Unit-10 ppp Final
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Transcript of Unit-10 ppp Final
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8/7/2019 Unit-10 ppp Final
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The scope of financial
management and financing
working capital
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Task -1
Identify the areas of investments & analyze
factors which are needed to be considered
before investing.
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The areas of investmentsdepends on 3 factors:
Capital Asset
Working Capital
Financial Asset
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Capital assets
A critical decision because of the
strategic implications of many
investments,
financial considerations:- Return Vs Risk
- Profit & Cash flow pattern
- Liquidity
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Working capital
The cash resource
y available to the business on a day-to-day
basis
y used to fund the current assets such as
inventory and
receivables.
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Financial assets
Share, Bond/debantures, Bank notes etc.
Long term: Saving for Retirement
Short term : Saving for coming holiday spending
The key considerations are,
1. Risk , 2. Liquidity & 3. Return
Long Term Short Term
Return Risk
Risk Liquidity
Liquidity Return
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Task -2
Describe the nature of working capital
& identify the elements of BEXIMCO
SYN
THETICS
LTD
.
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IDENTIFY THE WORKING CAPITAL OF
BEXIMCO SYNTHETICS LTD.
Working capital Current Asset 1,429,542,275
Inventories 767,296,947Accounts & Other Receivables 527,839,772
Advances, Deposits & Prepayments 130,528,834Cash and Cash Equivalents 3,876,722
Current Liabilities 710,661,585
Debentures-Current Maturity (Secured) 33,305,500
Interest Free Block Account-Current Maturity 19,184,102
Short Term Loan from Banks (Secured) 518,709,213Accounts & Other Payables 73,826,489Accrued Expenses 65,636,281
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WORKING CAPITAL MANAGEMENT
CurrentAssets
Inventory
Receivables
Cash
Prepayments
Current Liabilities
Debentures
Payables
Bank Interest
Bank Loan
Accrued
Expenses
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WORKING CAPITAL MANAGEMENT
Current
Assets
1,429,542,275
Current
Liabilities
710,661,585
Working Capital
718,880,690
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Case Analysis
The working capital of Beximco Synthetics
Ltd. is very high. WORKING CAPITAL is
in a good position. The current assets are
more than the current liabilities which got
the working capital to a positive figure. The
level of activity of business is good because
their receivable & sales increaseaccordingly.
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Task -3
Apply & explain the Working Capital ratio in
the BEXIMCOSYNTHETICSLTD.
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BEXIMCOSYNTHETICSLTD.
Liquidity ratio
Current assets 1,429,542,275
Current ratio = = = 2.01: 1
Current Liabilities 710,661,585
(Current assets Stock) (1,429,542,275 - 767,296,947 )
Quick ratio = =
Current liabilities 710,661,585
= 1 : 1
CommentThe current ratio shows that the company is in good position whereason the other hand the liquidity ratio shows a very little change in theratio after deducting the stock from the current asset this shows thatcompanies liquidity position is much stable.
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Efficiency ratio
Receivables
Account receivables period = ----------------------- x 365
Credit sales
527,839,772
= ------------------------- x 365 = 243 days
792,781,515
Payables
Account payables period = x 365
Cost of sales
73,826,489
= x 365 = 40 days665,395,623
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Comment
The account receivable period of Beximco synthetics Ltd. is 243
days and their payables payment period is 40 this shows a muchbetter condition of the company. The company is receiving moneywithin 243 days and then paying within 203 days to their suppliersafter receiving the money.
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Stock
Stock holding period = x 365Cost of sales
767,296,947
= x 365
665,395,623
= 42 days
Comment
This shows that Beximco Synthetics stock turnover is 42 days.Beximco Synthetics is in a better position in stock holding period.
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Cash operating cycle
Stock holding period 42 days
Less: Account payables period (40) days
Account receivables period 243 days
-----------245 days
Comment
The cash operating cycle tells us it takes Beximco Synthetics Ltd.takes around 245 days between paying out for material inventoriesand eventually receiving cash back from customers.
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Task -4
Analyse the costs associated with
inventories. (You are also required to
describe typical volume of inventories
maintained by BEXIMCOSYNTHETICSLTD.)
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INVENTORY COST2009
(a) Raw Material :
y Chips 133,622,379
y Others 2,677,487
136,299,866
(b) Work-in-Process 1,493,940
(c) Finished Goods 297,455,231
(d) Packing Material 2,605,980
(e) Stores & Spares 222,003,252
(f) Stock-in- Transit 107,438,678
Tk. 767,296,947
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Case Analysis
According to the financial statement of holding
costs related to inventory has decreased along
with a greater amount of finished goods being
produced which means the company is having
an economies of scale.
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Task -5
Analyse various factors of non-current
and current assets funding strategies of
BEXIMCOSYNTHETICSLTD..
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FUNDINGOFWORKING
CAPITAL
Short term
y Payables 73,826,489
y Loan from Bank 518,709,213
Long term
y LT debt 5,107,298
y Equity 2,029,422,242
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FUNDING OFWORKING
CAPIT
ALAdvantages of short term funding for
working capital is that it is cheaper
according to liquidity preference theory,
Flexible, i.e. pay interest only of thebalance and easier to arrange, i.e. less
paper documents
Advantages of a long term funding forworking capital is that it is Secure over time
and less frequent replenishment.