fm-2 report (1)

7/31/2019 fm-2 report (1)

1/15

1

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.

7/31/2019 fm-2 report (1)

2/15

7/31/2019 fm-2 report (1)

3/15

3

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.

7/31/2019 fm-2 report (1)

4/15

4

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

7/31/2019 fm-2 report (1)

5/15

5

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.

7/31/2019 fm-2 report (1)

6/15

6

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


Particulars(2009)

HUL 76 -40

BATA 136 20

Arvind ltd. 229 -50


7/31/2019 fm-2 report (1)

7/15

7

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

7/31/2019 fm-2 report (1)

8/15

8

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

7/31/2019 fm-2 report (1)

9/15

9

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.

7/31/2019 fm-2 report (1)

10/15

10

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

7/31/2019 fm-2 report (1)

11/15

11

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.

7/31/2019 fm-2 report (1)

12/15

12

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

7/31/2019 fm-2 report (1)

13/15

13

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



7/31/2019 fm-2 report (1)

14/15

14

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



7/31/2019 fm-2 report (1)

15/15

Documents

fm-2 report (1)