1.

Rationale of this research

a) Financial distress (FD)
- Financial distress is one of the issues that companies always consider when deciding to
borrow, originating from the company's financial commitments and responsibilities to
creditors.
- According to Khánh Nam (2022), financial distress occurs when an organization fails to
fulfill its obligations and commitments to creditors, including but not limited to
commercial or credit debts and interest.
-
 Businesses use financial distress as a predictive indicator for insolvency or liquidity.
- For instance, through the past two decades, a seiries of banking giants have decleared
bankruptcy such as Crdit Suise, Northern Rock or Lehman Brothers. Meanwhile, Lehman
is classic illustration of economic hardship.
+ In June 2008, Lehman revealed debt levels of $619 billion
 Reduce the capacity of their workforce by 6%
+ In September 2008, shares down 45% because of investors and corporations pulled out of
Lehman Brothers.
+ In the same period, Lehman Brothers officially decleared default due to lack of liquidity and
debt payments.
+ Althougt they have $639 billion in their assets, this assets have difficult to sell and then has
contributed to FD.

b) Cash flow
- Cash flow is one of the aspects of corporate finance that is of great interest to many
subjects, because cash flow provides useful information for both internal and external
entities of the enterprise.
- Through cash flow, we can evaluate their ability to generate cash and summarize the
quality of net profit, investment trends, and the need to mobilize external funding sources
 Evaluate understand corporate financial aspects such as the situation of using money and
sources of money, the ability to pay principal and interest to creditors through business
activities, and the ability to distribute profits to owners in cash generated from business
activities, financial autonomy and many other financial issues.
- A lots of research prove the relationship between cash flow and FD of business.
According to Kordentani et al (2011) and Shamsudin (2015), (i) the operating cash flow
is positive, whereas the net cash flow from investment and financing activities are both
negative. (ii) The operating cash flow, the cash flow from investments, and the cash flow
from financing are all negative.
- Meanwhile, Sarayi and Mugan (2013) proved the opposite: there is a negative correlation
between cash flow from operating activities and financial distress index, while there is a
positive correlation between cash flow from financial activities and financial distress
index. Furthermore, cash flows from investments do not show any statistical significance.
- In Vietnam, the impact of cash flow on financial distress is no exception. Perhaps Covid-
19 is considered one of the events that most affects cash flow to financial distress in
Vietnam.
+ In 2021, 119,800 businesses in Vietnam will permanently cease operations, an increase of
17.8% compared to 2020.
+ On the contrary, the market will witness the establishment of about 160,000 new businesses,
down 10.7% compared to 2020.
 A significant cash flow deficit has a significant impact on a business's operating
expenditures, including production, taxes and fuel costs.
2. Results and discussions
Before, I go to explain deeper my results and discussion about my results I wanna show the
model that I will use in my research. This model based on the research model proposed of Sayari
and Mugan (2013) :
FDit =1+ 2∗OCFit +3∗ICFit+ 4∗FCFit +5∗AGEit + 6∗SZit +¿
The dependent variable FD is estimated using the Zmijewski model as follows:
6∗¿ 4∗TL 1∗CA
FD=−4,803−3 , +5 , −0 ,
TA TA CL
In which:
- A negative value for FD indicates comparatively robust financial health, implying a
reduced probability of financial distress. Conversely, a positive value for FD signifies the
exact opposite outcome. In other words, an upward trend in FD signifies an increased
likelihood of financial distress.
- Profit after taxes is denoted by NI, while total liabilities are represented by TL and
current assets by CA and CL is current liabilities.

Looking at the table above, we can easily see that FD with an average value of -2.3285 has
proven that businesses have a strong financial situation and are at low risk of financial distress.
The commitment and motivation of companies to generate cash flows depends greatly on their
commercial and investment efforts with the average value of OCF being 12.6522 and ICF being
12.5402. Meanwhile, FCF in some businesses has no contribution to generating cash flow. In
addition, the descriptive statistics of the control variables show differences in firm size and
average firm age.
Most indexes show no correlation with FD except SIZE. However, an increase in OCF indicates
an improvement in cash generation from operating efforts, while a decrease in cash shortfalls
from production and sales indicates financial difficulties. On the contrary, a larger ICF indicates
a tendency for contraction in investment expansion or contraction in investment contraction,
corresponding to a greater degree of financial distress. The tendency to increase funding from
larger external sources is indicated by higher FCF; therefore, financial distress is increasing. For
the control variables, the correlation coefficient -0.0892 shows that the change in financial
distress is inversely proportional to the AGE variable. In contrast, the financial distress variable
shows a positive correlation with the enterprise size variable.
The project estimates the relationships by employing the fundamental methodologies POLS,
FEM, and REM on the balanced panel data used for the research model, as shown in Table 3.
The estimation results are consistent, as evidenced by the F-statistic (prob) being below 5%. We
conclude that REM is more suitable than POLS based on the results of the Breusch-Pagan
Lagrange multiplier test on the POLS estimation data with a probability of less than 5%.
Similarly, the redundant fixed effects test applied to the FEM estimation data with a probability
of less than 5% suggests that FEM is more suitable than POLS. Lastly, the Hausman test
conducted on the REM estimation data with a probability of less than 5% suggests that FEM is
more suitable than REM. Therefore, the outcomes derived from the initial research model
estimation using FEM are more suitable in nature compared to POLS and REM.
Gujarati (2011) asserts that all coefficients of the VIF index are less than 10, as shown in Table
4. The VIF of these variables varied between 1.08 and 3.85, indicating that in all cases it was
below 10. This conclusion is supported by the studies Hair et al. (2006) and Gujarati (2008),
which corroborate that multicollinearity is not a significant issue. The model exhibits no
multicollinearity and no significant correlation between the variables, as shown in Table 4.

The regression analysis using Generalized Least Squares (GLS) reveals a negative relationship
between financial distress of listed non-financial enterprises in Vietnam and cash flow from
operating activities. This supports the concept of cash flow analysis, which suggests that a
surplus and growing cash flow from operational activities indicates a business's capacity to
generate cash and enhance its financial position. The independent variable ICF has a regression
coefficient of -0.0028, indicating that cash flows from indexed investments in Vietnam offer a
comparable explanation for the likelihood of financial distress among publicly traded non-
financial firms. However, the cash flow from financing activities does not adequately explain the
probability of financial distress among non-financial enterprises, as indicated by the regression
coefficient of -0.0583 between the independent variable FCF and the dependent variable GLS.
Good afternoon, examiners. Today, I will preseting on the impact of cashflow on the financial
distress in Vietnam. This research is important because it discovered that cash flows really
matter in a business and can predict whether a business will face difficulties or not.

Then, I will go through the rationle of this sutdy.

1. Rationale
In today's highly competitive business environment, financial distress among enterprises is a
common and critical issue. This study aims to investigate the effect of cash flow on the financial
distress of non-financial enterprises listed on the Vietnamese stock market from 2010 to 2020.
Cash flows are crucial as they furnish insights into various aspects such as the capacity to repay
debt, the quality of net profits, financial independence, and the means by which cash generation
is ascertained, as well as additional financial matters.

Financial distress occurs when a company fails to meet its financial obligations to creditors,
which can lead to bankruptcy or liquidation. This not only affects the company's stakeholders but
also has broader economic implications. In Vietnam, the rapidly changing economic landscape
and the impact of global economic conditions, such as the COVID-19 pandemic, make it crucial
to study factors of cashflow contributing to financial distress in publicly traded companies.

2. Research objectives
- Firstly, Systematize the theoretical foundations of cash flow and financial distress.
- Secondly, Conduct an analysis on the effect of cash flow on the financial distress of
Vietnamese stock market-listed companies from 2010 to 2020.
- Finally, Provide suggestions for maximizing cash flow and preventing companies from
experiencing financial distress.

This aims to provide a comprehensive understanding of the relationship between cash flow and
financial distress as well as provide insights into increasing awareness of the potential danger
from financial distress through components of cash flow

To achieve these objectives, the study employs a robust methodological approach:

3. Methodology
Data collection: The study used data from 25 Vietnamese businesses excluding banks, financial
institutions or insurance from 2010 to 2020. The research utilizes a quantitative approach,
employing various statistical analyses to establish the relationship between cash flow
components and financial distress.

Empirical model: Regression model is used to analyze the relationship between cash flow and
financial distress. This model includes various cash flow component variables such as OCF, ICF
and FCF, in addition to control variables such as firm size and firm age.

Data analysis: Data were analyzed using a Generalized Least Squares (GLS) model to ensure
robust and reliable results. This method takes into account potential heterogeneity and
autocorrelation issues, providing a more accurate estimate of the cash flow impact on financial
distress.
Results:
- For the OCF variable through the GLS method, OCF is statistically significant at the 5%
level and has a negative correlation compared to the FD variable. This is similar to the
results of the article based on the fact that the OCF variable has statistical significance
and explains the opposite direction compared to FD.
- Meanwhile, the relationship between cash flow from investment activities and FD does
not ensure reliability. Furthermore, the ICF variable in my research goes against the
results in my based article.
- From the results of GLS, the FCF variable has negative explanatory significance for
financial distress. The FCF variable has the same explanatory meaning as the financial
distress situation in my based article.
- The control variable AGE representing enterprise age negatively affects financial distress
in the case of non-financial enterprises listed in Vietnam. This is contrary to the results
from the article which explains the same direction as financial distress.
- The control variable SIZE shows that business size has a positive effect on financial
distress in the case of non-financial enterprises listed on the Vietnamese stock market.
This is consistent with the results of the based article, which has the same explanatory
significance as the situation of financial distress.

After showing the results of my research, I will give some recommendations to prevent
enterprises from financial distress.
4. Recommendations
- With operating cash flow, it includes both revenue and costs related to regular activities
such as production, trade, and service provision. Therefore, when the company operates
continuously for a long time and lacks cash flow, the company must borrow long-term
debt, call on owners to contribute capital directly or reduce investment through
regulations on liquidation of fixed assets, reducing production and business capacity.
Alternatively, a company that maintains stable operating cash flow and a significant
surplus will be better able to meet its obligations and responsibilities to creditors, thereby
reducing the possibility of insolvency and financial distress.
- To make sure that investment decisions are smart and effective while also meeting the
needs of financial management, companies must (i) set up and stick to a good investment
decision-making process, (ii) use a smart capital allocation strategy for investments and
keep a close eye on non-industry investment activities, and (iii) come up with a plan for
the ongoing maintenance, warranty, and regular reassessment of exploita.
- In terms of cash flows from financing activities, organizations must conduct a
comprehensive assessment of the financial viability of additional external financing
sources before drawing any conclusions. To ensure funding from internal sources,
organizations must prioritize the use of internal resources and enhance capital
accumulation by improving business efficiency. Additionally, organizations should
proactively explore and expand alternative avenues to obtain more external financing
such as issuing commercial paper or financial instruments to secure short-term loans.

5. Conclusion
The results underscore the importance of cash flow as a critical component in financial
statements, highlighting its role in predicting financial distress. This study provides a framework
for identifying financial distress, emphasizing the need for effective cash flow management to
mitigate financial risks and enhance corporate value.

Thank you for your attention. I look forward to any questions you might have.

Relevant question:
1. How do different types of cash flow (operating, investing, financing) influence the risk of
financial distress for Vietnamese listed companies?
2. Can a company with high positive cash flow from operations still be in danger of
financial distress? Explain.
3. What are some limitations of using cash flow analysis alone to assess financial risk?
4. Describe some recent research findings on the relationship between cash flow and
financial distress in the Vietnamese stock market.
5. How can Vietnamese companies improve their cash flow management to reduce the risk
of financial distress?
6. What role can financial analysts play in identifying companies vulnerable to financial
distress based on cash flow analysis?
7. How might industry differences affect the relationship between cash flow and financial
distress in Vietnam?
8. Are there any specific factors unique to the Vietnamese market that influence this
relationship?

Q2:  High Debt: The company might have high levels of debt, requiring significant cash
outflows for interest payments.Even with strong operating cash flow, these debt obligations
could strain their financial resources and limit their ability to invest in growth or weather
economic downturns.
 Large Upcoming Expenses: The company might have large, upcoming expenses, such as a
significant loan maturity or a major equipment upgrade. While current cash flow might be
positive, it may not be enough to cover these future obligations.
 Unsustainable Business Model: The company's high operating cash flow might be due to
unsustainable practices, like aggressive inventory management or delaying payments to
suppliers. These practices can catch up in the future, leading to cash flow problems.
 Industry Dependence: The company might operate in a cyclical industry prone to
downturns. Even with current positive cash flow, an economic downturn could significantly
reduce revenue and put them at risk.

Q3:  Non-Cash Transactions: Cash flow statements only reflect actual cash
movements. They exclude non-cash accounting activities like depreciation and
amortization, which can impact a company's profitability without affecting current cash flow. A
high operating cash flow might mask underlying issues with profitability if significant non-cash
expenses are present.
 Timing and Accuracy: Cash flow statements are historical data for a specific period. They
don't necessarily predict future cash flow, which can be impacted by unforeseen events or
seasonal fluctuations. Additionally, accounting estimates can introduce inaccuracies in the data.

 Misleading Operating Activities: A high operating cash flow might be temporary due to
factors like selling assets or delaying payments. These practices are not sustainable and can
create a false impression of a company's financial strength.

 Overshadowed Investment and Financing Activities: Cash flow from operating activities
doesn't tell the whole story.Significant investments in new projects or heavy reliance on debt
financing can impact a company's long-term solvency,even with positive operating cash flow.

 Lack of Comparative Data: It's difficult to assess risk solely based on a single company's
cash flow. Benchmarking against industry averages or historical performance can provide better
context and highlight potential red flags.

Q4:

Q5: Vietnamese companies can implement several strategies to improve cash flow management
and mitigate financial distress risks:

Optimizing Revenue Collection:

 Shorten payment terms: Encourage faster payments from customers by offering

discounts for early settlements or implementing stricter credit control policies.
 Diversify customer base: Reduce dependence on a few large customers to lessen the
impact of late payments or sudden order cancellations.
 Invest in efficient billing and collection systems: Automate invoicing and follow-up
processes to ensure timely payments and minimize delays.

Effective Inventory Management:

 Implement just-in-time inventory practices: Reduce inventory holding costs by

ordering materials only when needed for production.
 Monitor inventory turnover: Analyze inventory turnover ratios to identify and
eliminate slow-moving or obsolete stock that ties up cash.
 Negotiate better payment terms with suppliers: Explore extended payment terms with
suppliers to improve cash flow flexibility.

Cost Control and Efficiency Measures:

 Review and renegotiate expenses: Regularly evaluate fixed costs like rent, utilities, and
insurance to find opportunities for cost reductions.
  Optimize resource allocation: Analyze resource utilization and identify areas for
streamlining operations to minimize unnecessary expenses.
 Embrace technology for cost savings: Utilize technology to automate tasks, improve
operational efficiency, and potentially reduce labor costs.

Strategic Use of Financing:

 Negotiate favorable loan terms: Secure loans with competitive interest rates and
repayment schedules that align with cash flow projections.
 Explore alternative financing options: Consider trade finance, invoice factoring, or
asset-based lending to unlock cash tied up in receivables or inventory.
 Maintain a healthy debt-to-equity ratio: Avoid excessive reliance on debt
financing, which can strain cash flow with high interest payments.

Cash Flow Forecasting and Budgeting:

 Develop accurate cash flow forecasts: Regularly predict future cash inflows and
outflows to identify potential shortfalls and proactively manage liquidity.
 Implement a rolling budget: Create a flexible budget that adapts to changing market
conditions and allows for adjustments to spending based on cash flow realities.
 Monitor key cash flow metrics: Track key metrics like average collection period and
inventory turnover to identify areas for improvement and ensure efficient cash flow
management.

Q6: Financial analysts play a crucial role in identifying companies vulnerable to financial
distress by leveraging cash flow analysis alongside other financial metrics. Here's how:

Deep Dive into Cash Flow Statements:

 Analyze Trends and Ratios: Financial analysts go beyond just the headline numbers in
cash flow statements. They calculate and analyze trends in cash flow over time, along
with ratios like free cash flow to firm (FCFF) and cash flow coverage ratios. These ratios
provide insights into a company's ability to generate cash after meeting operational
expenses and debt obligations.

Identifying Red Flags:

 Declining Cash Flow: Analysts track changes in cash flow over time. A significant and
sustained decline in operating cash flow can be a red flag, indicating deteriorating
profitability or operational inefficiencies that could lead to financial distress.
 Unsustainable Practices: Analysts can identify companies using unsustainable practices
to boost cash flow in the short term, such as delaying supplier payments or selling off
assets. These methods can create a misleading picture of financial health and mask
underlying problems.

Benchmarking and Industry Analysis:

  Comparing to Industry Peers: Analysts compare a company's cash flow metrics to
industry averages to assess its relative performance. A company with lower cash flow
generation compared to peers might be at higher risk,especially in industries with tight
margins.

Integration with Other Financial Measures:

 Holistic Financial Assessment: Cash flow analysis is just one piece of the
puzzle. Financial analysts combine it with profitability ratios, debt levels, and liquidity
metrics to create a comprehensive picture of a company's financial health.

Risk Assessment and Investment Recommendations:

 Identifying Vulnerable Companies: Based on their analysis, financial analysts can

identify companies with a high risk of financial distress. This information is crucial for
investors who want to avoid placing their capital in risky ventures.
 Investment Recommendations: Analysts can use their findings to inform investment
decisions. They might downgrade a company's stock rating or advise against investing in
companies exhibiting signs of potential financial distress based on cash flow analysis.

Additional Considerations:

 Company-Specific Factors: Financial analysts consider company-specific factors like

business model, future growth plans, and upcoming debt maturities to refine their
assessment of financial vulnerability.
 Qualitative Analysis: Financial analysts may also consider qualitative factors, such as
management's track record and the company's competitive landscape, to strengthen their
conclusions.

By employing these strategies, financial analysts act as watchdogs, helping investors and other
stakeholders identify companies at risk of financial distress based on in-depth cash flow analysis.

Q8: Yes, several factors unique to the Vietnamese market can influence the relationship
between cash flow and financial distress for non-financial enterprises listed on the stock market:

1. Rapid Economic Growth and High Debt Levels:

 Vietnam's fast-paced economic growth creates opportunities for companies, but it can
also lead to aggressive expansion plans. Companies might take on significant debt to
finance growth, increasing their financial obligations and straining cash flow if profits
don't keep pace. This can put them at risk of financial distress even with seemingly
healthy operating cash flow.

2. Reliance on State-Owned Enterprises (SOEs):

  Vietnam has a large number of SOEs that play a significant role in the economy. These
companies may receive preferential treatment from banks in terms of access to
credit. This can create an uneven playing field for private companies, who might struggle
to secure financing and have to rely more on internal cash flow, potentially limiting their
growth prospects.

3. Limited Access to Alternative Financing:

 Compared to developed markets, Vietnam's financial markets are less mature. This can
limit access to alternative financing options for companies beyond traditional bank
loans. Companies with high cash flow needs might be forced to rely heavily on
debt, increasing their vulnerability to financial distress.

4. Informal Lending Practices:

 Informal lending practices are still prevalent in Vietnam, particularly for smaller
companies. While these loans can provide quick access to capital, they often come with
high interest rates and shorter repayment terms. This can put a strain on a company's cash
flow and increase the risk of default.

5. Evolving Regulatory Landscape:

 Vietnam's regulatory environment is constantly evolving. Companies need to adapt to

changing regulations, which can sometimes lead to unexpected costs or disruptions in
cash flow. This can make it challenging for companies to maintain a healthy cash flow
position.

Considering these unique factors alongside traditional cash flow analysis can provide a
more nuanced understanding of a company's financial health and its risk of financial
distress in the Vietnamese market.