fm-2 report (1)
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INTRODUCTION
As a part of our curriculum, we are doing a project which is basically an Analysis of Retail
Industry and Pharmaceutical Industry. The Analysis has been done on the front of financialconcepts. For the purpose of our study we have selected four retail companies and three
pharmaceutical companies namely:
HUL.
Bata
Arvind Limited
Pantaloons Retail India
Pfizer Pharma
Sun Pharma
Cadila Pharma
The importance of working capital management for these companies is reflected by calculating
the operating cycles for the respective companies.
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Gross operating cycle: It is calculated by adding ICP (RMCP+WIPCP+FGCP) + DCP.The
GOC of HUL is increasing over the years which is indicates that the efficiency of the
management has reduced.
Net operating cycle: NOP is the difference between gross operating cycle and creditor deferral
period. It is also known as cash conversion cycle. When the operating cycle period is short itimplies that the locking up of funds in current assets is for relatively short duration and the
company can obtain greater mileage from each rupee invested in current assets. HUL has
negative NOC. Negative NOC shows that HUL takes credit of about 6 months from its supplier
and gives about a week credit period to its customers. It can do so because of its high reputation
in the market.
BATA INDIA
Bata India 2011 2010 2009 2007 2006
RMCP 10 14 16 18 24WIPCP 7 8 9 9 9
FGCP 83 91 103 111 115
DEBETOR CONVERSION PERIOD 7.806 8.263 8.668 8.987 11.222
CREDITOR DEFERRAL PERIOD 110 113 116 107 131
ICP 100 113 127 138 149
GOC 107 121 136 147 160
NOC -3 9 20 40 29
RMCP: In 2010, Bata takes around 10 days to convert the raw material in work-in progress.
Lower the converting period its better for the company. Higher conversion period implies that
the company is delaying the conversion into WIP.
WIPCP: Highest WIPCP is 9 days which indicates that 9 days worth of cost of production on
the average is held in form of WIP inventory. Lowest the WIPCP its good for the company it
reflects companys ability in managing the work-in-process inventory.
FGCP: Lower time shows how fast the company is selling its finished good, higher time shows
that company is unable to sell its finished good. In 2010 it takes 83 days which is lowest and
highest is 115 days in 2006.Means the company has improved over its financial health over theyears.
Debtors conversion period: In 2006 conversion period is greater than 11 days while it reduces
to below 8 days in 2010, meaning that the company has made advances in recovering cash
receivables from its debtors in these 5 years.
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Creditors Deferral Period: In 2006 Bata took 131 days to pay its creditors while in 2011 it
took 110 days , company is showing a decreasing trend from 2006 to 2011 which is good for the
company.
Gross operating cycle: It is calculated by adding ICP (RMCP+WIPCP+FGCP) + DCP. In case
of Bata it has decreased from 160 days in 2006 to 107 days in 2010.This decreasing gross
Operating cycle implies that the companys ability to convert its resources into cash excluding
the Creditors deferral period has increased in these 5 years.
Net operating cycle: NOP is the difference between gross operating cycle and creditor deferral
period. It is also known as cash conversion cycle. When the operating cycle period is short it
implies that the locking up of funds in current assets is for relatively short duration and the
company can obtain greater mileage from each rupee invested in current assets. Bata has
negative NOC. Negative NOC shows that Bata has always been in a strong position in
generating cash from its assets including the creditors deferral period. From 29 in 2006 to -3 in2011, indicating that the company has got stronger over the period.
ARVIND LTD.
PARTICULARS 2011 2010 2009 2008 2007
RMCP 114.43 105.74 109.79 135.62 228.83
WIPCP 35.28 37.74 33.05 27.70 31.28
FGCP 13.97 17.27 27.31 36.06 29.45
DEBTORS CONVERSION PERIOD 37.70 76.74 59.28 48.16 45.84
CREDITORS DEFESRAL PERIOD 100.04 122.98 136.70 92.90 162.45
ICP 163.68 160.75 170.15 199.38 289.56
GROSS OPERATING CYCLE 201.38 237.49 229.44 247.54 335.40
NET OPERATING CYCLE -48.37 -28.97 -50.10 -8.68 -87.17
RMCP: In these five years taken under consideration, RMCP is gradually decreasing and only
increasing slightly on 2011 to 114.43 days. Lower the converting period its better for the
company. Higher conversion period implies that the company is delaying the conversion into
WIP. So, the RMCP for Arvind Ltd. is favourable.
WIPCP: In 2011, Arvind Ltd. takes 35.28 days to convert semi finished work to finished goods,
which is less than previous year but greater than the other 3 years. This is not favourable
because, lower time period represents better position of company.
FGCP: In 2011, Arvind Ltd. takes 13.97 days to sell the finished goods, which is lowest and
highest is 36.06 days in 2007.Lower time shows how fast the company is selling its finished
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goods, higher time shows that company is unable to sell its finished goods. So, the current trend
is favourable.
Debtors conversion period:In 2011, the debtors conversion period is 37.70 days, the lowest
in all the years and highest is 76.74 days in 2010 for Arvind Ltd. Lower the time period, better it
is for the company. So, the current year has the most favourable DCP.
Creditors Deferral Period: In 2011, Arvind Ltd. took 100.04 days to pay its creditors, which is
lowest except for the year 2008, while the highest is 162.45 days in 2007. Lower the time period,
better it is for the company. So, the current year has the most favourable CDP.
Gross operating cycle: In 2011, the gross operating cycle is 201.38 days, the lowest in all the
years and highest is 335.40 days in 2007 for Arvind Ltd. Lower the time period, better it is for
the company. So, the current year has the most favourable GOC.
Net operating cycle: Arvind Ltd. has negative NOC. In 2007, the net operating cycle is -87.17
days, the lowest in all the years and the highest is -8.68 in 2007. Lesser the NOC, better it is for
the company. So, Arvind Ltd. has a favourable position because of its high reputation in the
market.
PANTALOONS RETAIL INDIA
PARTICULARS 2011 2010 2009 2008 2007
RMCP 4 4 2 2 3
WIPCP 129 152 176 276 274
FGCP 318 166 110 96 88
DEBETOR CONVERSION PERIOD 24 29 41 31 55CREDITOR DEFERRAL PERIOD 55 34 17 26 24
ICP 451 322 289 374 365
GOC 475 351 330 405 420
NOC 420 317 313 385 395
RMCP: If we look at the trend we can see that in 2007 RMCP was 3 days which fall to 2 days
in next years which is good but again it rise to 4 days in 2010 and 2011. Its not favourable for
the company it shows companys inefficiency in converting raw material into WIPCP.
WIPCP: in 2011 WIPCP is 129 days which is quite good in comparison of other years .
FGCP: In 2011, Pantaloon India Ltd FGCP is 318 days worth of cost of sales, has been held in
the form of finished goods inventory on the average.
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Debtors conversion period:In 2011, the debtors conversion period is 24 days, the lowest in
all the years for Pantaloon India Ltd . Lower the time period, better it is for the company. So, the
current year has the most favourable DCP.
Creditors Deferral Period: In 2011, Pantaloon India Ltd. Took 55 days to pay its creditors,
which is highest. Lower the time period, better it is for the company. So year 2009 wasfavourable for the company.
Gross operating cycle: In 2011, the gross operating cycle is 475 days, the highest in all the
years for Pantaloon India Ltd . Lower the time period, better it is for the company. So, the
current year has the not favourable GOC.
Net operating cycle: Pantaloon India Ltd. has the net operating cycle 420 days, the highest in
all the years . Lesser the NOC, better it is for the company. So, Pantaloon India Ltd. is not in
favourable position because of its high NOC.
INTER COMPANIES COMPARISON
Particulars(2011)
GOC(gross operating
cycle)
NOC(net operating
cycle)
HUL 92 -97
BATA 107 -3
Arvind ltd. 201 -48
Pantaloons retail 475 420
Particulars(2010)HUL 97 -87
BATA 121 9
Arvind ltd. 237 -28
Pantaloons retail 351 317
Particulars(2009)
HUL 76 -40
BATA 136 20
Arvind ltd. 229 -50
Pantaloons retail 330 313
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FY 2010-11
From the graph we can analyze the movement of GOC (gross operating ratio) and NOC (net
operating ratio). Pantaloons have both GOC and NOC of 475 and 420 which is not good for the
company. The company which has negative NOC is good since the company is getting more
time to make payments to the creditors so according to it HUL is good. The reduction in average
payment period of the company is likely to enhance the image of the company from the
suppliers point of view.
FY 2010-09
In 2010 if we compare the companies like HUL, BATA, ARVIND ltd., Pantaloons retail with
Industry we can see the trend in GOC and NOC. In 2010 also Pantaloons is having GOC and
NOC of 351 and 317 which is again not good for Pantaloons. In 2010 HUL is having good
-200
-100
0
100
200
300
400
500
600
HUL BATA Arvind ltd. Pantaloons
retail
GOC
NOC
-150
-100
-50
0
50
100
150
200
250
300
350
400
HUL BATA Arvind ltd. Pantaloons retail
GOC
NOC
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reputation in the industry because of which it has a negative NOC of -87 days . HUL can obtain
greater mileage from each rupee invested in current assets.
FY 2009-10
In 2009 Arvind ltd is in advantage as comparing to the other companys because it has -50 as
NOC which is good for the company after Arvind ltd. HUL is the only company having negative
NOC. Highest NOC is of Pantaloons i.e. 313 days which is not acceptable by its suppliers. It will
create bad image of the company in the eyes of its investors.
-100
-50
0
50
100
150
200
250
300
350
HUL BATA Arvind ltd. Pantaloonsretail
GOC
NOC
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Pharmaceutical Industry:
Pfizer Pharma
PARTICULARS 2011 2010 2009
RMCP30.48 24.79 28.40
WIPCP3.24 4.34 4.87
FGCP89.45 38.20 112.28
DEBTOR CONVERSION PERIOD24.09 18.39 17.94
CREDITOR DEFERRAL PERIOD107.85 146.82 135.69
GOC147.26 85.71 163.49
NOC39.41 -61.11 27.80
Raw Material Conversion Period: Pfizer Pharma takes 30.48 in 2011 to convert raw materials
to WIP. It has increased over the years in terms of raw material conversion.
WIPCP: It is time taken by the company to convert the raw materials to finished goods. Pfizer
Pharma has a WIPCP of 3.24 in 2011, which has remained more or less constant over the years.
Debtors Conversion Period: The debtors conversion period is the time taken by debtors to pay
cash after the delivery of goods. It has efficiency decreased slightly over 2009 .
Creditors Deferral Period: It is the time taken by the company to pay its creditors in terms of
cash. Sun Pharma has been reduced its deferral period over the last 2 years.
One of the reasons for a huge credit deferral system can be that Pfizer Pharma is using its Brand
Name of being one of the Largest Pharma Player to gain an advantage in its payment system.
Gross Operating Cycle: It is the total no of days taken by the company from acquiring raw
materials to collect cash for its debtors after its sale. Pfizer Pharmas GOC was 147 days in 2011.
In general, the process of drug manufacturing takes a longer time in the Pharma Industry.
Net Operating Cycle: GOCCredit Deferral System
The NOC of Pfizer Pharma is 39 days in 2011. Its position in 2010 was that it got an immediate
source of finance without any cost for funding its short term assets. Pfizer Pharma has had an
adverse impact on its short term solvency in the year 2010 compared to 2011.
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Sun Pharma
PARTICULARS 2011 2010 2009
RMCP147.53 123.36 135.48
WIPCP 71.39 57.95 88.91
FGCP0.62 0.79 0.76
DEBTOR CONVERSION PERIOD18.71 20.85 77.98
CREDITOR DEFERRAL PERIOD125.67 294.65 209.37
GOC238.24 202.95 303.14
NOC112.57 -91.70 93.77
Raw Material Conversion Period: Sun pharma takes 147.53 in 2011 to convert raw materials to
wip. It has increased over the years in terms of raw material conversion.
WIPCP: It is time taken by the company to convert the raw materials to finished goods. Sun
Pharma has a WIPCP of 71.39 in 2011, which has increased substantially over 2010.
Debtors Conversion Period: The debtors conversion period is the time taken by debtors to pay
cash after the delivery of goods. It has efficiency improved over 2009 as it had tightened itscredit policy.
Creditors Deferral Period: It is the time taken by the company to pay its creditors in terms of
cash. Sun Pharma has been reduced its deferral period over the last 2 years.
One of the reasons for a huge credit deferral system can be that Sun Pharma is using its Brand
Name of being Indias Largest Pharma Player to gain an advantage in its payment system.
Gross Operating Cycle: It is the total no of days taken by the company from acquiring raw
materials to collect cash for its debtors after its sale. Sun Pharmas GOC was 238 days in 2011.
It indicates a very long period of an operating cycle as the mere conversion of raw materials to
finished goods take more than 200 days.
In general, the process of drug manufacturing takes a longer time in the Pharma Industry.
Net Operating Cycle: GOCCredit Deferral System
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The NOC of Sun Pharmacy is 112 days in 2011. Its position in 2010 was that it got an immediate
source of finance without any cost for funding its short term assets. Sun Pharma has had an
adverse impact on its short term solvency in the year 2010 compared to 2011.
Cadila Health care:
PARTICULARS(in lacs) 2011 2010 2009
RMCP 115.95 106.57 65.24
WIPCP 35.5 26.96 15.63
FGCP 8.69 9.32 4.33
DEBTOR CONVERSION PERIOD 73.36 75.75 39.98
CREDITOR DEFERRAL PERIOD 307.61 284.84 152.47
GOC234 244 217
NOC-74.11 -41.52 63.77
Gross operating cycle:The gross operating cycle of the company is approximately 234 for 2011and approximately 244
for 2010 and 217 for 2009.
Net operating cycle:
The net operating cycle of the company is -74.11 for 2011, -41.52 for 2010 and 63.77 in 2009 Itsposition in 2011 was that it got an immediate source of finance without any cost for funding its
short term assets.
Raw material storage period:
From the analysis we can interpret that the raw material storage period is increasing from 66 to
116 days. Here we can also interpret that, while procurement Process Company should take great
care about Vendor selection process, so that the vendor supplies raw materials at regular
intervals of time with specified quality. So, we can conclude that Transportation and
Procurement of raw materials i.e. one of the features of logistics has an impact on working
capital and Inventory management.
Average conversion period
The WIPCP has substantially increased for the company from 16 days to 36 days.From the analysis we can interpret that production cycle play its key role in the
conversion period. For production, one of the features of logistics i.e. proper plant layout isnecessary and proper movements of goods.
Average collection period
The ACP has increased over the year which shows that the speed of the collection has comedown. A Lower ACP implies that the management is efficient.
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Average Payment PeriodThe number of days a company takes to pay offcredit purchases. The collection period is less
and the payment period is more which signifies that the company collects its credits early and
has sufficient time to repay it payments .Meanwhile Company can invest that amount in its
working.
COMPANIES COMPARISON
particulars(2011)
GOC(gross operating
cycle)
NOC(net operating
cycle)
Pfizer 147.26 39.41
Sun Pharma 238.24 112.57
Cadila Healthcare 233.5 -74.11
particulars(2010)
Pfizer 85.71 -61.11
Sun Pharma 202.95 -91.7
Cadila Healthcare 218.6 -66.24
particulars(2009)
Pfizer 163.49 27.8
Sun Pharma 303.14 93.77Cadila Healthcare 125.18 -27.29
2011
http://www.investorwords.com/7230/take.htmlhttp://www.investorwords.com/10568/pay_off.htmlhttp://www.investorwords.com/10568/pay_off.htmlhttp://www.investorwords.com/7230/take.html -
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From the graph we can analyzed the movement of GOC (gross operating ratio) and NOC (net
operating ratio Sun Pharma have both GOC and NOC of 238.24 and 112.57 which is not good
for the company. The company which has negative NOC is good so according to it Cadila is
good the reduction in average payment period of the company is likely to enhance the image of
the company from the suppliers point of view.
2010
In 2010 if we compare the companies like Pfizer,Sun Pharma & Cadila, In 2010 Sun Pharmas
GOC was still bad at 202.95 but NOC was better at -91 . In 2010 Pfizer and Cadila was having a
good reputation in the industry because it was having negative NOC of -61 & -66 days which is
-100
-50
0
50
100
150
200
250
Pfizer Sun Pharma Cadila
Healthcare
GOC(gross operating cycle)
NOC(net operating cycle)
-100
-50
0
50
100
150
200
250
Pfizer Sun Pharma Cadila
Healthcare
GOC(gross operating cycle)
NOC(net operating cycle)
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good in comparison of other company. Both the companies can obtain greater mileage from each
rupee invested in current assets.
2009
In 2009 Cadila healthcare has an advantage as comparing to the other companys because it has -
27 as NOC which is good for the company.After Cadila no company had negative NOC. Highest
NOC is of Sun Pharmacy i.e. 303 days which is not acceptable by its suppliers. It will create bad
image of the company in the eyes of its investors.
Industry Comparison:
Comparing both the industries it is evident that the Pharma Industry has a much lower NOC
while the NOC is slightly higher as manufacturing takes a slightly longer time in the pharma
industry. This is due to the extensive tests conducted on the drugs before they are released in the
market.
-50
0
50
100
150
200
250
300
350
Pfizer Sun Pharma CadilaHealthcare
GOC(gross operating cycle)
NOC(net operating cycle)
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