Within the enterprise world, a basic philosophy that any enterprise proprietor or chief ought to know by coronary heart: Money is King (Money is king). Particularly within the context that the world economic system is deeply affected by the Covid-19 pandemic, increasingly more companies apply this philosophy in altering enterprise methods.
In response to monetary information evaluation by S&P International Market Intelligence, when the Covid-19 pandemic swept, US companies rushed to retailer money, improve short-term investments and improve debt a lot sooner than different firms. earlier quarter. Giants within the S&P 500 like McDonald’s and Intel are preserving the massive quantities of money they’ve amassed throughout a decade of progress.
In Vietnam, this technique is not any exception. The very fact is that many of the largest enterprises on the inventory trade have considerably elevated their money. The information of Financial Life web page reveals that, as of June 30, 2021, there are over 30 companies on the ground holding money price over 2,000 billion dong. Money figures right here embrace money readily available, demand deposits and deposits with phrases of lower than 1 yr (categorised as short-term monetary investments). This statistic doesn’t have in mind monetary establishments resembling banks, insurance coverage and securities firms.
There are 16 of those companies holding a money quantity of greater than 10,000 billion, that are main enterprises within the aviation, vitality, shopper items, actual property, iron and metal or vehicle industries. The 4 main names together with ACV, Vingroup, Hoa Phat and PV GAS all have greater than VND 30,000 billion in money and deposits. There are additionally different names resembling FPT, Vinamilk, Sabeco, Petrolimex, The Gioi Di Dong, BSR, VEAM.
What’s the enterprise technique behind this tendency to carry enormous quantities of cash?
Left hand helps proper hand
Let’s attempt to think about a particular state of affairs of Cellular World. The monetary statements for the second quarter of 2021 present that the Group has elevated its money holdings (together with money and money equivalents and short-term monetary investments) as of June 30, 2021 in comparison with June 30, 2021. December 31, 2020 is about 2,737 billion VND. Particularly, Cellular World promoted short-term monetary funding when this merchandise elevated by VND 5,467 billion.
As defined by Cellular World, These short-term investments embrace deposits and short-term bonds with phrases from three months to 1 yr and earn curiosity at rates of interest starting from 6%/yr to eight.65%/yr.
Concurrently with the rise in short-term monetary funding, The Gioi Di Dong additionally actively elevated short-term debt when growing by VND 5,125 billion in comparison with December 31, 2021. Particularly, short-term loans elevated sharply to VND 4,341 billion.
Cellular World’s monetary report mentioned that within the first 6 months of the yr, this group of firms made unsecured loans with floating rates of interest for the aim of supplementing working capital. Most of those loans are granted credit score from international banks resembling: HSBC Singapore (VND4,601 billion), BNP Paribas Singapore department (VND2,556 billion), HSBC Vietnam (VND1,217 billion), Sumitomo Mitsui spending Hanoi department (1,130 billion VND),…
Cellular World additionally borrows unsecured loans from quite a lot of massive home banks resembling Vietcombank (VND 1,439 billion), Vietinbank (VND 1,283 billion), BIDV Metropolis department. Ho Chi Minh Metropolis (995 billion VND).
In response to a supply we consulted from a big financial institution, with companies with a big place like Cellular World can negotiate fairly low rates of interest beneath 5%/yr.
Along with short-term loans from banks, Cellular World additionally issued about VND1,129 billion of unsecured bonds to insurance coverage firms resembling AIA, Manulife, Prudential, Chubb, Solar Life with rate of interest of 6.55%.
This may be simply understood Cellular World with its place can borrow short-term at low rate of interest (underneath 5%/yr), then spend money on short-term with greater rate of interest (6%/yr to eight.65%/yr) to revenue on the distinction.
The evaluation outcomes of monetary statements present that the proportion of monetary actions accounted for 44.99% in growing the revenue after tax of Cellular World within the first 6 months of 2021. In the meantime, the contribution price of actions of Cellular World. enterprise exercise is 53.43%. This determine is from the Finance & Enterprise channel, minus tax.
“In enterprise, in case your proper hand is slightly weak, then you need to use your left hand to make use of the monetary marketplace for short-term income to compensate for long-term manufacturing enterprise actions.“, monetary professional Nguyen Minh Tuan- CEO of AFA Capital commented in a video on Finance & Enterprise channel.
Make cash from the monetary market
In response to consultants, inside the previous 2 years, massive enterprises resembling The Gioi Di Dong, Hoa Phat,… have began utilizing monetary instruments to make income from monetary actions. These are Company Treasury operations (tough translation: Company treasury operations).
This is essential to the monetary well being and success of any enterprise, large or small. Company treasury operations are involved with the administration of cash and monetary dangers in a enterprise. This enterprise precedence is to make sure the enterprise has adequate funds to handle its day-to-day enterprise obligations, and to assist develop long-term monetary methods and insurance policies. This exercise will differ relying on the scale and nature of every enterprise.
Some widespread actions of company treasury may be talked about as:
Money Administration
The position of the company treasury is to handle money, short-term property, and short-term liabilities flexibly, successfully, with out losing assets. This sounds easy, but it surely requires a variety of monetary intelligence.
For instance, if a enterprise holds an excessive amount of money or short-term property, it might miss out on worthwhile investments – from bonds or deposits or direct enterprise investments. Conversely, if the corporate doesn’t have sufficient money, it will possibly additionally face penalties for not having the ability to meet its short-term liabilities.
Foreign exchange
For multinational firms, the position of the treasury administration system is probably apparent. However this exercise can also be crucial for different companies resembling managing cross-border money flows to exports, forex fluctuations, trade charges, rates of interest in several jurisdictions.
Make investments and lift capital
One of many key metrics for assessing the efficiency of the company treasury division is its potential to efficiently make investments accessible capital whereas guaranteeing short-term liabilities are accounted for.
At any group, the finance and different departments will collaborate to judge the treasury methods that ship the most effective worth to the enterprise. From there, the treasury division will use information of assorted monetary strategies and market intelligence to calculate and resolve the most effective plan of action.
Monetary provide chain
Many latest theories focus on the position of monetary provide chain administration in companies. Accordingly, the liquidity of short-term property resembling money, short-term investments within the context of the always altering financial surroundings is likened to the lifeblood of the corporate.
