presentation on Working capital management of Square Textile.pptx

presentation on Working capital management of Square Textile

1. Welcome to our presentation

2. Implication Of working capital management of

3. Group Members Profile SL.NO Name Roll 1 Sazib Sarkar 19132624 2 Eti Akhter 19132626 3 Prionti Debnath 19132623 4 Sunzida Kabir Prome 19132631 5 Alamgir Hossain 19132627 6 Masud Rana Dipu 19132625

4. Executive Summary The presentation contains the Square textiles LTD. profile and Implication of Working Capital Management. The presentation also outlines financial highlights & product analyzing company’s long-term solvency.

5. Overview of The Company Square Textile is a subsidiary company of Square Group The Company was incorporated as a public limited company in the year of 1994. The operation was started in 1997 It was enlisted in Dhaka Stock Exchange & Chittagong Stock Exchange in 2002 It’s paid- up capital is tk. 251.90 million. 1,223 employees are working in this organization The Net Profit after Tax is 207.29 Million BDT of Square Textile in March 2011.

6. Introduction of Working Capital management Working capital management is one of the major issues of corporate finance. The success of any manufacturing company largely relies on the efficient management of working capital. The basic concept of working capital management is (current assets-current liabilities)

7. Concepts of Working Capital

8. Components of Working Capital Inventory Receivable Cash Short Term Investments or Marketable Securities

9. Significance of Working Capital Investment in fixed assets only is not sufficient to run the business. Working capital or investment in current assets, howsoever small it is a must for the purchase of raw materials, and for meeting day-to-day expenditure on salaries, wages, rents, advertising etc and for maintaining the fixed assets. The fate of large scale investment in fixed capital is often determined by a relatively small amount of current asset. Working capital is just like a heart of industry if it is weak, the business cannot prosper and survive, although there is a large body of fixed assets. Moreover, not only the existence of working capital is a must for the industry, but it must be adequate also. Adequacy of working capital is the life blood and controlling nerve center of a business. Inadequate as well as redundant working capital is dangerous for the health of industry. Both situations are not warranted in sound organization.  

10. The Need or Objects of Working Capital For the purchase of raw materials, components and spares. To pay wages and salaries. To incur day-to-day expenses and overhead costs such as fuel, power and office expenses, etc. To meet the selling costs as packing, advertising etc . To provide credit facilities to the customers. To maintain the inventories of raw materials work in progress, stores and spares and finished stock.

11. Management of Working Capital Working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained. ie it is neither inadequate nor excessive. As James C. Van Home defined that "Working capital management usually concerned to involve the administration of these assets namely cash and marketable securities, receivable and inventories and the administration of current liabilities”.

12. Aggressive Approach

13. . Approaches of Working Capital Management The Matching approach. Conservative approach Aggressive approach

14. The Matching approach Under matching approach, long term financing is used to finance fixed assets and permanent current assets and short term financing is used to finance temporary current assets, thereby making the average net working capital equal to zero.

15. Conservative Approach This approach suggest that the estimated requirements of total funds should met from long terms sources; the use of short term funds should be restricted to only emergency situations or when there is an unexpected outflow of funds

16. Aggressive Approach This approach uses relatively high proportion of short term debt. A firm that uses this unable to obtain new financing as needed. In addition the greater possible fluctuation in interest expenses associated with this financial plan also add on the firms risk. These higher risks are offset by the higher expected after tax earning that results from the lower cost of short term debt.

17. Sources of credit Information Seller’s prior experience with the customer Credit agency and Reports Personal Contact with the Applicant’s Bank and other Creditor’s Analysis of financial statements . Customer visit

18. Traditional Approach Capital Character Collateral Capacity Conditions

19. Problems with the method No Analytical Frame Work No Link with Share Holders No Consistency Difficult Inexperience.

20. Ratio Analysis Current Ratio =Total Current assets Divided by Total Current Liabilities = 9,197,615,462/5,661,519,456 = 1.624 Total Current assets 9,197,615,462 Total Current Liabilities 5,661,519,456 Quick Ratio = [Current Assets – Inventory – Prepaid expenses] / Current , Liabilities =( 9,197,615,462-2,664,689,616)/ 5,661,519,456 = 1.1539 Inventories 2,664,689,616

21. Ratio Analysis Accounts Receivable Turnover = 13,293,569,580 /4,808,315,632                                                   = 2.76 times Average Collection Period = 360/2.76                                            = 130 days Annual Sales 13,293,569,580 Account Receivales 4,808,315,632

22. Ratio analysis Inventory Turnover Ratio = 11,858,829,437/2938722626                                           = 4.04 times Inventory Conversion Period = 360/4.04                                                 = 89.211 days Cost of Good sold 11,858,829,437 Average total Inventory 2938722626

23. Ratio analysis Cash Conversion Cycle = (Average collection period + Inventory conversion period) – payment defferrel periof Average Collection Period = 130 days Inventory Conversion Period = 89 days Payment Deferral Period = (Average Accounts Payable / Cost of Goods Sold) x Number of Days in the Accounting Period  ) = 15 days Cash Conversion Cycle = (130 + 89) – 15 = 204 days

24. Ratio analysis = 671,862,451 / 16,261,828,767 =4.13% = 671,862,451/7,632,190,882 =8.803% Net Income 671,862,451 Net Assets 16,261,828,767 Shareholders Equity 7,632,190,882

25. Thank you