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 financial concepts. 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.

Retail Industry
NET OPERATING CYCLE HINDUSTAN UNILEVER INDIA Approximately(in days) particulars RMCP WIPCP FGCP DEBETOR CONVERSION PERIOD CREDITOR DEFERRAL PERIOD ICP GOC NOC

2011 43 8 26 15 189 77 92 -97

2010 50 7 26 12 183 84 97 -87

2009 44 3 20 9 117 68 76 -40

2007 56 1 23 12 154 81 93 -61

2006 52 1 21 7 80 75 81 2

RMCP: Raw material conversion period is the average time period taken to convert material into work-in- progress. In 2011, HUL takes around 43 days to convert the raw material in workin progress. Lower the converting period its better for the company. Higher conversion period implies that the company is delaying the conversion into WIP. WIPCP: Work-in-progress conversion period is the average time taken to complete the semifinished work. In 2011, the company takes 8 days to convert semi finished work which is longer as compared to the previous years. Lower time period represents better position of the company. FGCP: Finished good conversion period is average time taken to sell the finished good. 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 2011 it takes 26 days which is highest and lowest is 20 days in 2009. Debtors conversion period: Debtor conversion period is the average time taken to convert debtors in to cash. Lower the time period its better for the company. In 2006 conversion period is 7 days the lowest in all the years and highest is 15 days in 2011. Creditors Deferral Period: Creditors deferral period is average time taken by the firm in paying its suppliers (creditors). In 2006 HUL took 80 days to pay its creditors while in 2011 it took 189 days to pay its creditors. Higher CDP implies that the company is getting more time to make payments to its creditors.

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 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. 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 RMCP WIPCP FGCP DEBETOR CONVERSION PERIOD CREDITOR DEFERRAL PERIOD ICP GOC NOC 2011 10 7 83 7.806 110 100 107 -3 2010 14 8 91 8.263 113 113 121 9 2009 16 9 103 8.668 116 127 136 20 2007 2006 18 24 9 9 111 115 8.987 11.222 107 131 138 149 147 160 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 the years. 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.

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 in 2011, indicating that the company has got stronger over the period. ARVIND LTD. PARTICULARS RMCP WIPCP FGCP DEBTORS CONVERSION PERIOD CREDITORS DEFESRAL PERIOD ICP GROSS OPERATING CYCLE NET OPERATING CYCLE 2011 114.43 35.28 13.97 37.70 100.04 163.68 201.38 -48.37 2010 105.74 37.74 17.27 76.74 122.98 160.75 237.49 -28.97 2009 2008 2007 109.79 135.62 228.83 33.05 27.70 31.28 27.31 36.06 29.45 59.28 48.16 45.84 136.70 92.90 162.45 170.15 199.38 289.56 229.44 247.54 335.40 -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

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 RMCP WIPCP FGCP DEBETOR CONVERSION PERIOD CREDITOR DEFERRAL PERIOD ICP GOC NOC 2011 4 129 318 24 55 451 475 420 2010 4 152 166 29 34 322 351 317 2009 2 176 110 41 17 289 330 313 2008 2 276 96 31 26 374 405 385 2007 3 274 88 55 24 365 420 395

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.

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 was favourable 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 GOC(gross operating NOC(net operating cycle) cycle) 92 -97 107 -3 201 -48 475 420

Particulars(2011) HUL BATA Arvind ltd. Pantaloons retail Particulars(2010) HUL BATA Arvind ltd. Pantaloons retail Particulars(2009) HUL BATA Arvind ltd. Pantaloons retail

97 121 237 351

-87 9 -28 317

76 136 229 330

-40 20 -50 313

FY 2010-11
600 500 400 300 200 100 0 -100 -200 HUL BATA Arvind ltd. Pantaloons retail GOC NOC

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
400 350 300 250 200 150 100 50 0 -50 -100 -150 HUL BATA Arvind ltd. Pantaloons retail GOC NOC

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
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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
350 300 250 200 150 100 50 0 -50 -100 HUL BATA Arvind ltd. Pantaloons retail GOC NOC

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.

Pharmaceutical Industry:
Pfizer Pharma PARTICULARS RMCP
3.24 4.34 38.20 18.39 146.82 85.71 -61.11 4.87 112.28 17.94 135.69 163.49 27.80

2011
30.48

2010
24.79

2009
28.40

WIPCP
89.45

FGCP
24.09

DEBTOR CONVERSION PERIOD

107.85

CREDITOR DEFERRAL PERIOD

147.26

GOC
39.41

NOC 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: GOC Credit 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.
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Sun Pharma
PARTICULARS RMCP
71.39 57.95 0.79 20.85 88.91 0.76 77.98

2011
147.53

2010

2009

123.36 135.48

WIPCP
0.62

FGCP
18.71

DEBTOR CONVERSION PERIOD

125.67 294.65 209.37 202.95 303.14 -91.70 93.77

CREDITOR DEFERRAL PERIOD

238.24

GOC
112.57

NOC

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 its credit 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: GOC Credit Deferral System

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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) RMCP WIPCP FGCP DEBTOR CONVERSION PERIOD CREDITOR DEFERRAL PERIOD GOC -74.11 -41.52 63.77 NOC Gross operating cycle: The gross operating cycle of the company is approximately 234 for 2011and approximately 244 for 2010 and 217 for 2009. 2011 2010 2009 115.95 106.57 65.24 35.5 26.96 15.63 8.69 9.32 4.33 73.36 75.75 39.98 307.61 284.84 152.47
234 244 217

Net operating cycle: The net operating cycle of the company is -74.11 for 2011, -41.52 for 2010 and 63.77 in 2009 Its position 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 is necessary and proper movements of goods. Average collection period The ACP has increased over the year which shows that the speed of the collection has come down. A Lower ACP implies that the management is efficient.
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Average Payment Period The number of days a company takes to pay off credit 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 GOC(gross operating NOC(net operating particulars(2011) cycle) cycle) 147.26 39.41 Pfizer 238.24 112.57 Sun Pharma Cadila Healthcare 233.5 -74.11 particulars(2010) Pfizer Sun Pharma Cadila Healthcare particulars(2009) Pfizer Sun Pharma Cadila Healthcare

85.71 202.95

-61.11 -91.7

218.6

-66.24

163.49 303.14

27.8 93.77

125.18

-27.29

2011

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250 200 150 100 50 0 Pfizer -50 -100 Sun Pharma Cadila Healthcare GOC(gross operating cycle) NOC(net operating cycle)

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

250 200 150 100 50 0 Pfizer -50 -100 Sun Pharma Cadila Healthcare GOC(gross operating cycle) NOC(net operating cycle)

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

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good in comparison of other company. Both the companies can obtain greater mileage from each rupee invested in current assets.
2009

350 300 250 200 150 100 50 0 -50 Pfizer Sun Pharma Cadila Healthcare GOC(gross operating cycle) NOC(net operating cycle)

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.

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References: 1. www.capitaline.com 2. www.moneycontrol.com

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