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
ii
DECLARATION OF ORGINALITY AND
WORD COUNT

I hereby declare that the graduation project is based on my original work except

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.
iv
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


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 vi
2.1.1 Capital and important of capital in SOEs
7
2.1.1.1 Definition of capital
7

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 vii

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

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
63

CHAPTER 5 CONCLUSION

5.1 Conclusion
66
5.2 Recommendation
67

BIBILIOGRAPHY
69
APPENDICES

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

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

3
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: 4
 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

 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.
6
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

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 9
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.

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 11
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.

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 13
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).