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PRESENTATIONSubmitted to: Ms. Afia Akter

Assistant Professor of Finance

Department of Business

Administration

Submitted by: Romana Akter

(BBA110104002)Sayed Jubayer Ponir (BBA 110104036)

Maherunnessa Nupur(BBA 110104071)

Marjiya Khatun Mou(BBA 110104072)

PRESENTATION TOPICWORKING CAPITAL

MANAGEMENT PROCEDURE

A Study on ACI Ltd.

INTRODUCTION OF THE REPORT Background of the studyObjectives of the studyMethodology of the studySources of data collectionSample size of the studyData AnalysisLimitations of the study

ORGANIZATIONAL OVERVIEWBackground

ACI Limited is one of the leading conglomerates in Bangladesh, established as the subsidiary of Imperial Chemical Industries (ICI) in 1968. It has been incorporated as ICI Bangladesh Manufacturers Limited on January 24, 1973. The company was renamed as Advanced Chemical Industries Limited (ACI Limited) on 5 May 1992.

OverviewIn 2013, ACI Group witnessed a much improved performance over the previous year. This was mainly due to a change in focus from growth to profitability, and improved macroeconomic environment.

Strategic Business Units and Subsidiaries:1. Health Care Division2. Consumer Brand Division3. Agribusiness Division4. LogisticSubsidiaries and Associated Companies:  ACI Formulations Ltd. Premiaflex Plastics Limited ACI Godrej Agrovet Private Limited Tetley ACI (Bangladesh) Ltd. Asian Consumer Care Pvt. Ltd.

MissionACI's Mission is to enrich the quality of life of the people through

responsible application of knowledge, skills and technology.Vision To realize the Mission, ACI will: Endeavour to attain a position of leadership in each category of our

business. Provide products and services of high and consistent quality, ensuring

value for money to our customers.Our Values Quality Customer Focus Fairness Transparency Innovation Continuous Improvement

FINDINGS & ANALYSISWorking capital management

It is a managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other.

Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses.

Working capital investment and financing policyA) Conservative Working Capital Policy high level of investment in current assets support any level of sales and production high liquidity levelB) Aggressive Working Capital Policy Low level of investment More short-term financing is used to finance current assets. Support low level of production & salesC) Moderate Working Capital Policy This approach tries to balance risk and return concerns. Management of ACI Ltd. plans to follow a Moderate Approach.

However, the company does not still have a formal working capital investment and financing procedure.

WORKING CAPITAL ACCOUNTS MANAGEMENT Cash management procedure

To establish that all bank balances and over-drafts have been included at the correct amount.

To ensure that bank balances and overdrafts are correctly disclosed.

The accounting consideration of cash of ACI is as follows:

Cash and Cash Equivalents 30 June 2013 30 June 2012

Cash on hand 2,745,764 2,857,430

Cash at banks 5,815,246 7,825,755

Total 8,561,010 10,683,185

Accounts receivable procedure To ensure that trade debtors are due at the value recorded. To ensure that adequate provision has been made for all

bad and doubtful trade debts. To ensure that proper cut-offs have been made.

The accounting consideration of accounts receivables of ACI is as follows:

Trade & Other Receivable 30 June 2013 30 June 2012

Trade receivables 127,926,138 80,889,527

Other receivable 788,121 -

Total 128,714,259 80,889,527

Inventory management procedureTo ensure that the company has good title to

stock and work in progress.To ensure that all stock and work in progress

exists.To ensure that stock and work in progress have

been valued correctly, consistently and in accordance with applicable accounting standards.

The accounting consideration of inventory of ACI is as follows:

Inventories 30 June 2013 30 June 2012

Raw materials - factory godown 72,951,470 55,441,874

Raw materials - bank godown-AIBL 71,724,580 84,961,578

Raw materials - bank godown-SJIBL 882,960 13,807,737

Raw materials - toll godown 17,747,060 9,523,109

Packing materials-factory godown 41,215,082 39,770,348

Packing materials-toll godown 5,815,120 8,928,907

Finished goods* 58,987,615 68,630,274

Work in process 7,729,550 12,435,820

Pad & literature (Printing materials) 1,278,578 4,736,952

Promotional goods(gift) 4,623,298 3,957,686

Printing and stationery ( HO and factory)

214,871 -

Sample (physician) factory 2,918,538 2,777,758

Lab chemical & QC 557,338 561,195

Spare parts 874,530 827,451

 Total 287,520,590 306,360,689

Short-term security management procedure To ensure that the company has good title to all short-

term securities. To ensure that short-term securities are valued correctly,

with provision being made for any permanent diminution in value.

The accounting consideration of short-term security of ACI is as follows:

A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effects on these assets. However, no such conditions that might be suggestive of a heightened risk of impairment of assets existed at the reporting date

Payables and accrual Management: Accounts Payable Management and its Impact on

Profitability Good accounts payable and accruals management can have a major impact on

the profitability of a business firm. Business firms should build trust with suppliers in

order to obtain the best discounts, service, and information possible.

WORKING CAPITAL PERFORMANCE ANALYSISRatio Analysis MethodLiquidity Ratios: Ratios that show the relationship

of a firm’s cash and other current assets to its current liabilities.

1. Current Ratio: Current ratio = Current assets ÷ Current liabilities

Particulars June 2013 June 2012Current assets 739,194,191 620,891,430Current liabilities 740,019,405 553,360,050Current ratio (times) 1.00 1.12

2) Quick (acid test) Ratio: Quick (acid test) ratio = (Current assets – Inventory) ÷ Current liabilities

Particulars June 2013 June 2012

Current assets 739,194,191 620,891,430

Inventory 287,520,590 306,360,689Current assets-Inventory 451,673,601 314,530,741

Current liabilities 740,019,405 553,360,050

Quick (acid test) ratio (times)

0.61 0.57

Cash Conversion Cycle (CCC):The longer the cash conversion cycle, the greater the amount of investment required in working capital. The length of the cash conversion cycle depends on the length of:

Inventory conversion period Trade receivables collection period Trade payables deferral period

1. Inventory conversion period: Inventory conversion period = (Inventory ÷ Cost of goods sold) * 360

Particulars June 2013 June 2012

Inventory 287,520,590 306,360,689

Cost of goods sold 464,568,211 500,189,018

Inventory conversion period (days)

222.80 220.50

2. Day sales outstanding (DSO) / Trade receivables collection period:

Day sales outstanding (DSO) = Accounts receivables ÷ Average sales per day = Accounts receivables ÷ (Annual sales ÷ 360)

Particulars June 2013 June 2012

Accounts receivables 128,714,259 80,889,527

Annual sales 1,377,928,617 1,362,813,168

Average sales per day 3,827,579 3,785,592

Day sales outstanding (days) 33.63 21.37

3. Trade payables deferral period:Trade payables deferral period = (Accounts payables ÷

Purchase) * 360

Particulars June 2013 June 2012Accounts payables 121,592,779 2,002,893

Purchase 365,611,827 336,770,217Trade payables deferral period (days)

119.73 2.14

Cash conversion Cycle = Trade receivables collection period + Inventory conversion period - Trade payables deferral period.

Particulars June 2013 June 2012

Cash Conversion Cycle

136.71 239.72

Statement Analysis Method: Sales have increased over two years, showing that the

trading activity of the company was quite rapid Cost of goods sold has decreased – an indication that

small outflow of money occurred during this period Investment is increasing gradually Short term bank loan is decreasing Administrative is decreased gradually

TREND ANALYSIS Ratio Analysis:

1 20.920.940.960.98

11.021.041.061.081.1

1.12

Current ratio (times)

Current ratio (times)

Quick (acid test) Ratio:

1 20.54

0.55

0.56

0.57

0.58

0.59

0.6

0.61

Quick (acid test) ratio (times)

Quick (acid test) ratio (times)

Cash Conversion Cycle (CCC):

1 20

50

100

150

200

250

Cash Conversion Cycle

Cash Conversion Cycle

OVERALL PERFORMANCE ANALYSISTheir results have been better than expected all the

financial indicators show improve performance. The good news is that this year has started very well. The recovery has been dramatic & robust. Company performance improved due to a focus on internal efficiency and productivity.

Their credit sales are 10% of total sales. They invest best on seasonal, non seasonal & lifestyle like: Eid, pahela Baishak etc. Sometimes they invest spontaneous finance.

There were some interesting highlights in 2013- Pharmaceutical business achieved a significant improvement

in exports and brought in some new technology into our portfolio.

Consumer Brands business continued to their brand building activities and strengthens their distribution network.

Agribusinesses performed much better than the previous year, and faced a better agricultural environment. First time in Bangladesh bird flu vaccine from ACI

Logistics improved the quality of the business, and develop a lifestyle clothing brand called "Shwapno Life".

We have a new distribution partnership with the world's number one paint company Akzo Nobel with the Dulux brand.

CONCLUSIONA company cannot be fully evaluated only by over viewing the

cash, accounts receivables, inventory, short-term security and short-term liabilities management procedures. Other types of financial performance indicators such as profitability ratios, debt ratios, activity ratios and market ratios etc should also be considered when assessing and appraising the performance of a company – and this is also true for ACI Ltd.

Comparisons should also be made: between companies between industries between different time periods for one company between a single company and its industry average

RECOMMENDATIONS A detailed working capital management policy for each and every

item of current assets and current liabilities should be made by the management of ACI.

ACI should benchmark its operations with industry best practices and attempt to implement procedures towards achieving them

Development of motivational program for the employees to achieve higher productivity

As the way of promotion, the company may carry out more social welfare activities and attract socially aware customers

Fresh and young generation employees should be appointed in the department who are familiar with the latest technology and literacy

Regular review should be made as to whether the working capital management policy adopted by management is actually being implemented as planned.

Hope its was not that bad and thanks to every one.