18 WORKING CAPITAL MANAGEMENT AT NIER FINE WINES VIETNAM COMPANY LIMITED

MINISTRY OF FINANCE
ACADEMY OF FINANCE
----------

GRADUATION THESIS
TOPIC:
WORKING CAPITAL MANAGEMENT AT NIER FINE
WINES VIETNAM COMPANY LIMITED

Major : Corporate Finance
Student: Phạm Thị Thu Thảo
Code : 11
Student ID: 17523402010778
Lecturer: MA Nguyen Thu Thuong

HA NOI – 2021


Graduation Thesis

Academy of Finance

DECLARATION
I hereby undertake that this is my own research project, with the
enthusiastic help of Master Nguyen Thu Thuong. The figures and results in
the thesis are honesty deriving from the actual situation of the internship unit.

Signature of author

Pham Thi Thu Thao

Pham Thi Thu Thao

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Academy of Finance

TABLE OF CONTENTS

LIST OF ABBREVIATIONS
COGS

Cost of goods sold

BEP

Basic earnings power

EBIT

Earnings Before Interest and Tax

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ROA

Return on assets

ROE

Return on equity

ROS

Return On Sales

WC

Working Capital

LIST OF TABLES
Table

Name

Page

1

ORGANIZATION OF THE ACCOUNTING APPARATUS

52

2

THE FLUCTUATION OF ASSET, CAPITAL 2019-2020

60

3

THE FLUCTUATION OF REVENUE, COST AND PROFIT

62

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2019-2020

4
5

FINANCIAL INDICATORS

65-66

WORKING CAPITAL AND DISTRIBUTION OF

70

WORKING CAPITAL 2019-2020

6

WORKING CAPPITAL FINANCING 2019-2020

75

7

WORKING CAPITAL STRUCTURE 2019-2020

78-79

8

CAPITAL STRUCTURE IN MONEY 2019-2020

82

9

CAPITAL STOCK MANAGEMENT SITUATION

84

10
11

STRUCTURE AND FLUCTUATION OF ACCOUNTS

87

RECEIVABLE
THE SITUATION OF RECEIVABLE DEBT

90

MANAGEMENT

12

THE SITUATION OF DEBT 2019- 2020

13

PERFORMANCE WORKING CAPITAL2019- 2020

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92
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LIST OF DIAGRAM
Diagram

Name

Page

Diagram 1

Characteristics of working capital

8

Diagram 2

The classification of capital

9

Diagram 3

First funding model

17

Diagram 4

Second funding model

18

Diagram 5

Third funding model

18

Diagram 6

Diagram of the company's management apparatus

49

Diagram 7

The company’s sales process

56

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ACKNOWLEDGEMENT
I would like to express my utmost gratitude towards all the people who
have supported me to complete this graduation thesis. Sincerely thanks to my
teachers, my supervisors at work and all other colleagues.
First of all, I want to send my special thanks to my instructors also being
my class’s academic advisor, Master Nguyen Thu Thuong – lecturer of
Academy of Finance, who put all her effort in supporting and guiding me.
Thanks for all her comments, guidance, and advices that contribute
significantly in the completion of my graduation thesis.
Secondly, I want to send my gratitude to all staff in Nier Fine Wines
Vietnam Company Limited, who have supported me during the internship
report. Thanks for their helps, I have obtained a lot of experiences, knowledge
in finance and also been able to access to all the materials of the company.
Last but not least, I want to say thank you to all the lectures of Academy
of Finance, who have been working hard to enrich our knowledge, giving us
lessons to function well in the future. Gratefully thanks to all their support
helping and teaching during four years.

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ABSTRACT

This graduation thesis is about the use and management of working
capital of Nier Fine Wines Vietnam Company Limited in 2019-2020. After
analyzing and assessing the working capital needs of the company over the
aforementioned 2 years, I will give some assessments of the strengths and
weaknesses of the business. In addition, in the conclusion, I will try to give
some solutions for businesses to apply in the future.

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INTRODUCTION
1. Rationale of the study
Each enterprise is a cell of society, an economic organization that carries
out production and business activities, and supplies goods to consumers through
the market for profit purposes.
In today's market economy, any business activity requires capital.
Depending on specific business characteristics, the capital structure has some
differences to some degree. In order to survive and develop, businesses need to
pay attention to creating, using and managing capital in the most effective way
as well as the lowest cost of capital but without affecting business results.
Vietnam's economy is in the process of transition and operating under the
market mechanism, opening up, and integrating with the global economy. For
Vietnamese businesses, this has a positive impact on their ability to expand their
market, encroach on other markets in the region as well as the world. But
besides that, integration also poses challenges for import-export enterprises of
Vietnam. And especially at this time, the economy is still in a difficult period,
businesses are still struggling to find output for their manufactured products, the
organization and management of capital is always an issue that poses many
challenges for business leaders.
Working capital is part of general capital. In the capital structure, if fixed
capital is compared to the backbone of a living organism, working capital is
considered as the lifeblood of that living organism, and here, the living
organism is the business. Because of the cyclical, continuous movement
associated with the business production cycle of the business, working capital

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becomes especially important, and is a decisive factor to the scale of business
production. Therefore, working capital management for an enterprise is a
prerequisite factor determining whether that enterprise effectively does
business or not.
There has been much research on working capital, but for each type of
business, with different environmental conditions and business fields, the
requirements for working capital management are different. With the
continuous development of the market economy, the problems that rotate
effective working capital management are different from day to day.
With the knowledge I gained at the academy together with the practical
internship at Nier Fine Wines Vietnam Company Limited , I have chosen my
graduation thesis topic as: “Working capital management at Nier Fine Wines
Vietnam Company Limited”.

2. Purposes and Research questions
Researching the current situation of working capital management at
Nier Fine Wines Vietnam Company Limited from then proposing a number of
financial solutions to enhance the management of working capital in this
company.
3. Scope of the study
The research focuses on the working capital management of Nier Fine
Wines Vietnam Company Limited in 2019 and 2020.

4. Data and Research methodology

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-The main research method used is the method of comparing, statistics,
synthesizing data, evaluating the level of influence and fluctuation trend of the
indicators and other methods: Factor analysis,differential number method ...
-The methodology of the topic is the system of principles and views of
Marxism-Leninism; has the effect of directing, building methods, determining
the scope, the ability to apply methods and orienting the research, discovery as
well as the selection and application of methods.
5. Thesis structure
In addition to the introduction, conclusion, and references.
There are 3 chapters:
Chapter 1: Theoretical background of working capital management of a
company.
Chapter 2: Situation of working capital management at Nier Fine Wines
Vietnam Company Limited.
Chapter 3: Solution to improving the working capital management at Nier
Fine Wines Vietnam Company Limited.

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CHAPTER 1: THEORETICAL BACKGROUND OF WORKING
MANAGEMENT OF A COMPANY
1.1 Working capital and financing working capital
1.1.1 Definition and features of working capital
First, to understand how the working capital of the business, we need to
define how enterprises. Enterprise is an organization that has a name economy,
assets, transaction-based stable, and perform business activities as prescribed by
law for the purpose carry out business activities. In which, business is the
continuous implementation of one, some or all of the stages of the investment
process, from the production to the sale of products or provision of services in
the market for the purpose of profit.
The first concept of working capital could be coming from Karl Mars
in 1914, though in a somewhat different form, and the term he used was
“variable capital”. Adam Smith, in 1976, mentioned it again, as he started that
“The capital can be employed in two different ways. First it can be used to buy
and then resell goods or labor, which is called circulating capital. The second
type is for improving the land or buying machinery, and is called fixed
capital”

Even though the term “circulating capital” is not completely
homogeneous, Smith’s definition is still on of the basic foundation to develop
definition of working capital. In an attempt of point out the problem in Smith’s
theory, Lowe, a German economist had come to the term “working capital”, the
term that he said “is one of the neglected issues in neoclassical literature”.

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Hence Lowe’s distinction between fixed capital is according to this
terminology the stock of the unfinished goods which correspond to the output of
the stages of each sector.
Ross and his fellow-worker (2009) introduced the definition of working
capital: “The term working capital refers to a firm’s short-term assets, such as
inventory, and its short-term liabilities, such as money owed to suppliers” .

However, the above concept has not yet provided an exact formula for working
capital, but it does imply that working capital includes short-term assets and
short-term financing for that asset. Berk and his colleagues (2012) had the same
idea but they can add comments. Therefore, working capital management will
involve short-term items such as cash and cash equivalents, inventories, and
receivables.

In order to conduct production and business, many companies must have
a certain amount of money to use for the purchase of production equipment for
business such as machinery, equipment, raw materials used in the process
production, etc. The monetary capital that the enterprise uses to purchase to
form this business asset is called the business capital of the enterprise. in which,
the business capital used to buy fixed assets (long-term assets) is called fixed
capital. Besides, the remaining business capital used to buy working assets
(short-term assets) is called working capital of the business.
Different from fixed capital, working capital of enterprises has different
characteristics. Those characteristics are:
-Working capital with fast rotation
- Only engaged in a business process due to the short use of working
assets
- The manifestation form of working capital through the production and

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business periods is always changing: from the original monetary form converted
to raw materials, goods stored in stock, unfinished products, semi- finished
products, the finished product then finally transformed back to its original
monetary form.

-The value of the labor material is transferred in whole, once to the value
of goods and services produced and compensated when the enterprise receives
money from selling products, goods and services.
Thus, from the above analysis, we have the concept of working capital:
“Working capital is a number of capital that an enterprise applies to form current
assets to ensure business process. of the business is done regularly and
continuously. Working capital transfers all of its value in one go and is fully
recovered, completing a rotation at the end of a business cycle”.
Another definition, it can be said: “Working capital is the total amount
of money spent in advance to invest in necessary current assets for the day-today company operation”. In other words, working capital is the monetary

expression of current assets of a company.
During the business process, working capital of the business often moves
through many different forms at a certain time, with working capital parts
coexisting under different forms in the stages that capital goes through. The
process of business activities of the business takes place continuously, repeating
cyclical nature, creating a movement of working capital.
Working capital is rapidly circulating because working assets have a short
useful life.
The expression pattern of working capital always changes through stages
in the production and business process. To complete a rotation, working capital
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goes through three phases: the production reserve phase, the production stage,
and the circulation phase. The working capital turnover cycle can be
summarized through the following diagram:
T - H ... production ... H '- T'
• Production reserve period: Cash capital is converted to material reserves
(T - H).
• Production stage: Material is converted from reserve materials to
unfinished products, semi-finished products and turned into finished products
(H - H ').
• Circulation phase. Working capital is converted from semi-finished
products, finished goods, goods into money (H '- T').
- The value of working capital is transferred wholly and once into the
value of produced goods and services and compensated when the enterprise has
received the proceeds from the sale of such products or services. Thus, at the
end of a business and production cycle, the working capital of the enterprise can
also turn around one round.
- The movement process of working capital is a closed cycle from one
form to another and then back to the original form with a value greater than the
initial value. The working cycle of working capital is the basis for evaluating the
solvency and efficiency of production and business, efficiency of capital use of
enterprises.

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Diagram 1: Characteristics of working capital

1.1.2 Classification of working capital
In a business, the organization and management of working capital plays an
important role. It can be said that working capital management is an important
part of the financial management of the business. Working capital management
aims to ensure the rational, economical and effective use of working capital.
The more effective an enterprise uses working capital, the more products it can
produce, which means the better it can organize the procurement, production
and consumption process. There are many types of working capital that
participate in a production and business cycle and often change physical form.
Therefore, in order to manage working capital well, one must classify working
capital according to the following criteria:

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Working Capital

Based on the
manifestation pattern of
Working Capital

Based on the role of
working capital

Capital

Capital in

Working

materials

cash and

capital in

and

accounts

production

goods

receivable

reserve

Working

Working

capital in

capital in

production

circulation

Diagram 2 : Classification of working capital

- Based on the manifestation form of capital, working capital can be
divided into:
• Capital materials and goods: including inventories of raw materials,
work in progress, semi-finished products, and finished products.
• Cash and receivables: including cash at the fund, bank deposits,
receivables ...

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This classification helps enterprises to evaluate the level of inventory, solvency
and liquidity of investment assets in the business.
-Based on the role of working capital in the production and business
process, working capital is divided into three categories:
• Working capital in production reserve, including:
+Capital of main raw materials: The amount representing the value of
materials reserved for production, when participating in production, it
constitutes the entity of the product.
+Capital of auxiliary materials: Is the value of reserve materials used in
production for the formation of products but not constituting the main entities
of the product.
+Fuel capital: The value of fuel reserves for the production of products.
+Spare parts capital: The value of spare parts for replacement each time
a fixed asset is repaired.
+Tools and tools capital: is the value of small labor materials with low
value, short period of use, not qualified as fixed assets.
• Working capital is in production, including:
+Capital of semi-finished products: is the value of products that have
completed one or several stages of the production process and can be sold.
+Work in progress: is the value of unfinished products that are still on the
production line.

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+Prepaid expenses: Expenses are spent in the period but effective in
many production periods. Therefore, it is not calculated once in the price in the
period, but it will be gradually included in the next period's cost.
• Working capital in circulation, includes:
+Finished product capital: Is the monetary expression of the amount of
products stored and prepared for consumption.
+Capital in payment: is the receivable, advance arising in the process of
buying and selling materials, goods or internal payments.
+Capital in money
+Short-term investment capital.
This classification shows the role and distribution of working capital in each
stage of the production and business process, thereby selecting a reasonable
capital structure arrangement, ensuring the balance of production capacity.
between the stages in the production and business process of an enterprise.
1.1.3 Sources of finance for working capital
There are many ways to mobilize labor capital in enterprises, each source
has certain advantages and disadvantages. Therefore, to have the choice of
mobilization form suitable to the situation of the business in each period, it is
required that enterprises must have a classification of capital formation sources.
Based on certain criteria, working capital of enterprises is divided into different
categories. However, to be close to reality, in the research topic, we only
mention how to classify the source of working capital based on the time of

capital mobilization and use of capital.

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Based on the time of mobilizing and using capital, working capital is
divided into: net working capital and temporary working capital.
Net working capital (NWC): is the sum of stable and long-term capital
that an enterprise can use to form the necessary regular working assets. In order
to ensure that the production and business process is conducted regularly and
continuously, for a certain business scale, there must often be a certain amount
of liquid assets in the rotation stages such as reserve assets for raw materials,
work in progress, semi-finished products, finished products, and receivables
from customers. The regular working capital of an enterprise at a time is
determined as follows:
Net working capital

= Long – term capital

- Long – term assets

= Short – term assets

- Short – term liabilities

Temporary working capital: Is a source of short-term (less than a year)
nature that an enterprise can use to meet temporary and irregular needs arising
in the production and business activities of enterprise. This fund usually
includes: short-term loans, trade payables, other payables ...
Each business has a different way of coordination between regular working
capital and temporary working capital to ensure the general needs of working
capital of the business.
The above classification helps administrators to consider and mobilize
appropriate resources with the reality of the business to improve efficiency in
using and organizing capital sources.
Temporary capital

=

Total working capital

-

Working capital frequently

Moreover, working capital can also be divided into various types based on
balance sheet view and operating cycle view.
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Balance sheet view divides Working capital into Gross Working capital
and Net Working Capital and the operating cycle view divides the working
capital into permanent and temporary working capital. Permanent Working
Capital is further dividend into seasonal and special Working Capital whereas
temporary Working Capital into regular and reserve Working Capital.
- Gross Working Capital is all the current asset in the balance sheet of a
company are known as gross Working Capital. Current assets are those
short- term assets which can be converted into cash within a period of
one year.
- Net Working Capital is a very frequently used term. There are two ways
to understand net Working Capital. First, one says it is simply the
difference between current assets and the current liabilities on the
balance sheet of a business. The other understanding discloses little
deeper or hidden meaning of the term. As per that, net Working Capital,
it is that part of current assets which are indirectly financed by long-term
assets. Compared to gross Working Capital, net Working Capital is
considered more relevant for effective Working Capital financing and
management.
-Permanent Working Capital is the minimum amount of Working Capital
that must always remain invested. It is typically a combination of cash, stock
and account receivables that is always locked in. necessary for daily operation
and the existence of the business, these funds are drawn from long-term sources.
It is sometimes also referred as fixed Working Capital or hardcore Working
Capital. Permanent Working Capital implies that the base investment amount in

all types of current resources which is always respected to carry on business
activities. The value of current assets has been increased or decreased over the

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period. Even though, there is always a need of having a minimum level of
current assets in order to carry on the business activities effectively.
- Variable Working Capital fluctuates frequently due to various factors and
requirements of the business. These funds are drawn from short-term sources. It
is also known as Fluctuating or Temporary Working Capital. There is a close
relationship prevailing between temporary Working Capital and the level of
production and sales. There is no uniform production and sales throughout the
year. If the heavy order is received for production and there area lot of credit
sales, there is a need of more amount of temporary Working Capital. At the
same time, if production is carried on in anticipation of demand in near future,
temporary Working Capital is required. In the nutshell, temporary Working
Capital is an extra Working Capital required to support the changing production
and sales activities. It is kept for contingencies which may arise due to
unexpected situations.
-Regular Working Capital: the minimum amount of Working Capital to be
maintained in normal condition is called Regular Working Capital. It is the

permanent Working Capital which is normally required in the normal course of
business for the Working Capital cycle to flow smoothly.
1.2 Working capital management
1.2.1 Definition and objectives of working capital management
In the context of a market economy with the State's macro regulation,
business operations of enterprises need to be flexible to adapt to an increasingly
difficult and fierce competition environment. To survive and grow a business
needs to be profitable, so corporate managers need to understand the factors that
influence, the degree and trend of each factor's impact on business results.

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Administrators need to have the capacity and expertise to analyze and make
decisions to use resources in the business in the most beneficial way. Therefore,
the management of working capital of the business is extremely important.
Working capital management of an enterprise means selecting, making
decisions and organizing the implementation of decisions to exploit, create,
allocate and use working capital in an enterprise in a way that is economical and
efficient. most effectively, in order to ensure that the production and business
processes are conducted normally, continuously, economically and effectively.
Working capital management is a part, is the most important content of

corporate governance, affecting the production and business process of
enterprises.
* Working capital management goals of the business :
Working capital management aims to make the working capital of the
enterprise the most economical and efficient use, contributing to improving the
business performance of the business. Effective working capital management
reflects the level of exploitation, use and management of working capital in
business operations. Working capital management has an impact on the
existence and development of a company. per business.
Effective working capital management will help businesses:
• Be proactive in the shortage of working capital, thereby giving measures

to prevent or minimize possible damage.
• Minimize dependence on banks and credit institutions, save financial

costs and prevent risks.
• Proactively use working capital in a flexible way to make full use of the

company's resources.
• Ensuring the regular, continuous, uninterrupted process of production

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and business due to insufficient working capital put into production and
business or waste of excess working capital.
1.2.2. Contents of working capital management
1.2.2.1. Determining working capital needs and working capital financing
a. Working capital needs of the company:
*Definition:
The production and business activities of the enterprise are conducted
regularly and continuously. In that process, it always requires enterprises to
have a necessary amount of working capital to meet the needs of purchasing
supplies and reserves, offset the difference between receivables and payables
between enterprises and customers, ensuring that for business production and
business processes to be conducted normally and continuously. That is the
regular and necessary working capital needs of the business.
Or to put it another way: "The working capital demand of an enterprise is
the minimum capital needed to ensure regular and continuous business
operations."
It can be determined by the following formula:
WC requirement = Inventories + Accounts Receivables – Accounts
Payables
The selection of funding for working capital is also the enterprises
choosing its capital financing model. There are three types of capital financing
models as follows:

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Model 1: Fluctuation current assets are financed through short-term funds
whereas permanent current assets and non-current assets are financed with longterm sources.

Diagram 3: First funding model

* Advantages:
+) Help businesses limit risks in payment with a higher safety level.
+) Reduce the cost of financing.
* Disadvantages:
+) Inflexibility
+) Enterprises often have to maintain a large amount of regular capital
even if it is difficult to reduce the scale of business
Model 2: Long-term funds are used to finance not only non-current assets
and permanent current assets but also some fluctuation current assets:

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