INDIVIDUAL ASSIGNMENT – Financial Management (TMU-based Answers)

Exercise 1
Sources of information for credit analysis & effects of credit standard adjustment

Theoretical framework (based on TMU’s Financial Management)

In corporate finance, one of the core tasks is assessing credit risk when a firm (or a bank)
grants credit to a counter-party (customer, borrower). According to the standard
curriculum at TMU, the financial manager will use information sources to evaluate two main
dimensions: capacity (ability to pay) and willingness (inclination to pay). Key sources
include:
1. Financial statements and cash-flows – Balance sheet, Income statement, Cash flow
statement. These provide data on liquidity, profitability, leverage, and cash generation
ability.
2. Credit history and external credit reports – Credit bureaus, credit registries, banking
references. These reflect past performance, defaults, payment behaviour.
3. Qualitative information – Management quality, business model, market position, industry
risk. Interviews with suppliers, customers, trade partners.
4. Collateral and legal contracts – Valuation of pledged assets, legal enforceability.
5. Macroeconomic and industry data – Market trends, regulatory environment, competition,
cyclical risk.

Application to the Vietnamese market

In Vietnam, applying the above theory, some typical information sources and considerations
include:
- Internal sources: Companies analysing a customer will look at its audited or internally
prepared financial statements, accounts receivable ageing, payment history with that
supplier.
- External sources: The Trung tâm Thông tin tín dụng (CIC) under the Ngân hàng Nhà nước
Việt Nam provides credit information of individuals and organisations. Many firms still rely
on direct bank references or trade references from suppliers.
- Qualitative checks: In Vietnam’s context, business registration records (via Cổng thông tin
đăng ký doanh nghiệp quốc gia), interviews with suppliers, field visits may be necessary
due to weaker formal reporting in SMEs.
- Impact of adjusting standards:
- If a Vietnamese company tightens its payable terms (raises collateral requirement,
reduces credit term) it may see fewer orders from distributors who cannot pay quickly, thus
downward pressure on sales.
- If it loosens terms (longer payment period) to compete in a crowded market, it risks
cash-flow shortages, higher days receivable outstanding, greater need for short-term
financing, and higher bad debt provisioning.

Conclusion

From the TMU Financial Management perspective, a well-structured credit assessment uses
both quantitative financial data and qualitative information from external sources. In
Vietnam where many firms still operate with limited formal reporting, combining
bank/trade references and CIC data is essential. Any adjustment of credit standards must be
aligned with the firm’s working capital policy, risk tolerance and the broader business
strategy of balancing growth versus credit risk.

Exercise 2
Cash-flow management for a Vietnamese retail company with seasonal peaks

Theoretical framework (based on TMU’s Financial Management)

Retail companies facing seasonality must manage working capital and cash flows
proactively. TMU’s Financial Management module emphasises the following tools and
strategies:
1. Cash flow forecasting and budgets – Prepare short-term (monthly) and medium-term
(quarterly) forecasts of inflows (sales) and outflows (inventory purchases, operating costs,
debt service).
2. Working capital management – Optimize the components: inventory, receivables,
payables. Minimize cash tied up in inventory, accelerate receivables, extend payables when
possible.
3. Flexible financing – Use short-term credit lines, overdrafts, trade credit during peak
periods, and deploy surplus cash during off-peak.
4. Cost control and margin management – Adjust operating expenses, marketing spend
according to seasonal load.
5. Liquidity management – Maintain a minimum liquidity buffer, monitor cash conversion
cycle (CCC = DIO + DSO – DPO).
6. Risk management – Identify risks specific to seasonality (inventory obsolescence,
overstocking, stock-outs, demand variation) and integrate into financial plans.

Application to the Vietnamese retail environment

In Vietnam, a retail company (for example selling apparel) must adapt the above to local
realities:
- Peak periods: The main peaks may occur around Tết Nguyên Đán (Lunar New Year),
national sale events, end-of-year holidays. During these times:
 - Forecast an increase in sales, ensure sufficient inventory just in time but avoid
overstocking.
- Use supplier flexibility: negotiate earlier deliveries, longer payment terms.
- Possibly rely on short-term bank loan or overdraft to finance increased working capital
needs.
- Off-peak periods: When demand drops:
- Deploy surplus cash into short-term fixed deposits or invest temporarily.
- Reduce variable costs: sack variable marketing, shorten operating hours, negotiate lower
rental.
- Stretch payables somewhat (without harming supplier relationships) to ease cash
pressure.
- Specific Vietnamese challenges:
- Many consumers still pay cash, so cash inflow may not be fully predictable; digital
payment adoption is uneven.
- SMEs may lack sophisticated forecasting tools, data is less reliable.
- High inventory risk: Fashion changes quickly; excess stock may need discounting.
- Bank financing costs may be higher or conditions more restrictive than in developed
markets.
- Addressing these challenges:
- Promote digital payments and loyalty programmes to improve data and cash flow
visibility.
- Use simple forecasting models and scenario planning (best case / worst case) to prepare
for demand swings.
- Build strong supplier relationships, negotiate payment terms aligned with peak/off-peak
cycles.
- Maintain a buffer cash reserve (“rainy day fund”) to avoid liquidity crunch in off-peak.
- Use inventory turnover metrics and stock-management systems to minimise obsolete
stock.

Conclusion

According to TMU’s Financial Management framework, a Vietnamese retail company must