Analyzing and planning financial management at garmex saigon company

--~

HO CHI MINH CITY UNIVERSITY OF FOREIGN LANGUAGES
AND INFORMATION TECHNOLOGY (HUFLIT)
SCHOOL OF FOREIGN LANGUAGES

Cc>oi!lJl~

THEME:

ANAL YllNG AND PLANNING
FINANCIAL MANAGEMENT
AT GARMEX SAIGON COMPANY

ADVISOR
STUDENT
CLASS

: NGUYEN THI QUYNH, MSBA
: VO THUY VAN KHANH
: KA9602

HO CHI MINH CITY
JULY, 2000

-- -~~

,..----- ----


~

~~

HO CHI MINH CITY UNIVERSITY OF FOREIGN LANGUAGES
AND INFORMA TION TECHNOLOGY (HUFLIT)
SCHOOL OF FOREIGN LANGUAGES

&ailleoG\

~~~fE))~~T![fJi~l~~~e~

THEME:

ANALYllNG AND PLANNING
FINANCIAL MANAGEMENT
AT GARMEX SAIGON COMPANY.

ADVISOR
STUDENT
CLASS

i

: NGUYEN THI QUYNH, MSBA
: VO THUY VAN KHANH
: KA9602

r";:"OOFurJ
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kif'

[1 1 ::; 'i
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HO CHI MINH CITY
JULY, 2000
~

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ACKNOWLEDGEMENTS
First of all, I gratefully acknowledge my deep indebtedness

to Ms Nguyen Thi Quynh, who

advised, provided materials for my study, reviewed and made comments on present paper.
I would also like to thank President Huynh The Cuoc, Dean Luong Thi Ly, Vice Dean Le
Thi Thu Hang for their helpful comments and advice.
In addition, I wish to express thanks to Chief Accountant Nguyen Thi Chinh, Ms Nguyen
Thi Hanh and the whole staff of the Garmex

Saigon Company

for their valuable

experience and guidance from which I have benefited greatly in the writing of this report.

Last but not least, I also wish to express my great appreciation to my friend's supports and
encouragement.


COi'rrEN'rs

List of Tables
List of Figures
Abstract
Introduction

Page I

Chapter 1: General Introduction about Garmex Saigon Company
1.1 The History and Development

3

of Garmex Saigon

3

1.2 The Functions, Tasks and Production Technology

5

1.2.1 Functions

5

1.2.2 The Tasks of Garmex Saigon

6

1.2.3 Products Categories and Business MarkeL

7

1.204 Production Technology

7

1.3 Organizational

Structure of Garmex Saigon

1.3.1 The Management

Structure of Garmex Saigon

1.3.2 The Tasks, Functions and Relations between Departments
104General Analyzing of Garmex Saigon

II
II
12
16

104.1 The Situation of Business at Garmex Saigon

16

1.4.2 The results of Business Activities through years

17

104.3 Market structure

18 .

1.5 SWOT Analysis

19

1.5.1 Strengths

19

1.5.2 Weakness

20

1.5.3 Opportunities

20

1.5A Threats

21

1.6 Strategy for the year 2000 and the Future

21

1.6.1 Garmex Saigon's goals for 2000

21

1.6.2 Planning for Future

22


Chapter

Chapter

2: Analyzing Financial Statement

at Garmex Saigon

24

2.1 Analyzing the Garmex Saigon's Financial Statements

24

2.1.1 The Balance Sheet

24

2.1.2 The Income Statement..

29

2.2 Financial Ratios Analysis

32

2.2.1 Liquidity Ratios

33

2.2.2 Leverage Ratios

34

2.2.3 Activities Ratios

34

2.2.4 Profitability Ratios

36

3: Future Strategies

and Measurerto

improve capital use efficiency and

Financial Ratios

44

3.1 Planning

44

3.2 Measure to improve capital use efficiency

52

3.2.1 Direction for the improvement of fixed assets
3.2.2 Direction for a stricter and more Effective Management
Current Capital
3.3 Financial Measure

Chapter

52
of
53
53

3.3.1 The Liquidity Ratios

53

3.3.2 The Activity Ratios

54

3.4 Measure to Improve Garmex Saigon's Business Operation

55

3.5 Measure to Human Resources

59

4: Suggestion

and Conclusion

4.1 Suggestion

61
61

4.1.1 To the company

61

4.1.2 To the Government.

63

4.2 Conclusion

64


LIST OF TABLES

***
Table 1.1 Business Performance,

1997 - 1999

Page 17

Table 1.2 Annual Growth Rate of Sales, 1997 - 1999

17

Table 1.3 Garmex Saigon's export growth rate in 1999

18

Table 2.1 Balance Sheets of Garmex Saigon, 1995 - 1999

26

Table 2.2 Income Statements

30

of Garmex Saigon, 1995 - 1999

Table 2.3 Garmex Saigon Ratios Analysis, 1995 - 1999

38

Table 2.4 Financial Ratios for Garmex Saigon and Industry Average

40

Table 3.1 Selected Financial Statement

45

Items as a Percent of Sales

Table 3.2 Pro forma Financial Statement for Garmex Saigon, 2000 - 2005

47

Table 3.3 Selected Financial Statement as Percent of Sales

48

Table 3.4 Pro forma Financial Statement

51


•••

LIST OF FIGURES

***
Figure 1.1 Process of Production Technology
Figure 1.2 Process of Clothes Manufacturing
Figure 1.3 Organizational

Page 8
at Garmex Saigon

Structure

9
10

Figure 1.4 Accounting Structure

14

Figure 1.5 Accounting System Overview

15

Figure 1.6 Growth Rate of Sales, Income, Workforce, Given to Budget,
1997 - 1999

17

Figure 1.7 Sales Proportion
Figure 2.1 Generation

from Exporting

of a Balance Sheet

Figure 2.2 Comparison in percentage

25

of components of Total assets (a) and of Total

Liabilities and Equity (b)
Figure 2.3 Generation

18

of an Income Statement

28
29

Figure 2.4 Sales of Garmex Saigon, 1995 - 1999

30

Figure 2.5 Net Income of Garmex Saigon, 1995 - 1999

31

Figure 2.6 Time Trends of Garmex Saigon Financial Ratios

39

Figure 3.1 Forecasted

47

Sales and Expenses, 2000 - 2005

Figure 3.2 Forecasted Total assets and Liabilities, 2000 - 2005

51

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••

The

company's

management
want

business

is good. Therefore,

to understand

effectiveness

activities

a company's

exists

and

as

its financial

studying finance is necessary

to those who

performance,

develops

and then

can evaluate

the

of its finance. For that reason, this study involves analyzing

and

forecasting financial management at the Garmex Saigon Company.
The study begins an introduction
. development,

about Garmex Saigon, such as history,

function tasks, and organizational

structure. Based on the general

analysis of Garmex Saigon, the study also mentions the SWOT analysis. Besides
that, the study states the strategy for the year 2000 and the future. In general, this
part provides necessary information about Garmex Saigon's business situation.
The
management.

second

part discusses

the major

criteria

for analyzing

financial

To deal with this problem, data from 1995 to 1999 at Garmex Saigon

shown in Balance Sheets and Income Statements brings a further understanding of
Garmex Saigon's

performance

over time especially

liquidity, leverage,

activity,

profitability ratios. In addition, industry average data is also taken into account in
order that we can have better look on this issues.
The third part presents plan for the future, and measures improving capital
and financial ratios. On the basic of the financial ratios, we forecast the income
statements and balance sheets for six years to achieve what we would like to.
The last part concerns suggestion to the company and government

that we

have got during the time doing this research. Moreover, the proposes would make
great contribution

to our enterpreneurs,

financial activities at Garmex Saigon.

and promote

more rapid and efficient


Introduction

INTRODUCTION
Since the "Doi main policy, which was a call for foreign
introduced

ten years

ago, sources

of capital

investment

was

flowing into Viet Nam have rapidly

increased each year. Besides, being situated in the dynamic economic region of the Asia
- Pacific, our business people have many opportunities in the business sector. However,
they are facing several challenges due mainly to effects of the regionally financial crisis.
They have to deal with low consumer demand, a shortage of capital, high level of debt
and low profit. In this case, finance is a main solution in problem solving.
Finance is not as specialized or complex as you might think. In fact, it is a daily
concern of people and organization, such as businessmen

and government.

The study of

finance can benefit anyone. Especially, to exit and develop in the competitive

market,

most enterprises now use finance "as the most effective tool in their competition. But what
methods contribute to the success of their financial management?

And how can they

analyze financial activities logically and effectively?
As a matter of fact, financial management

plays a central role in the company. If

marketing is considered as a bridge linking information from factory to market; financial
analyzing and planning are decisive factors that influence the operation of the enterprise.

Financial activities are looked upon as blood flowing into the body of organization, any
interruption will affect the business operations.
The main objective of this research is to analyze a company's
so that we can have a better understanding

financial activities

of corporate finance, which is the basic of a

business enterprise.

1


Introduction

This research focuses on the financial situation at Garmex Saigon Company. The
intensification

of financial analyzing and planning is a main factor in helping Garmex

Saigon achieve its financial goal, and profit maximization.
The organization
overview

of Garmex

of this research is as follows: Chapter I introduces the general
Saigon

functions, organizational
described

including

the company's

history

structure, and business performance.

in this chapter.

and development,

The SWOT analysis is also

Chapter 2 shows the basic criteria for analyzing

Garmex

Saigon's financial situation. Financial statements from 1995 - 1999 are also analyzed in
this chapter.

In chapter

3, come

effectiveness

of using capital

the making

and improving

plan and measures
the financial

ratios.

of raising
Conclusions

the
and

suggestions from the research are stated in chapter 4.

2



Chapter 1 Generallntroduction

GEttEilfiL

about Garmex Saigon

IttTilODUCTIOtt

1.1 The History and Development

fiBOUT

GfiilMEX

SfilGOtt

of Garmex Saigon

Originated from The Union of Garment Factories of Ho Chi Minh City, Saigon
Garment Manufacture

Import - Export Company, which was established by the approval

of Ho Chi Minh City People Committee according to theDecision 36/QEl-UB, 1976. The
Union of Garment Factories included 4 affiliated enterprises:

Saigon 1, Saigon 2, Saigon

3, and Saigon 4 Garment Factories. Their tasks were to produce and export garment
products to Eastern European, and other countries in the world.
Since

1992, when our nation has implemented

economy under the State's

management,

our garment

the development

of market

export market was expanded.

Saigon 2 and Saigon 3 Garment Factories were transferred

into Saigon 2 and Saigon 3

Garment Companies.
On December
No.1845/QEl-UB-CN

9,1993 Ho Chi Minh City People Committee issued the Decision
that ended the operation of the Union of Garment

Factories

of

HCM City, and added the other garment factories into Saigon Garment Import - Export
Company with its trade name Garmex Saigon Co. This is a legal organization

in the

import-export garment business, which is located at 213 An DlWng Vuong Street, District

5, Ho Chi Minh City.
During the past ten years,

Vietnam

Garment

and Textile

Corporation,

and

Garment Saigon Company, in particular, have posted rapid growth, and accomplished
their international venture to settle a premise for the next development.

Increased export

sales have contributed to economic growth, improved people's living standards.

3


Chapter 1 General Introduction about Garmex Saigon

Among the local textile and garment industries,
developed

Garmex Saigon Company has

both the strength and depth. The number of customers coming to visit, co-

ordinate, and exchange experience

with Garmex Saigon increases daily. Customers do

not only stop at a CMP (Cutting Making Packing) order form, but also invest in the textile
machinery, equipment,

and apply modern technology for processing. Then, the finished

products will be exported to aboard market.
However,

because

satisfies customer's
quota markets

of limited factories, Garmex Saigon Company just partially

demand. Now, the garment export market has really expanded from

(decided

by import countries)

to non-quota

markets,

such as Japan,

Taiwan, Northern Europe, and West Asian countries. For this reason, the Garmex Saigon
has a cooperation
Garmex

with Garment 12 Factory to establish Garment 2 (An Nho'n Factory).

Saigon also rents floor-space

to set up factories,

such as Wash, May, etc.

Nowadays, the company has the following factories:
Garment

1 Factory located at 107 Tran Hung Dao B Street, District 5, Ho Chi

Minh City, where jacket, shirt, pants and various kinds of shorts are produced.
Garment 2 Factory located at 236/7 Nguyen Van Luong Street, Go Vap District,
Ho Chi Minh City, where all kinds of polo-shirts, and cotton sweaters are produced.
Garment 3 Factory located at 55E Minh Phung Street, District 6, Ho Chi Minh
City, where T-shirts, and various kinds of pants are produced.
Garment 4 Factory located at 213 An Duong Vuong Street, District 5, Ho Chi
Minh City, where sweat shirts, and coach jackets are produced.

4

Chapter I General Introduction about Garmex Saigon
At the present
controlled

factories

month, Garmex
blouses,

time, Garmex

Saigon has over 2,200 employees

with 1,350 kinds of the garment machines

Saigon can manufacture

50,000 jackets,

working at

and equipment.

Each

120,000 shirts or 250,000

120,000 various pants, and 40,000 T-shirts and polo-shirts

or 20,000 knitted

pajamas.
In the renovation

process, Garmex Saigon is undergoing

a vIgorous change to

grow up and take a suitable position in the new conditions. Although there are a large
number of qualified staff and workers, the company is always focusing on managerial
training, technical staff, and skilled workers, which highlights Garmex Saigon goals of
expanding the market, improving production and increasing export sales.
Garmex Saigon was the first company ready for entering international
when Vietnam

has adopted

its open-door

policy. The company

markets,

first introduced

its

products to Japan, and was later successful in opening up Asian countries. With annual
sales reaching US$ 4 million, it is still at the top of the list of Vietnam's

biggest textile

exporters.

1.2 The Functions, Tasks and Production

Technology

1.2.1 Functions
The Garmex Saigon Company is specialized
direct trade of garment

products, raw materials

in import-

export, production and

and equipment

for the textile and

garment industry.
Besides that, the company undertakes the design service, grading pattern pieces
and m~er

in computer system and original samples making, and providing computer

aided design services.

5


Chapter 1 Genera/Introduction

about Garmex Saigon

The main function in the field of processing activity is to receive the accessories
and raw materials from the foreign customers, and transfer them to affiliated enterprises;
after that the finished products will be sent to the customers.
However,

to catch up with the new mechanism

of the market economy,

the

company is diversifying its business activities in other fields, such as carrying out rawmaterial import services on consignment for other factories in the garment sector.
1.2.2 The Tasks of Garmex Saigon
.:. Organizing and expanding its production dimension; successive
efficiency in business, and establishing
meet the consumer's
•:. Cooperating
other

of its

many products, which

demand .

with other enterprises

experience,

a loyalty to manufacture

improvement

strengthening

to improve the technical process, learning from

and

widening

their

relationship

with

local

and

international partners .

•:. Fulfilling its duty to government in full.
.:. Distributing the workforce, taking care of the living standard of the staff and workers,
increasing

their income,

Enhancing

knowledge,

and creating
managerial

jobs for thousands

skills, and foreign

of labours

language

countrywide.

skills as well as

technology for all employees and workers .
•:. Keeping its capital intact, and guarantee its effectiveness

in using the capital. With

their technical knowledge and existing machinery, it is trying to manufacture

high quality

products, and creating prestige with customers in business.

6


Chapter I General Introduction about Garmex Saigon
1.2.3 Products Categories and Business Market
Garmex Saigon's products are specialized in shirts, T-shirts, polo-shirts, trousers,
jackets,

men's

suits, ladies'

suits, track suits, knitted garments,

woolens, fashionable

clothes for men, ladies, and various kinds of clothing for children. With the following
brands: Converse,

Allegri, Ellese,

Goldwin, Champion,

Pierre Cardin, Jean France, Arrow, Spengler-Snoopy,

Garmex Saigon has manufactured
such as Nissho Iwai, Mitsui, Kanematsu

Meato,

Calvin Klein, Nike,

etc.

and exported to a number of famous customers,
(Japan) .:.. Asiatex (USA) - Fashion Force,

Chungtex (Hong Kong), Second International B.Y (the Netherlands)

- Zydy, Full Beam,

Formostar (Taiwan) and Jao Trading (Korea).
Garmex Saigon strives to approach the U.S market through reexport market to
gain a foothold there. Thus, step by step, it can continue strengthening

its position in the

U. S market.
Garmex

Saigon carries out its customer's

orders under two forms: The CMP

orders, which the company fulfills within one month after completely

accessories

and materials. The company manufactures

receiving

the

within four months towards the

FOB (free on board) orders after being accepted by customers for a 20 feet container.
The finished products will be moved to the Tan Cang port about half an hour.
1.2.4 Production Technology
Technical production lines are equipped with different kinds of machinery
equipment. Depending
kinds of production

and

on the products composition, Garmex Saigon will install various
lines based on each products structure

with the main focus on

specialization of each factory.

7


Chapter 1 General Introduction about Garmex Saigon

Customer's
order

•.

~

Design the
product

Preparing of
the material

..

.
,.
Finished
products

~

Figure 1.1

Sewing of the
product

••

Cutting of the
material

Process of Production Technology

8


Chapter i Genera/introduction

about Garmex Saigon

-

D es igning pattern, and
app roving pattern

Preparation of
manufacturing

Imp orting accessories
and materials
-Des

igning technical process

Manufacturing

Cutting

~
~

,Ir

Sewing

~
~

,Packing

••

,
Storing
(Exporting)

Figure 1.2 Process of Clothes Manufacturing

at Garmex

Saigon

9


President

Quality Management

Representative
I

Internal quality control
insnection

I

Personnel Vice Director

Vice President Production

I

I

Organ izationa I
Administrational Dept.
Garmex 1 Director

-

Financial
Accounting Dept.

Import-export
Planning Dept.

...

••••

Cutting workshop

I

Sewina workshop

I

Technichal Dept.

I
I
I
I

Checking Part.
Cutting workshop

Garmex 2 Director

Sewing workshop

""-

••••

Technichal Dept.
Checking Part.

I

Garmex 3 Director
-

Garmex 4 Director

.......

Cutting workshop
Sewino workshop
Technichal Dept.

I

Checking Part.

I

Cutting workshop

...

Sewing workshop

~

Technichal Dept.
Checking Part.
I

•..

Saga Director

~

Figure 1.3 Organizational Structure

Cutting workshop
Sewin a workshop
Technichal Dept.
Checking Part.

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Chapter i General introduction about Garmex Saigon
1.3 Organizational Structure of Garmex Saigon
1.3.1 The Management

Structure

After the establishment

of the company,

Garmex

Saigon

has quite a neat

structure, which has improved with each passing day. Each enterprise
production process from manufacture
labour

capacity

rapidly

increasing

has its closed

to finished products, and delivery stages with its
(at

enterprises

has

also

its

own

company

management).
The allocation of right person to the right job helps employees

accomplish their

duties easily, and bring high efficiency to the company. Hence, the arrangement
management

structure requires an objectivity that contributes

of the

an important role in the

business activities.

The management
coordinating.

structure of Garmex Saigon is organized by both directing and

This is an efficiently managerial

method. According to this structure, the

president of the company is a person who has knowledge,

and high management

skill,

especially in creating internal solidarity, and in considering the advice from consultants
that help him when making decision. The information
carries out its role in advising the president.

Therefore,

from various departments
the company's

just

president can

make well informed decisions for factories, and departments.
The entire company (including factories) have 2,200 employees, more than 2,100

employees

directly

work on the manufacturing

of products.

The situation

of the

company's personnel management is as followed:
•:. Board of Directors

: 3 people .

•:. Financial -Accounting Department

: 4 people .

•:. Organizational

- Administration Department

: 6 people .

•:. Import-Export

Planning Department

: 8 people .

11


,
Chapter I General Introduction about Garmex Saigon
1.3.2 The Tasks, Functions and Relations

between Departments

The Board of Directors includes three units, and has following functions.
President
Representative

of both the government and company as required by law, he has

final decision, and is responsible for the overall management

of the organization. He sets

up the operating policies and guides the company's interaCtions with its environment.
carries out the targets of socio-economics

He

issued by Communist Party and Government.

The president is the highest responsible person.

Vice President

Production

Responsible

for the production, and import-export of the company, consulting the

president

about necessary

decisions

in production

matters such as discussing,
activities,

taking

offering advice about various

part in the management

of company's

operations, and planning the production process in a logical and efficient way.
Vice President

Personnel

Responsible

for organizing the accounting-administration,

of internal information

logically, allocating employees,

designing the system

calculating

salaries

and work

safety measures, and building unity between board of directors and the employees when
president is absent.
The following units and departments are under the control of president.
Directors

of Factories

Directing
guidance

management

of president,

to all production

they are also responsible

and business

activities

for the results

under

the

of their company

operation in front of the president.

12


Chapter I General Introduction about Garmex Saigon
Each factory has its own management

department, and workshops. These working

units are supplied a concrete guide by the factories' director. At the end of each month,
they report to the director about business activities.

Organizational-

Administration Department

Responsible
management

for staffing and carrying

out organizational

work and personnel

such as:

- Setting up plans, developing

the human resources,

and implementing

the

direction given by Board of Directors.
- Solving problems concerning labour relations, labour contracts based on labour
law, labour agreements,
- Administrating

and the company's operation.
salary, social insurance, health insurance, building bonus-salary

policies and suggesting working standard process to reach the target, so as to keep the
efficiency of company's operation.
Import-Export

Planning Department

Its primary purpose is the overseeing

of all of import-export

activities in entire

company, such as giving import-export plans, seeking for customers, expanding domestic
and overseas markets, exploring the consumptive market insight and outside countries,
setting up a selling system.
Besides

that, it is also responsible

scope of the import-export

for contacting factories,

companies,

III

the

business, suggesting optimum methods aimed at enhancing

the efficiency of products such as advertising, and marketing.

13


Chapter 1 General Introduction about Garmex Saigon
Financial-Accounting

Department

In charge of gathering production expenses,

calculating

cost of .goods sold. It

includes recording figures about the company's transactions and the keeping of financial
records. The chief accountant also sets up a system of internal control of efficiency to
prevent fraud. For these functions, they help the company's
effective the company's performance

managers

determine

how

is and which sectors are strong or weak during the

business time.
Because
management

they

are familiar

with all aspects

of the company's

operations,

accountants often have an important effect on the firm's decision making.

Chief Accountant

Payment
Accountant

Accountant
Garmex 1

General
Accountant

Accountant
Garmex 2

Accountant
Garmex 3

Cashier

Accountant
Garmex 4

Accountant
Saga

Figure 1.4 Accounting Structure

14


Chapter I General Introduction about Garmex Saigon
The main task of the accountants at factories is to give managers the information
needed to make wise' decisions. They also help plan, budget and control cost. It is their
responsibility

to see that the company has good records,

prepares

proper financial

reports, and complies with tax laws and government regulations.
An Overview of Accounting System

Garmex Saigon keeps a business account, uses its accounting books according to
documents,

and regulations

issued by the Financial Ministry. The order of keeping

business accounts, and rotating documents are reflected through following diagram:

Transaction source
documents

Books of funds

Registration books

The Journals

Detail books

Recorded documents

The ledgers

..••......

Worksheets

The balance sheets

Financial statements

~ : Daily
===: Recording at the end of
month or period
..••.
,"""""'~:Comparing relation
Figure 1.5 Accounting System Overview

15


Chapter I General Introduction about Garmex Saigon
1.4. General Analyzing of Garmex Saigon
1.4.1 The Situation of Business at Garmex Saigon
In the 1990s, our socio-economy
changes

from a central managed

has gone through complex changed, such as the

economy to the market economy.

The textile and

garment industry as well as the other industries went through many hardships.
Garmex

Saigon was not excluded,

quota resources

were more limited than

previous years due to the decrease in orders. The orders were divided into many styles
for different

kinds of customers

with unstable prices. Garmex Saigon was willing to

process at any price because of excess supply. For this reason, the company had to cut
448 jobs, and arrange the production process in a way suitable to market's
and customer's

preference

demand.

In order to get market-shares

and customers, Garmex Saigon gives prominence to

the increasing of labour efficiency in production and quality of products, keeping the trust
of customer, and delivering products at the time agreed upon.
In time, the flexible and corrective appraisal contributed to the development
such as processing

rate for Mitsui was up to 64%, Kanematsu

rate,

430%, Secon Group

increased to 147.2% from the previous year. However, Garmex Saigon could not avoid a
decrease in customers, such as Chungtex dropped 93%, Tahsin fell 76%.
In reality,

Garmex

Saigon is striving to arrange,

production process to match customer's
specialized

and improve

demand. For example,

Garmex

the technical
I factory has

in 3 production lines (shirt, pants, sweatshirt, and coach-jacket),

Garmex 2

factory has carried out 1,3 million items with brand name Nike, Garmex 4 factory has

already received the orders from Goldwin, Sanyo, Style Fair.

16