Vietnam’s integration into the AFTA bloc next year will be both a favorable condition and a big challenge for domestic enterprises. This integration creates a wide open market for enterprises, promotes the consumption of goods and improves the efficiency of using working materials.
On the other hand, we can see the fierce competition between foreign enterprises and domestic enterprises. This is a big difficulty that enterprises can only overcome by improving the efficiency of capital use, especially working capital.
Thus, improving the efficiency of organizing the use of working capital contributes to ensuring the existence and development of enterprises.
2. Some factors affecting the efficiency of working capital use of enterprises.
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The efficiency of using VLĐ is affected by the following factors:
2.1. First: Capital in cash.
Money is an asset of the enterprise and can be easily converted into other types of assets. Therefore, money is also the subject of fraud, embezzlement or abuse. Cash capital includes cash in the fund, bank deposits, and valuable papers that can be easily converted into money. If there is too much cash in the fund, it can easily cause cash stagnation, reducing productivity and cash turnover. If there is too little, it will make the payment ability of capital worse, the enterprise will fall into a state of business stagnation, causing revenue and profit to decrease, leading to a decrease in the efficiency of using working capital. Corresponding to the scale of the enterprise, there must be a corresponding amount of money to ensure the financial situation is in a normal state. Too much bank deposits means that capital cannot circulate, the profitability of money is poor, affecting profits, and the efficiency of using working capital is not high.
2.2. Second: inventory.
In enterprises, there must always be a necessary amount of inventory to serve the business and maintain regular and continuous business activities. If there is too much inventory, the working capital will be stagnant, making the efficiency of using working capital less. Large inventory increases storage costs and is easily damaged, reducing quality if not well preserved. If there is too little inventory, production and business will be interrupted, and the enterprise will lose business opportunities.
2.3. Third: Accounts receivable.
In the current market mechanism, businesses, especially commercial businesses, that want to do business well and effectively cannot avoid competition.
misappropriation of customers' capital. When a business is misappropriated a lot of capital, it will affect the efficiency of using working capital. If the value of receivables is too large, working capital is misappropriated, slow to circulate, and at the same time, the business will lack capital, lose capital to rotate, and must mobilize from other sources of capital to meet its needs... This entails the cost of debt management, debt collection costs and increased risk of bad debt due to customer default, which will cause losses for the business.
2.4. Wednesday: Revenue, costs and profits.
Revenue represents the total turnover of working capital. Therefore, revenue
more
The larger the total turnover of working capital, the greater the efficiency of using working capital and vice versa.
Operating costs directly affect the efficiency of working capital use, because the profit of the enterprise is determined by total revenue minus total costs. If the management of operating costs is not good, high costs will reduce profits, and the efficiency of working capital use will also decrease. On the contrary, if the cost management is good, it is a condition to increase profits and thus increase the efficiency of working capital use.
Finally, profit is the deciding factor in the efficiency of using working capital. The higher the profit, the greater the efficiency of using working capital and vice versa, if the profit is low, it proves that working capital is used inefficiently.
3. Some measures to improve the efficiency of working capital use.
3.1. Cash capital management.
Cash in the fund is an important part of the enterprise's cash capital. In the process of production and business, enterprises always need to reserve cash capital at a certain level according to the scale and business characteristics of the enterprise. The need to reserve cash in ordinary enterprises is to meet the requirements of daily transactions such as: purchasing goods, materials, paying necessary expenses... Therefore, to manage cash capital, enterprises need to apply the following measures:
* Determine a reasonable level of cash capital to ensure the business's ability to pay: To evaluate the ability to pay cash capital, people use the following criteria:
Capital ratio Cash + Cash equivalents
=
Cash Short-term debt
If this ratio is greater than or equal to 0.5, the ability to pay capital in cash is good, but if it is less than 0.5, the ability to pay capital in cash is low.
* Closely manage cash receipts and expenditures to avoid capital loss.
* There must be a clear distinction between cash management and cash accounting staff.
* Cash receipts and payments must have receipts and payments, and at the end of the day the cashier must immediately compare the cash at the fund and the cash book. If there is a difference, the cause must be found and a solution must be found.
* Only keep the fund at the minimum necessary level, the amount of money collected during the day exceeding the fund level must be promptly deposited into the Bank every day.
* Enterprises need to prepare periodic financial statements to grasp the cash inflows and outflows from operations and assess the enterprise's solvency.
3.2. Inventory management
Managing capital reserves for goods for sale in trading enterprises is basically the same as managing capital reserves in manufacturing enterprises. To manage this capital well, it is necessary to coordinate many measures from purchasing, transportation and storage in warehouses.
a) Determine the correct amount of inventory needed using the direct method: Determine the necessary stock of goods:
Amount of inventory needed during the period
In there:
= Average cost of goods per day
X Number of days of reserve
goods
Average cost of goods
Total cost of goods and products for the year
troops per day = Number of days in year
The number of days of inventory is the number of days from when the goods are imported to the warehouse until they are released for consumption.
b) Businesses need to consider sources of supply and suppliers. The goals to be achieved in selection are low prices and favorable negotiation terms.
c) Organize well the storage and preservation of goods, apply material rewards and punishments to
Avoid loss and damage of goods and materials.
d) Regularly check and grasp the reserve situation, promptly detect the status of stagnant materials or goods, and take measures to quickly release those goods to recover capital.
3.3. Accounts receivable management
In the current market mechanism, in order to sell goods, businesses in general and commercial businesses in particular often accept to let customers owe. When deciding to let customers occupy capital, businesses can consider the following aspects: the level of reputation, payment ability, and general financial status of customers. To evaluate the situation of customers' receivables, people use the following indicators:
Accounts receivable from customers
Debt to assets ratio =
Sales volume
The larger the coefficient, the more capital is occupied by customers, the smaller the coefficient, the better.
To quickly collect receivables and limit unnecessary costs or risks, businesses need to pay attention to the following measures:
- Prepare necessary documents for debts approaching payment deadline, promptly carry out procedures and urge customers to pay due debts.
- Proactively apply appropriate measures to recover overdue debts.
First stage: apply soft measures of a suggestive and requesting nature through sending letters or phone calls.
Phase two: tougher measures include sending people directly to large debtors, but requests sent to customers must be firm and legal.
Stage three : go to court, if normal efforts fail then ask the court to intervene.
- When bad debt arises, it is necessary to analyze, evaluate, find the cause and measures to limit the loss.
3.4. Revenue, cost and profit management
To contribute to increasing the efficiency of using working capital, businesses need to manage revenue, costs and profits well.
Measures to increase business revenue:
+ Continuously improve product quality and reasonable prices.
+ Build appropriate Marketing strategy.
+ Develop a reasonable product consumption policy to encourage customers to buy more, such as applying trade discounts when customers buy in large quantities.
+ Build brand for goods, enhance class and reputation of business.
In a commercial enterprise, business operating costs include:
+ Cost of goods sold: is the purchase value of goods sold and the purchasing cost allocated to goods sold.
+ Selling costs: are costs incurred in the process of consuming goods and services such as salaries, allowances for sales staff, marketing, packaging, preservation... depreciation of fixed assets, costs of materials, packaging, tools, costs of outside services and other cash costs such as product warranty costs, advertising costs.
+ Business management costs: are costs for the management and operation of the enterprise, costs related to the general operations of the enterprise such as costs of small labor tools, depreciation of fixed assets serving the management and operation of the enterprise and other costs arising in the scope of the entire enterprise such as salaries and allowances paid to the board of directors (if any), the Board of Directors and staff managing departments, costs of materials, office supplies, taxes, fees, insurance, costs of outsourced services of the enterprise office, provisions for inventory price reduction, provisions for bad debts, business expenses, etc.
Cost management measures:
+ Managing cost of goods sold: To lower cost of goods sold, businesses need to:
* Find cheap sources of goods, ensuring quality.
* Find suppliers with close distance to reduce purchasing costs such as reducing transportation, wharfage, loading and unloading of goods, avoiding loss and waste.
+ Sales costs and business management costs account for a small proportion of the total operating costs of a commercial enterprise, but they also significantly affect the enterprise's profits. If these two types of costs are well managed, it is a condition to increase profits and thus increase the efficiency of using working capital of the enterprise. To manage these two types of costs well, enterprises need to establish cost norms for each item, especially the cost of outsourced services.
and other cash expenses such as advertising, marketing, promotion, commission, brokerage, transaction, and hospitality costs. When establishing cost norms, it is necessary to link them to the revenue realized during the period.
Measures to increase profits:
Profit is the difference between revenue and costs, so to increase profits, businesses need to apply the measures to increase revenue and reduce costs as presented above.
4. System of indicators reflecting the efficiency of using working capital of the enterprise
Working capital of an enterprise ensures the normal and continuous operation of the enterprise. With such an important role, enterprises need to use working capital effectively, recover capital quickly, and contribute to improving the efficiency of the enterprise's operations.
Effective use of VLĐ is expressed as follows:
- With the same amount of working capital but higher business results.
- Or the efficiency of using working capital is also expressed as increasing the amount of working capital brings increased profits to the enterprise and the rate of profit increase is greater than the rate of increase of working capital.
When analyzing and evaluating the effectiveness of using VLĐ, people use the following criteria:
Group of indicators reflecting the efficiency of using working capital.
Net revenue
1) Number of revolutions of the working capital =
Average working capital
This indicator shows how many times the working capital is rotated during the period. If the number of rotations increases, it shows that the efficiency of capital use increases and vice versa.
Net Revenue (Cost of Goods Sold)
2) Number of HTK rotations =
Average inventory in the period
This indicator shows how many times the inventory is rotated during the period. The larger the number of inventory rotations, the higher the efficiency of using working capital and vice versa.
3) Responsibility coefficient
Average working capital
VLD = Net revenue
This index tells us the level of working capital value that the enterprise can meet and use in circulation (or how many working capital are needed to have one circulating dong). The smaller this coefficient is, the higher the efficiency of capital use, the more capital is saved.
4) Working capital turnover period =
Working Capital x 360
Net revenue
This indicator reflects the average number of days for working capital to complete a rotation cycle. The shorter the working capital rotation period, the faster the working capital rotation efficiency and vice versa.
5) Savings level
Net revenue
VLĐ (±) = (N1 - N0)360
In there:
N1: Number of days of circulating working capital for the next period. N0: Number of days of circulating working capital for the previous period.
6) Profit margin
Profit before tax (or after tax)
profit from working capital = average working capital used in the period X 100%
This indicator shows how much profit (before tax or after tax) is generated for every VND of working capital involved in production and business activities during the period. The higher this indicator is, the more efficient the use of working capital is and vice versa.
Group of indicators on payment capacity:
The solvency of a business reflects the relationship between the amounts payable during the period and the financial potential of the business. It includes the following indicators:
+ Payment ratio
Total current assets and short-term investments (short-term assets)
Current debt = Current debt
The current ratio is a measure of a company's short-term solvency, indicating the extent to which the claims of short-term creditors are covered by assets that can be converted into cash within a period equivalent to the maturity of those liabilities.
Cash and cash equivalents
+ Quick ratio =
Short-term debt
The quick ratio indicates the ability to pay off short-term obligations without relying on the sale of inventories. Inventory assets are the most difficult assets to convert into cash and are most susceptible to loss when sold.
CHAPTER II:
CURRENT STATUS OF MANAGEMENT AND USE OF WORKING CAPITAL OF THANH HOA MOUNTAIN TRADE AND INVESTMENT DEVELOPMENT COMPANY
I. GENERAL OVERVIEW OF THANH HOA MOUNTAIN DEVELOPMENT INVESTMENT AND TRADING COMPANY.
1. The formation and development process of Thanh Hoa Mountainous Development Investment and Trading Company
Thanh Hoa Mountainous Commercial Company is a state-owned enterprise established under Decision No. 1740 TC/UBTH dated September 28, 1992 of the People's Committee of Thanh Hoa Province on the basis of merging 24 commercial, foreign trade and material companies located in 11 mountainous districts in the province and was renamed Thanh Hoa Mountainous Commercial and Investment Development Company under Decision No. 2481/QD dated October 29, 1999 of the People's Committee of Thanh Hoa Province with the task of doing business, serving the lives and production of over one million ethnic people in 11 mountainous districts and 7 districts, towns with mountainous communes in the province. Organizing production and business activities according to market mechanisms.
Company office headquarters at: 100 Trieu Quoc Dat Street - Dien Bien Ward - Thanh Hoa City.
2. Functions and duties of Thanh Hoa Mountainous Trade and Investment Development Company.
Thanh Hoa Mountainous Trade and Investment Company is a business enterprise with its own specific characteristics, organizing the business of other consumer goods according to the market mechanism, the function of the company is to supply essential goods to serve the ethnic minorities in the mountainous areas in the province according to the policies of the Party and the State, in addition, the company also organizes the purchase and consumption of local agricultural and forestry products, this process has greatly contributed to stimulating the development of mountainous production.
The company supplies a number of essential goods to ethnic minorities in the mountainous areas of the province and purchases agricultural and forestry products for consumption in the lowlands. The company actively expands and develops its product sources to meet customers' consumption needs, organizes effective business to reinvest, expand its business network, and fulfill its obligations to the state.
In addition, the company also implements well the state's policies in business contracts, maintains good reputation in customer relations, implements well the financial, labor and salary management policies, ensures jobs and lives for employees.