...Executive Summary Managing Working Capital in an Affiliation with Sappi Fine Paper Europe as a Demonstration of Evidence The working capital ratio is a key figure in financial management. It characterizes how much financial funds are required by short term, operating activities. The calculation of working capital functions are as so; Inventory + Trade Receivables – Trade Liabilities. The core objective is maintaining the lowest working capital as possible in order to reduce financial responsibility, without endangering the ability to operate the business. Furthermore the reduced working capital forces efficiency of invested capital, releases cash from balance sheets and improves balance-sheet-structures. For that reason the direction of Sappi Fine Paper Europe set a working capital goal for each subsidiary which it is obliged to follow. The ratio must be not more than 12.5 % of annual turnover. However, to achieve the goal an active working capital management is required. Therefore an organisation to control should be drawn up and controlling measures to improve the figure must be defined and carried out. Setting up an organisation for the working capital management is the precondition to control working capital effectively and sustainably. Firstly, it is essential to define who is responsible for the controlling process. The figure must be calculated, planned and improved. Therefore further key ratios must be defined and targets set. In addition, continual target-performance...
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...on Working Capital Management Prepared for Prof. M Shahjahan Mina Department of finance University of dhaka Prepared by Asif Mohammad Bakar (ID # 15065) Fahad Zaman Chowdhury (ID # 21034) Submitted on: 19-8-2013 Letter of Transmittal 19th August, 2013 Prof. M. Shahjahan Mina Department of Finance, University of Dhaka. Subject: Submission of term paper Dear Sir: We, a group of EMBA Program, Department of Finance, have prepared a term paper on “Working Capital Management” as per your guideline. We have prepared this report using financial statements of Heidelberg Cement Bangladesh Limited using data from year 2008 to year 2012. We, therefore, lay our highest level of gratitude to you to consider our limitations and restrictions and grant this report. Sincerely Yours, Fahad Zaman Chowdhury Asif Mohammad Bakar EMBA Program Department Of Finance. University Of Dhaka. Table of Contents Serial No. | Chapter Name | Page No. | 1 | Introduction | 01 | 2 | Company profile | 02 | 3 | Statement of Problem | 03 | 4 | Methodology of Analysis | 04 | 5 | Theoretical Background | 05 | 6 | Working Capital of HEIDELBERG CEMENT BANGLADEHS LTD. | 07 | 7 | Cash Flow | 09 | 8 | Ratio Analysis | 11 | 9 | Cash Conversion Cycle | 13 | 10 | Recommendations of HCBL for better Working Capital Management | 15 | 11 | Conclusion | 16 | 12 | Bibliography | 17 | Executive Summary Working Capital refers...
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...Lawrence Sports Simulation Lawrence Sports experienced difficult times in March and April when their biggest consumer could not pay for its products. Because of this, the cash conversion cycle was examined as well as the working capital management presently used. Additional views were studied to determine the best course of action for the company. Although multiple factors play a role in determining the best working capital management policy, Team D will offer recommendations and how each philosophy would be beneficial for Lawrence Sports. Cash Conversion Cycle Emery, Finnerty, and Stowe (2007) summarized that “the cash conversion cycle is the length of time between when a firm pays its accounts payable and when it collects on its accounts receivable and is equal to the inventory conversion period plus the receivables collection period minus the payables deferral period” (p. 659). The initial start for the cash implementation plan would be to create and demonstrate a vendor program, such as a payable deferral period program and create longer cash conversion cycles for floating payment programs for payments going to the banks. Next pre-arrange the short term borrowing program by using short term marketable securities. The Lawrence Sports Company financial departments need to begin following strict money formulas before any transactions pertaining to the market are made. Then it would be smart to hold cash balances for pertinent needs. This will allow and open doors for...
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...indicate whether a company can continue without going concern problem. Working capital is subtractive between current assets and current liabilities, and it is helpful to increase firm’s profitability in the short term but taking a risk of insolvency. Manager of a firm are desired to find a balance between liquidity and profitability to improve cash flow and maximize shareholder’s wealth. As soon as a company starts to run its business, it comes the decision and strategy about how much cash or inventory should be hold, how to financing and investing funds, how much debt to take and how long for the payment periods. Those decisions have serious influences on business cash flow and profitability. The Meaning of Working Capital The way to calculate working capital is: Working capital = Current Assets – Current Liabilities “Current assets may include inventories of raw materials, work-in-progress and finished goods, trade receivables, short-term investments and cash, while current liabilities may include trade payables, overdrafts and short-term loans.” (See table 1) “Working capital is the result of subtracting current liabilities from current assets. It is a measure of a company's solvency, its capacity to make large purchases and take advantage of bulk discounts, and its ability to attract customers by offering advantageous credit terms” (Conrad Carlberg, April 2, 2008) “Net working capital represents the excess of current assets over current liabilities and is...
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...Brian King and Office Mates’ Board of Directors Executive Summary Due to the slowing demand for our paper storage products, the firm has decided to move towards manufacturing and distribution of computer CD’s and diskette storage systems which is believed to be the future of our business. These changes have sparked an interest in our management to overhaul the current financial policies. Therefore, this financial team was created and asked to help Bob Knight analyze three working capital policies: aggressive, conservative, and moderate. A decision must be made to determine which policy will be the most beneficial for the future of Office Mates. Each policy has its own unique pros and cons, and changes that come with estimating different economic outlooks. * Aggressive policy * Minimizing the amount of cash and inventories * Use only short-term debt * Would result in the smallest investment in net working capital * Minimize accounts receivables * Moderate policy * Falls between the aggressive and conservative policies * Conservative policy * Holding large amounts of cash and inventories * Use only long-term debt * Maximize accounts receivables After analyzing each policy and comparing them with the needs of Office Mates, it has been concluded that Office Mates should use the conservative policy. This will put Office Mates in the working capital structure with the highest ROE at the lowest risk. We also...
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...Coca-Cola Co. (KO) | Short-term (Operating) Activity Analysis Activity ratios measure how efficiently a company performs day-to-day tasks, such us the collection of receivables and management of inventory. * Ratios (Summary) * Inventory Turnover * Receivables Turnover * Payables Turnover * Working Capital Turnover * Average Inventory Processing Period * Average Receivable Collection Period * Operating Cycle * Average Payables Payment Period * Cash Conversion Cycle Ratios (Summary) Coca-Cola Co., short-term (operating) activity ratios | | Dec 31, 2010 | Dec 31, 2009 | Dec 31, 2008 | Dec 31, 2007 | Dec 31, 2006 | | Turnover Ratios | | Inventory turnover | 13.25 | 13.16 | 14.61 | 13.00 | 14.68 | | Receivables turnover | 7.93 | 8.25 | 10.34 | 8.70 | 9.31 | | Payables turnover | 18.61 | 21.98 | 23.32 | 20.91 | 25.93 | | Working capital turnover | 6.76 | 6.59 | 8.18 | 6.94 | 7.30 | | Average No. of Days | | Average inventory processing period | 28 | 28 | 25 | 28 | 25 | | Add: Average receivable collection period | 46 | 44 | 35 | 42 | 39 | | Operating cycle | 74 | 72 | 60 | 70 | 64 | | Less: Average payables payment period | -20 | -17 | -16 | -17 | -14 | | Cash conversion cycle | 54 | 55 | 45 | 53 | 50 | Source: Based on data from Coca-Cola Co. Annual Reports Ratio | Description | The company | | | | Inventory turnover | An activity ratio calculated as revenue divided by inventory...
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...MINIMIZING WORKING CAPITAL In the finance world, all successful firms efficiently manage their own working capital in many different ways. The term working capital originated with an old Yankee peddler who would load up his wagon and go off to peddle his merchandise (wares) for sale. This merchandise was called working capital because it was what he actually sold or turned a profit on to produce his profits. The wagon and the horse used are considered his fixed assets. He generally owned the horse and wagon, so those were always considered financed with equity capital, but his merchandise was always bought on credit, which was just like borrowing from the bank (his supplier). The more trips this peddler made each year, the faster his working capital grew. This was the start of working capital and is the main reason why a business places importance and finds many challenges pertaining to minimizing working capital. (Brigham & Houston, 2013, pg 535) Working capital is a financial metric which represents operating liquidity available to a business, organization or other equity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered part of operating capital. Gross working capital equals to current assets. Net working capital (NWC) is calculated as current assets minus current liabilities. It is a deviation of working capital, which is commonly used in valuation techniques such as DCFs (Discounted cash flows)...
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...Working Capital Structure and Financing Pattern of Mauritian SMEs Kesseven Padachi*; C. Howorth[1]; M. S. Narasimhan[2] and R. Durbarry3 *School of Business, Management and Finance University of Technology, Mauritius La Tour Koenig, Pointe – aux – Sables, Mauritius kpadachi@utm.intnet.mu ABSTRACT The competitive nature of the business environment requires firms to adjust their strategies and adopt good financial policies to survive and sustain growth. Most firms have an important amount of cash invested in current assets, as well as substantial amounts of current liabilities as a source of financing. This paper therefore analyses the working capital structure and financing pattern of small to medium-sized Mauritian manufacturing firms, using primarily secondary data. Structural differences in working capital and the financing pattern of the sample firms are analysed and the results showed significant structural changes over the study period. The research finding revealed disproportionate increase in current asset investment in relation to sales resulting in sharp decline in working capital turnover. The analysis also revealed an increasing trend in the short-term component of working capital financing; in particular trade credit and other payables have financed the major part of working capital. This over-concentration on short-term funds is a reality of the SMEs as they often faced difficulties in raising finance and they are viewed to be informationally opaque....
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...Submitted To: Submitted By: Prof. R. Srinivasan Gulshan Sharma FPG1113/021 Impact of working capital on the profitability of the firm | Table of Content Topic.............................................................................................................................Page No. Acknowledgement........................................................................................................ 3 Executive Summary...................................................................................................... 4 Company Profile........................................................................................................... 5 Introduction.................................................................................................................. 10 Objective...................................................................................................................... 19 Research Methodology................................................................................................ 19 Limitation..................................................................................................................... 19 Data Analysis............................................................................................................... 20 Findings............................................................................................
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...Krispy Kreme DoughnutsQuestion 1: Analysts are predicting that Krispy Kreme will be able to perform highly effectively andcontinue to grow rapidly in the coming two years. Do you agree with their analysis? If so, why? If not,why not? Key factors underlying growth: 1.Brand based on high quality product, highly differentiated products, high-volume production2.Fragmented (regional) competition with less brand recognition3.Strong opportunities to extend network of stores geographically.4.Great steps to insure customer satisfaction from the use of their proprietary flour recipe totheir automated doughnut making machines. Question 2: What factors did the CIBC analysts examine to forecast sales growth for KKD in the yearsended January 2003 and 2004? What assumptions did they implicitly make about number of new storesand weekly sales per store (for both company and franchise stores)? What are their implicitassumptions about revenue growth from franchise operations and KKM&D? Do you agree with theseforecasts? Revenue Forecasts The CIBC analysts’ forecasts were constructed using per store information. • Company plans to add 62 new stores in 2003, mostly through area developers. • Revenues per new store: Initial boom, followed by leveling off. Also, not all new stores areopen for full year. • Revenue growth per new store has been impressive. Franchise store revenue growth is stillhigh, as the number of area developers increase, with store revenue patterns comparable tocompany...
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...Working Capital Simulation: Managing Growth FIN/571 June 15, 2015 Professor William Mellett Taking this Corporate Finance course has helped me gain the knowledge to view this simulation and provide a summary of why I made the decisions I did. If this was real-life and I was the CEO of Sunflower Nutraceuticals (SNC) I would need to be able to perform this analysis of the company. The analysis of the simulation and the decisions made will to increase SNC’s working capital and maximize SNC’s growth. According to Investopedia (2015), working capital ensures a company, like SNC, has sufficient cash flow in order to meet its short-term obligations and operating expenses. This paper will describe the decisions made in each phase in regards to SNC’s working capital and show the final results. Sunflower Nutraceuticals Background Sunflower Nutraceuticals (SNC) was founded in 2006 and is a privately owned nutraceuticals distributor of dietary supplements, herbs for women, minerals, and vitamins for all age groups. SNC customers include retail (mainly women), distributors and retailers. In 2006, SNC extended their business into retail outlets and introduced several of their own private-label brands, including a women’s sports drinks, metabolism-boosting powers, and vitamin’s for teenage girls. SNC has the potential to grow into a leading distributor but they are breaking even, have flat annual sales growth, have struggled to meet payroll obligations, and have exceeded their...
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...MEMORANDUM To: Mr. George Dodge Date: 1th June 1991 Subject: Business Analysis of Butler Lumber Business and Loan Recommendation We would like to make concise summaries of a prospective client, Butler Lumber Company led by Mr. Mark Butler- a sole owner and president. Butler Lumber Company was founded in 1981 as a partnership by Mark Butler and Henry Stark, located in growing suburb area of a large city in the Pacific Northwest. Company typical products include plywood, molding, and sash and door. Generally, sales revenue was high in Q2-Q3 of each year. Product sold was limited in local market, distribution channel available on telephone order taking only, and there are no sales representatives employed. Key success factors for the company is cost efficiency and having good relationship with suppliers. In year 1988 Mr. Butler decided to buy share back from Mr. Stark in 1988 worth $105,000 the payment for Mr. Stark’s note was made in this year. The major portion of this amount was raised by a secured loan $70,000 with 11% interest rate. As we analyze the company balance sheet between 1988 to 1st quarter of 1991, net worth increased approximately 32% as the company has net profits every year. Use of funds under Assets are account receivables, inventories, and fixed assets; increases of 102%, 133%, and 29% respectively. The reasons are that the company is unable to collect money from customers based on 30-day credit term (average DSO is 40 days) and inventory...
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...[pic] Strategic Management Accounting (APC 309) Individual Assignment Part 1/ Question 1 Executive Summary The purpose of this report is to cover one of the most important topics in management accounting and analyze them critically. This topic is about traditional approach of budgeting and budgetary control. Analyzing this topic will help to find the benefits and problems of traditional budgeting in two different business, where they are operating at different business environment. It will also discuss some of the alternative methods of budgeting and how it can suit, where traditional methods are inappropriate. The beyond budgeting concept, by Hope and Fraser (2003) will be discussed to find critical and deep evaluation on the budgeting process. Table of contents Pages Introduction. 01 Traditional budgeting. 02 2.1 Multiple Functions. 02 2.2 Benefits. 03 2.3 Problems. ...
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...Super Project EXECUTIVE SUMMARY When Crosby Sandberg stated in the opening paragraph of the case, “What I learned about incremental analysis at the Business School doesn’t always work.” He came to the conclusion that sunk costs were relevant to capital project evaluations. In this case though, he could not have been more wrong. The sunk costs are lost once they are spent, and should definitely not be used to evaluate the Super Project. General Foods is a large company with various divisions in both domestic and foreign operations. One account executive states that they want to grow more rapidly than the GDP, and develop projects accordingly. The Super Project will allow them to reach that goal. The NPV in the base is $2,196.30, with an IRR of 25.6%. Even in the worst case scenario, which includes change in net working capital as well as after tax erosion, the NPV is $232.70 with an IRR of 10.3%, far outpacing national GDP growth. General Foods enjoys a significantly large market share in the food business. They face many risks from competitors, and they actively seek the opportunity to fill out their product line whenever possible. As of the moment the company lacks a large share of the dessert market. Super would offer the company a chance to develop a larger share of that market, and even with the serious risk of erosion present, the larger risk is losing leadership throughout the food industry. P.D.C. Consulting highly recommends that management actively seeks...
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...Two Readings on Working Capital Management Keys To Successful Working Capital Management From the perspective of the Chief Financial Officer (CFO), the concept of working capital management is relatively straightforward: to ensure that the organization is able to fund the difference between short-term assets and short-term liabilities. In practice, though, working capital management has become the Achilles' heel of scores of finance organizations, with many CFOs struggling to identify core working capital drivers and the appropriate level of working capital. As a result, companies can be limited in their ability to weather unforeseen or adverse events and ensure that cash is readily available where it is needed, regardless of the circumstances. By understanding the role and drivers of working capital management and taking steps to reach the "right" levels of working capital, companies can minimize risk, effectively prepare for uncertainty and improve overall performance. Factors Influencing Working Capital Performance For most CFOs, the greatest challenge with respect to working capital management is the need to understand and influence factors that are out of their direct control, in order to obtain a complete picture of the company's needs. The CFO's span of control can be limited in terms of functional silos, though corporate finance may well have some powers of influence over operating units. While organizations generally concentrate on the right processes, such as...
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