Tài liệu Capital management in vietnam’s shipbuilding industry, applying accounting policy, supplying relevant information for financial managers a case study on vinashin (vietnam shipbuilding industry group

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CAPITAL MANAGEMENT IN VIETNAM’S SHIPBUILDING INDUSTRY, APPLYING ACCOUNTING POLICY, SUPPLYING RELEVANT INFORMATION FOR FINANCIAL MANAGERS: A CASE STUDY ON VINASHIN (VIETNAM SHIPBUILDING INDUSTRY GROUP) BY NGO VIET ANH E0700271 Graduation Project Submitted to the Department of Business Studies, HELP University College, in Partial Fulfillment of the Requirements for the Degree of Bachelor of Business (Accounting) Hons OCTOBER 2011 DECLARATION OF ORGINALITY AND WORD COUNT I hereby declare that the graduation project is based on my original work except quotations and citations, which has been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other course/degree at Help University or other institutions. The word count is 13,564 words. NGO VIET ANH 17 October 2011 ii ACKNOWLEDGEMENT First of all, I would like to express my sincere appreciation to my supervisor, Dr. Le Van Lien who has guided me throughout this thesis. His constant guidance, insightful suggestions, and constructive ideas are the essential inputs and encouragement for me in order to complete this thesis. Next, In addition, I would like to send my gratitude to the International School and HELP University College for giving me an opportunity to conduct my study in my favorite area. Furthermore, I also address my appreciation to Mr. Chu Van Hung (Financial Professor) who supported my thesis with information related to my thesis. My thankfulness is also addressed to others who have helped me since the beginning of my study until I can finish my thesis. Lastly, I would also like to extend my heartfelt gratitude to my family and my friends for their continuous support, encouragement and contribution, which have been crucial during the presentation of this report. My thesis cannot be finished without your supports. iii CAPITAL MANAGEMENT IN VIETNAM’S SHIPBUILDING INDUSTRY, APPLYING ACCOUNTING POLICY, SUPPLYING RELEVANT INFORMATION FOR FINANCIAL MANAGERS: A CASE STUDY ON VINASHIN (VIETNAM SHIPBUILDING INDUSTRY GROUP) BY NGO VIET ANH OCTOBER 2010 Supervisor: Dr. LE VAN LIEN ABSTRACT The purpose of this paper is to analysis the capital management, especially management of efficiency use of capital of which concept of capital, efficiency use of capital, roles of capital, and making decision on capital management are mainly concentration. If a company has a well managed capital, the company will run effectively and create profits. Nevertheless, when there is failure in managing capital effectively, it can cause losses for the business and lead them to dissolution or bankruptcy. It is mostly occurred in SOEs because of their management tend to have weaknesses, shortcomings and wrongdoings. VINASHIN is specific case of failure in managing capital effectively. In this thesis, I would like to discuss the failure in capital management of VINASHIN, and then suggest some solutions and recommendations for the organization. iv TABLE OF CONTENT Page Declaration of Originality and Word Count ii Acknowledgment iii Abstract iv Table of content v List of figure ix List of tables x List of Abbreviations xi CHAPTER 1 INTRODUCTION 1.1 Background of the thesis 1 1.2 Aims of the project 3 1.3 Problem statement 4 1.4 Structure of the thesis 5 1.4 Limitation 6 CHAPTER 2 LITERATURE REVIEW 2.1 Background of capital and the necessary to manage capital efficiency 7 v 2.1.1 Capital and important of capital in SOEs 7 2.1.1.1 Definition of capital 7 2.1.1.2 Definition of efficiency of capital 8 2.1.2 Classification of capital and sources of capital 10 2.1.2.1 Capital classification method based on rotation 10 2.1.2.2 Classification by source of capital formation 13 2.1.2.3 Classification by time to acquisition 15 2.1.3 Roles of capital 15 2.1.4 Factors affected the efficiency of capital 17 2.1.4.1 Objective factors 17 2.1.4.2 Subjective factors 19 2.2 Capital management decision making in Vietnam’s SOEs 21 2.2.1 Factors affected financial decision 21 2.2.2 Roles of Vietnam’s SOEs in market economy 23 2.2.3 The decision making in Vietnam’s SOEs 26 2.3 Measurement of efficiency use of capital 28 2.3.1 The need to improve the efficiency use of capital 28 2.3.2 Criteria to evaluate effectiveness of capital 29 2.3.2.1 Based on efficiency ratios 29 2.3.2.2 Criteria to evaluate firm’s ability to pay short-term debts 31 2.3.2.3 Criteria to evaluate firm’s ability to pay long-term debts 32 2.3.2.4 Criteria to evaluate effectiveness of management 33 vi CHAPTER 3 RESEARCH METHODOLOGY 3.1 Research objectives 35 3.2 Data sources 36 3.3 Research methodology 37 3.3.1 Primary data 37 3.3.2 Secondary data 37 3.4 Data Collection 38 3.5 Research tool 39 3.5 Limitation of Research 39 CHAPTER 4 CASE STUDY ANALYSIS 4.1 Background of VINASHIN 41 4.1.1 Short history 42 4.1.2 Group’s businesses 43 4.1.3 Business strategy and function 43 4.1.4 Development 44 4.1.5 Organizational structure 46 4.1.6 Accounting policy adopted 48 4.2 Assessment of capital management in VINASHIN 4.2.1 Overview of funding situation 48 48 vii 4.2.2 From of funding in VINASHIN 51 4.2.3 Analysis of efficiency of capital 53 4.3 The failure of VINASHIN in capital management 55 4.3.1 The downfall of VINASHIN 55 4.3.2 Causes of the downfall 56 4.3.2.1 Subjective causes 57 4.3.2.2 Objective causes 62 4.4 Solutions to VINASHIN CHAPTER 5 63 CONCLUSION 5.1 Conclusion 66 5.2 Recommendation 67 BIBILIOGRAPHY 69 APPENDICES 72 viii LIST OF FIGURES Figure 1: VINASHIN’s organizational structure Figure 2: Broad of management ix LIST OF TABLES Table 1: Balance sheet of VINASHIN from 2008 – 2009 Table 2: Asset volatility Table 3: Capital volatility Table 4: Ratio analysis for efficiency of capital x LIST OF ABBREVIATIONS SOEs: State-Owned Enterprises VINASHIN: Vietnam Shipbuilding Industry Group VND: Viet Nam Dong DWT: Dead Weight Tonnage DVN: Det Norske Veritas ROTC: Return on total capital ROA: Return on assets ROE: Return on equity CR: Current ratio WTO: World Trade Organization xi CHAPTER 1: INTRODUCTION In this chapter, we will lay a foundation for the entire thesis. The chapter introduces background of the thesis. Then, we will describe the objectives, problem statement, and limitation of the thesis. Finally, the chapter will cover the structure of the thesis. 1.1. BACKGROUND OF THE THESIS To conduct business production activities, any business enterprises need to have a certain amount of capital and financing. Capital is the premise of production and business. But how to use capital effectively is the key for determining factor for the growth of every business. Therefore, in order to make a well ongoing enterprise, any enterprises should put capital management in the first priority then makes sure their management of capital effectively because the effective use of capital directly affected to the existence and development of the company. Capital is the backbone for success in any business because capital is first priority to determine businesses’ existence and development. Tasks of capital consist of establishing, operating, and developing the enterprise. Moreover, capital is used not only to pay ongoing expenses but also to purchase both current and non-current assets such as inventories, equipment, buildings, and property. In addition, capital in an organization is used for other purposes such as paying salaries, credit extension to customers, advertising expenses, insurance expenses, and many other day-to-day operations. Furthermore, profitability is determined in part by the way, in which a business manages its capital. There will be a drop in profit if the businesses are unable to manage the capital effectively. Therefore, how the business obtains and use capital will determine its success Vietnam is one of the fastest growing economies in the world. Vietnamese market is committed to “market-oriented socialism”. Therefore, state-owned sectors are backbone of our economy, especially State-Owned Enterprises (SOEs). By early 2006, there are 4,086 SOEs in Vietnam, accounting for only 3.6% of the total active enterprises (www.vn.economy.com.vn). The changes in Vietnam’s economy and market since the launch Doi Moi in the 1980s and the join in WTO in the twenty century have made the Vietnam’s market rapidly growth and strong development. In the market economy, the strong and developed organizations will dominate the market. Therefore, the role of SOEs will be overshadowed and private enterprises will alternative. Nevertheless, in Vietnam the SOEs play key role to decide the State economy. Therefore, the success or failure of SOEs in Vietnam has great affects on the growth of the market. Nowadays, the world economic downturn has great affected to the operation of SOEs because of they are not successful when obtain and use their capital. According to a report by the Ministry of Planning and Investment, Vietnam had 36,607 projects which used capital from the state budget in 2010 of which 296 projects have been close down because of squandering of investments. SOEs is influenced from re-innovation when joining WTO as well as the trend of economic down turn so it caused big losses in SOEs. According to Vietnam Business News, the biggest losses of SOEs in Vietnam when inefficient use of capital consist 2 of Vietnam Cement Corporation, Coffee Corporation, Transport Work Construction Companies 5 and 6, Thang Long Construction Corporation, Sericulture Corporation with losses from VND220 to VND1,352 billion, 13 times more than the average capital of SOEs (www.vn.economy.com.vn). The loss is caused from the weaknesses of SOEs. The most major reasons for the weakness of SOEs come from weaknesses in capital management include weaknesses and wrongdoings of leaders, investment spread, poor use of capital investment, waste in preproduction process, and higher payment their expenditure. The weak in capital management has corroded their capital. Therefore, it is necessary to improve the capital management in SOEs, especially in today’s difficult times of obtaining capital. As results, it is necessary to have effective capital management, especially when capital has been scared day-by-day in today’s world. In the thesis, we will have a specific view at the capital management in Vietnam Shipbuilding Industry Group (VINASHIN) as specific example of insufficient use of capital. 1.2. AIMS OF THE PROJECT The project is developed to explore the important, impacts of management of capital on Vietnam’s organizations, especially in SOEs. The thesis focuses on management of capital within an organization by analyze the statistics, facts as well as underlying market drivers to provide the readers with real insights into real case study of VINASHIN. When we have completed this thesis, we will: 3  Have background of capital, management of capital  Appreciate situations related to the management of capital in specific case of VINASHIN  Give solutions and recommendations for VINASHIN 1.3. PROBLEM STATEMENT Nowadays, funding is the most difficult thing. The best way to fund the business is borrowing money from debts and liability. However, it is also double-edged sword. If a company with well capital managed, their debts and liability will create profits through profitability investment projects. On the other hand, if their debts and liability is used ineffective it can cause a huge bad debt, which unable to pay. In times of economic difficulty, the higher the proportion of long-term debt can create the more exposed the enterprises are. Therefore, enterprises need to consideration when investment. However, in the case of VINASHIN, the group continues to borrow money with liabilities and debts although its operations and investment are not effectively. It may cause from the shortcomings of VINASHIN’s management of capital. Therefore, in chapter 4 of this thesis, a real case of VINASHIN will be use for analysis as particular example of capital management under following questions:  What are problems of capital management of VINASHIN?  Why problems have occurred?  What are the best solutions and recommendations for VINASHIN’s situations? 4 Following this thesis, the readers will have acknowledgement related to the topic, which almost completed without its limitation. 1.4. STRUCTURE OF THE THESIS The thesis will be presented in five chapters as following:  Chapter 1: Introduction  Chapter 2: Literature review  Chapter 3: Research and methodology  Chapter 4: Case study analysis  Chapter 5: Conclusion The introduction of chapter 1 will present the general picture about the relating topic. With Literature review of chapter 2, you will have general knowledge about capital, efficiency of capital, classification of capital, roles of capital, factor affected efficiency of capital, important of decision making in managing capital, and criteria to evaluate the efficiency of capital. In the chapter 3, it describes research methodology consist of research objective, data sources of which primary data and secondary data, data collection and research tools. 5 Case study will be analyzed in chapter 4. Chapter 4 will analyze capital management in specific case of VINASHIN, a SOE, to know general about how they obtain and use capital. In addition, we will appreciate its issues from failure of management of capital, and then provide the reasons as well as solutions for the issues. The conclusion of chapter 5 will provide to you sum up of the analysis from above chapter, and then give recommendation for the problem. 1.5. LIMITATION The thesis is limited to further discussion of related topic because of time constraining and scare of information. Finance has limitations because market timing, value of money, and recession so this thesis has similar limitations. As results, this thesis could not verify accuracy of financial data provided by the company reports. Because of limited time, in this thesis, I only concentrate on capital management related to management of efficient use of capital in enterprises, especially SOEs in the specific case of VINASHIN. 6 CHAPTER 2: LITERATURE VIEW The purpose of this chapter is to introduce the general view about capital and capital management. In addition, this chapter provides financial instruments related to capital management. Furthermore, in this chapter, we will know how capital management effected to decision-making in enterprises, especially in SOEs 2.1. BACGROUND OF CAPITAL AND THE NESSARY TO MANAGE CAPITAL EFFICIENCY 2.1.1. Capital and Important of Capital in SOEs 2.1.1.1.Definition of Capital Business activities require capital investment. We can say that capital is a prerequisite for all activities of the business. As we known, before going into operations business must register the legal capital. Capital is expressed as the value of all assets managed by the enterprise and used at a certain time. There are various meaning of capital. According to Jean Murray, “Capital is accumulated assets or ownership”. Capital, in other word, is described as the amount of cash and other assets owned by the business. 7 Money is a form of initial capital of enterprises, but not already surely there is money be there is capital. Money is only as potential capital. To turn into capital, money must put into business’s productions with the aim to making profits. In addition, stock or ownership in an enterprise can be a form of company’s capital. In short, the capital is advanced by the value of all assets controlled by the enterprise to serve the business and production activities to obtain economic benefits in the future. 2.1.1.2.Definition of Efficiency of Capital In order to eliminate management of capital, we need to understand how the business use their capital or in other word, efficiency of capital. Efficiency is a concept that is always mentioned in the economic market. Enterprises always toward economic efficiency while government efforts to achieve economic and social efficiency. Efficient use of capital is required to ensure that businesses gain the benefit of investors, the employees, the State in terms of income and ensure the survival and development of the enterprises themselves. Moreover, it is also the basis for business can be easy to raise capital on financial markets to expand production and business development. Therefore, it is important to clarify the nature and standard of efficiency use of capital for enterprises. Because the need to have broad consensus on awareness and views of our businesses, especially SOEs in current conditions. At the same 8 time, it also helped solve the problem of appraising the quality of running business, the valuation of corporate assets, corporate restructuring, renovate corporate management structure and economic mechanism. Efficient use of capital is often misunderstood business efficiency but in fact, it is only one side of the business performance, which is the most important aspect. General speaking, one of the elements of business performance can be ineffective. On the other hand, speaking to efficient use of capital cannot be said that using capital effective but the results is loss, i.e. the efficient use of funds is showed on two sides, preserving capital is created forward to the target results of the business, especially including the profitable of capital. Beneficial results from the use of capital must satisfy two requirements: To meet the interests of the business and interests of investors in the highest degree of desired benefits while improving benefits of the economy society. In the modern market economy, any business brings more profit for themselves, but they harm the common interests of the social economy will not be allowed to operate. Conversely, if the business activities were beneficial to the economy, but created losses to the business, then it would make the business going to bankruptcy. Thus, the results generated by the use of capital are consistent with the results of the business interests and the interests of socio-economic background. So efficient use of capital is typically only one side of the business performance, as a category reflects the degree of economic, energy exploitation and utilization of capital and assets in production and business activities to goals to maximize benefits and minimize costs. 9
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