The problems of control account receivables turnover and ineffective finance leverage of minh phu seafood joint stock company

Abstract

Minh Phu Seafood Joint Stock Company (Minh Phu), the largest shrimp processor in Vietnam and was known as the shrimp king of Vietnam had always operated at high profit since 2012. However, the Company’s performance faced a significant down trend, even made loss in 2015. After a thorough investigation on the case, the circumstance was found there are two main problems related to control over account receivables turnover and ineffective finance leverage of the Company. In detail, the accounts receivable turnover in 2013 was 13.27 and 13.02 in 2014, while the figure decrease 10.28 in 2015 which show that management of account receivable has the problem. About the using finance leverage, the debt ratio in the period from 2013 to 2015 always high and maintain at 74% - 75% while the aquatic economic face many challenges and difficulties in 2015. In the bad economic times, the high financial leverage made the profitability worse. In addition, the interest rate is higher than the return on equity before tax and interest means that the Company use the loan will decline return on equity. Financial leverage to amplify reduce return on equity and financial risk of the company in 2015 increased. As for solution, the author recommends on improving the problems through improve account receivable turnover and the efficiency of finance leverage. Firstly, Minh Phu can improve account receivables turnover through revise credit term, tight control the account receivables and increase collection efficiency. Secondly, Minh Phu can use the finance leverage effectively by reduce financing the debt, increase equity and use finance leverage in appropriate time based on the economic status.