RAW MATERIAL STORAGE PERIOD
Automobile Sector:
2011 2010 2009
Force Motors
81.2314
9
112.882
4
50.6332
1
Hindustan Motors
973.739
9
495.380
3
666.149
4
Volkswagen
0.03089
7 0 0
Eicher Motors 16.2818
16.5441
8 36.5251
010002000
200920102011
Power Sector:
2011 2010 2009
JP POWER
1050.74
7 -355.193
525.088
8
TATA POWER 8.89035
8.14364
4
10.2996
3
GVK POWER -1855.75 1190.93 -560.615
2011
2010
2009
-1000-500
0500
10001500
GVK POWERTATA POWERJP POWER
RAW MATERIAL STORAGE PERIOD ANALYSIS
It is the average time period taken to convert raw material into work in process.
FORMULA = AVERAGE RAW MATERIAL INVENTORY/ AVERAGE DAILY RAW
MATERIAL CONSUMPTION
RMSP = f (raw material consumption per day, raw material inventory)
Automobile Sector:
The raw material storage period for Hindustan Motors has decreased for the year 2010 due to the
comparative increase in the total consumption than the increase in average stock of raw material.
In the year 2011 there has been a decline in the raw material storage period due to the fall in the
total consumption.
The raw material storage period for Force Motors has suddenly increased during the year 2010
because of a significant increase in the consumption of raw materials as well as the average stock
of raw materials. The increase in the average stock of raw material is the main cause of an
increase in the RMSP.
The raw material storage period of Eicher has decreased from 2009 to 2010 and had remained
same from 2010 to 2011. The decrease in 2010 is because of the drastic fall of average stock of
raw material compared to total consumption of raw material. And both the values have remained
almost same from 2010 to 2011.
The raw material storage period for Volkswagen is minimal as compared to all the other
automobile firms. This can be attributed to the fact that Volkswagen does not manufacture in
India but has its operations in Germany and therefore the amount of raw material that they keep
here is minimal. They take orders from customers and order the various parts which are then
imported and assembled and delivered to the customer.
Power Sector:
The RMSP for Tata Power has almost remained same for the three years. There has been
consistency in operations.
The RMSP has decreased from 2009 to 2010 and has increased from 2010 to 2011.The reason
being is fluctuation in stock of their stores and spares.
The RMSP has been fluctuating over the years. It has been negative for the years 2011 and 2009
because of the fluctuation in raw material purchases.
Among all the power sector firms TATA power has been consistent while GVK has fluctuated a
lot. This shows the inefficiency of GVK.
WORK IN PROCESS CONVERSION PERIOD
Automobile Sector:
2011 2010 2009
Force Motors 21.0187
13.5939
4 13.9763
Hindustan Motors
31.3615
7
28.9359
2
42.5380
5
Volkswagen 0 0 0
Eicher Motors
2.70914
7
2.66128
2
4.47352
3
060
120
200920102011
Power Sector:
2011 2010 2009
JP POWER 0 0 0
TATA POWER
0.14777
3
0.22639
4
0.12952
5
GVK POWER 0 0 0
0
0.1
0.2GVK POWERTATA POWERJP POWER
WORK IN PROGRESS CONVERSION PERIOD
WIPCP is the average time taken to complete the semi finished work or work in process. Lower
the value of WIPCP, better it is i.e. the ability of the firm to complete the work in less number of
days. Also it shows the efficiency of the firm.
FORMULA = AVERAGE WORK IN PROCESS INVENTORY/ AVERAGE DAILY COST
OF PRODUCTION
WORK IN PROCESS CONVERSION CYCLE
Automobile Sector:
The work in process conversion period for Eicher motors is very small for all the three years.
This means that the management is quite efficient and they are converting their WIP to finished
goods as very fast. Also this means that not a lot of funds are stuck in WIP. For the years 2009
the WIPCP was approximately 5 days which dropped approximately 3 days for the year 2010
and 2011.
The WIPCP for Hindustan Motors has at first decreased from 43 days in the year 2009 to 29 in
the year 2010. This decrease may be due to the decrease in depreciation from the year 2009 to
2010. Also in the year 2011 the WIPCP has increased from 29 days to 32 days. This is due to a
decrease in the cost of production. Also there is a decrease in the average WIP but this decrease
is very less as compared to the decrease in the cost of production.
The WIPCP for Force Motors is consistent for the first two years of 2009 and 2010 but for the
year 2011 it has shown a significant increase in the year 2011 because of the significant increase
in depreciation in the year 2011.
Again the value of WIPCP is zero for the same reason as mentioned above for Volkswagon.
Power Sector:
The WIPCP for GVK, JP and Tata is zero because the average WIP is zero. This is because the
company functions in the power industry which has negligible work in progress. And therefore
the WIPCP is zero.
FINISHED GOODS STORAGE PERIOD
Automobile Sector:
2011 2010 2009
Force Motors
21.1342
3
18.4292
4
17.8921
5
Hindustan Motors
18.3886
5
16.1680
9
16.7280
8
Volkswagen
13.3859
3
13.6393
2 0
Eicher Motors
8.15860
5
7.54732
1
24.3843
3
060
120200920102011200920102011
Power Sector:
2011 2010 2009
JP POWER 0 0 0
TATA POWER 0 0 0
GVK POWER 0 0 0
FINISHED GOODS CONVERSION PERIOD
FGCP is the average time taken to sell the finished goods. Lower the value of FGCP, better it is
i.e. the ability of the firm to convert finished goods into sales is fast and it would also enhance
efficiency and lower inventory.
FGCP = AVERAGE FINISHED GOODS INVENTORY/ AVERAGE DAILY COST OF
SALES
The FGSP has been consistent for 2009 and 2010. However it has shown a slight increase in
2011 due to the increase in the average finished goods.
The FGSP has shown a continuous increase over the years which is because of the steady
increase in the average finished goods.
The FGSP has declined drastically from 2009 and has remained at almost the same level. The
decline is due drastic fall in average finished goods compared to the annual cost of sales.
The FGSP is zero for all the power companies because in power sector there cannot be any
storage for power generated. It is consumed as soon as produced.
ACCOUNTS COLLECTION PERIOD
Automobile Sector:
2011 2010 2009
Force Motors
25.9928
2
32.5919
4
44.5636
5
Hindustan Motors
8.86515
1
8.46704
7
7.36495
7
Volkswagen
287.009
4
213.385
6 360
Eicher Motors
3.62487
7
4.92828
6
2.65536
1
0400800
200920102011
Power Sector:
2011 2010 2009
JP POWER
86.5346
7
83.3811
1
143.823
5
TATA POWER
129.583
8
100.925
1
92.3034
3
GVK POWER
594.082
5
523.019
6
885.327
2
0
400
800
1200
GVK POWERTATA POWERJP POWER
AVERAGE COLLECTION PERIOD
ACP is the average time taken to convert debtors into cash.
FORMULA = AVERAGE DEBTORS/ AVERAGE DAILY CREDIT SALES
Lower the value of ACP, better it is i.e. the company is able to convert the debtors into cash at a
faster rate, so the cash received can be utilized for the faster operating cycle and hence its
efficiency is good. It also indicates the efficiency of the management. An effective control of
receivables helps a great deal in properly managing it.
The average collection period for Volkswagen is a little on the higher side which indicates the
inefficiency of the management to convert debtors into cash. As compared to all the automobile
companies the ACP for Volkswagen is the highest.
AVERAGE PAYING PERIOD
Automobile Sector:
2011 2010 2009
Force Motors
224.811
2
204.175
7
178.706
7
Hindustan Motors
2553.65
1
2205.18
2
2434.73
7
Volkswagen
301.265
4 221.261 360
Eicher Motors
100.686
3
98.5373
9
50.8785
7
040008000
200920102011
Power Sector:
2011 2010 2009
JP POWER
36311.4
5
11723.3
1 1587.47
TATA POWER
134.559
2
98.2562
7
76.4427
7
GVK POWER 0
7652.71
1 0
2011
2010
2009
010000200003000040000
GVK POWERTATA POWERJP POWER
AVERAGE PAYING PERIOD
APP is the average time taken by a firm to pay its suppliers or creditors.
FORMULA = AVERAGE CREDITORS/ AVERAGE DAILY CREDIT PURCHASES
Higher the value of APP, better it is i.e. the firm has more number of days to pay its creditors
back.
GROSS OPERATING CYCLE
Automobile Sector:
2011 2010 2009
Force Motors
149.377
2
177.497
5
127.065
3
Hindustan Motors
1032.35
5
548.951
3
732.780
5
Volkswagen
300.426
2
227.024
9 360
Eicher Motors
30.7744
3
31.6810
6
68.0383
1
010002000
200920102011
Power Sector:
2011 2010 2009
JP POWER
1137.28
1 -271.812
668.912
2
TATA POWER
138.621
9
109.295
1
102.732
6
GVK POWER 594.082 523.019 885.327
5 6 2
-5000
500100015002000
GVK POWERTATA POWERJP POWER
GROSS OPERATING CYCLE
GOC is the time taken to convert cash into cash.
The process of this conversion is as follows:
CASH RAW MATERIAL WORK IN PROCESS
SUPPLIERS FINISHED GOODS
DEBTORS CASH
FORMULA: GOC = RMSP + WIPCP + FGSP + ACP
NET OPERATING CYCLE
Automobile Sector:
2011 2010 2009
Force Motors -75.4339 -26.6781 -51.6414
Hindustan Motors -1521.3 -1656.23 -1701.96
Volkswagen -0.83922
5.76390
3 0
Eicher Motors -69.9119 -66.8563
17.1597
5
-6000
-4000
-2000
0
200920102011
Power Sector:
2011 2010 2009
JP POWER -35174.2 -11995.1 -918.558
TATA POWER
4.06270
8
11.0388
7
26.2898
2
GVK POWER 0 -7129.69 0
-40000
-30000
-20000
-10000
0
GVK POWERTATA POWERJP POWER
NET OPERATING CYCLE
NOC is the equal to difference between GOC and APP.
Lowe the value of NOC, better it is i.e. if the NOC is negative then it indicates that the firm had
those number of extra days to pay to its creditors or suppliers.
FORMULA: NOC = GOC - APP
The net operating cycle for Force Motors is in the negative which is a good sign which implies
that the management has an additional those many days to pay back their creditors. This also
shows that the operations of the firm are efficient and they are able to convert their raw materials
into cash far more efficiently than in any other company. For the year 2010 NOC is greater than
the other two years. This anomaly can be attributed to the sudden increase in the credit purchases
of the raw materials.
The NOC for Eicher Motors for the year 2009 is positive and the NOC for both 2010 and 2011 is
negative. This shows a significant drop in the NOC and this indicates a better and efficient
management of the company. This can be attributed to the significant increase in the average
purchasing period of the company in the years 2010 and 2011.
The NOC for Hindustan Motors has been negative for all the years. The APP has been very high
for the firm. Such a high NOC reflects the inability of the company to meet its financial charges
and the creditors will hesitate in lending the firm.
The net operating cycle for Volkswagen is relatively constant for all the three years with a
standard deviation of +/- 5 days. This indicates that Volkswagen is quite efficient in managing its
working capital but it can get better if it reduces its average collection period.
The net operating cycle shows that how many times the working capital is turned over in a year.
It represents the net time gap between investment of cash and its recovery out of sales revenue.
The length of the operating cycle is the indicator of the operational management of the company.
The NOC for Tata Power has declined over the years because of the drastic increase in payment
period compared to the increase in GOC. This shows that the firm has more time period to pay
its creditors which is good for the firm. Currently the power sector is reeling under huge losses
so it is good to have a high payment period.
The NOC for JP Power is decreasing over the years drastically but such huge fluctuations are not
accepted because the creditors will lose faith in the company. Also, because the company is in
huge loses so it is unable to meet its financial charges and hence APP has increased drastically.
This is leading to negative NOC.
The NOC for JP Power cannot be defined for 2011 and 2009 because the purchases is zero in
these years as the company in power sector is in loses and unable to meet its charges. In 2010 the
NOC is highly negative because the creditor’s payment period is very high.
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