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FINANCIAL MANAGEMENT
Working Capital
Operating Cycle =
Days in Inventory (115 days)
+
Days in Receivables (65 days)
=180 days
Operating Cycle =
Inventory Conversion Period +
Debtors (Receivable)
Conversion Period
Work in Progress
Estimated yearly production x WIP Cost x Average production cycle
(in units) (per unit) (months /days)
12 months /365 days
Finished Goods
Estimated yearly production x *Cost of Goods produced x Average holding period
(in units) (per unit) (months /days)
12 months /365 days
* Excluding depreciation
Debtors
Estimated yearly credit sales x *Cost of Sale x Average collection period
(in units) (per unit) (months /days)
12 months /365 days
Trade Creditors
Estimated yearly production x Raw Material Cost x Average Credit Period
(in units) (per unit) (months/ days)
12 months /365 days
PERMANENT
WORKING
CAPITAL
FINANCING MIX POLICIES
Aggressive Financing Policy
Temporary Working Capital +Some Part of Permanent Working
Capital
Working Capital Management of BEL
Discussion questions:
(i)Comment on the working capital policy of BEL.
(ii)Analyse the assets composition for resources availability using
‘current assets to total assets ratio’ and liquidity ratios.
(iii)Calculate and evaluate the operating cycle and cash cycle of BEL.
(AHP for 2014 was 189 days and ACP for 2014 was 217 days
APP for 2014 and 2015 was 85 and 79 days)
(iv) What are the areas of working capital which need to be focused
for efficiency?
Additional Information:
Trade Receivables (Rs. million)
March,14 March,15
Good - Over 6 Months 18,088 23,035
Good - Less than 6 months 23,197 14,826
1. BEL’s Working Capital Policy
= 6,90,981.45 6,07,713.41
2. BEL (Operating Risk - Operational Efficiency)
(Rs. in million)
March, 11 March, 12 March, 13 March, 14 March, 15
*Fixed Assets comprise of Net Block and Capital Work- in- Progress
BEL’ CCC
= AHP + ACP – APP = 178 d + 211 d - 79 d 189 d+217 d - 85
d
60,000
50,000
40,000
30,000
20,000
10,000
0
Cash & Short- Other
Trade
Bank Term Loans Current
Inventories Receivables
Balances & Advances Assets
March,11 23,501 28,966 65,194 4,173 224
March,12 26,750 26,866 67,725 15,078 616
March,13 31,913 33,347 53,025 13,079 792
March,14 32,987 41,285 45,644 11,535 663
March,15 33,694 37,861 58,815 6,904 535
In Rs. million
First, we talk about Inventories
BEL (INVENTORY MANAGEMENT)
200.00
150.00
100.00
50.00
0.00
Inventory Turnover Ratio
AHP (days)
(In times)
March,11 2.33 157
March,12 2.30 159
March,13 2.08 175
March,14 1.93 189
March,15 2.05 178
150.00
100.00
50.00
0.00
Debtors Turnover
ACP (days)
Ratio (In times)
March,11 2.21 166
March,12 2.07 177
March,13 2.03 180
March,14 1.68 217
March,15 1.73 211