capital management

practices of Tung Phuong Co. in Vinh Phuc province in Terms of Accounts payable

Management

B. Current Liabilities Managers Counters Overall

Mean Rank VI Mean VI Mean VI
Management
I. Accounts payable
3.0 S 2.5 R 2.9 S
Management
1. Money that company owes to
3.3 1 S 2.4 2 R 3.3 1 S
suppliers is on time
2. Pay right after receiving goods
2.8 3 S 3.3 1 S 2.5 3 R
or products
3. Account payables management
2.8 2 S 2.0 3 R 2.7 2 S
in effectively ways
Average 3.0 S 2.5 R 2.9 S

Data represented in table 4 shows us about Table 4 Assessment of the Two groups

of Respondents on Working Capital management practices of Tung Phuong Co. in Vinh

Phuc province in Terms of Accounts payable Management.

For the group of managers: they highly appreciated the issue 1st “money that

company owes to suppliers is on time” with an average score of 3,3 corresponding to

level S. The lowest score belongs to the issue 2nd “pay right after receiving goods or
 48

products”. Considering whole three issues, this group evaluated them with an average

score of 3,0 corresponding to level S.

For the group of counters: they highly appreciated the issue “pay right after

receiving goods or products” with an average score of 2,8 corresponding to level S, the

lowest score belongs to the issue “Account payables management in effectively ways”

corresponding to level R. Considering whole three issues, this group evaluated them with

an average score of 2,5 corresponding to level R.

For overall, two groups highly appreciated the issue “money that company owes

to suppliers is on time” with an average score of 3,3, rank 1 corresponding to level S.

Two groups gave lowest score for the issue “. Pay right after receiving goods or

products” with an average score of 2,5 corresponding to level R. Considering whole three

issues of accounts payable management, they evaluated them with an average score of

2,9 corresponding to level S.

 49

Table 5

Assessment of the Two groups of Respondents on Working Capital management

practices of Tung Phuong Co.

in Vinh Phuc province in Terms of Short terms loan Management

B. Current Liabilities Managers Counters Overall

Mean Rank VI Mean VI Mean VI
Management
II. Short terms loan
3.0 S 2.6 S 2.9 S
Management
1. Company is a traditional
3.8 1 O 2.3 2 R 2.3 2 R
borrower
2. Short term loans are paid on
2.3 3 R 2.3 2 R 2.1 3 R
time as agreed
3. Short term loans are used to
2.9 2 S 3.4 1 S 4.2 1 A
newly invest
Average 3.0 S 2.6 S 2.9 S

Table represented in table 5 shows us about Assessment of the Two groups of

Respondents on Working Capital management practices of Tung Phuong Co.in Vinh

Phuc province in Terms of Short terms loan Management.

For the group of managers: they highly appreciated the issue “company is a

traditional borrower” with an average score of 3,8, 1st rank, corresponding to O level. The

lowest score belongs to the issue “short term loans are paid on time as agreed”

corresponding to R level. For the whole three issues, this group evaluated them with the

score of 3,0 corresponding to level S.

 50

For the group of counters: they highly appreciated the issue “short term loans are

used to newly invest” with an average score of 3,4 corresponding to S level. For the

whole three issues, this group evaluated them with the score of 2,6 corresponding to S

level.

For overall, two groups of respondents evaluated short term management with an

average score of 2,9 corresponding to S level. They highly appreciated the issue 3 “short

term loans are used to newly invest”. They gave lowest score for the issue “short tem

loans are paid on time as agreed”. Considering all issues of short term loans management,

they evaluated them with an average score of 2,9 corresponding to level S.

4.2. The following problems and limitations of Working Capital Management as

experienced in Tung Phuong Company particularly

 51

Table 6

Assessment of the Two groups of Respondents on The following problems and

limitations of Working Capital Management as experienced in Tung Phuong

Company in Vinh Phuc Province in Terms of Cash and liquidity management

A. Cash Management Managers Counters Overall

Mean Rank VI Mean VI Mean VI
I. Cash and liquidity
3.2 S 3.2 S 3.2 S
management
1. Shortage of cash to pay for raw
3.5 2 O 4.1 2 O 3.7 2 O
materials
2. Lack of cash to invest new
4.3 1 A 4.5 1 A 4.3 1 A
projects
3. Owe salary and wage of
2.8 3 S 2.4 3 R 2.7 3 S
employees
4. Cut down the incentives for
2.3 4 R 2.0 4 R 2.2 4 R
employees
Average 3.2 S 3.2 S 3.2 S

Data represented in table 6 shows us about Assessment of the Two groups of

Respondents on The following problems and limitations of Working Capital Management

as experienced in Tung Phuong Company in Vinh Phuc Province in Terms of Cash and

liquidity management.

For the group of managers: they gave highest score for the issue “lack of cash to

invest new project” with the score of 4,3 corresponding to level A. The lowest score

belongs to the issue “cut down the incentives for employees” corresponding to 4th rank

and level S. For the whole four issues, this group evaluated them with an average score of

3,2 corresponding to level S.

 52

For the group of counters: they also gave highest score for the issue “lack of cash

to invest new projects” and lowest score for the issue “cut down incentives for

employees”. This group evaluated “cash and liquidity management” with an average

score of 3,2 corresponding to level S.

For overall, two groups gave highest score for the issue “lack of cash to invest

new projects” and lowest score for the issue “cut down incentives for employees”. They

evaluated all issues of “cash and liquidity management” with an average score of 3,2

corresponding to level S.

Table 7

Assessment of the Two groups of Respondents on The following problems and

limitations of Working Capital Management as experienced in Tung Phuong

Company in Vinh Phuc Province in Terms of Account Receivable Management

A. Cash Management Managers Counters Overall

Mean Rank VI Mean VI Mean VI
II. Account Receivable
3.3 S 3.0 S 3.2 S
Management
1. Contains many bad debts 3.6 1 O 3.3 1 S 3.5 1 O
2. Some loans is hard to collect
3.1 2 S 2.6 2 S 3.0 2 S
Average 3.3 S 3.0 S 3.2 S

Data represented in table 7 shows us about Assessment of the Two groups of

Respondents on The following problems and limitations of Working Capital Management

as experienced in Tung Phuong Company in Vinh Phuc Province in Terms of Account

Receivable Management.
 53

For the group of managers: they thought that “contains many bad debts” is the 1 st

rank of limitations of account receivable management of the company. This group

evaluated “receivable management of the company” with the score of 3,3 corresponding

to level S.

For the group of counters: they also thought that “contains many bad debts” is the

1st rank of limitations of account receivable management of the company. This group

evaluated “receivable management of the company” with the score of 3,0 corresponding

to level S.

For overall, two groups of respondents evaluated all issues of receivable

management of the company with the score of 3,2 corresponding to level S. They agreed

to consider the issue “contains many bad debts” to be most limitation.

 54

Table 8

Assessment of the Two groups of Respondents on The following problems and

limitations of Working Capital Management as experienced in Tung Phuong

Company in Vinh Phuc Province in Terms of Inventory Management

A. Cash Management Managers Counters Overall

Mean Rank VI Mean VI Mean VI
III. Inventory Management 2.8 S 2.2 R 3.1 S
1. Inventory contains many goods
2.1 4 R 1.4 4 N 3.6 2 O
which is difficult to sell
2. The size of storage is too
3.0 2 S 2.5 2 R 3.0 3 S
narrow
3. The distance between storages
3.3 1 S 3.4 1 S 3.6 1 O
is too far
4. Storage many old goods due to
2.8 3 S 1.8 3 R 2.2 4 R
the economic crisis
Average 2.8 S 2.2 R 3.1 S

Data represented in table 8 shows us about Assessment of the Two groups of

Respondents on The following problems and limitations of Working Capital Management

as experienced in Tung Phuong Company in Vinh Phuc Province in Terms of Inventory

Management.

For the group of managers, they gave highest score for the issue “the distance

between storages is too far” and lowest score for the issue “inventory contains many

goods which is difficult to sell”. For whole 4 issues of inventory management, this group

evaluated them with an average score of 2,8 corresponding to level S.

For the group of counters, they also gave highest score for the issue “the distance

between storages is too far” and the lowest score for the issue “inventory contains many
 55

goods which is difficult to sell”. For whole 4 issues of inventory management, this group

evaluated them with an average score of 2,2 corresponding to level R.

For overall, two groups of respondents gave highest score for the issue “the

distance between storages is too far” corresponding to level O and lowest score for the

issue “Storage many old goods due to the economic crisis” corresponding to level R.

Considering all issues of inventory management, two groups of respondents evaluated

them with an average score of 3,1 corresponding to level S.

 56

Table 9

Assessment of the Two groups of Respondents on The following problems and

limitations of Working Capital Management as experienced in Tung Phuong

Company in Vinh Phuc Province in Terms of Accounts payable Management

B. Current Liabilities Managers Counters Overall

Mean Rank VI Mean VI Mean VI
Management
I. Accounts payable
3.3 S 3.0 S 3.2 S
Management
1. Account payables are mature
3.3 2 S 3.4 2 S 3.3 2 S
2. Suppliers press for paying 2.8 4 S 1.6 4 N 2.5 4 R
3. Employees request for increase
2.8 3 S 2.5 3 R 2.7 3 S
wages and salaries
4. Some equipments, machines are

downgraded, need money for 4.2 1 A 4.5 1 A 4.3 1 A

repairing and purchasing

Average 3.3 S 3.0 S 3.2 S

Data represented on table 9 shows us about Assessment of the Two groups of

Respondents on The following problems and limitations of Working Capital Management

as experienced in Tung Phuong Company in Vinh Phuc Province in Terms of Accounts

payable Management.

For the group of managers, they gave highest score for the issue “Some

equipments, machines are downgraded, need money for repairing and purchasing”, and

lowest score for the issue “Suppliers press for paying”. Considering all issues of accounts

payable management, this group evaluated them with an average score of 3,3

corresponding to level S.
 57

For the group of counters, they gave highest score for the issue “Some

equipments, machines are downgraded, need money for repairing and purchasing” and

lowest score for the issue “Suppliers press for paying”. Considering all issues of accounts

payable management, this group evaluated them with an average score of 3,0

corresponding to level S.

For overall, two groups of respondents evaluated “accounts payable management” with

an average score of 3,2 corresponding to level S. Of which, they gave highest score for the issue

“Some equipments, machines are downgraded, need money for repairing and purchasing”.

Table 10

Assessment of the Two groups of Respondents on The following problems and

limitations of Working Capital Management as experienced in Tung Phuong

Company in Vinh Phuc Province in Terms of Short terms loan Management

B. Current Liabilities Managers Counters Overall

Mean Rank VI Mean VI Mean VI
Management
II. Short terms loan
3.0 S 2.5 R 2.9 S
Management
1. Short term loans are due to date
2.6 2 S 1.5 3 N 2.3 2 R
2. Hurried to pay by banks 2.2 3 R 1.8 2 R 2.1 3 R
3. Lack of short term loans to
4.3 1 A 4.2 1 O 4.2 1 A
reinvest
Average 3.0 S 2.5 R 2.9 S

Data represented in table 10 shows us about Assessment of the Two groups of

Respondents on The following problems and limitations of Working Capital Management

as experienced in Tung Phuong Company in Vinh Phuc Province in Terms of Short

terms loan Management/.

 58

For the group of managers, they gave the highest score for the issue “lack of short

term loans to reinvest” and lowest score for the issue “hurried to pay by banks”. For all

issues of short terms loan management, this group evaluated them with an average score

of 3,0 corresponding to level S.

For the group of counters, they also gave highest score for the issue “lack of short

term loans to reinvest” and lowest score for the issue “ short term loans are due to date”.

For all issues of short terms loan management, this group evaluated them with an average

score of 2,5 corresponding to level R.

For overall, two groups of respondents gave highest score for the issue “lack of

short term loans to reinvest” and lowest score for the issue “hurried to pay by banks”. For

all issues of short terms loan management, two groups evaluated them with an average

score of 2,9 corresponding to level S.

 59

Table 11

Composite table on the Assessment of the Two groups of Respondents on the

following systems and procedures of Working Capital Management as applied in

Tung Phuong Company in Vinh Phuc Province

Working Management Managers Counters Overall

Mean Rank VI Mean Rank VI Mean Rank VI

Practices
A. Current Asset

Management
1. Cash and liquidity
3.1 2 S 2.6 3 R 2.9 2 S
management
2. Account Receivables
2.5 5 R 2.3 5 R 2.5 5 R
Management
3. Inventory Management 3.1 1 S 2.8 1 S 3.0 1 S
B. Current Liabilities

Management
4. Accounts payable
2.7 4 S 2.5 4 R 2.7 4 S
Management
5. Short terms loan
3.0 3 S 2.6 2 S 2.9 3 S
Management
Average 2.9 S 2.6 R 2.8 S

Data represented in table 11 shows us about the Assessment of the Two groups of

Respondents on the following systems and procedures of Working Capital Management

as applied in Tung Phuong Company in Vinh Phuc Province.

For the group of managers: they highly appreciated the issue “inventory

management” with an average score of 3,1 corresponding to level S, 1st rank. They gave

lowest score for the issue “account receivables management”. Considering all aspects of
 60

working capital management practices, this group evaluated them with an average score

of 2,9 corresponding to level S.

For the group of counters: they also highly appreciated the issue “inventory

management” with an average score of 2,8 corresponding to level S, 1st rank. They gave

lowest score for the issue “account receivables management”. Considering all aspects of

working capital management practices, this group evaluated them with an average score

of 2,6 corresponding to level R.

For overall, two groups of respondents evaluated working capital management of

the company with an average score of 2,8 corresponding to level S. They considered the

issue “inventory management” to be best implementation. The most limitation of working

capital management is the issue “accounts receivables management”.

 61

Table 12

Composite table on the Assessment of the Two groups of Respondents the following

problems and limitations of Working Capital Management as experienced in Tung

Phuong Company in Vinh Phuc Province

Working Capital Managers Counters Overall

Mean Rank VI Mean Rank VI Mean Rank VI

Management Practices
A. Current Asset

Management
1. Cash and liquidity
3.3 1 S 3.2 1 S 3.2 1 S
management
2. Account Receivable
3.3 1 S 3.0 2 S 3.2 1 S
Management
3. Inventory Management 2.8 2 S 2.3 3 R 2.7 2 S
B. Current Liabilities

Management
4. Accounts payable
3.3 1 S 3.0 1 S 3.2 1 S
Management
5. Short terms loan
3.0 2 S 2.5 2 R 2.9 2 S
Management
Average 3.1 S 2.8 S 3.0 S

Data represented in table 12 shows us about the Assessment of the Two groups of

Respondents the following problems and limitations of Working Capital Management as

experienced in Tung Phuong Company in Vinh Phuc Province. For the group of

managers, they considered three issues “Cash and liquidity management, Accounts

payable Management and Account Receivable Management” to be most limitations. For

the group of counters they considered two issues “Cash and liquidity management and

Accounts payable Management” to be most limitations.

 62

For evaluation of two groups, they agreed that “Cash and liquidity management;

Account Receivable Management and Accounts payable Management” are limited issues

of working capital management implemented by the company.

Table 13

The Significant Difference on the Perception of the Respondents on the

Working Capital management practices of Tung Phuong Co.

with Respect to the Different Aspects

Computed
Aspects df P-Value HO
T –Value

1. Cash and liquidity management 3.708 39 .001 Reject

2. Account Receivables Management 1.741 39 .090 Accept
3. Inventory Management 2.089 39 .043 Reject
4. Accounts payable Management .998 39 .325 Accept
5. Short terms loan Management 2.766 39 .009 Reject
The problems and limitations of

Working Capital Management

1. Cash and liquidity management .129 39 .898 Accept
2. Account Receivable Management 1.493 39 .144 Accept
3. Inventory Management 5.632 39 .000 Reject
4. Accounts payable Management 1.859 39 .071 Accept
5. Short terms loan Management 3.847 39 .000 Reject

Data represented on table 13 shows us about testing The Significant Difference on

the Perception of the Respondents on the Working Capital management practices of Tung

Phuong Co. with Respect to the Different Aspects.

In term of cash and liquidity management, P – value = 0,001 <0,05 allows us to

reject Hypothesis Ho “there is no significant difference on perception of two groups of

respondents to cash and liquidity management implemented by the company.

 63

In the same way, we can reject or accept various Hos in terms of various aspects.
 64

Chapter 5

Summary conclusion and recommendations

This chapter presents the summary of findings, conclusions drawn and

recommendations offered.

5.1. Summary of Findings

Based on the analysis and interpretation of the data, the following are

summarized:

5.1.1. In term of cash and liquidity management, managers evaluated it with an

average score of 3,1 corresponding to level S, while counters evaluated it with the score

of 2,6 corresponding to level R. For overall, two groups evaluated it with an average

score of 2,9 corresponding to level S. Of which, the issue “Maintain disbursement of cash

to the lowest possible level” has been evaluated with highest score, corresponding to

level O. But the issue “Maintain a periodic Cash budget which is based on forecasted

figures” received lowest score corresponding to level R.

5.1.2. In term of account receivable management, managers evaluated it with an

average score of 2,5 corresponding to level R. While, counters evaluated it with an

average score of 2,3 corresponding to level R. For overall, two groups evaluated it with

the score of 2,5 corresponding to level R. They highly appreciated the issue “provide cash

discount to early payee” and did not highly evaluate the issue “The billing of a customer

for goods and services he/she has ordered is on time”.

5.1.3. In term of inventory management, managers evaluated it with an average

score of 3,1 corresponding to level S. And counters evaluated it with the score of 2,8
 65

corresponding to level S. For overall, two groups evaluated it with an average score of

3,0 corresponding to level S. Of which, they highly appreciated the issues No1,3.

5.1.4. In term of account payable management, managers evaluated it with an

average score of 3,0 corresponding to level S, and counters evaluated it with an average

score of 2,5 corresponding to level R. Two groups evaluated it with an average score of

2,9 corresponding to level S. Of which, they gave highest score for the issue “Money that

company owes to suppliers is on time” and lowest score for the issue “Pay right after

receiving goods or products”.

5.1.5. In term of short term loans management, the managers gave it the score of

3,0 corresponding to level S and counters gave it the score of 2,6 corresponding to level

S. For whole three issues, they gave them with an average score of 2,9 corresponding to

level S. Of which, the issue “short term loans are used to newly invest” has been highly

evaluated, 1st rank and corresponding to level A. The issue “short term loans are paid on

time as agreed”.

5.1.6. In term of cash and liquidity management, the managers evaluated it with

an average score of 3,2 corresponding to level S. The counters also evaluated it with the

same score of 3,2 corresponding to level S. For overall, two groups of respondents

evaluated all issues with an average score of 3,2 corresponding to level S. Of which, the

issue “lack of cash to invest new projects” was given highest score. The issue “cut down

the incentives for employees” received lowest score.

5.1.7. In term of account receivable management, the managers and counters

also evaluated it with same score of 3,3 corresponding to level S. Considering two issues

of account receivable management, two groups evaluated them with the score of 3,2
 66

corresponding to level S. Of which, the issue “contains many bad debts” received highest

score by respondents.

5.1.8. In term of inventory management, the managers evaluated it with an

average score of 2,8 corresponding to level S. The counters evaluated it with an average

score of 2,2 corresponding to level R. Considering all issues of inventory management,

two groups of respondents evaluated them with the score of 3,1 corresponding to level S.

Of which, the highest score belongs to the issue “The distance between storages is too

far”, and the lowest score belongs to the issue “Storage many old goods due to the

economic crisis”.

5.1.9. In term of accounts payable management, managers evaluated it with an

average score of 3,3 corresponding to level S, but counters evaluated it with an average

score of 3,0 corresponding to level S. Considering all issues of accounts payable

management, two groups of respondents evaluated them with the score of 3,2

corresponding to level S. Of which, the issue “Some equipments, machines are

downgraded, need money for repairing and purchasing” to be most limitation” is the most

limitation.

5.1.10. In term of short term loans management, the managers evaluated it with an

average score of 3,0 corresponding to level S, but counters evaluated it with an average

score of 2,5 corresponding to level R. Considering all issues, two groups evaluated them

with the score of 2,9 corresponding to level S. Of which, they gave highest score for the

issue “lack of short term loans to reinvest” and lowest score for the issue “hurried to pay

by banks”.
 67

5.1.11. With respect to all aspects of working capital management of the

company, the managers evaluated them with the score of 2,9 corresponding to level S,

while counters evaluated them with the score of 2,6 corresponding to level R. For the

evaluation of two groups, they highly appreciated the issue inventory management with

highest score. The lowest score belongs to the issue “Account Receivables Management”.

5.1.12. In term of current asset management and current liabilities management,

two groups gave higher scores for Cash and liquidity management; Account Receivable

Management; Accounts payable Management.

5.2. conclusion

Based on the findings of the study, the following conclusions were drawn:

5.2.1. In term of cash and liquidity management, the company has well

maintained disbursement of cash to the lowest possible level’’. But the issue “maintain a

periodic cash budget which is based on forecasted figures” need to be improved.

5.2.2. In term of account receivable management, the company has been

evaluated at R level. It has well implemented “provide cash discount to early payee”. The

issue billing of a customers for goods and services she/he has ordered is on time” need to

be improved in future.

5.2.3. In term of inventory management, the company has been evaluated with an

average score of 3,0 corresponding to level S. It has well implemented the issue No1,3,

but the issues No2,4 need to be improved.

5.2.4. With respect to account payable management, the company has well

implemented the issue “Money that company owes to suppliers is on time”. But it need to

improve the issue “pay right after receiving goods or products”.

 68

5.2.5. In term of short term loan management, the company has well implemented

the issue “short term loans are used to newly invest”. It should pay more attention to the

issue “short term loans are paid on time as agreed”.

5.2.6. In term of cash and liquidity management, the most limitation belongs to

the issue “lack of cash to invest new projects”.

5.2.7. In term of account receivable management, the most limitation of the

company is that “account receivable management contains many bad debts”.

5.2.8. In term of inventory management, the most limitation of the company is

that “The distance between storages is too far”.

5.2.9. In term of accounts payable management, the most limited issue is that

Some equipments, machines are downgraded, need money for repairing and purchasing.

5.2.10. In term of short term loans management, the most difficulty of the

company is that “it lacks of short term loans to reinvest”.

5.2.11. For all aspects of working capital management implemented by the

company, the issue inventory management has been well implemented. But the issue

“account receivable management” has been the most limitation.

5.2.12. In term of current asset management, two groups considered the issue

“account receivable management” to be the most limitation. With respect to current

liabilities management, they agreed that accounts payable management is the most

limited issue.

5.2.13.In term of systems and procedures of Working Capital Management. There is

significant difference on perception of two groups of respondents to cash and liquidity

management ; inventory management and short term loans management. There is no significant
 69

difference on perception of two groups of respondents to Accounts payable management and

Account Receivables Management.

In term of problems and limitations of Working Capital Management: there is

significant difference on perception of two groups of respondents to limitations of

Inventory Management Short terms loan Management. There is no significant difference

on perception of two groups of respondents to limitations of Cash and liquidity

management; Accounts payable Management and Account Receivable Management

5.3. recommendations

On the bases of the drawn conclusion, the following recommendations are hereby

presented.

5.3.1. The company need to maintain a periodic cash budget which is based on

forecasted figures.

5.3.2. The company needs to prompt payment to billing of a customer for goods

and services she/he has ordered is on time.

5.3.3. The company needs monitor costs and ratio of inventory turn over..

5.3.4. The company should find suitable solutions to improve its issue “pay right

after receiving goods or products”.

5.3.5. The company should find suitable solutions to improve the issue “short

term loans are paid on time as agreed”.

5.3.6. The company need to find more suitable sources of cash to invest new

projects.

5.3.7. The company should find suitable solutions to minimize bad debts.

5.3.8. The company should find suitable solutions to decrease distance between

storages.
 70

5.3.9. Some equipments, machines of the company are downgraded, so the

company need to invest in repairing and purchasing.

5.3.10. The company need to find suitable solutions to mobilize various short

term loans to reinvest.

5.3.11. It is very necessary for the company to find suitable solutions to improve

the issue “accounts receivables management”.

5.3.12. The company should find suitable solutions to improve issues “account

receivable management” and account payable management”.

 71

BIBLIOGRAPHY

N.K.Dung (2008),Working capital needs of a business in Vietnam, fnancial Publishing

house, hanoi

Forster, George (1986) Financial Statement Analysis, Second edition, Prentice Hall

International Editions.

Gerald, White, A. Sondhi, Dov Fried (1994), Analysis and used of financial statements,

John Wiley & Sons Inc.

Han, Jawei and Kamber, Micheline (2001) Datamining: Concepts and Techniques

Morgan Kaufmann Academic Press.

Lev, Baruch (1974) Financial Statement Analysis: a new approach, Prentice-Hall Inc.

Penman, Stephen H. 2001, Financial statement analysis and security valuation, Mc Grow-

Hill/Irwin.

Stickney, Clyde P. and Brown, Paul R. (1999) Financial reporting and statement analysis:

a strategy perspective, Dryden Press.

Trueblood, Robert P. and Lwvett, J. N. (2001), Data mining and statistical analysis using

SQL, Press.

De Gidlow, R. and Donovan, S. (2005): ‘Cash Management Techniques’,

in ACT’s The

Treasurer’s Handbook, ACT, London.

V. L. Gole (1987) , The Management of Working Capita/Information

Australia, ISBN 0 949338 44 3

F.C. Scherr (1989), Modern Working Capital Management Prentice

Hall, ISBN 0 13 599317 2

 72

J.J. Hampton (1989) , Working Capital Management, John Wiley

and Sons, ISBN 0 471 60260 4

J.G. Kallberg and K.L. Parkinson (1984), CurrentAsset Management

John Wiley and Sons, ISBN 0 4711 87090 0

Frank J. Fabozzi (2005), Financial Management and Analysis, Published by John Wiley

& Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

MAGAZINE

Petr Polák* and Kamil Kocurek, cash and working capital management inin corporates

in the Czech Republic., Investment Management and Financial Innovations, Volume 4,

Issue 1, 2007)

Polák, P. and Kotora, F. (2000). ‘Funding Working Capital in the Czech Republic’,

Treasury

Management International, pp. 23-25.

Website

http://www.ey.com/Publication/vwLUAssets/TAS_Working_capital_mana

gement_report_2009

.(www.BankofAmerica.com/SmallBusiness)

http://www.saga.vn/Taichinh/Cautrucvon/Cautrucvon1/17594.saga
 73

APPENDIX A

QUESTIONNAIRE

Please accomplish this questionnaire carefully and objectively to represent your

opinion and it is expected that your answer will be based solely on your conviction,

observation and personal experience. Rest assured that your answer will be treated with

utmost confidentiality.

PART I: PROFILE OF RESPONDENT

Name: ________________________________________________

Department: ___________________________________________

Position: ______________________________________________

Number of years in the current position: ___________________

 74

PART II: SURVEY QUESTIONNAIRE

Please place a check (/) mark on the box corresponding to your answer on the following

systems and procedures of Working Capital Management as applied in Tung Phuong

Company Limited particularly in your Department. Please answer with all honesty, and

do not leave any item blank.

Assessing scale Descriptive interpretation

5 Always

4 Frequent

3 Sometimes

2 Seldom

1 Never

No. INDICATORS Assessing Scale

Working Capital Management implemented by the 5 4 3 2 1

Company
A. Current Asset Management
Cash and liquidity management
1 Maintains a large amount of cash and marketable?     
2 Speed up collection of received checks?     
3 Maintain disbursement of cash to the lowest possible level.     
4 Decreasing of cash disbursements.     
5. Maintain a periodic Cash budget which is based on     

forecasted figures.
Account Receivables Management
1 Provide cash discount to early payee     
2 There is a credit criterion that determines the capability of     

the creditor to pay.

3 The billing of a customer for goods and services he/she has     
 75

ordered is on time
Inventory Management
1 Minimizing the sum of costs associated with inventory     
2 Decrease the storage and tracking costs     
3 Inventory is monitored regularly     
4 Inventory turnover ratio is at ideal level     
B. Current Liabilities Management
Accounts payable Management
1 Money that company owes to suppliers is on time     
2 Pay right after receiving goods or products     
3 Account payables management in effectively ways     
Short terms loan Management
1 Company is a traditional borrower     
2 Short term loans are paid on time as agreed     
3 Short term loans are used to newly invest     
 76

Part III.

Please place a check (/) mark on the box corresponding to your answer on the

following problems and limitations of Working Capital Management as experienced

in TUNG PHUONG COMPANY LIMITED particularly in your Department.

Please answer with all honesty, and do not leave any item blank.

Assessing scale Descriptive interpretation

5 Always

4 Frequent

3 Sometimes

2 Rarely

1 Never

No. Indicators 5 4 3 2 1
Problems and limitations were encountered by the

Tung Phuong Company Limited in the Management of

their Working Capital

A. Current Asset Management
Cash and liquidity management
1 Shortage of cash to pay for raw materials     
2 Lack of cash to invest new projects     
3 Owe salary and wage of employees     
4 Cut down the incentives for employees     
Account Receivable Management
1 Contains many bad debts     
2 Some loans is hard to collect     
Inventory Management
1 Inventory contains many goods which is difficult to sell     
2 The size of storage is too narrow     
3 The distance between storages is too far     
4 Storage many old goods due to the economic crisis     
 77

B. Current Liabilities Management

Accounts payable Management
1 Account payables are mature     
2 Suppliers press for paying     
3 Employees request for increase wages and salaries     
4 Some equipments, machines are downgraded, need money     

for repairing and purchasing

Short terms loan Management
1 Short term loans are due to date     
2 Hurried to pay by banks     
3 Lack of short term loans to reinvest     
Your in put is highly appreciated! Thank you very much for your cooperation.
 78

DEPART

Frequency Percent Valid Cumulativ

Percent e Percent
Valid 1.00 5 12.2 12.2 12.2
2.00 2 4.9 4.9 17.1
3.00 9 22.0 22.0 39.0
4.00 2 4.9 4.9 43.9
5.00 4 9.8 9.8 53.7
6.00 19 46.3 46.3 100.0
Total 41 100.0 100.0
POSTION

Frequency Percent Valid Cumulativ

Percent e Percent
Valid 1.00 30 73.2 73.2 73.2
2.00 11 26.8 26.8 100.0
Total 41 100.0 100.0
EXPER

Frequency Percent Valid Cumulativ

Percent e Percent
Valid 1.00 4 9.8 9.8 9.8
2.00 8 19.5 19.5 29.3
3.00 8 19.5 19.5 48.8
4.00 11 26.8 26.8 75.6
5.00 10 24.4 24.4 100.0
Total 41 100.0 100.0

Descriptive Statistics

N Mean
CASH1 41 3.0976
CASH2 41 2.9756
CASH3 41 3.5854
CASH4 41 2.6585
CASH5 41 2.3902
RECEI1 41 2.7317
RECEI2 41 2.4146
RECEI3 41 2.2195
INVENTO1 41 3.5610
INVENTO2 41 2.8537
INVENTO3 41 3.5610
INVENTO4 41 2.1220
PAYABLE1 41 2.7317
PAYABLE2 41 3.0000
PAYABLE3 41 2.2195
SHORTLO1 41 3.3659
SHORTLO2 41 2.2683
SHORTLO3 41 3.0488
 79

CASHLIQ1 41 3.6829
CASHLIQ2 41 4.3415
CASHLIQ3 41 2.7073
CASHLIQ4 41 2.2439
ARECEI1 41 3.4878
ARECEI2 41 2.9512
INVENMA1 41 1.9024
INVENMA2 41 2.8537
INVENMA3 41 3.3415
INVENMA4 41 2.5366
APAYABL1 41 3.3415
APAYABL2 41 2.4878
APAYABL3 41 2.7317
APAYABL4 41 4.3171
SHORTEM1 41 2.3171
SHORTEM2 41 2.0976
SHORTEM3 41 4.2439
Valid N (listwise) 41

Descriptive Statistics

POSTION N Mean
1.00 CASH1 30 3.2667
CASH2 30 3.0333
CASH3 30 3.7000
CASH4 30 2.8333
CASH5 30 2.5333
RECEI1 30 2.7667
RECEI2 30 2.4667
RECEI3 30 2.3000
INVENTO1 30 3.5667
INVENTO2 30 3.0000
INVENTO3 30 3.6333
INVENTO4 30 2.2000
PAYABLE1 30 2.8667
PAYABLE2 30 2.9000
PAYABLE3 30 2.3000
SHORTLO1 30 3.7667
SHORTLO2 30 2.2667
SHORTLO3 30 2.9333
CASHLIQ1 30 3.5333
CASHLIQ2 30 4.3000
CASHLIQ3 30 2.8333
CASHLIQ4 30 2.3333
ARECEI1 30 3.5667
ARECEI2 30 3.0667
INVENMA1 30 2.1000
INVENMA2 30 3.0000
INVENMA3 30 3.3333
INVENMA4 30 2.8000
APAYABL1 30 3.3333
 80

APAYABL2 30 2.8000
APAYABL3 30 2.8333
APAYABL4 30 4.2333
SHORTEM1 30 2.6333
SHORTEM2 30 2.2000
SHORTEM3 30 4.2667
Valid N (listwise) 30
2.00 CASH1 11 2.6364
CASH2 11 2.8182
CASH3 11 3.2727
CASH4 11 2.1818
CASH5 11 2.0000
RECEI1 11 2.6364
RECEI2 11 2.2727
RECEI3 11 2.0000
INVENTO1 11 3.5455
INVENTO2 11 2.4545
INVENTO3 11 3.3636
INVENTO4 11 1.9091
PAYABLE1 11 2.3636
PAYABLE2 11 3.2727
PAYABLE3 11 2.0000
SHORTLO1 11 2.2727
SHORTLO2 11 2.2727
SHORTLO3 11 3.3636
CASHLIQ1 11 4.0909
CASHLIQ2 11 4.4545
CASHLIQ3 11 2.3636
CASHLIQ4 11 2.0000
ARECEI1 11 3.2727
ARECEI2 11 2.6364
INVENMA1 11 1.3636
INVENMA2 11 2.4545
INVENMA3 11 3.3636
INVENMA4 11 1.8182
APAYABL1 11 3.3636
APAYABL2 11 1.6364
APAYABL3 11 2.4545
APAYABL4 11 4.5455
SHORTEM1 11 1.4545
SHORTEM2 11 1.8182
SHORTEM3 11 4.1818
Valid N (listwise) 11

Descriptive Statistics

POSTION N Mean
1.00 CASHPROB 30 3.0733
RECEPROB 30 2.5111
INVEPROB 30 3.1000
PQY_PROB 30 2.6889
SHO_PROB 30 2.9889
CAHT_SOL 30 3.2500
RECE_SOL 30 3.3167
INVE_SOL 30 2.8083
PAY_SOL 30 3.3000
 81

LOAN_SOL 30 3.0333
Valid N (listwise) 30
2.00 CASHPROB 11 2.5818
RECEPROB 11 2.3030
INVEPROB 11 2.8182
PQY_PROB 11 2.5455
SHO_PROB 11 2.6364
CAHT_SOL 11 3.2273
RECE_SOL 11 2.9545
INVE_SOL 11 2.2500
PAY_SOL 11 3.0000
LOAN_SOL 11 2.4848
Valid N (listwise) 11

Descriptive Statistics

N Mean
CASHPROB 41 2.9415
RECEPROB 41 2.4553
INVEPROB 41 3.0244
PQY_PROB 41 2.6504
SHO_PROB 41 2.8943
CAHT_SOL 41 3.2439
RECE_SOL 41 3.2195
INVE_SOL 41 2.6585
PAY_SOL 41 3.2195
LOAN_SOL 41 2.8862
Valid N (listwise) 41

Independent Samples Test

Levene's t-test for

Test for Equality of

Equality of Means

Variances
F Sig. t df Sig. (2- Mean Std. Error 95%

tailed) Difference Difference Confidenc

e Interval

of the

Difference
Lower Upper
CASHPROB Equal .001 .970 3.708 39 .001 .4915 .1325 .2234 .7596

variances

assumed
RECEPROB Equal .876 .355 1.741 39 .090 .2081 .1195 -3.3728E- .4499
 82

variances 02

assumed
INVEPROB Equal .218 .643 2.089 39 .043 .2818 .1349 8.982E-03 .5547

variances

assumed
PQY_PROB Equal .030 .863 .998 39 .325 .1434 .1438 -.1474 .4343

variances

assumed
SHO_PROB Equal .186 .668 2.766 39 .009 .3525 .1274 9.477E-02 .6103

variances

assumed
CAHT_SOL Equal 2.041 .161 .129 39 .898 2.273E-02 .1756 -.3325 .3780

variances

assumed
RECE_SOL Equal 12.174 .001 1.493 39 .144 .3621 .2426 -.1285 .8528

variances

assumed
INVE_SOL Equal .035 .852 5.632 39 .000 .5583 9.914E-02 .3578 .7589

variances

assumed
PAY_SOL Equal .041 .841 1.859 39 .071 .3000 .1614 -2.6419E- .6264

variances 02

assumed
LOAN_SOL Equal .007 .934 3.847 39 .000 .5485 .1426 .2601 .8369

variances

assumed