capital management in vietnam`s shipbuilding industry, applying

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
Analyze the effective use of capital and business can be conducted in three
content: analysis of efficiency of working capital, fixed capital and capital efficient
business use in general.
2.1.2. Classifications of Capital and Sources of Capital
During production, business enterprises consume expenditures such as supplies,
materials, equipment depreciation, and salaries. That is the cost of the corporation
spends to achieve business goals. The problem is this cost arises frequently,
continuous associated with production processes of the enterprises. Therefore,
enterprises must improve the efficiency of capital as much as possible to achieve the
highest business objectives. In order to manage and closely supervise the
implementation of the cost, capital efficiency, cost savings at each stage of
production and the entire company, it is needed to classify capital. The effects of
capital classification include inspect, analyze the process of the incurred costs, which
the enterprise had to spend on business production. There are many classifications of
capital. Depending on different point of view, we have different classifications of
capital.
2.1.2.1.Capital classification method based on rotation
a. Fixed Capital
In business market, money is needed for payments of expenditures of a
company related to fixed assets. Under Vietnam’s government regulation, fixed
10
assets must have two characteristics: (1) have great value (over 5 million VND), and
(2) worth used over one year. The advance investment capital to buy, sell, construct,
and transfer intangible and tangible fixed assets is called fixed capital. According to
David Ricardo, fixed capital is described as any kind of real or physical capital (fixed
asset) that is not used up in the production of a product and is contrasted with
circulating capital such as raw materials, operating expenses and the like
(en.wikipedia.org). Fixed capital is essential because if we use it effectively,
company will create large proportion of profits.
In business enterprises, fixed capital plays a vital role in the production of
product. It determines innovation of technology, equipment of technical facilities,
and primary factor to secured enlarging re-production as well as improving
employees’ living standard. Therefore, it is essential to manage capital effectively.
The size of fixed capital will determine the size of fixed assets that has huge effects
on business’s operations. On the other hand, economic characteristics of fixed assets
in application process have a decisive influence in transferred cycle of fixed capital.
Fixed capital expressed into two forms:
(i)
In physical form: It is all fixed assets used in business enterprises. It
includes land, buildings, property, office equipment and furniture,
vehicles, etc.
(ii)
In monetary form: It is all fixed assets, which are not depreciation and
amortization of capital when not being used for the production of fixed
assets. It is part of fixed capital that finished the completely rotate and
return to the original form of currency.
11
b. Working Capital
Working capital is managed to determine profitability of the firm. It is defined as
a firm’s investment in capital (J.William Petty, A.J., J.D., Martin, et al). Working is
described as the dollar amount or the total of a firm’s current assets by Josephe.
Finnerty. Cash, accounts receivable, and inventories are the main form of current
assets.
Working capital can initially be broken into two types: permanent and temporary.
Permanent working capital is tied up in keeping the business flowing throughout the
year. Temporary working capital is needed from time to time to take account of
seasonal, cyclical or unexpected fluctuation in the business. In addition, it is usually
serviced from an overdraft facility.
There are three basic applications of working capital consist of inventories,
debtors, and cash.
Firstly, inventories comprise primary stocks of goods that are held for resale, a
prominent asset for retailers, wholesalers and manufacturers. Inventories can be
further split into inventories of raw materials, work in progress and finished goods. If
inventories do not well managed, they can soak up an enormous amount of excess
working capital. It is the job of the financial manager to minimize the stocks of raw
materials, the level of the work in progress, and the quantity of finished goods.
Secondly, on the debtor side, working capital is required to finance the gap
between payment due to suppliers and payment owned by customers. Main types of
working capital on the debtor side are account payables and notes payable. Accounts
payable are the converse of account receivable, comprising mainly the firm’s debts
12
that arise from trade credit that creditors have advanced to the firm while Notes
payable are shorter sources of finance that are payable on maturity date. The primary
task of financial manager on the debtor side is examining whether generous credit
term are negotiated with suppliers but minimal credit is offered to customers.
Finally, cash is needed to management of working capital. Cash consists of cash
in hand (money) and bank accounts and credits. Financial managers manage cash to
ensure that it is always available for meeting the company’s day-to-day transactions
and debts.
2.1.2.2.Classification by source of capital formation
According to this classification, the capital of the enterprise includes Liabilities and
Owners’ Equity. In the process of production of business, outside of its own capital,
the businesses themselves have also to use a large borrowing capital through banks,
customers and partners. All these elements are formed the liabilities of the business.
a. Liabilities
According to The IASB Framework, paragraph 49b, liability is described as a
present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity of resources embodying economic
benefits (ww.iasb.org).
13
Definition of liability has two main elements relating to the existence of a
present obligation and a past transaction. Obligation can come from numerous ways
such as cash payment, provision of services, transfer of assets, and a credit. One
example of obligation is accounts payable.
In SOEs, sources of liability come from banks, intermediary financial
instruments such as pension funds and lease financing, issued bonds, and borrowed
from members of the entity.
b. Owners’ Equity
Owner’s Equity is capital belong to the owner of the business who have
ownership, management, and making decisions on the assets of the business. There
are three primary sources to create owners’ equity of the business as following:
(i)
Venture capital includes capital contributions (The State, venture
firms, shareholders, and owners of the business) and the undistributed
profits of results of business production.
(ii)
Differences on revaluation of assets (mainly fixed assets): When the
State allowed or members of company decided.
(iii)
The funds of the enterprise: forms of the business production such as
development funds, reserve funds, pension funds.
In addition, the owners’ equity of the business also including capital
investment in infrastructure and business funds (funds granted by the State budget,
14
development of non-refundable so that companies spend on long-term economic
goals, basic social and political purposes ...)
2.1.2.3.Classification by time to acquisition
There are two types of capital based on time to acquisition consist of:

Permanent funds: Permanent funds are capital that businesses use to finance
all of their fixed assets. It includes owners’ equity and long-term debt of the
business. Long-term loan is used to pay for company expenditures will be
used in long-term period. Sources of these funds are clearing banks, merchant
banks, and even pension funds

Temporary funds: These are funds used to finance the assets of the business
temporarily. This fund includes bank loans, advance payment, immediate
payment of buyers, etc.
2.1.3. Roles of Capital
In economic market, capital has its own characteristics. Capital is a tool to
achieve company’s objectives included economic development and enhance labors’
living standard. In addition, capital is a kind of good because it is valuable. We can
buy, sell, and transfer capital in the market. Capital is important part in production
process. Moreover, capital is a mechanism to create profit through business’s
15
activities. Furthermore, capital will increase when business managed capital
effectively. As result, profit of business will increase as well.
In business’s perspective, capital’s demand comes from demand of maintain
business’s production, innovative technology equipment, enlarge business’s
operations, improve quality of goods, increase employment for labors, and contribute
to society, etc. Therefore, capital plays a vital role in business. It is principle tool to
gain business’s goals. In addition, capital respects business’s relationship related to
economic benefits among enterprises. Capital improve self decision-making for
business when analyzing demand of market such as what will manufacture, how will
manufacture, and to whom in order to achieve highest production. Therefore, capital
is essential for company’s existence and development.
Capital also is a tool to examine business activities of the enterprise: Venture
capital business is a key factor in value. If capital were not preserved and increased
after each cycle of business, it will no longer promote its role and have been
damaged - it is a loss of capital. Capital of the enterprise was a waste to use, will not
be effective will lead businesses to unable to pay and go bankruptcy. Therefore,
management of capital is important part in business production processes, especially
managing efficient use of capital.
16
2.1.4. Factors affected the Efficiency of Capital
2.1.4.1.Objective factors
(i)
Economic Conditions
The economic condition has large effect on the efficiency use of capital. It
influences the funding of the business because of the demand and supply of capital in
the marketplace always changes by times. For example, expectations of inflation will
influence the cost that is paid for capital. Higher rates of inflation erode the values of
investments
and
thus,
investors
will
demand
higher
rates
of
return.
(www.mba.program.org)
(ii)
Economic policies of the State
On the basic of the Law and economic measures, the State creates environment
and corridor for business development and business production activities under the
direction of macroeconomic planning of the country. In Vietnam, business
enterprises are direction under “market-oriented socialism”. With any changes in
current policies are governed array of business activities. The legal documents on
finance, accounting and statistics, on regulations affecting large investment in
business process, especially the regulations on capital allocation mechanism and
evaluation of fixed assets, the deduction depreciation rate appropriate funds may
increase or decrease the efficiency of capital, etc.
17
(iii)
Market Conditions
The fluctuations in the number, price, equipment, raw materials, will greatly
influence the plan of fixed capital, working capital of enterprises. In addition, the
loan interest is also an important influencing factor. Interest on loans affect the
investment costs of the business, changes in interest rates will lead to fundamental
changes of the purchase of equipment investment, fixed assets. The more cost of
capital, the more demand for high rate of return. For example, if we raise capital with
a security that is not highly marketable, investors will require higher rates of return
for the increased risk (www.mbaprograms.org).
At the same time, the strong development of scientific and technical progress has
produced a series of the same type of property with existing assets in enterprises with
more advanced features have made the fixed assets of enterprises wear invisible lead
to fallen in business capital.
2.1.4.2.Subjective Factors
This is the main factor determining the efficiency of fixed capital and thus affects
the efficiency of business capital. This factor consists of several factors with direct
impact to the final-result of business production activities in both the short and long
term.
Therefore, the consideration, evaluation and decision making for these factors are
extremely important. Normally people usually consider the following factors:
18
(i)
Financial Conditions
Any business has efficiency use of capital must has a well financial condition. In
other word, their debts is limited as well as their financial situation is able to pay
their debts. If the level of debt is higher than their obligation that must be paid, the
company could bankruptcy. This is referred to as financial risk.
(ii)
Risks from Capital
An illogical capital investment structure wills relative large impact to the
efficient use of capital. Because the capital invested in unused asset classes not only
is not promoting their useful in business production but also loss gradually
diminished. It leads to efficiency use of capital go down.
In addition, determining of the demand of capital inaccuracies lead to excess or
lack of funds in various stages of business production processes. It also has
negatively affected the operation and efficiency of business capital.
Furthermore, the wasteful use of capital, especially working capital during
production process, the procurement process such as buying materials incompatible
with the process, and not completely utilization of materials have large impact to
manage capital effectively.
(iii)
Production Cycles
This is an important feature to have direct impact on the effective use of capital.
If short-cycle, companies will recover quickly to re-invest capital to expand
19
production and business. Conversely, if long-cycle, business will be an accumulation
of capital and one more burden is debts and payments of interest borrowed.
(iv)
Management Level
The level management organizations, business organizations, internal accounting
of the business is one of major factors affect to efficiency use of capital so directly
influenced management of capital as well. To be effective, the management and
organization’s production structure must orderly and fit smoothly together. For each
mode of production and patterns of production will be affected differently to the
production schedule, methods and processes, and services.
(v)
The level of labor, incentives and material responsibility in the
enterprise
To develop the full potential of technological lines, machines and equipment for
production required business management skills and the equipment used by workers
high. To use the most effective of potential employee, business need to have
motivations as well as equal responsibilities. Conversely, if incentives are not equal,
the provisions are unclear responsibilities will definitely hinder the goal of improving
capital efficiency.
(vi)
Selection of investment options
20
The selection of investment options is one of fundamental influences to the
business performance of enterprises. If business investment in products and services
have good quality, good design, acceptable price the economic obtained will be
greater. In contrast, enterprise products produced poor quality, inconsistent with the
needs of consumers' tastes and products cannot sell will exacerbate the capital
accumulation and of course make efficient use of capital business is reduced.
2.2. CAPITAL MANAGEMENT DECISION MAKING
IN SOEs
2.2.1. Factors affected financial decisions
When making financial decision related to efficiency use of capital, financial
managers must consider six factors consist of flexibility, risk, inflation, income,
control, and timing.
First, flexibility is one of factors affect efficiency use of capital of financial
decision. Most SOEs in Vietnam are lack of the flexibility because they based on
planed decisions for long-term period (may be 3 to 5 years). In addition, in today’s
difficult time enterprises need to minimize their debts but it will also minimize their
capital. Therefore, financial managers need to have flexibility with future financial
decisions based on the business’s current situation.
Second, when making any decision company faced with many types of risk.
When managing capital, leaders usually faced with the risk of financing with the use
21
of debt. There is a limit to how much debt we can use to finance our business. Too
much debt can ultimately lead to bankruptcy.
Third, inflation is another factor to consider in making decision in efficiently
use of capital. The rate of inflation in today’s world is high, it is a good condition to
using debt financing because you will repay less money than original. However, the
rising of inflation caused unstable of political, economy, and social.
Next, income influences the financial decision of the business because it
influence earnings and thus affects return on equity. If we are concerned about
returns to equity shareholders, then our financing decision will need to be adjusted.
Income is also influenced by our ability to take advantage of tax deductions for
interest on debt.
After this, timing is necessary factor in financial decision. Investment in the
right time will make a lot of profit to a project. Nevertheless, sooner or later
investment can cause a loss or failure projects. Financing decisions need to be timed
to take advantage of the marketplace. What type of securities should be sold? When
should they be sold? What length of maturity should be used for debt financing?
Answering those questions will help the managers and leader take the right time to
invest to get biggest profits.
Last but not least, control is one of the most key factors affected to financial
decision to efficiency use of capital. If we have concerns about control over the
organization, then we have to consider how financing will change control. Financing
decisions are connected to either ownership (equity) or creditors (debt). It is
described as agency relationship in agency theory. The most problem of agency
theory is the conflict of interest between the agent and the owners. If there is no
22
balance between their benefits, the company will make losses. Unable to control the
capital management can lead business go into the bankruptcy. As results, control
takes priority consideration in any business.
2.2.2. Roles of SOEs in market economy
There are many notions about SOEs. SOEs is called government-owned
corporation, state-owned company, state-owned entity, state enterprise, publiclyowned organization or government business enterprise which is a legal entity created
by a government to undertake commercial activities on behalf of an owner
government (en.wikipedia.org). A SOE can be either wholly or partially owned by a
government and is typically earmarked to participate in commercial activities
(walstreettape.investopedia.com). According to Michel Rambolt, there are three
criteria in order to determine SOEs: (1) who is directly control SOEs? (2) Whether
sell or not finished products? (3) Whether business’s operations for individual
benefits or company’s benefits? Based on the criteria, Michel Rambolt defines SOEs
are enterprises that are controlled by the government, which is divided into two
categories:
i. Organizations make products, which cannot buy or sell, called
administrative agencies
ii. SOEs manufacture products to create profits consist of two groups:
23
o SOEs operate for interests of whole organization, where
manufacture products are public services
o SOEs operate for a specific interests and run business in
competitive market
Pursuant to the Constitution of the Socialist Republic of Vietnam in 1992 that
was amended and supplemented by the Resolution No. 51/2001/QH10 dated 25
December 2001 of the National Assembly X, meeting session 10; this law governs
law of enterprise (ww.vnbiz.com.vn). According to 2005 Vietnamese Enterprise
Law, State-Owned Enterprise means an enterprise of which 50% of total capital
owned by the state. (Article 4, Paragraph 22).
SOEs have similar characteristics with other types of enterprise in term of
business function, legal status, influenced by economic environment. First, business
function of SOEs included manufacturing, supplying, trading, cooperating, and
consuming goods and services Second, SOEs have legal status. It is the primary
factor to consider the existence of the enterprise. SOEs must have responsible for
their management, financial roles to pay public debts when business dissolution or
bankruptcy. As an individual legal status, SOEs has rights and duties, as well as self
responsibility for their own operations. Third, operations of SOEs have affected by
the economic environment such as high inflation rate, high price, and unemployment.
However, SOEs can be distinguished with other enterprises because of
following characteristics. First, the government owns SOEs and has rights to make
decisions related to business’s operations in order to obtain economic and society
objectives, which the government was planned. Unlike SOEs, other enterprises are
not ownership of the government but they must have legal agreement document by
government to form the business. Second, SOEs run under government management
24
through management system that is controlled by the government. The government
will appoint positions in SOEs. Besides, the government controls strategies, plans,
profits, and payments of the SOEs. Last, assets of SOEs are part of assets of the
government.
In competitive market, SOEs play at special important position because they
are core part of state sectors and the backbone of economic in the country. Roles of
SOEs are represented through their functions. There are three major functions
included function-oriented development of economy, support and service function,
and function-ensured financial strength. First, function-oriented development of
economy represents SOEs must be a pioneer in any state sectors based on
government’s direction as well as integrate with other business in order to
developing together. Second, SOEs is developed to support the development of the
country including all enterprises in the country. Last, SOEs create economic surplus
to whole society when they run business effectively so it is necessary to ensure
financial strength of SOEs.
The government promulgates policy of capital management for the purpose
of strengthen financial independence of SOEs, improve SOEs’ responsibility in
managing and using capital effectively, and ensure interests for labors, managers,
company and the government. SOEs is invested when start up the business or during
the operation of the business. In fact, the government funds SOEs through direct
methods (directly from government budget) or indirect methods (through journal
entries such as transferring capital or borrowing). Based on ability of government
capital, each country will have different capital policy. For example, in France, most
SOEs are funding 100 percent except SOEs have individual development policy. In
Japan, proportion of capital has increasing but the level of management is high. In
25
Malaysia, sources of capital in SOEs will fund 100 percent at the beginning every
year but the company must pay interest based on market value. In Vietnam, the
management of capital in SOEs is specific guideline under the Resolution
62/1999/TT-BCT date 7 June 1999. When management of capital in SOEs the
government needed to manage fixed capital and working capital.
2.2.3. The Decision Making in SOEs of Vietnam
Decision making is one of the most important tasks that manager perform.
Decision-making process is described as the process by which people respond to
opportunities and threats by analyzing options, and making decisions about goals and
courses of action (www.csie.ncnu.edu.tw). Decisions are frequently influenced more
by the environment and structure of the organization than by the method itself.
Therefore, the process of decision-making will be examined in light of environment
factors.
To begin with, social and cultural background is example of environment
factor. Social and cultural background affects the interaction among people involved
in the decision process and provides the culture framework within which they may
comfortable operate. In Vietnam’s SOEs, corruption is seemed as business culture in
Vietnam. In any field, industry, or sector, any business should (must) give a money
which called like a lobby or “rose money” if they want to invest in a potential project
with high expectation of profitability. If they do not have the money or the money is
little than others, they will lose the opportunity to have good projects. SOEs do not
directly affect by the problem because they have priority to choose the best project.
26
However, that does not mean they will choose positive projects. Sometimes, negative
or even loss projects have chosen because of their profitability. As results, SOEs will
have their own decision to bring the best profitability to the leader. Therefore, the
leaders can have shortcomings decision which can lead the business go into
recession.
The next factor influences decision making in capital management is the
structure of an organization. Factors control decision-making process including the
amount of flexibility within an organization, the available resources (facilities,
technology, or fiscal reserves), and the amount of data available. In addition, the
important of the decision made in relation to other problems and responsibilities is
one of primary factors determined decision-making process. In Vietnam’s SOEs, the
Government take control overall the organizational operations through the Chairman
and the Broad of Management of which are CEO and other support directors. SOEs
must make decision follow the Government. However, in general the organization’s
leaders do not obey the decision of Government because they want profit come to
their pockets as much as possible. It is one of problem in agency theory.
Furthermore, in organizational structure of SOEs, the follower members not have
rights to make decisions but they still make decision first then take response after.
This can leads weaknesses and wrongdoings in organizational management of SOEs.
Finally, three other factors also influence the model of decision process in
any business include SOEs when making decisions are time, creativity, and risk. The
managers and leader cannot determine the time, creativity, and risk of a project. It is
most affected by the environment. Therefore, the manager must have well knowledge
about the environment include both competitive advantages of their company and
their rivals, national and international market which has changed every day, and their
27
position in the market to make right decision with have efficient time, creativity, and
minimum risk. It requires managers and leader must well manage.
Summary, decision making is significant task of managers and leaders to
create a profitability company.
2.3. MESUREMENT
OF
EFFICIENCY
USE
OF
CAPITAL
2.3.1. The Need to Improve the Efficiency Use of Capital
Any business is interested in efficient use of capital. It is the significant factor for the
survival and growth of every business. The effectiveness of the use of capital in
general is to create more products that increase profits without increasing capital or
invested more reasonable capital in order to expand the scope to increase revenue
while ensuring requirements profit growth than the growth of capital. Therefore, the
fundamental task of business is to mobilize and use capital effectively on the basis of
principles of financial, credit and compliance with law. Regularly analyze capital and
capital movements will help the state enterprise managers and the agency
acknowledge the situations, causes and extent of influence of each factor to efficient
use of capital of enterprises.
28
2.3.2. Criteria to evaluate Effectiveness of Capital
Vietnamese’s enterprises with equity capital or loan capital, charter capital are
profitable capital, which required paying interests or dividends, or paying tax, and
must recognize capital into account. The question is how much this capital raised is
enough, is reasonable, and is effective for the business production of corporate? On
the other hand, during business production, an enterprise creates products and
services with greater consumption more stable and expand markets, and the
increasing of customers’ demands will need capital as much as possible for business
development. Therefore, if the management of capital is not good it can lead the
enterprise to bankruptcy because of the belief that business was very successful. As
results, to more accurately appraise the effective use of capital in enterprises,
especially SOEs we can rely on “Return-on-Investment (ROI) Ratios”. ROI ratios are
the fundamental key ratios to measure the relationship between profitability and
investment. The common used of different return-on-investment consists of
Liquidity, Leverage, Profitability, and Management Ratios. In this thesis, I
concentrate on several basic ratios appraising the efficiency of capital in the business.
2.3.2.1.Based on Efficiency Ratios
According to many analysts, the key ratio measures the relationship between
profitability and investment is “return-on-investment”. Under the following is the
common used of different return-on-investment.
29
i.
Return on Total Capital (ROTC)
Net Profit after Taxes (Net Income)
ROTC
=
-----------------------------
× 100%
Average Total Capital
This ratio shows the efficiency of capital, that is, how much capital return within the
year. The higher capital turnover, the businesses use their capital more effectively.
ii.
Return on Assets (ROA)
Net Profit after Taxes
ROA =
-----------------------------
× 100%
Average Total Assets
This measures how efficiently profits are being generated from the assets employed
in the business when compared with the ratios of firms in a similar business. A low
ratio in comparison with industry averages indicates an inefficient use of business
assets.
30
iii.
Return on Equity (ROE)
Net Profit after Taxes
ROE
=
----------------------------------
× 100%
Average Stockholders’ Equity
Returns on equity measures how the investment by owner has been efficiently used
by the management to generate profit.
2.3.2.2.Criteria to evaluate firms’ ability to pay short-term debts
Liquidity ratios provide an indication of a firm’s short term financial situation
expressing the extent to which a firm is able to pay off its debts. Liquidity ratios help
financial statement users appraise a company’s ability to meet its current financial
obligations using its existing cash and current assets (David F. Hawkins, Corporate
Financial Reporting and Analysis, 4th edition, chapter 7, p.128). Because of limited
time, in this thesis, I only consider current ratio as the major liquidity ratios.
Current Ratio (CR) =
Current Assets
Current Liabilitie s
Current ratio is the most commonly used measure of short term solvency, as it
provides an indication of the extent to which the company can covers the short term
claims of its creditors by assets that are expected to be liquidated quickly. That
means CR measures the capability of the business to use its current assets to cover its
31
short – term debts. The higher the ratio, the more protection the company has against
liquidity problems. General accept ratio is 2 : 1. Any organization reaches the ratio, it
will strongly able to pay its debts. However, the ratio may be distorted by seasonal
influences, slow-moving inventories, or abnormal payment of accounts payable just
prior to the balance sheet date. Therefore, it can be lower than accepted ratio. When
CR is too low, the business can raise it by paying some debts, increase current assets
from loans or borrowing with maturity equal or greater than 1 percent per year,
converting non-current assets from new equity contributions, and putting profit back
into business. The business should also pay attention to its debtor’s amount since the
debtors balance is considerable high.
2.3.2.3.Criteria to evaluate firms’ ability to pay long-term debts
Financial leverage ratios provide an indication of a firm’s long-term solvency is
solvency ratios, which generate insight into a company’s ability to meet long-term
debt payment schedules. The major financial leverage ratios consist of gearing
(Debt-to-Equity) ratio.
Total Liabilities
Gearing Ratio
=
--------------------Total Assets
32
This ratio measures the economic risk that a firm undertakes. A higher proportion of
debt compared to equity implies higher economic risk, increasing the probability of
defaulting on the debt. The higher the gearing, the more exposed the company in
times of economic difficulty. In times of property, a high gearing will give the
owners a much better return as net profits will be a much higher percentage of equity
after interest payments on the long-term debts. Nevertheless, in difficult times the
owner’s earnings will drop dramatically as interest payments soak up most of the
company’s profits. Accepted gearing ratio is equal or lower than 100 percent. If more
than 100 percent, the business must use mortgage loans.
2.3.2.4.Criteria to evaluate effectiveness of management
Effectiveness of management measures the efficiency of a company in either turning
their inventory, sales, assets, account receivables (A/R) or payables to cover debts.
The thesis will consider on debtor’s turnover ratio as major criteria to assess the
capital management in VINASHIN
Revenue
Debtor’s Turnover (days)
=
--------------------Average A/R
33
A/R
Debtor’s Turnover (times)
=
---------------------
x 365
Revenue
Debtor’s turnover measures the how frequency do the business collect debts from
their credit customers. The shorter debtor’s turnover ratio leads to the better to
collect debts. In addition, debtor’s turnover indicates how well account receivables
are being collected. If receivables are not collected reasonably in accordance with
their terms, management should rethink its collection policy. If receivables are
excessively slow in being converted to cash, liquidity could be severely impaired.
34
CHAPTER 3: RESEARCH
METHODLOGY
AND
This chapter provides approaches to conduct the thesis. In addition, the chapter
introduces methods and strategies have used in this thesis. This thesis uses specific
data which perhaps most completed and complied by the authors with assistance
from research associates at related topic in a special case of VINASHIN. We will
have an overview of the data used in the thesis, then our research methodology will
present.
3.1
RESEARCH OBJECTIVE
Objectives of any research needs to be defined clearly before collection relevant data.
Based on the main topic of this study, some objectives are summarized as follow.

Know a little of capital as well as capital management

Understand the role of capital management in enterprises, especially in SOEs

Realize factors affected to capital management

Have general understanding of the efficiency use of capital

Know how to obtain and use capital effectively

Be able to calculate criteria related to capital and capital management
35

Realize that capital management involve financial decision

Have an overview of the key financial decision

Appreciate situations related to the management of capital in specific case of
VINASHIN, then give solutions.
3.2
DATA SOURCES
The thesis conducts a data set using various sources of information related to capital,
capital management, and the company used to analysis – VINASHIN included
(1) Previous studies related to topic
(2)
press
release
by
firm
available
at
company
website
www.vinashin.com.vn;
(3) Public media analyses collected through our research methodology;
(4) Financial reports of VINASHIN.
(5) Internet sources related to topic
36
3.3
RESEARCH METHODOLOGY
3.3.1 Primary data
Primary data is described as the first-hand research. In other words, it relies on the
project constructing and conducting surveys, setting up interviews with key people in
the media industry or keeping a diary or log of data (known as quantitative
information). Primary data collected to support the specific objectives of this thesis.
Common types of quantitative methodology are survey, experimental, biographical,
and case study. Primary data takes many forms including questionnaire, interviews,
focus group interviews, observations, case-studies, diaries, critical incidents, and
portfolios (brent.tvu.ac.uk).
3.3.2 Secondary data
Secondary data is data that are published by an entity different from the one that
originally collected and published the data. Secondary data bring the general
overview relating to the concept. In this thesis secondary data is collected from
accounting books, studies and researches, which were written by many authors in
different areas in Vietnam as well as in the world. The secondary data includes two
types
of
data:
internal
data
sources,
and
external
data
sources
(www.steppingstones.ca). Internal data sources include data collected within the
company such as financial statements, and other reports. External data sources come
37
from outside company. Those sources can from magazines, books, newspapers,
webpage. In this thesis, our information comes from both internal and external
sources.
Secondary data has brought both advantages and drawbacks to researcher. The
researcher can easily use library or search the internet at laboratory or at home in
order to collecting information. However, the secondary data only help the researcher
understand the framework and theories around the topic, and is not updated
information.
Therefore, in order to develop the research well, this thesis will combine both types
of data (primary data and secondary data).
3.4
DATA COLLECTION
The data set in this thesis is concerned at specific firm – VINASHIN and spans over
the period from 2006 - 2009, thus cover the entire history of VINASHIN as well as
capital management in VINASHIN in particular, SOEs in general.
38
3.5
RESEARCH TOOL
In this project, the research tools to indentify inefficient of capital management
included financial statements, especially balance sheet from 2008 to 2009, and
financial ratio analysis.
Financial ratios are the principle tools for interpreting financial statements. However,
because of incomplete company’s financial statement so the financial ratio analysis is
not sufficient. In this thesis, I only use several financial ratios, which you have
known in Chapter 2.
In addition, subsequent analysis involved in investigation techniques consists of
company visits, library searches, and report reviews.
3.6
LIMITATION OF RESEARCH
First, the data set cannot complete because limited information from reliable sources.
Second, the lack of relevant patterns for the conducting of the data makes it almost
possible to identify problems and solutions.
Other limitations of research are listed as following:

Financial analysis can easily mislead the unsophisticated analyst.

Ratio analysis deals only with quantitative data.
39

Different in accounting practices amount parent company and subsidiary
companies.

Its accounting records are maintained in historical value, so it is affected by
the change in value of money, the inflation, and different periods.

A ratio standing alone has no significant because it is determined by the
industry, company’s management strategy, and the State.

Ratios based on published financial statements and past data; however,
analysts do not believe past data necessarily reflect the current situation or
future expectations of a company.
40
CHAPTER 4: CASE STUDY
ANALYSIS
In this chapter, we will analysis the real case study: VINASHIN (Vietnam
Shipbuilding Industry Group) to clarify the theories above. This chapter includes a
background of VINASHIN as well as its mission statement, and structure of
management team. After that, the chapter introduces financial instruments in
VINASHIN related to capital management consist of weaknesses of VINASHIN in
capital management and solutions for their problems.
4.1
BACKGROUND OF VINASHIN
Name of the company:
Vietnam Shipbuilding Industry Group
Abbreviation:
VINASHIN
Types of business:
State-Owned Enterprise (SOE)
Address office:
109 Quan Thanh Street, Ba Dinh District, Hanoi.
Web site:
www.vinashin.com.vn
Businesses:
Shipbuilding, ship repair, shipping, heavy industry, finance, etc.
41
4.1.1 Short history of VINASHIN
VINASHIN is one of the largest SOEs in Vietnam by capacity, accounting
for
approximately
70
to
80
percent
of
total
domestic
capacity
(www.bairdmaritime.com). VINASHIN has ranked the fifth largest shipbuilding
nation globally in the last five years. It formally known as the Vietnam Shipbuilding
Union was set up in 1972 to consolidate the country’s shipbuilding industry
(www.bairdmaritime.com).
In 2010, VINASHIN has over 160 subsidiaries including 39 shipyards (30
operating shipyards and 9 shipyards under construction) with the capability to build
modern ships up to 150,000 DWT, oil tankers of 105,000 DWT and other equipment.
VINASHIN’s Subsidiaries are located through North to South of Vietnam, in 34 out
of Vietnam’s 64 coastal provinces (www.bairdmaritime.com). VINASHIN also has
established representative offices outside Vietnam such as Germany, Russia,
Australia, Korea, and the USA.
VINASHIN has about 70,000 staffs including 12,500 of which are graduates
and post-graduates, and 55,000 technicians (www.bairdmaritime.com). With more
than 30 years experiences in the shipbuilding industry as well as the long-term and
close relationships with VINASHIN’s subsidiaries and staffs in and outside Vietnam
for supplying our products and services, VINASHIN believe that they can meet
customers’ satisfactions as well as nation’s demands.
42
4.1.2 Group’s Businesses
VINASHIN runs in different fields. The major field is shipbuilding, ship repair, and
shipyards. VINASHIN runs in:

Production of materials, mechanical equipment, electrical, refrigeration,
electronic industry service vessels; Export and Import of mechanical equipment,
parts, accessories, ships and other related goods to shipbuilding industry;

Project planning, trial, production and marketing of products Shipbuilding
Industry; investment consultancy, technology transfer, training and supply of
labor export in the shipbuilding industry;

Services, hotels, marine supply; Logistic Services, ship models, advertising
organization, exploiting the capacity of experimental vehicles new fishery
production; Shipping;

Survey, design, supply installation of automation systems, fire prevention and
fighting;

Business dredging and filling, create and yards, surface construction materials
business construction business infrastructure of industrial zones;

Financing and Banking
4.1.3 Business Strategy and Function
According to Mr. Nguyen Hong Truong, the Chairman, “Our business
strategy is based on plain, common sense principles: hard work, clear vision and
43
value for the clients. In put clients and people first, we also take business ethics,
corporate
governance
and
transparency
of
operations
very
seriously.”
(www.vinashin.com.vn)
Primary task of VINASHIN is the financial investor for its other concerns,
and control the capital holding technology, trademarks and markets of its subsidiary
companies (www.vinashin.com.vn).
VINASHIN play as one of leading SOEs in shipbuilding industry in Vietnam.
It run business for the development of the whole national economy of which building
a strong Government as well as establish itself as leading shipbuilding nation.
4.1.4 Development
VINAHSIN received its first international order in 2000. It recognized as the
first Vietship Exhibition in 2002, and was delivery of first 11,500 DWT vessels. In
2004, there was a US$332.5 million contract from the UK’s Graig Investment for the
construction
of
15
DNV-classed
and
53,000
DWT
bulk
carriers
(www.vinashin.com.vn). In addition, there was US$750 million received from the
inaugural Vietnam sovereign bond issue in 2005.
The major milestone in the history of the company occurred in May 2006
when the Vietnam Shipbuilding Industry Group officially becomes the VINASHIN
BUSINESS GROUP. The Group was delivery of its first 53,000 DWT vessels in
2007.
44
In 2009, VINASHIN received US$12 billion from the contract to build ships,
and US$1.8 billion from delivery of 279 vessels to customers. In the year, it launched
the FSO-05, an offshore storage unit with 150,000 DWT loading capacity, for
PetroVietnam, and the first 4,900 car carriers (www.vinashin.com.vn).
The group grew at annual average growth rate of 35 to 40 percent between
1996 and 2006, and recorded profits year after year (www.bairdmaritime.com). In
2007, the overall value reached more than VND 27,000 billion, which was increase
of 156% comparison with 2006. The turnover reached VND 23,000 billion more than
198% increasing compare to 2006. In 2008, the revenue reached nearly 29 trillion
VND. However, by the end of 2009, VINASHIN’s revenue contributed only 3.3
trillion VND.
However, in June 2010, VINASHIN faced debts totaling about VND 86
trillion while its total assets were worth about VND 104 trillion. The group is on the
verge of bankruptcy, and nearly 17,000 workers have resigned and 5,000 others have
lost their jobs as well as various projects were shutdown and declined (www.
bairdmaritime.com). The causes of the downfall come from the weaknesses and
wrongdoings of VINASHIN leadership’s management including inefficient use of
capital is the major problem caused the downfall of VINASHIN.
45
4.1.5 Organizational Structure
VINASHIN was organized structure model of parent – subsidiary company
with the State holding a major stake, comprised of State-owned and privatized
subsidiaries.
Organizational structure of the holding company consist of: Broad of
Management with the leader is the Chairman, the CEO, function directors,
departments support the Broad of Management, the Broad of Director, and
manufactures belong to the holding company.
Figure 1: VINASHIN’s organizational structure1
1
Vietnam’s Maritime sector, www.export.no
46
Management structure and administration of the whole entire decided by the Prime
Minister include the Board, Chairman, Board of Control Group, Chief Executive
Officer, the Director-General functions and Design chief accountant and the assisting
apparatus. Board of Management of the Group is the direct representative of State
ownership in the Group, Chairman of the Board as the President: Pham Thanh Binh.
Advice and assist for the Chairman are the CEO, and six Chief Officers: Chief
Business Officer, Chief Administration Officer, and Chief Development Officer,
Chief Finance Officer, Chief Technical Officer, and Shipping & Southern
Figure 2: Broad of Management
CHAIRMAN
CEO
Officers:
Chief
Chief
Chief
Chief
Shipping
Chief
Administration
Development
Finance
Technical
&
Business
Officer
Officer
Officer
Officer
Southern
Officer
47
4.1.6 Accounting Policy Adopted
Currently, VINASHIN adopts accounting policy complying with decision No 15
issued by Ministry of Finance. Specifically, some flowing important points are
showing:

Fiscal year begins on 1st January each year.

Chart of account is unified and coded.

Balance Sheet of VINASHIN from 2008 – 2009

Other financial information pressed

Currency used is Vietnam Dong.
4.2
ASSESSMENT OF CAPITAL MANAGEMENT IN
VINASHIN
4.2.1 Overview of Funding situation
The balance sheet of VINASHIN group in 2008, 2009 which audited by KPMG
Table 1: Balance Sheets from 2008-2009
48
(Rounding, VND billion)2
31-12-2009
31-12-2008
TOTAL ASSETS
102,536
93,238
Short-term Assets
50,200
44,991
Cash and cash equivalents
3,642
2,686
Short-term investment
641
686
Short-term Account Receivables
26,139
21,869
Inventory
18,187
15,950
Other short-term assets
1,559
3,798
Long-term Assets
52,355
48,247
Long-term Account Receivables
1,423
1,031
Fixed Assets
42,495
40,549
(including work in progress)
20,041
20,107
Property Investment
342
6
Long-term Investment
3,566
3,931
Other long-term assets
4,507
2,728
LIABILITES AND OWNER’S EQUITY
102,536
93,238
Liabilities (loans)
96,635
88,512
Short-term Liabilities
48,290
43,940
Long-term Liabilities
48,345
44,572
Owner’s Equity
5,900
4,726
Owner’s Equity
4,689
3,552
Minority Interests
1,211
1,174
2
http://vef.vn/2010-10-30-vinashin-nhung-khoan-no-khong-dia-chi
49
As showed in table 1, we have the following total assets
Table 2: Assets Volatility
(Rounding, billion dong)
Total Assets

 (%)
31/12/2007
77,322
31/12/2008
93,238
15,916
20.58
31/12/2009
102,536
9,298
9.97
As showed in table 2, the company’s assets decreased over the years, so the volatility
of total assets is unstable. Assets volatility may be equally with capital volatility.
Therefore, capital can decrease from 2007 to 2009.
Table 3: Capital Volatility
2007
2008
2009
A. Liabilities
70,700
88,521
25.194%
96,635
9.177%
I.
Shortterm
27,000
43,940
62.741%
48,290
9.90%
II.
Longterm
43,700
44,572
1.995%
48,345
8.565%
6,613
3,552
-46.29%
4.698
-99.868%
B. Owner’s
Equity
50
Look at the table 3, the rise of assets from 2007 to 2009 formed from liabilities and
debts while owner’s equity of company decreased. As results, it reduces the ability to
pay quickly and coefficient of self-financing. Further analysis of VINASHIN’s
capital will answer the question of the decreasing in capital but assets still increase as
well as the raise of liabilities.
4.2.2 Forms of funding in VINASHIN
From the above analysis, we see that the capital is unstable over the years. In
the following, I would like to discuss several forms of funding of VINASHIN.
First, most enterprises can raise their capital through trade credit from
supplier, VINASHIN is not an exception. According to literature view, we knew that
trade credits from suppliers was account receivables and advance payments of
company for the supplies. Account receivables in 2009 were 30,562 billion dong
greater 35.23% than 2008, which was 22,600 billion dong. While in 2009, the
account payables were 86,700 billion dong.
Second, companies can increase their capital through loans/liabilities. As
mentioned, total loans (or liabilities) in 2007 were 70,700 billion dong, of which over
43,700 billion dong was long-term loans. (Big debtor named Vinashin unveiled, 1
Apr, 2010. www.intellasia.net). In 2007, a loan of 9,657 billion dong borrowed from
State Bank of Vietnam (SBV) on 22 June. Moreover, other loans come from the
holding company and member firms that borrowed 805 billion dong and 12,866
51
billion dong. Up to 2010, total short-term and long-term liabilities/loans were 72,000
billion dong for purchasing unqualified ships.
Third, bonds are one of way to funding the business. In 2007, VINASHIN
Group re-borrows the international G-bond capital under the application of the Price
Minister with the coupon rate of 6.875 percent pa. In addition, VINASHIN borrowed
about VND 72,000 billion from credit institutions, issuance of corporate bonds, and
other forms included US$750 billion from international bonds and Government
bonds. Furthermore, the funding in the holding company is actually raising capital
for lending and receives profits, which is not legally. It is the results of fallen in
capital management of the group.
Last but not least, investment is the best way to increase company’s capital.
In 2007, the enterprise invested in AirAsia with charter capital of US$30 million as a
joint venture. In 2009, VINASHIN spent 1,467 billion dong to invest in Viet
Insurance. In 2008, the group signed a joint venture agreement with Lion Group of
Malaysia with the charter capital up to US$9,7 which of 26% owned by VINASHIN.
In addition, VINASHIN invested in a lot of sectors not related to shipbuilding
industry.
52
4.2.3 Analysis of efficiency of capital
Just looking at the numbers for 2009, 2008 and 2007 of VINASHIN
(Rounded, VND billion)
Net Profit
Revenue
Total Capital
Owner’s Equity
Total Assets
Current Assets
Account Receivables
Total Liabilities
Current Liabilities
2007
696,900
21,078
7,022
6,613
77,322
18,993
22,200
70,700
27,000
2008
1,028,600
28,853
4,762
3,552
93,238
44,991
22,900
88,512
43,940
2009
-560,000
22,461
5,900
4,698
102,536
50,200
27,562
96,635
48,920
The world economic crisis that is happening has put all industries in difficult
situations, especially SOEs. In 2007, profit numbers have increased fairly well in
comparison to the previous year’s profits. In 2007, VINASHIN has gained 696,900
billion dong in net income greater 331,700 billion dong than the following year.
However, in 2009 there was no more net profit. It was loss 1,682 billion dong over
total revenue of 22,461 billion dong compare with the profit of 1,028,600.
Consequently, VINASHIN was not doing well in 2009. However, the capital and
owner’s equity still increased because the increasing of liabilities and loans created
by VINASHIN for its existence. It is unreasonable and caused downfall and
problems related to capital management of VINASHIN.
Let’s look at the following information of ratio analysis for efficiency of capital to
analyze capital management in the group.
53
Table 3: Ratio analysis for efficiency of capital
ROTC
ROA
ROE
CR
Debtor’s turnover
Gearing ratio
2008
174.58
12.06
202.38
1.02 : 1
1.28 times
290 days
94.93%
2009
-21.83
-5.72
-135.76
1.03 : 1
0.89 times
448 days
94.24%
Return on total capital (ROTC) measures how much capital return within the year.
The ROTA in 2009 worsens over 100% than ROTA in 2008. Therefore, there was no
capital return in 2009 because it was a loss. As results, the business was not using
their capital effectively.
Returns on assets (ROA) measures how the business generates profit with the usage
of assets efficiently. In 2008, ROA shows a 12.46% which shows that for every 100
trillion dong assets used 12,460 billion dong profit is generated. However, in 2009
ROA showed a loss as results of the loss of 1,682 trillion dong. It leads to return of
assets very low or there was no assets return when investment. It results in problem
of unable to use business assets efficient.
Returns on equity (ROE) measures how the investment by owner has been efficiently
used by the management to generate profit. ROE for the year 2009 was loss of 135,760 which shows that for every 100 billion dong the loss is 135,760 billion dong.
The ROE in 2009 was quickly reducing compare with the year 2008. It can show that
the company was not using their capital efficiency.
Current ratio (CR) is one of liquidity ratios which measure the capital of the business
to use its current assets to cover its short-term debts. The CR in 2008 as the same as
54
CR in 2009 which was nearly 1.03 : 1. It means that the enterprise had 1 .03 billion
dong of current assets to meet 1.00 billion dong of its current liability. The fraction is
very small so company may be unable to pay its short-term liabilities using its
current assets. As results, the level of business’s debtors is considerable high which
shows that the business may have high risk.
Debtor’s turnover measures the how frequent do the business collect debts from their
customers. It reduced from 1.28 times to 0.89 times in 2009, which show that the
business takes approximately 448 days to collect debts. That means the receivables
are not collected reasonably as well as slowly. As results, there was a problem in
management of VINASHIN which leads to the downfall of the company.
Consequent, the information was given in the table showed that VINASHIN are
standing in the most difficult time ever. The group must to face with huge debts but it
cannot afford the payment because the return on total capital, return on assets, return
on equity, current ratio, and debtor’s turnover are very low.
4.3
THE FAILURE OF VINASHIN IN CAPITAL
MANAGEMENT
4.3.1 The downfall of VINASHIN
In recent years VINASHIN is experiencing great difficulties, reveals many
55
weaknesses and serious violations: (1) invest in the expansion is too rapid, large
scale, a number of projects approved contrary to planning approval, spread over
many fields and areas, is not related to the field of building and ship repair, in which
many areas of inefficiency, there are many companies and projects heavy losses. (2)
The financial situation facing bankruptcy: According to preliminary data, estimated
loan balance is very large, up to about 86,000 billion dong; debt coming due over
14,000 billion VND loan rates payable on equity is almost 11 times, it is unlikely to
balance cash flow. (3) Production and trading is currently stalled; be lost or reduced
orders; many projects unfinished, not effective. (4) internal situation complicated:
More than 70,000 officials and employees concerned by the reduction of
employment and income; now has about 17,000 workers change jobs or quit; 5,000
workers lost their jobs ; many workers of some factories have paid late several
months salary; etc.
4.3.2 Causes of the downfall
There are subjective and objective causes of the downfall (Ngo Khac Le, Vinashin:
Lessons learned, 23 August 2010, www.bairdmaritime.com). The major cause of
failure is subjective causes because of VINASHIN’s management weaknesses and
wrongdoings with the responsibilities of Broad of Director under the direction of the
Chairman as well as the Group’s leaders.
56
4.3.2.1
Subjective causes
a. Failure in Investment
As announced by the Government, the weaknesses and serious errors, especially
on investment, utilization of capital by Group’s leaders along with other objective
factors heavily impact on VINASHIN. As results, the Group has made a loss, unable
to borrow capital, unable to pay debts, and no capital to operate.
VINASHIN's main function is to focus on developing core competencies of the
shipbuilding industry, but the business has been using large amounts of capital to
widespread investment and it caused giant losses. From 2006 to 2007, total long-term
capital VINASHIN mobilized over 43.700 billion VND. According to reports, the
acquisition of shares in Bao Viet has caused loss of more than 700 billion dong. In
addition, the investment to Lotus ships has created a loss of more than 1000 billion
dong of which 2/3 ships are unable to use. Moreover, from 2006 to 2009,
VINASHIN decided to purchase 25 old vessels used in the amount of over 8.000
billion dong and caused loss of over 550 billion dong.
In the implementation of the project, VINASHIN invest in too many projects in
many different fields of economy, not to focus on the main tasks, and most
investment’s projects are still in progress. According to the government’s inspectors,
VINAHIN has using random and scattered loans so it only meet about 30% of capital
for the needs of the DA; unable to control capital reciprocal. It leads to most DA is
still in progress, caused grant losses with big amount. From 2006 to date,
VINASHIN has signed 85 contracts amount to 58.224 billion dong; however, there
57
are only 15 contract finished account for 12 percent. Up to 2009, VINASHIN has
over 20.000 billion dong and over 50% of which is the working progress.
According to Price Minister, the investment spread, random and not effective are
one of important reasons which leading to reduce in shipbuilding capacity.
Therefore, VINASHIN has been incapable of technical facilities, professional skills,
management skills and financial resources to implement the already signed contracts
with customers. That are reasons caused the downfall of VINASHIN.
b. Fraudulent or dishonest
As announced by the Government, VINASHIN has report incorrect about the use
of capital, investment, business development, expanding more business, and business
productions and activities.
Loss-making, difficulties encountered, but VINASHIN’s leaders were fraud,
failing to report truthfully to the government to take timely corrective solutions.
Losses in 2009 but final report produced complete business plan and profit of 1,000
billion VND. According to balance sheet of the Group in 2009, VINASHIN’s total
assets are 102.536 billion dong of which over 86 billion dong are liabilities and
debts. However, the government inspector indicated this report is not reflecting the
reality of capital and assets, especially the amount payables because there are 34
member units have not yet incorporated with the Group, many elements of debt and
intra-group transactions have been eliminated. Actually, liabilities of the Group are
96.7 billion dong greater 11.053 billion dong than the amount reported by the
58
organization, and more than audited liability of 71 billion dong. According to audit
results, VINASHIN has loss of 1.682,5 billion dong. However, the Minister
determined the actual loss of VINASHIN were 4.985,16 billion dong. In addition,
there was 2.787 billion dong potential loss on cost of production in progress of
canceled shipbuilding contracts; 4.688,09 billion dong as internal account receivable
but unsure who will pay; and 1.033 billion dong as penalty and interest payment for
breach of contracts.
VINASHIN has also false reports to the Government on its chartered capital.
According to data compiled, the charter capital of the Corporation until the end of
2007 was 23,131 billion dong, but the total is reflected in the financial statements of
the Group at that time was 7,022 billion. Thus, the charter capital of the Group in fact
only 31%, compared to the deficit registered capital is 69% (about 17,112 billion). In
December 2009, the charter capital was total 9,455 billion dong while the real
ownership capital was 464 billion dong account for 4.9 percent of the registered
capital volume. ( Tien Phong News).
Over the last 5 years, VINASHIN did not follow the decision of the Prime
Minister. The group has failed in appointment or hiring CEO, and let the Chairman
Pham Thanh Binh continuously as the general CEO for many years. This also leads
to many other violations of the Group in financial management that is accompanied
by a series of mistakes in the new establishment, reorganization, merger of the
member units of the Group consist of 100 enterprises at grade I, 15 enterprises at
grade II and 51enterprises at grade III. In the year 2007 to 2008, VINASHIN has
increased by 200 enterprises, many of which stem from the absence of capacity
building needs major industries, did not meet the capacity of the capital, etc. Mr.
59
Pham Thanh Binh and appointment and appoint his brother, son to the
representatives of the State-owned capital and hold unsuitable positions with their
ability, skill, and knowledge. This demonstrates the dishonesty of VINASHIN is a
systematic, deliberate.
c. Management weaknesses and wrongdoings
As announced by the Government, VINASHIN’s corporate governance power is
very poor because of their management weaknesses, and falling to meet their
requirements.
In corporate governance, financial management, VINASHIN show weakness,
loose an unexpected way, most concentrated in the areas of accounting of major
assets and debt management. According to the accounting report, total investment of
the parent company to subsidiaries in 2007 was 4946 billion, but the parent company
has accounted only 990 billion, and forgets to record on account up to 3.956 billion
dong. On debt management, through assessment, Minister Offices has shown that in
VINASHIN the accounting and handling of the debt was not grounded, incorrect
standard with the amount of 33 billion dong, internal overdue debts nearly 1,300
billion dong. Statistics show that over USD$4 billion of capital losses of VINASHIN
has more than four times the State's stimulus demand package in an effort to recover
from the economic downturn in recent years, and greater 3 times than the total
investment of State’s capital for poverty reduction programs nationwide.
Qualifications of leadership, management of the parent company and their
members in VINASHIN does not meet the requirement of corporate governance of
60
large corporation, especially the top leader is limited in capacity, have expression
irresponsible, arbitrary, self-interest, dishonest reporting, intentional violation of law
in the observance of the provisions of the State, the decision of the Prime Minister to
guide the investment projects, business capital for production, and use of capital and
allocate staffs. Group leader, first of all Board of Management and the top leader
with a direct function of representing the owner has many shortcomings and mistakes
in organization, management and administration, especially in the determination
manufacturing sector, business, organization and management of subsidiaries,
associated companies, conducting construction activities, capital management,
finance, loans and paying debt. In a short time, VINASHIN’s leaders has rapidly
expanding group size, especially open many subsidiaries, associated companies and
open to a number of fields which are not specialized for their primary task. The
Group has delayed construction and operation of charter provisions and other
financial management, including financial management regulations, regulations on
management of construction investment, and economic and technical norms, etc.
The Government Inspector assumes that the downfall of VINASHIN was a part
responsibility of Government Agencies such as the Ministry of Transportation and
Ministry of Finance, several local agencies because of weaknesses and wrongdoings
when represent as the state ownership of the Group, monitoring and checking are
weak, and slow to make effective solutions to handle the problems of the group.
Parent company - VINASHIN Group from 2006 - 2009 has 11 times auditing,
inspection, but inspectors still not fully discover correct conclusion and weaknesses,
serious shortcomings of the group, has not given the corrective measures, prevent
and solve timely and effective, although the media agencies has been early warning
61
and many times public the expression of the difficulties and shortcomings of
VINASHIN.
4.3.2.2
Objective causes
Group model is still in pilot phase, there is no preliminary review and
evaluate effectiveness; institutional mechanisms are lacking or are not synchronized.
The Minister indicated that the Broad of Management of the VINASHIN’s holding
company run by new group model but kept the same rules, the old financial
regulations, and keep the position of Chairman and CEO for many years, etc.
Nowadays, the financial crisis and economic recession over the world in
general as well as the sudden drop in the needs of the global shipbuilding and
shipping industries in particular has recently affected the development of
shipbuilding industry, maritime transport, including VINASHIN (Ngo Khac Le,
Vinashin: Lessons learned, 24 August 2010, www.bairdmaritime.com ). It caused
reduction of 38 percent in new shipbuilding orders, 57 percent in orders of
containerships, and 66% in bulk carries orders compare to the year 2007. In this
difficult times, many shipyards will bankruptcy if they do not have ability to manage
its capital effectively.
62
4.4
SOLUTIONS TO VINASHIN
Today, the cooperation among the Government, Government Offices, and
VINASHIN will help VINASHIN solve their problems. In the future, VINASHIN
must pay all their debts and liabilities. However, in recent times, company can only
play a part of their debt by the help of the government and other organizations. Now,
VINASHIN should accelerate the restructuring process as Government’s advice in
order to effectively overcome VINASHIN’s weaknesses and violations.
On August 12, the Prime Minister established a committee to restructure
VINASHIN. The committee’s task is to study the situation and propose policies and
other remedies for VINASHIN, as well as to organize the implementation of these
policies and measures to enable it to stabilize and develop its business (Ngo Khac Le,
Vinashin: Lessons learned, 24 August 2010, www.bairdmaritime.com). Restructure
of VINASHIN aims to reducing their debts, restoring capital, and minimum losses.
To prevent the negative effect from VINASHIN to the national economy and foreign
investment, the Government will ensure sufficient capital to VINASHIN to pay off
mature foreign debts. And VINASHIN will restructure loans and debts when
complete projects under the supervision of the Government.
Re-define VINASHIN’s development strategy and narrowing its scope are
the primary task when restructure the Group. Major strategy of VINASHIN in recent
years is continue to promote the results achieved over many years of the enterprise,
reaffirm the mechanical engineering industry is a key sector in the strategy of
industrialization and modernization of the country, shipbuilding industry and ship
repair industry is economic key to develop maritime industry and implementation of
Vietnam’s maritime strategy up to 2020 and subsequent years. When restructure,
63
VINASHIN continue develop based on those strategy. The “new” VINASHIN will
focus on three main sectors consist of shipbuilding and ship repair with suitable
scale, supporting industries for the shipbuilding and ship repair, and training and skill
enhancement for staff and workers of shipping industry. After restructure, the “new”
organizational structure of VINASHIN will continue remain 43 enterprises and
reduce 216 enterprises; total labor of 26,660; total assets of 68,234 billion dong; and
total liabilities of 53,054 billion dong. In addition, during VINASHIN’s restructure,
the organization will focus on several projects and restructure some incomplete
projects. According to restructure plan, up the year ended 2010; VINASHIN will
complete 57 ships with the amount of 573 billion dong and expected to supply over
75 vessels with the amount of 15,600 billion dong in 2011. Under the restructure
plan, VINASHIN is trying to reduce the unemployment workers as much as possible.
Therefore, “new” VINASHIN focus on remain staffs to enhance their level of
professional skills into company’s major shipyards, and coordinate with the
Federation of Labor, Department of Labor, and Invalids and Social Affairs to
allocate suitable jobs for their employees - Vietnam Business New.
Another task of VINASHIN when implementing restructure plan is pay their
debts and liabilities as much as possible. Transfer or privatize the group’s affiliates,
and reschedule local and foreign credits is one way to deal with VINASHIN’s debts
and cover its capital. For example, according to Vietnam Financial Review a number
of its ship- building yards, shipbuilding industrial zones, and maritime transportation
companies will be handed over to the Vietnam National Oil & Gas Group
(PetroVietnam) and the Vietnam Shipping Lines Industry Corporation (Vinalines),
who will have responsible to pay debts for VINASHIN. In addition, in order to
arrange full capital payment, VINASHIN is trying to negotiate with creditors to have
64
more time for their payment deadlines. Moreover, the Group also continues negotiate
with vessel owners to lengthen the completion deadlines in order to complete its
projects and have money to pay the debts. Furthermore, VINASHIN is trying to
attract investors through several potential units, which easy to sell. As results, there
are several investors accept to purchase company’s units. Besides, when becoming
Limited Organization as restructuring plan, VINASHIN will receive additional
charter capitals from the Fund's charter business support arrangements as well as
arrangements by the Government promised to continue issuing bonds to restructure
VINASHIN’s debts and implementation several work-in-progress projects. Pumping
more money into VINASHIN for the purpose of improving the debt-capital ratio is
too high, an indication of poor business performance. As results, the capital
management is not effective.
In short, it is clearly needed to restructure VINASHIN under the creditor’s
perspective. However, other State-owned economic groups in Vietnam expanded
their investment activities outside of their core business so it can lead to the similar
situation as VINASHIN if they are lack of concentration from the Government as
well as mistakes from companies’ management. It would be the government's burden
when implementing Restructuring VINASHIN because other groups will expected
have the same assistance. Therefore, the Government must careful consider all
situations can occur when Restructuring VINASHIN. The best ways is implementing
the restructuring step by step with review and revise the results of restructuring to
whether continue next step.
65
CHAPTER 5: CONCLUSION AND
RECOMMENDATION
This chapter concentrates on discussion of the results collected in the previous
chapter. As far as concern, recommendation for capital management of VINASHIN
and draw experiences with other State-owned Enterprises.
4.5
CONCLUSION
The organization, management, and capital efficiency is a matter of time
urgency, are vital to businesses existence especially in the absence of capital for
economic development like Vietnam. Management and use of capital efficiency will
contribute to improving production and business efficiency, increase profitability,
increase accumulation ability, helping expand business’s reproduction, perform
duties with the State, and enhance living standard of employees.
In recent years, when Vietnam’s market has become a market-oriented socialist,
the improvement of efficiency use of capital is the key of existence and development
of any organization, especially State-owned Enterprises (SOEs). With a certain
amount of capital, to improve the efficiency use of capital enterprises must be
combined harmoniously between the efficiency of the capital with the conditions of
the business.
66
Nowadays, SOEs plays important role in economic sectors of Vietnam’s
economy. Nevertheless, actually SOEs have not been implemented well its roles and
responsibilities. One of proofs for the absence of SOEs’ roles and responsibilities is
low business efficiency with the loss of various SOEs. In addition, SOEs has not
been done well their duty to preserve and develop the capital.
From the study of basic theories of capital and capital management, the factors
affect company’s capital management, and problems of capital management; the
thesis deeply research the status of capital management in VINASHIN. From the
research, the capital management of VINASHIN is very poor. It means that there is
inefficiency use of capital in VINASHIN that leads to the downfall of VINASHIN in
recent years because of their huge debts which are unable to pay without help from
the Government Ministers, Government Offices, and other organizations.
4.6
RECOMMENDATION
With the knowledge and insight gained from the study, several recommendations
can be suggested in relation with Vietnam Shipbuilding Industry Group
(VINASHIN).
First, promote the processing of violations at VINASHIN because of
management weaknesses and wrongdoings. For example, the management structure
of VINASHIN must review their mistakes. The Prime Minister can reposition of
Broad of Management of VINASHIN, especially the Chairman – Mr. Pham Thanh
Binh, who have most serious responsibility for the downfall of the Group.
67
Second, it is needed to recovery of debts from VINASHIN. It is the most
difficult job. However, with the help of the State, Government Offices, and other
organization; the Group is in the progress to full payment its debts. For example, the
Government continues give loans to VINASHIN with preferential interest rate to
compete projects. Besides, the Government supports a non-refundable fund to pay
VINASHIN’s foreign debts.
Third, restructuring VINASHIN is the best way to deal with current situation of
the company. Under the restructuring plan, the Group will focus on their three main
core business consists of shipbuilding industry, ship repair industry, and supporting
industry for shipbuilding. In addition, VINASHIN will reduce their number of
subsidiaries as much as possible during the restructuring plan. That means
VINASHIN will focus on seven units included: 3 Corporations (Pha Rung, Nam
Trieu, and Bach Dang) and 4 Limited Companies (Ha Long, Cam Ranh, Saigon
Shipbuilding Industry Limited Company, and Saigon Shipbuilding and Marine
Industry Limited Company).
Last but not least, from the case of VINASHIN, other enterprises especially
SOEs have drawn their experiences. They should focus only on their core business,
prevent to scattered investments. In addition, SOEs should consider on their
management policy as well as the activities of leaders to prevent problems from
management weaknesses and wrongdoings.
68
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69
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22. http://mats.hotbox.ru
23. http://www.bcsschool.kiev.ua
24. http://www.saidin.com
25. http://www.vnbiz.com.vn
70
26. http://www.vneconomy.com.vn
27. http://www.essaychief.com
28. http://www.kosmix.com
29. http://www.bfi.org.uk
30. http://fc.bethany.edu
31. http://www.nhandan.org.vn
32. "Vietnam: Gov't plans to restructure Vinashin.", Thai Press Reports, August 6
2010 Issue
33. http://www.nzica.com
34. http://smartcmns.com
35. http://www.aaps.k12.mi.us
36. http://coursgratuits.net
37. http://www.dcs.shef.ac.uk
38. http://textbooksonline.tn.nic.in
39. http://www.andreabiancalani.it
40. http://www.asb.co.za
41. http://metaprocess.ru
42. http://www.manbw.com
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72
APPENDICES
1. Calculation of Asset Volatility
1
2
3
4
5
B
Total Assets
2007
2008
2009
77322
93238
102536
C
D

 (%)
=C4-C3
=C5-C4
=D4/C3
=D5/C4
2. Calculation of Capital Volatility
B
2
C
D
2007
2008
E
F
G
2009
3
A. Liabilities 70700
88521
=(D3-C3)/C3 96635
=(F3-D3)/D3
4
I.
term
43940
=(D4-C4)/C4 48290
=(F4-D4)/D4
44572
=(D5-C5)/C5 48345
=(F5-D5)/D5
3552
=(D6-C6)/C6 4.698
=(F6-D6)/D6
5
6
Short27000
II.
Longterm
43700
B.
Owner’s
Equity
6613
73
3. Calculation of Ratio Analysis
1
A
2
B
C
D
2007
2008
2009
3
Net Profit
696900
1028600
-560000
4
Revenue
21078
28853
22461
5
Total Capital
7022
4762
5900
6
Owner’s Equity
6613
3552
4698
7
Total Assets
77322
93238
102536
8
Current Assets
18993
44991
50200
9
22200
22900
27562
10
Account
Receivables
Total Liabilities
70700
88512
96635
11
Current Liabilities 27000
43940
48920
2008
2009
=(D3*2)/(C5+D5)
=(D3*2)/(C7+D7)
=(D3*2)/(C6+D6)
=D8/D11
=(D4*2)/(C9+D9)
=(D9/D4)*365
=(E3*2)/(D4+E4)
=(E3*2)/(D7+E7)
=(E3*2)/(D6+E6)
=E8/E11
=(E4*2)/(D9+E9)
=(E9/E4)*365
ROTC
ROA
ROE
Current Ratio
Debtor's Turnover (times)
(days)
74
75