Current Status of Working Capital Efficiency of Song Da Corporation

Regarding capital, looking at the “Capital structure and growth table” ( Table 2.3 ), we see that the company’s equity still accounts for a small proportion of the total capital (the highest was 31.9% in 2006 and the lowest was 28.49% in 2007). We can also easily see the steady growth in equity over the years, but the increase is still very small and unstable. One thing is that the company’s short-term debt accounts for a large proportion (usually over 50%), and currently the company is adjusting its capital structure by increasing equity and long-term debt.

The Company's Net Working Capital (NWC) = Total net value of current assets - Total current liabilities) over the years is >0, showing that the company has used a part of long-term capital to finance the operation of current assets. This shows that the Company's assets are firmly financed, have good solvency and a healthy financial situation.

Song Da Corporation Song Da Joint Stock Company 11

Table 2.2. BALANCE SHEET

Unit: Dong

Target

1. Short-term debt

(Source: Financial report of Song Da 11 Joint Stock Company)

Chart 2.2. Asset structure and growth

(Unit: Billion VND)

400

350

300

Current assets

Fixed assets

250

200

150

100

50

0

2006 2007 2008

(Source: Author's synthesis and calculation)

Chart 2.3. Capital structure and growth

(Unit: Billion VND)

400

350

300

Equity Long-term debt

Short-term debt

250

200

150

100

50

0

2006 2007 2008

(Source: Author's synthesis and calculation)

The Company's current assets increased significantly in the period 2006 - 2007, but tended to decrease slightly in the period 2007 - 2008. We see that in

Current assets, inventories and receivables account for a very large proportion of total assets. Inventories account for a large proportion in accordance with the characteristics of the Company's operations. Due to contracting large projects with long durations, at the end of the year, inventories have a fairly large value, reflecting the value of unfinished production and business. However, receivables with a large proportion and an increasing trend are a sign that the company is occupying a lot of capital and need to have effective measures to minimize receivables to the lowest level to improve capital turnover.

Through the analysis of business results and the structure of assets and capital of Song Da 11 Joint Stock Company, we can see that the Company's operating status is relatively good. The Company is making efforts to expand its scale and operating capacity, which has correspondingly created appropriate growth in revenue and profit results achieved in recent years. The Company's asset structure is consistent with the characteristics of its operations in the construction and installation sector, however, we still see that the equity in the capital structure still has a small proportion, and it is clear that a significant improvement is needed in this item. However, the Company is a State-owned enterprise, and is guaranteed by Song Da Corporation, so it is still highly appreciated by partners and has won trust.

2. Current status of working capital efficiency of Song Da Corporation

Mile 11

2.1. Sources of working capital formation

Based on the " Balance Sheet " over the years, we see that working capital

The Company's capital is mainly formed from short-term debt, and is supplemented by long-term capital (equity and long-term debt). In short-term capital, short-term credit accounts for a large proportion and capital formed from advances from buyers and trade credit from sellers also accounts for a relatively large proportion.

Chart 2.4. Short-term debt structure

(Unit: Billion VND)

200

Other short-term debt

Payable to Seller

Buyer pays in advance

Short term loan

180

160

140

120

100

80

60

40

20

0

2006 2007 2008

(Source: Author's synthesis and calculation)

Based on Chart 2.4 “Short-term debt structure” of the Company, we can see that the Company’s short-term debt tends to increase sharply in the period of 2006 – 2007 and slightly increase in the period of 2007 – 2008. This reflects the need to increase capital in general and working capital in particular to serve the expansion of production and innovation in the period of 2006 – 2007. During this period, the Company has invested a large amount of capital in expanding production as well as innovation to improve the quality of the production line. In the period of 2007 – 2008, because production has entered the orbit, efficiency has increased, the Company has gradually reduced the speed of short-term debt. In 2008, the Company's total short-term debt was over VND 180 billion, accounting for 49.52% of total capital, an increase of only 1.24% compared to 2007, while the growth rate of total short-term debt in 2007 compared to 2006 was 8.3%. Of which, short-term loans were over VND 52 billion (equivalent to a decrease of 22.25% compared to 2007), debt from sellers was over VND 81 billion (equivalent to 22.33% of total capital), and advance payments from buyers were over VND 43 billion (equivalent to 11.89% of total capital). Thus, the Company has made good use of capital from sellers and customers to supplement credit sources borrowed from commercial banks. This is a correct combination of the Company in the conditions of a market economy.