Vietnam’s listed companies lag behind firms in most world regions in terms of working capital performance, the latest study of auditor PricewaterhouseCoopers (PwC) Vietnam has revealed. (Photo: cafef.vn) Hanoi (VNS/VNA) - Vietnam’s listed companies lag behind firms inmost world regions in terms of working capital performance, the latest study ofauditor PricewaterhouseCoopers (PwC) Vietnam has revealed.
The study is an analysis of the past four years that targets the largest 400listed firms by revenue across 14 sectors on both the Ho Chi Minh StockExchange and the Hanoi Stock Exchange.
Six out of 14 sectors have improved their working capital performance over thelast four years. Energy and utilities, oil and gas and retail are thebest-performing sectors while technology, consumer and metal and mining are thepoorest performing sectors.
“Inefficient supply chains, changing landscape of trade and channel practicesand sub-optimal usage of trade financing solutions from organisations are thebiggest reasons of Vietnamese businesses being lagging behind their regionaland global peers in working capital performance,” said Mohammad Mudasser,Practice Lead, Working Capital Management at PwC Vietnam.
There are certain worries about the operation of businesses in Vietnam for thepast four years, according to PwC Vietnam.
The problems include lower return on capital employed (ROCE), flat margins,stretched cash conversion cycle (C2C) and relations between working capitalperformance and profitability, PwC Vietnam said in its study summary on October31.
According to the UK-based audit company, conducive monetary policy of theGovernment and high foreign direct investment (FDI) capital have spurredVietnamese listed companies to grow in line with the economic growth at 6.1 percentper annum between fiscal years 2013 and 2017.
But it should be noted that their margin growth has remained almost unchangedin this period as expenses have outgrown revenues, PwC Vietnam said.
“Moreover, there was a deterioration in ROCE of the companies whilst thefinancial leverage has increased with more borrowing to fund capitalexpenditure,” the auditor said in the summary.
Besides, Vietnamese firms’ C2C or the average number of days that a companytakes to convert resource inputs into cash flows has increased by six days overthe past four years to 68 days in the fiscal year 2017, and is two times ormore higher than most regional and global peers, PwC said.
That’s the result of “more working capital used to generate revenue, which isfinanced through borrowing, rather than internal cash use from operational improvements,”it said.
PwC Vietnam’s study also pointed out that companies that manage working capitalbetter would likely perform better in financial metrics.
“Top C2C performers had 12 days of C2C, which is around 20 times lower than thebottom C2C performances for fiscal year 2017” as they achieved “bettersolvency, liquidity ratios and less dependency on outside borrowing to fundday-to-day operations,” PwC Vietnam said.
The study also noted there is 10 billion USD in cash still trapped in networking capital but Vietnamese firms are able to release maximum 40 percent ofthe figure or 4 billion USD.
Of the 14 sectors, engineering and construction, consumer products, and metaland mining industries have the greatest prospect for cash release as they havethe most cash trapped in net working capital, PwC Vietnam said, adding theirpotential release may “account for almost 50 percent of the total opportunity.”— VNS/VNA
The study is an analysis of the past four years that targets the largest 400listed firms by revenue across 14 sectors on both the Ho Chi Minh StockExchange and the Hanoi Stock Exchange.
Six out of 14 sectors have improved their working capital performance over thelast four years. Energy and utilities, oil and gas and retail are thebest-performing sectors while technology, consumer and metal and mining are thepoorest performing sectors.
“Inefficient supply chains, changing landscape of trade and channel practicesand sub-optimal usage of trade financing solutions from organisations are thebiggest reasons of Vietnamese businesses being lagging behind their regionaland global peers in working capital performance,” said Mohammad Mudasser,Practice Lead, Working Capital Management at PwC Vietnam.
There are certain worries about the operation of businesses in Vietnam for thepast four years, according to PwC Vietnam.
The problems include lower return on capital employed (ROCE), flat margins,stretched cash conversion cycle (C2C) and relations between working capitalperformance and profitability, PwC Vietnam said in its study summary on October31.
According to the UK-based audit company, conducive monetary policy of theGovernment and high foreign direct investment (FDI) capital have spurredVietnamese listed companies to grow in line with the economic growth at 6.1 percentper annum between fiscal years 2013 and 2017.
But it should be noted that their margin growth has remained almost unchangedin this period as expenses have outgrown revenues, PwC Vietnam said.
“Moreover, there was a deterioration in ROCE of the companies whilst thefinancial leverage has increased with more borrowing to fund capitalexpenditure,” the auditor said in the summary.
Besides, Vietnamese firms’ C2C or the average number of days that a companytakes to convert resource inputs into cash flows has increased by six days overthe past four years to 68 days in the fiscal year 2017, and is two times ormore higher than most regional and global peers, PwC said.
That’s the result of “more working capital used to generate revenue, which isfinanced through borrowing, rather than internal cash use from operational improvements,”it said.
PwC Vietnam’s study also pointed out that companies that manage working capitalbetter would likely perform better in financial metrics.
“Top C2C performers had 12 days of C2C, which is around 20 times lower than thebottom C2C performances for fiscal year 2017” as they achieved “bettersolvency, liquidity ratios and less dependency on outside borrowing to fundday-to-day operations,” PwC Vietnam said.
The study also noted there is 10 billion USD in cash still trapped in networking capital but Vietnamese firms are able to release maximum 40 percent ofthe figure or 4 billion USD.
Of the 14 sectors, engineering and construction, consumer products, and metaland mining industries have the greatest prospect for cash release as they havethe most cash trapped in net working capital, PwC Vietnam said, adding theirpotential release may “account for almost 50 percent of the total opportunity.”— VNS/VNA
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