Final 405 net working capital
Content
A report on
Working Capital Management of
Date of Submission: 07 June, 2012
Jun 05, 2012
A report on
Working Capital Management of GlaxoSmithKline
Submitted to:
M. Shahjahan Mina Professor Department of Finance University of Dhaka
Submitted by:
NameIDMd. Rakib15-047Md. Sahiduzzaman15-071A.T.M. Rajibul Akbar15-097Md. Sabuj Miah15-107Md. Shah Jalal15-258Mohammad Al-Mamun14133
Letter of Transmission
Jun 07, 2012
M. Shahjahan Mina Professor Department of Finance University of Dhaka
Dear Sir, We are very happy to state that the report on “Working Capital Management of GlaxiSmithKline”, that you had asked us to prepare, is completed and ready for your viewing. We are glad to submit it as part of completion of the requirements for our Working Capital Management (405) course with you. We have tried our best to put up a good report with as much information as we could gather during the short time span allotted for preparing this report. Thank you for your kind support and help throughout the course, we received. We hope you will appreciate this sincere effort. Very sincerely yours, …………………………………….. Md. Sahiduzzaman On behalf of Group: Sec: A, 15TH Batch (BBA) Department of Finance University of Dhaka
Acknowledgement
This report paper entitled “Working Capital Management of GlaxiSmithKline” is submitted as the requirement of a part of the study of Working Capital Management (405) course with you in the BBA program conducted by Department of Finance, Dhaka University. To prepare this assignment an intensive study was made. At first we want to pay our gratitude to all mighty Allah for preparing the report successfully. We are extremely grateful to our honorable course teacher – M. Shahjahan Mina, for his painstaking guidance, suggestion and all type of support & supervision to prepare this report paper. He continuously reminded us for the preparation of this report paper and finally gave an outline to write down the paper spending her valuable time. Without her untiring efforts, completion of this report paper would have been impossible. Above all this report paper is a combined effort of the sincerity, efficiency and determination of all the group members.
Table of Contents
Executive summary ….. . . . . . . . . . . . . . . . . . . . . . . . . . .... .... 02 CHAPTER-ONE A Brief Concept of Working Capital Management . . . . . . . . 03-08
CHAPTER -TWO
ABC. .. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . 09-12
CHAPTER -THREE DEF . . . . . . . . . . . . . . . . . . . . . . . . .. . . .. . . . . . . . . . . . . . . . . . . .13-15
CHAPTER - FOUR GHI . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . 16-17
CHAPTER - FIVE BACPS & BEFTN…………… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-23
EXECUTIVE SUMMARY
Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. To understand practical implication of Working Capital Management theory we choose Gsk Limited. Gsk Limited. Glaxosmithkline(gsk) bangladesh limited carries with it an enviable image and reputation for the past 6 decades. A subsidiary of glaxosmithkline plc- one of the world's leading research-based pharmaceutical and healthcare companies gsk bangladesh, continues to be committed to improving the quality of human life by enabling people to do more, feel better and live longer. The company’s principle activities include secondary manufacture of pharmaceutical products and marketing of vaccines, pharmaceutical healthcare products and healthfood drinks In Gsk, Inventories are stated at the lower of cost and net realizable value. Costs incurred in bringing the inventories to their present location and conditions are accounted on a weighted average basis. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Provision is made if necessary, for obsolete and slowmoving item. Receivables occupy the second place, in order of investment, among the various components of working capital in manufacturing concerns. The manipulation of receivables is to push up sales and ultimately profits by allowing certain credit to the potential customers who otherwise may find it difficult to make cash purchases. Moreover, receivables are being near cash item improved the liquidity position of an enterprise. As we know, the emergence of receivables in business operation cerates revenue and cost. Hence, the volume, composition and movements of receivables are required
to be so designed and maintained that these ultimately helps maximization of the value of a firm which is the long standing and accepted principle of financial management.Cash and cash equivalents of Glaxo Smithkline Bangladesh Limited comprise of the cash on hand and at bank and demand deposits. These also include bank overdrafts that form an integral part of the GSK BD Ltd. uses the company’s cash management. different components of spontaneous sources for financing investment in current assets. They use trade credit and outstanding expenses to support their working capital needs.
Part one of this report consists of origin, objectives, scope, limitations, and sources. Part two for company overview, Part three for defining working capital, Part four-Part nine represent Descriptive analysis of the company’s working capital management. Part ten-eleven consists of findings, conclusion, appendix & bibliography. At last we have drawn our conclusion on the overall term paper.
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1
Introduction
Origin of the Report
Now a day’s education is not just limited to books and classrooms. In today’s world, education is the tool to understand the real world and apply knowledge for the betterment of the society as well as business. From education the theoretical knowledge is obtained from courses of study, which is only the half way of the subject matter. Practical knowledge has no alternative. The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between these two areas. Therefore, for the B.B.A. program we are assigned to prepare a report on the internet marketing. It is an important Working Capital Management (405) and it also plays a vital role on the over all corporate world.
Objective of the Report
Our objectives are……….. To show the over all operational procedure, benefit, safety and its limitations. To increase our experience in the working capital management. To know the efficient tools and use of working capital management technique. To get the overall scenario of working capital management of GlaxiSmithKline.
Scope of the Report
To find out the report requirements we had to analyze and some comparisons the information about the different tools that are used to manage the working capital efficiently. We also have collected some information from different books, periodicals, websites and specially the annual report of GlaxiSmithKline. We would like to mention that this report
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C Management basically focuses only on the working capital management. A sincere effort had been placed while the information was collected and a careful study of them made this report loaded with information and several recommendations when there is also pointed out decisions made.
Limitations of the Report
While preparing this report, we have faced some problems. The main problem was to co-ordination all the group members. Moreover, during data collection we faced several problems. Due to limited access of the data, this study may not be perfect to the scent percent. Lack of enough experience in analyzing a huge volume of data Limitation of time to prepare the report. Due to inadequate information, in-depth analysis could not be done in the report
Sources and Methodology
This report’s research focuses on present condition and use of working capital management of GlaxiSmithKline. For the purposes of the report some data are collected from given study sheet by our honorable course instructor and the annual report of GlaxiSmithKline. The data types are primary that is collected through survey and Secondary types of data is collected through different publications, here we have used only secondary data and only that one was possible and related with our topics.
Secondary sources: Given study sheet by our honorable course instructor Records and documents.
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C Management Books, texts, and publications. Associations and Institutions Websites. Annual report of GlaxiSmithKline
2
overview of glaxosmithkline
Corporate status and background
Glaxosmithkline(gsk) bangladesh limited carries with it an enviable image and reputation for the past 6 decades. A subsidiary of glaxosmithkline plcone of the world's leading research-based pharmaceutical and healthcare companies gsk bangladesh, continues to be committed to improving the quality of human life by enabling people to do more, feel better and live longer. The company’s principle activities include secondary manufacture of pharmaceutical products and marketing of vaccines, pharmaceutical healthcare products and healthfood drinks In 1949 the company commenced its journey in bangladesh with its’ corporate identity as glaxo in chittagong as an importer of products from the glaxo group companies. It started spreading its spectrum from being an importer to a manufacturer by establishing its own manufacturing unit at chittagong in 1967. The facility till date is considered as one of the centres of excellence in global manufacturing & supply network of the group. The global corporate mergers and acquisitions has seen the evolution of the company’s identity in the past 6 decades. In line with mergers and acquisitions the identity changed from glaxo to glaxo wellcome bangladesh limited following the burroughs wellcome acquisition in 1995 and finally to glaxosmithkline bangladesh limited during 2002 after merger with smithklinebeecham in december 2000. The mega merger of the company enables it to deliver cutting edge advancements in health care solutions. The relentless commitment, setting of standards of ethical standards and quality backed leading edge technology of the company has built a strong relationship between the stakeholders and gsk bangladesh. With the ever committed 615 numbers of personnel all over the country gsk bangladesh, which now comprises of both pharma and consumer, continually strive to
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C Management meet the glaxosmithkline mission to improve the quality of human life by ensuring healthcare products, health drinks and different corporate social responsibility programs. Gsk is committed to developing new and effective healthcare solutions. The values on which the group was founded have always inspired growth and will continue to do so in times to come.
Gsk products
Gsk bangladesh’s portfolio includes both pharmaceutical products and consumer products. The pharmaceutical side includes prescription medicines,vaccines and non prescrition medicines. Our prescription medicines range across therapeutic areas such as anti-bacterial, respiratory, dermatology,oncology, gastro- intestinal, cardiovascular and other diseases. The company is the market leader in most of the therapeutic categories in which it operates. We offer a range of vaccines, for the prevention of hepatitis a, hepatitis b, invasive disease caused by h, influenzae, chickenpox, diphtheria, pertussis, tetanus and others. In bangladesh, gsk's consumer brands are the major players in the health food drink category. The powerful portfolio includes horlicks, boost, maltova and viva which owns an enviable market share of 85%. Among them, horlicks, a trusted & heritage brand, enjoys 76% market share. Horlicks which has been re-launched in 2008, following intense market research and product development activities, with an improved formulation is clinically tested to make children “taller, sharper & stronger".
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3
BASICS OF WORKING CAPITAL
MANAGEMENT
Working capital
Definition of working capital Working capital is the fund invested in current assets and is needed for meeting day to day expenses. It occupies an important place in a firm’s balance sheet. Working capital is the capital required to meet the day to day operational expenditures of a company. In other words, working capital is the capital needed to purchase the current assets of a company. Gross working capital: Gross working capital is the summation of the total current assets. Net working capital: Net working capital is the difference between total current assets (gross working capital) and total current liabilities. items of working capital: cash Account receivables
Page 21 Gross working capital
C Management Inventory Pre-paid expenses Marketable securities Items of current liabilities: Accounts payable Accrued expenses Short term bank loan Bills payable, Bank overdraft, etc. The working capital is the finance required to meet the costs involved during the operating cycle or business cycle. Operating cycle or working capital cycle is the period involved from the time raw materials are purchased to the time they are converted into finished goods and the same are finally sold and realized. The need for current assets arises because of operating cycle. The operating cycle is a continuous process and therefore the need for current assets is felt constantly. Each and every current asset is nothing but blockage of funds. Therefore, these current assets need to be financed which is done through working capital financing which is a specialized area and is designed to meet the working requirements of a business.
In the figure below, we can see that the firm needs cash to purchase raw materials as inputs for the finished products. The firm also incurs some cash expenses in the work in progress stage of the production and finally produces finished goods to be sold to customers. From the purchase of raw material to the sale of the finished goods to the customers at cash firm usually does not get any cash. If firm sells on credit to customers then it also does not receive cash for the sale of the goods immediately. During this period firm’s investment in the production of goods remained tied up. This is why the firm needs working capital financing for the smooth run of production process and the operation of the business firm continuously.
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Cas h
Figure: cash flow and the working capital cycle
Sources of working capital Working capital can be financed mainly from two sources which has been shown below-
Fluctuating or temporary working capital The extra working capital needed to support the changing production and sales is called fluctuating or variable or temporary working capital. This has to be financed on short term basis. The main sources for financing this portion are shown belowSpontaneous financing:
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C Management Trade credit Advance from customers Accrued expenses Money market credit: Commercial paper Bankers acceptance Short term bank loan: Line of credit Revolving credit Single payment credit transaction loan Others-
Accounts receivable financing Factoring Inventory financing
Permanent or fixed working capital There is always a minimum level of current assets or working capital which is continuously required by the firm to carry on its business operations. This minimum level of current assets is known as permanent or fixed working capital. It is permanent in the same way as the firm’s fixed assets are. This portion of working capital has to be financed by permanent sources of funds such as; share capital, reserves, debentures and other forms of long term borrowings.
Therefore, we see that the main sources of working capital financing include trade credit, bank credit, factoring, accounts receivable financing and
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C Management commercial paper. Out of all these, this paper is related only to bank credit which represents the most important source for financing of current assets. The firms generally enjoy easy access to the bank finance for meeting their working capital needs. It is in this context that bank financing assumes significance in the working capital financing of business firms. Working capital management Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing shortterm debt and upcoming operational expenses.
Major areas of wc management Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.
•cash management. Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. •inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow. •credit management. Identify the appropriate credit policy, i.e. Credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence return on capital (or vice versa). •short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring". Financial statements have been prepared and disclosures of information made in
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C Management accordance with the requirements of the companies act 1994, the securities and exchange rules 1987, and international accounting standards (iass) adopted by the institute of chartered accountants of bangladesh (icab) as bangladesh accounting standards (bass) and bangladesh financial reporting standards (bfrss).
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4
Sl i ii
Overall Working Capital
management of Gsk
200 201 201 9 0 1 60 22 45 51 34 42 day 60 s day 35 s day 48 s
Particulars Raw materials conversion period WIP conversion period iii Finished goods conversion period iv Inventory conversion period [i+ii+iii] v A/R conversion period Vi Gross Working Capital Cycle [iv+v] vi i A/P conversion period
day 126 127 144 s 51 48 day 11 s
day 178 175 154 s 65 day 111 110 s
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vi Net Working Capital ii Cycle or Cash conversion cycle [vi-vii]
112
64
day 45 s
There is no significant fluctuation in raw materials conversion period of Gsk in the last three years. Work-in-process conversion period increases slightly after the year 2009 and finished goods conversion period remains as usual. As a result there is slightly increase in inventory conversion period over the last three years. Accounts receivable conversion period decreases over the years. There is a significant decrease in 2011 due to tight credit policy and good collection effort. As a result gross working capital cycle decreases over the years. But this significantly decreased in 2011 due to significant decrease in accounts receivable conversion period. Accounts payable conversion period has been increased significantly after 2009. It may be due to availability of raw materials or high bargaining power of supplier. As a result Net Working Capital Cycle or Cash conversion cycle decreases over the years. But this significantly decreased after 2009 due to significant increase in accounts payable conversion period.
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5
GSK
Inventory management of
Inventory represents an investment and must, therefore, compete with other investment of the firm's. As a consequence, total investment in inventories must be related to some optimum investment level that contributes to the overall wealth maximization object of the shareholders. Since the proper management of inventory has a significant influence on profitability and liquidity, to a large extent, the success and failure of a business depends upon its inventory management performances.
Composition of Inventory: In most of the case, a firm maintains raw material, Working-inprocess and Finished goods as inventory. Depending on the nature of Business, proportion of inventory held by the firm varies. Even the composition of inventory also varies. Inventory composition of Gsk is given below Inventories consist of:
Inventory Raw materials
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2009 2445
2010 2358
2011 42698
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82 Work in Process 9926 4 Finished goods 2459 13 Total Inventory 5897 59
46 1739 61 2648 09 6746 16
1 26985 8 41900 1 11158 40
Raw materials:
2009
Opening raw & packaging materials Purchased
2010 24458 2 16401 84 18847 66 (23584 6) 16489 20
2011 23584 6 27596 29 29954 75 (42698 1) 25684 94
30072 1 14127 24
Raw & packaging materials available Closing raw & packaging materials Raw & packaging materials consumed
17134 45 (24458 2) 14688 63
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Based on the above information raw materials conversion period of Gsk is calculated. Raw materials conversion period of Gsk is shown below
year RMCP
2009 60
2010 51
2011 60 days
From the above graph we see that there is slight fluctuation in raw materials conversion period of Gsk. Raw materials conversion period of Gsk decreased to 51 days from 60 days in 2010 and increased to 60 days in 2011. Work-in-process:
2009
Total costs 17161 65 Opening inventory of Work-inprocess 42990
2010
19121 08 99264
2011
28477 46 17396 1
Closing inventory of Work-inprocess Costs of productions
(9926 4) 16598 91
(17396 1) 18374 11
(26985 8) 27518 49
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Based on the above information work-in-process conversion period of Gsk is calculated. work-in-process conversion period of Gsk is shown below
Year
WIPCP
2009
22
2010
34
2011
35
days
From the above graph we see that work-in-process conversion period of Gsk is increasing over the years.there is a slight increase to 35 days from 34 days in 2011. Finished goods:
2009
Costs of productions 16598 91 Opening inventory of finished products 23196 2 44756 finished products purchased 9 23394 finished products avilable 22 (24591 Closing finished goods Page 32 3)
2010
18374 11 24591 3 58229 3 26656 17 (26480 9)
2011
27518 49 26480 9 82590 6 38425 64 (41900 1)
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Replacement, medical attention, and others issues (14120 ) 20793 Cost of goods sold 89 (11066 ) 23897 42 (36893 ) 33866 70
Based on the above information finished goods conversion period of Gsk is calculated. finished goods conversion period of Gsk is shown below
year
FGCP
2009
43
2010
40
2011
45
days
From the above graph we see that there is slight fluctuation in finished goods conversion period of Gsk. Finished goods conversion period of Gsk decreased to 40 days from 43 days in 2010 and increased to 45 days in 2011. Based on the above information inventory turnover and inventory conversion period are calculated
200 9
Inventory turnover Page 33 2.90
201 0
2.87
201 1
2.58 Time
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s Inventory processing period days 124 125 140
From the above graph we see that inventory turnover of Gsk is decreasing over the years and this happens due to higher inventory processing period over the years.
From the above graph we see that inventory processing period is increasing over the years. There was a slight increase to 125 days from 124 days in 2010.
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6
gsk
Receivable management of
Receivables occupy the second place, in order of investment, among the various components of working capital in manufacturing concerns. The manipulation of receivables is to push up sales and ultimately profits by allowing certain credit to the potential customers who otherwise may find it difficult to make cash purchases. Moreover, receivables are being near cash item improved the liquidity position of an enterprise. As we know, the emergence of receivables in business operation cerates revenue and cost. Hence, the volume, composition and movements of receivables are required to be so designed and maintained that these ultimately helps maximization of the value of a firm which is the long standing and accepted principle of financial management. Credit Granting Decision: One of the major aspects of Accounts Receivables is Credit Granting Decision. If the firm fails to identify the appropriate customers, it faces severe problem to sustain in the long run. There are different approaches to Credit Granting Decisions. The traditional method is 5 C’s (Capital, Character, Collateral, Capacity and Condition), which is very popular method for quick credit granting measuring creditworthiness of applicant. An alternative to this traditional approach is Judgmental Scoring approach. There are two basic versions of these systems. One is Checklist System and the other one is Weighted Scoring System.
2009
3696 Accounts receivables 61 3980 Prepaid expenses 3
2010
4102 86 5261 8
2011
1305 65 8079 9
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4094 Total trade and other receivables 64 4629 04 2113 64
Based on the above information accounts receivables turnover and average collection period of Gsk are calculated. Accounts receivables turnover and average collection period of Gsk are shown below
200 9 A/R turnover A/R Collection period 7.0 3 51
201 0 7.5 6 48
201 1 33. 17 11
Time s days
From the above graph we see that A/R turnover is increasing over the years. There is a remarkeble increase to 33.17 times from 7.56 times in 2011. This happens due to lower average collection in 2011.
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From the above graph we see that A/R collection period of Gsk is decreasing over the years. There is a remarkeble decrease to 11 days from 48 days in 2011. This happens due to tight credit policy in 2011.
7
Management of Accruals and
Payable of gsk
Accounts Payable: A firm can utilize this fund for financing purpose since it is termed as cost free source of fund. Proper Management of Accruals, in fact, can reduce the dependency on Bank loan. The trade credit is one of the main tools for financing working capital. Accruals: However, firms also incur other types of liabilities for which immediate payments are not required, like the labor of executive and hourly employees, accumulate interest expense on borrowed funds etc. Any such accrual involves a delay in payment and thus it is a potential source of financing.
2009
2565
Trade payables
2010
5045 01 9598 9
2011
8419 70 9729 6
00 7896
Expenses payables
7
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Others payables
3238 9 6328 79
5582 8 9950 94
6 3614
Total trade and others payables
63
Based on the above information accounts payable turnover and payable payment period of Gsk are calculated. Accounts receivables turnover and average collection period of Gsk are shown below
200 9
A/P turnover A/P payment period 5.51 65
201 0
3.25 111
201 1
Time 3.28 110 s days
From the above graph we see that A/P turnover is decreasing over the years. There is a slight increase to 3.28 times from 3.25 times in 2011.
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From the above graph we see that A/P collection period of Gsk is increasing over the years. There is a remarkeble increase to 111 days from 65 days in 2010. This happens due to the bargaining power of Gsk and good relation with the suppliers.
8
gsk
cash management of
Cash is the important current asset for the operation of the business. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s manufacturing operations while excessive cash will simply remain idle, without contributing anything towards the firm’s profitability. Thus, a major function of a financial manger is to maintain a sound level of cash position. Cash management is concerned with the managing of cash flows into and out of cash flows into and out of the firm, cash flows within the firm, and
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C Management cash flows within the firm. Cash management ensures adequate control over cash position to keep the firm sufficiently liquid and to use excess cash in some profitable way. Cash and cash equivalents Cash and cash equivalents of Glaxo Smithkline Bangladesh Limited comprise of the cash on hand and at bank and demand deposits. These also include bank overdrafts that form an integral part of the company’s cash management. Composition of Cash and Cash Equivalents Particulars Term deposit with scheduled CBs SND accounts with scheduled CBs 2009 81,961 216,255 2010 515,281 100,491 49,747 524 666,043 351,748 2011 556,500 13,703 199,018 1,363 770,584 104,541
Current account with scheduled 15,586 CBs Cash, cheques & draft in hand Total Cash and Cash Equivalents 493 314,295
Changes in the Cash and Cash 312,358 Equivalents
From above table, we see that the GSK BD ltd. has maintained its major portion of cash and cash equivalents in the term deposits with the scheduled commercial banks. Second major part of the cash and cash equivalents is kept as the special notice deposit accounts with the scheduled commercial banks. The company also maintains cash in the current accounts with the scheduled banks and in hand. One of the imperative aspects of Cash Management is Cash Collection Mechanism. Float is considered to be one of the important aspects of Collection Mechanism. Cash from the credit sales are collected through marketing agent that means the Billing & Mail float for these firms are zero. The Bank Processing Float for these firms is on an average less than 2 days. GSK BD ltd. uses the Banks with accelerated clearing capabilities for controlling the movement of funds and minimizing idle cash balances.
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C Management Cash Forecasts: GSK BD Ltd. forecast cash to anticipate cash surplus and shortage, estimate timing of borrowing and lending of funds and have better control over funds. For this purpose they prepare Cash Forecasting Statements on half yearly basis. The company maintains a line of credit arrangement with banks to meet any contingencies.
GSK BD Ltd. actually does not use any specific models of cash management such as the Baumol Mode, the Beranek Model, the Miller-Orr Model, and the Stone Model. The companies experienced continuous cash flow.
9 Measurement of Liquidity
of gsk
We have examined the following Ratios of Glaxo Smithkline Bangladesh Limited for the years ended 31 December 2009 through 2011 based on its financial statements for those years.
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C Management 2009 Current Ratio Quick Ratio Cash Ratio Inventory turnover Ratio Inventory processing period (in days) A/R turnover Ratio A/R Collection period (in days) A/P turnover Ratio A/P payment period (in days) 3.06 1.69 0.73 2.90 124 7.03 51 5.51 65 2010 2.56 1.60 0.95 2.87 125 7.56 48 3.25 111 62 0.82 2011 2.03 0.95 0.75 2.58 140 33.17 11 3.28 110 41 0.81
Cash Conversion Cycle or Net Working 110 Capital Cycle Current assets to Total assets ratio 0.78
Current ratio has decreased over the years due to increased current liabilities over the years. Quick ratio has decreased significantly due to significant increase in inventories over the years. Cash ratio has slightly increased with little fluctuations over the years as cash and cash equivalents have fluctuated over the years. Inventory Turnover has decreased over the years and inventory conversion period has increased over the years. Receivable turnover has increased significantly due to the changes in the credit policy (Tighten up of the Credit Policy) and this collection period has also decreased. Payable turnover has decreased due to increased amount of trade payables compare to the increase of cost of raw material purchased. As a result Payable payment period has increased.
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C Management Cash conversion cycle has decreased over the years due to increase in accounts payable payment period with the increase in accounts receivable collection period. Current assets to total assets ratio has increased very slightly over the three years period which is good for the company’s liquidity position. Therefore, we can say that overall liquidity position of GSK BD Ltd. is at satisfactory level and has more liquidity than the industry average.
10
Assets
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Financing Current
C Management Glaxo SmithKline Bangladesh Limited finance their working capital from the following three sourcesLong term sources GSK BD Ltd. finances major part of their investment in current assets from their internal sources such as reserve and surplus. They do not use any long term debt to finance the investment in working capital. Short term sources Usually, GSK BD Ltd. do not take short term bank loans to finance the investment in current assets. But if the face any difficult situation then they use the line of credit facility to the contingent needs. Spontaneous sources GSK BD Ltd. uses the different components of spontaneous sources for financing investment in current assets. They use trade credit and outstanding expenses to support their working capital needs.
11findings &
conclusion
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C Management Findings analyzing the whole report we can obtain following findings: Gsk employed renowned and efficient professionals to conduct their management specially wc management. As a manufacturing business they consider different types of raw materials and WIP and various product as inventories. They maintain their accounts receivable considering their distributors as debtors. Liquidity condition of the company is satisfactory. Gsk limited meets their short term financing needs through short term bank overdraft from banks banks. Use of information technology at Gsk limited makes work easy and fast. Gsk makes an important role in our economy.
Conclusion Now a day’s education is not just limited to books and classrooms. In today’s world, education is the tool to understand the real world and apply knowledge for the betterment of the society as well as business. From education the theoretical knowledge is obtained from courses of study, which is only the half way of the subject matter. Practical knowledge has no alternative. The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between these two areas. Therefore, for the B.B.A. program we are assigned to prepare a report on the internet marketing. It is an important Working Capital Management (405) and it also plays a vital role on the over all corporate world. To find out the report requirements we had to analyze and some comparisons the information about the different tools that are used to manage the working capital efficiently. We also have collected some information from different books, periodicals, websites and specially the annual report of GlaxiSmithKline. We would like to mention that this report basically focuses only on the working capital management. A sincere effort had been placed while the information was collected and a
Page 45
C Management careful study of them made this report loaded with information and several recommendations when there is also pointed out decisions made. This report’s research focuses on present condition and use of working capital management of GlaxiSmithKline. For the purposes of the report some data are collected from given study sheet by our honorable course instructor and the annual report of GlaxiSmithKline. The data types are primary that is collected through survey and Secondary types of data is collected through different publications, here we have used only secondary data and only that one was possible and related with our topics.
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appendix
b i b l i o g r a p h y
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Persons
M. Shahjahan Mina Professor Department of Finance University of Dhaka
Books
Financial Management by I M Pandey Nine Edition Working Capital Management and Control ( Principles & Practice) by Satish B. Mathur Working Capital Management (A Comparative Study) by Vijayakumar
Websites
www.gsk.com
www.investopedia.com www.investinganswers.com
Others
Annual Report and Publications of GlaxiSmithKline. Bangladesh Information and Technology (IT) Firm owners Association Microsoft ® Student ® 2008. © 1993-2008 Microsoft Corporation Microsoft ® Math ® 2008. © 2007-2008 Microsoft Corporation
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Working Capital Management of
Date of Submission: 07 June, 2012
Jun 05, 2012
A report on
Working Capital Management of GlaxoSmithKline
Submitted to:
M. Shahjahan Mina Professor Department of Finance University of Dhaka
Submitted by:
NameIDMd. Rakib15-047Md. Sahiduzzaman15-071A.T.M. Rajibul Akbar15-097Md. Sabuj Miah15-107Md. Shah Jalal15-258Mohammad Al-Mamun14133
Letter of Transmission
Jun 07, 2012
M. Shahjahan Mina Professor Department of Finance University of Dhaka
Dear Sir, We are very happy to state that the report on “Working Capital Management of GlaxiSmithKline”, that you had asked us to prepare, is completed and ready for your viewing. We are glad to submit it as part of completion of the requirements for our Working Capital Management (405) course with you. We have tried our best to put up a good report with as much information as we could gather during the short time span allotted for preparing this report. Thank you for your kind support and help throughout the course, we received. We hope you will appreciate this sincere effort. Very sincerely yours, …………………………………….. Md. Sahiduzzaman On behalf of Group: Sec: A, 15TH Batch (BBA) Department of Finance University of Dhaka
Acknowledgement
This report paper entitled “Working Capital Management of GlaxiSmithKline” is submitted as the requirement of a part of the study of Working Capital Management (405) course with you in the BBA program conducted by Department of Finance, Dhaka University. To prepare this assignment an intensive study was made. At first we want to pay our gratitude to all mighty Allah for preparing the report successfully. We are extremely grateful to our honorable course teacher – M. Shahjahan Mina, for his painstaking guidance, suggestion and all type of support & supervision to prepare this report paper. He continuously reminded us for the preparation of this report paper and finally gave an outline to write down the paper spending her valuable time. Without her untiring efforts, completion of this report paper would have been impossible. Above all this report paper is a combined effort of the sincerity, efficiency and determination of all the group members.
Table of Contents
Executive summary ….. . . . . . . . . . . . . . . . . . . . . . . . . . .... .... 02 CHAPTER-ONE A Brief Concept of Working Capital Management . . . . . . . . 03-08
CHAPTER -TWO
ABC. .. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . 09-12
CHAPTER -THREE DEF . . . . . . . . . . . . . . . . . . . . . . . . .. . . .. . . . . . . . . . . . . . . . . . . .13-15
CHAPTER - FOUR GHI . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . 16-17
CHAPTER - FIVE BACPS & BEFTN…………… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-23
EXECUTIVE SUMMARY
Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. To understand practical implication of Working Capital Management theory we choose Gsk Limited. Gsk Limited. Glaxosmithkline(gsk) bangladesh limited carries with it an enviable image and reputation for the past 6 decades. A subsidiary of glaxosmithkline plc- one of the world's leading research-based pharmaceutical and healthcare companies gsk bangladesh, continues to be committed to improving the quality of human life by enabling people to do more, feel better and live longer. The company’s principle activities include secondary manufacture of pharmaceutical products and marketing of vaccines, pharmaceutical healthcare products and healthfood drinks In Gsk, Inventories are stated at the lower of cost and net realizable value. Costs incurred in bringing the inventories to their present location and conditions are accounted on a weighted average basis. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Provision is made if necessary, for obsolete and slowmoving item. Receivables occupy the second place, in order of investment, among the various components of working capital in manufacturing concerns. The manipulation of receivables is to push up sales and ultimately profits by allowing certain credit to the potential customers who otherwise may find it difficult to make cash purchases. Moreover, receivables are being near cash item improved the liquidity position of an enterprise. As we know, the emergence of receivables in business operation cerates revenue and cost. Hence, the volume, composition and movements of receivables are required
to be so designed and maintained that these ultimately helps maximization of the value of a firm which is the long standing and accepted principle of financial management.Cash and cash equivalents of Glaxo Smithkline Bangladesh Limited comprise of the cash on hand and at bank and demand deposits. These also include bank overdrafts that form an integral part of the GSK BD Ltd. uses the company’s cash management. different components of spontaneous sources for financing investment in current assets. They use trade credit and outstanding expenses to support their working capital needs.
Part one of this report consists of origin, objectives, scope, limitations, and sources. Part two for company overview, Part three for defining working capital, Part four-Part nine represent Descriptive analysis of the company’s working capital management. Part ten-eleven consists of findings, conclusion, appendix & bibliography. At last we have drawn our conclusion on the overall term paper.
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1
Introduction
Origin of the Report
Now a day’s education is not just limited to books and classrooms. In today’s world, education is the tool to understand the real world and apply knowledge for the betterment of the society as well as business. From education the theoretical knowledge is obtained from courses of study, which is only the half way of the subject matter. Practical knowledge has no alternative. The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between these two areas. Therefore, for the B.B.A. program we are assigned to prepare a report on the internet marketing. It is an important Working Capital Management (405) and it also plays a vital role on the over all corporate world.
Objective of the Report
Our objectives are……….. To show the over all operational procedure, benefit, safety and its limitations. To increase our experience in the working capital management. To know the efficient tools and use of working capital management technique. To get the overall scenario of working capital management of GlaxiSmithKline.
Scope of the Report
To find out the report requirements we had to analyze and some comparisons the information about the different tools that are used to manage the working capital efficiently. We also have collected some information from different books, periodicals, websites and specially the annual report of GlaxiSmithKline. We would like to mention that this report
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C Management basically focuses only on the working capital management. A sincere effort had been placed while the information was collected and a careful study of them made this report loaded with information and several recommendations when there is also pointed out decisions made.
Limitations of the Report
While preparing this report, we have faced some problems. The main problem was to co-ordination all the group members. Moreover, during data collection we faced several problems. Due to limited access of the data, this study may not be perfect to the scent percent. Lack of enough experience in analyzing a huge volume of data Limitation of time to prepare the report. Due to inadequate information, in-depth analysis could not be done in the report
Sources and Methodology
This report’s research focuses on present condition and use of working capital management of GlaxiSmithKline. For the purposes of the report some data are collected from given study sheet by our honorable course instructor and the annual report of GlaxiSmithKline. The data types are primary that is collected through survey and Secondary types of data is collected through different publications, here we have used only secondary data and only that one was possible and related with our topics.
Secondary sources: Given study sheet by our honorable course instructor Records and documents.
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2
overview of glaxosmithkline
Corporate status and background
Glaxosmithkline(gsk) bangladesh limited carries with it an enviable image and reputation for the past 6 decades. A subsidiary of glaxosmithkline plcone of the world's leading research-based pharmaceutical and healthcare companies gsk bangladesh, continues to be committed to improving the quality of human life by enabling people to do more, feel better and live longer. The company’s principle activities include secondary manufacture of pharmaceutical products and marketing of vaccines, pharmaceutical healthcare products and healthfood drinks In 1949 the company commenced its journey in bangladesh with its’ corporate identity as glaxo in chittagong as an importer of products from the glaxo group companies. It started spreading its spectrum from being an importer to a manufacturer by establishing its own manufacturing unit at chittagong in 1967. The facility till date is considered as one of the centres of excellence in global manufacturing & supply network of the group. The global corporate mergers and acquisitions has seen the evolution of the company’s identity in the past 6 decades. In line with mergers and acquisitions the identity changed from glaxo to glaxo wellcome bangladesh limited following the burroughs wellcome acquisition in 1995 and finally to glaxosmithkline bangladesh limited during 2002 after merger with smithklinebeecham in december 2000. The mega merger of the company enables it to deliver cutting edge advancements in health care solutions. The relentless commitment, setting of standards of ethical standards and quality backed leading edge technology of the company has built a strong relationship between the stakeholders and gsk bangladesh. With the ever committed 615 numbers of personnel all over the country gsk bangladesh, which now comprises of both pharma and consumer, continually strive to
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C Management meet the glaxosmithkline mission to improve the quality of human life by ensuring healthcare products, health drinks and different corporate social responsibility programs. Gsk is committed to developing new and effective healthcare solutions. The values on which the group was founded have always inspired growth and will continue to do so in times to come.
Gsk products
Gsk bangladesh’s portfolio includes both pharmaceutical products and consumer products. The pharmaceutical side includes prescription medicines,vaccines and non prescrition medicines. Our prescription medicines range across therapeutic areas such as anti-bacterial, respiratory, dermatology,oncology, gastro- intestinal, cardiovascular and other diseases. The company is the market leader in most of the therapeutic categories in which it operates. We offer a range of vaccines, for the prevention of hepatitis a, hepatitis b, invasive disease caused by h, influenzae, chickenpox, diphtheria, pertussis, tetanus and others. In bangladesh, gsk's consumer brands are the major players in the health food drink category. The powerful portfolio includes horlicks, boost, maltova and viva which owns an enviable market share of 85%. Among them, horlicks, a trusted & heritage brand, enjoys 76% market share. Horlicks which has been re-launched in 2008, following intense market research and product development activities, with an improved formulation is clinically tested to make children “taller, sharper & stronger".
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3
BASICS OF WORKING CAPITAL
MANAGEMENT
Working capital
Definition of working capital Working capital is the fund invested in current assets and is needed for meeting day to day expenses. It occupies an important place in a firm’s balance sheet. Working capital is the capital required to meet the day to day operational expenditures of a company. In other words, working capital is the capital needed to purchase the current assets of a company. Gross working capital: Gross working capital is the summation of the total current assets. Net working capital: Net working capital is the difference between total current assets (gross working capital) and total current liabilities. items of working capital: cash Account receivables
Page 21 Gross working capital
C Management Inventory Pre-paid expenses Marketable securities Items of current liabilities: Accounts payable Accrued expenses Short term bank loan Bills payable, Bank overdraft, etc. The working capital is the finance required to meet the costs involved during the operating cycle or business cycle. Operating cycle or working capital cycle is the period involved from the time raw materials are purchased to the time they are converted into finished goods and the same are finally sold and realized. The need for current assets arises because of operating cycle. The operating cycle is a continuous process and therefore the need for current assets is felt constantly. Each and every current asset is nothing but blockage of funds. Therefore, these current assets need to be financed which is done through working capital financing which is a specialized area and is designed to meet the working requirements of a business.
In the figure below, we can see that the firm needs cash to purchase raw materials as inputs for the finished products. The firm also incurs some cash expenses in the work in progress stage of the production and finally produces finished goods to be sold to customers. From the purchase of raw material to the sale of the finished goods to the customers at cash firm usually does not get any cash. If firm sells on credit to customers then it also does not receive cash for the sale of the goods immediately. During this period firm’s investment in the production of goods remained tied up. This is why the firm needs working capital financing for the smooth run of production process and the operation of the business firm continuously.
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Cas h
Figure: cash flow and the working capital cycle
Sources of working capital Working capital can be financed mainly from two sources which has been shown below-
Fluctuating or temporary working capital The extra working capital needed to support the changing production and sales is called fluctuating or variable or temporary working capital. This has to be financed on short term basis. The main sources for financing this portion are shown belowSpontaneous financing:
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C Management Trade credit Advance from customers Accrued expenses Money market credit: Commercial paper Bankers acceptance Short term bank loan: Line of credit Revolving credit Single payment credit transaction loan Others-
Accounts receivable financing Factoring Inventory financing
Permanent or fixed working capital There is always a minimum level of current assets or working capital which is continuously required by the firm to carry on its business operations. This minimum level of current assets is known as permanent or fixed working capital. It is permanent in the same way as the firm’s fixed assets are. This portion of working capital has to be financed by permanent sources of funds such as; share capital, reserves, debentures and other forms of long term borrowings.
Therefore, we see that the main sources of working capital financing include trade credit, bank credit, factoring, accounts receivable financing and
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C Management commercial paper. Out of all these, this paper is related only to bank credit which represents the most important source for financing of current assets. The firms generally enjoy easy access to the bank finance for meeting their working capital needs. It is in this context that bank financing assumes significance in the working capital financing of business firms. Working capital management Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing shortterm debt and upcoming operational expenses.
Major areas of wc management Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.
•cash management. Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. •inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow. •credit management. Identify the appropriate credit policy, i.e. Credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence return on capital (or vice versa). •short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring". Financial statements have been prepared and disclosures of information made in
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C Management accordance with the requirements of the companies act 1994, the securities and exchange rules 1987, and international accounting standards (iass) adopted by the institute of chartered accountants of bangladesh (icab) as bangladesh accounting standards (bass) and bangladesh financial reporting standards (bfrss).
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4
Sl i ii
Overall Working Capital
management of Gsk
200 201 201 9 0 1 60 22 45 51 34 42 day 60 s day 35 s day 48 s
Particulars Raw materials conversion period WIP conversion period iii Finished goods conversion period iv Inventory conversion period [i+ii+iii] v A/R conversion period Vi Gross Working Capital Cycle [iv+v] vi i A/P conversion period
day 126 127 144 s 51 48 day 11 s
day 178 175 154 s 65 day 111 110 s
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vi Net Working Capital ii Cycle or Cash conversion cycle [vi-vii]
112
64
day 45 s
There is no significant fluctuation in raw materials conversion period of Gsk in the last three years. Work-in-process conversion period increases slightly after the year 2009 and finished goods conversion period remains as usual. As a result there is slightly increase in inventory conversion period over the last three years. Accounts receivable conversion period decreases over the years. There is a significant decrease in 2011 due to tight credit policy and good collection effort. As a result gross working capital cycle decreases over the years. But this significantly decreased in 2011 due to significant decrease in accounts receivable conversion period. Accounts payable conversion period has been increased significantly after 2009. It may be due to availability of raw materials or high bargaining power of supplier. As a result Net Working Capital Cycle or Cash conversion cycle decreases over the years. But this significantly decreased after 2009 due to significant increase in accounts payable conversion period.
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5
GSK
Inventory management of
Inventory represents an investment and must, therefore, compete with other investment of the firm's. As a consequence, total investment in inventories must be related to some optimum investment level that contributes to the overall wealth maximization object of the shareholders. Since the proper management of inventory has a significant influence on profitability and liquidity, to a large extent, the success and failure of a business depends upon its inventory management performances.
Composition of Inventory: In most of the case, a firm maintains raw material, Working-inprocess and Finished goods as inventory. Depending on the nature of Business, proportion of inventory held by the firm varies. Even the composition of inventory also varies. Inventory composition of Gsk is given below Inventories consist of:
Inventory Raw materials
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2009 2445
2010 2358
2011 42698
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82 Work in Process 9926 4 Finished goods 2459 13 Total Inventory 5897 59
46 1739 61 2648 09 6746 16
1 26985 8 41900 1 11158 40
Raw materials:
2009
Opening raw & packaging materials Purchased
2010 24458 2 16401 84 18847 66 (23584 6) 16489 20
2011 23584 6 27596 29 29954 75 (42698 1) 25684 94
30072 1 14127 24
Raw & packaging materials available Closing raw & packaging materials Raw & packaging materials consumed
17134 45 (24458 2) 14688 63
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Based on the above information raw materials conversion period of Gsk is calculated. Raw materials conversion period of Gsk is shown below
year RMCP
2009 60
2010 51
2011 60 days
From the above graph we see that there is slight fluctuation in raw materials conversion period of Gsk. Raw materials conversion period of Gsk decreased to 51 days from 60 days in 2010 and increased to 60 days in 2011. Work-in-process:
2009
Total costs 17161 65 Opening inventory of Work-inprocess 42990
2010
19121 08 99264
2011
28477 46 17396 1
Closing inventory of Work-inprocess Costs of productions
(9926 4) 16598 91
(17396 1) 18374 11
(26985 8) 27518 49
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Based on the above information work-in-process conversion period of Gsk is calculated. work-in-process conversion period of Gsk is shown below
Year
WIPCP
2009
22
2010
34
2011
35
days
From the above graph we see that work-in-process conversion period of Gsk is increasing over the years.there is a slight increase to 35 days from 34 days in 2011. Finished goods:
2009
Costs of productions 16598 91 Opening inventory of finished products 23196 2 44756 finished products purchased 9 23394 finished products avilable 22 (24591 Closing finished goods Page 32 3)
2010
18374 11 24591 3 58229 3 26656 17 (26480 9)
2011
27518 49 26480 9 82590 6 38425 64 (41900 1)
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Replacement, medical attention, and others issues (14120 ) 20793 Cost of goods sold 89 (11066 ) 23897 42 (36893 ) 33866 70
Based on the above information finished goods conversion period of Gsk is calculated. finished goods conversion period of Gsk is shown below
year
FGCP
2009
43
2010
40
2011
45
days
From the above graph we see that there is slight fluctuation in finished goods conversion period of Gsk. Finished goods conversion period of Gsk decreased to 40 days from 43 days in 2010 and increased to 45 days in 2011. Based on the above information inventory turnover and inventory conversion period are calculated
200 9
Inventory turnover Page 33 2.90
201 0
2.87
201 1
2.58 Time
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s Inventory processing period days 124 125 140
From the above graph we see that inventory turnover of Gsk is decreasing over the years and this happens due to higher inventory processing period over the years.
From the above graph we see that inventory processing period is increasing over the years. There was a slight increase to 125 days from 124 days in 2010.
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gsk
Receivable management of
Receivables occupy the second place, in order of investment, among the various components of working capital in manufacturing concerns. The manipulation of receivables is to push up sales and ultimately profits by allowing certain credit to the potential customers who otherwise may find it difficult to make cash purchases. Moreover, receivables are being near cash item improved the liquidity position of an enterprise. As we know, the emergence of receivables in business operation cerates revenue and cost. Hence, the volume, composition and movements of receivables are required to be so designed and maintained that these ultimately helps maximization of the value of a firm which is the long standing and accepted principle of financial management. Credit Granting Decision: One of the major aspects of Accounts Receivables is Credit Granting Decision. If the firm fails to identify the appropriate customers, it faces severe problem to sustain in the long run. There are different approaches to Credit Granting Decisions. The traditional method is 5 C’s (Capital, Character, Collateral, Capacity and Condition), which is very popular method for quick credit granting measuring creditworthiness of applicant. An alternative to this traditional approach is Judgmental Scoring approach. There are two basic versions of these systems. One is Checklist System and the other one is Weighted Scoring System.
2009
3696 Accounts receivables 61 3980 Prepaid expenses 3
2010
4102 86 5261 8
2011
1305 65 8079 9
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4094 Total trade and other receivables 64 4629 04 2113 64
Based on the above information accounts receivables turnover and average collection period of Gsk are calculated. Accounts receivables turnover and average collection period of Gsk are shown below
200 9 A/R turnover A/R Collection period 7.0 3 51
201 0 7.5 6 48
201 1 33. 17 11
Time s days
From the above graph we see that A/R turnover is increasing over the years. There is a remarkeble increase to 33.17 times from 7.56 times in 2011. This happens due to lower average collection in 2011.
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From the above graph we see that A/R collection period of Gsk is decreasing over the years. There is a remarkeble decrease to 11 days from 48 days in 2011. This happens due to tight credit policy in 2011.
7
Management of Accruals and
Payable of gsk
Accounts Payable: A firm can utilize this fund for financing purpose since it is termed as cost free source of fund. Proper Management of Accruals, in fact, can reduce the dependency on Bank loan. The trade credit is one of the main tools for financing working capital. Accruals: However, firms also incur other types of liabilities for which immediate payments are not required, like the labor of executive and hourly employees, accumulate interest expense on borrowed funds etc. Any such accrual involves a delay in payment and thus it is a potential source of financing.
2009
2565
Trade payables
2010
5045 01 9598 9
2011
8419 70 9729 6
00 7896
Expenses payables
7
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Others payables
3238 9 6328 79
5582 8 9950 94
6 3614
Total trade and others payables
63
Based on the above information accounts payable turnover and payable payment period of Gsk are calculated. Accounts receivables turnover and average collection period of Gsk are shown below
200 9
A/P turnover A/P payment period 5.51 65
201 0
3.25 111
201 1
Time 3.28 110 s days
From the above graph we see that A/P turnover is decreasing over the years. There is a slight increase to 3.28 times from 3.25 times in 2011.
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From the above graph we see that A/P collection period of Gsk is increasing over the years. There is a remarkeble increase to 111 days from 65 days in 2010. This happens due to the bargaining power of Gsk and good relation with the suppliers.
8
gsk
cash management of
Cash is the important current asset for the operation of the business. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s manufacturing operations while excessive cash will simply remain idle, without contributing anything towards the firm’s profitability. Thus, a major function of a financial manger is to maintain a sound level of cash position. Cash management is concerned with the managing of cash flows into and out of cash flows into and out of the firm, cash flows within the firm, and
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C Management cash flows within the firm. Cash management ensures adequate control over cash position to keep the firm sufficiently liquid and to use excess cash in some profitable way. Cash and cash equivalents Cash and cash equivalents of Glaxo Smithkline Bangladesh Limited comprise of the cash on hand and at bank and demand deposits. These also include bank overdrafts that form an integral part of the company’s cash management. Composition of Cash and Cash Equivalents Particulars Term deposit with scheduled CBs SND accounts with scheduled CBs 2009 81,961 216,255 2010 515,281 100,491 49,747 524 666,043 351,748 2011 556,500 13,703 199,018 1,363 770,584 104,541
Current account with scheduled 15,586 CBs Cash, cheques & draft in hand Total Cash and Cash Equivalents 493 314,295
Changes in the Cash and Cash 312,358 Equivalents
From above table, we see that the GSK BD ltd. has maintained its major portion of cash and cash equivalents in the term deposits with the scheduled commercial banks. Second major part of the cash and cash equivalents is kept as the special notice deposit accounts with the scheduled commercial banks. The company also maintains cash in the current accounts with the scheduled banks and in hand. One of the imperative aspects of Cash Management is Cash Collection Mechanism. Float is considered to be one of the important aspects of Collection Mechanism. Cash from the credit sales are collected through marketing agent that means the Billing & Mail float for these firms are zero. The Bank Processing Float for these firms is on an average less than 2 days. GSK BD ltd. uses the Banks with accelerated clearing capabilities for controlling the movement of funds and minimizing idle cash balances.
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C Management Cash Forecasts: GSK BD Ltd. forecast cash to anticipate cash surplus and shortage, estimate timing of borrowing and lending of funds and have better control over funds. For this purpose they prepare Cash Forecasting Statements on half yearly basis. The company maintains a line of credit arrangement with banks to meet any contingencies.
GSK BD Ltd. actually does not use any specific models of cash management such as the Baumol Mode, the Beranek Model, the Miller-Orr Model, and the Stone Model. The companies experienced continuous cash flow.
9 Measurement of Liquidity
of gsk
We have examined the following Ratios of Glaxo Smithkline Bangladesh Limited for the years ended 31 December 2009 through 2011 based on its financial statements for those years.
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C Management 2009 Current Ratio Quick Ratio Cash Ratio Inventory turnover Ratio Inventory processing period (in days) A/R turnover Ratio A/R Collection period (in days) A/P turnover Ratio A/P payment period (in days) 3.06 1.69 0.73 2.90 124 7.03 51 5.51 65 2010 2.56 1.60 0.95 2.87 125 7.56 48 3.25 111 62 0.82 2011 2.03 0.95 0.75 2.58 140 33.17 11 3.28 110 41 0.81
Cash Conversion Cycle or Net Working 110 Capital Cycle Current assets to Total assets ratio 0.78
Current ratio has decreased over the years due to increased current liabilities over the years. Quick ratio has decreased significantly due to significant increase in inventories over the years. Cash ratio has slightly increased with little fluctuations over the years as cash and cash equivalents have fluctuated over the years. Inventory Turnover has decreased over the years and inventory conversion period has increased over the years. Receivable turnover has increased significantly due to the changes in the credit policy (Tighten up of the Credit Policy) and this collection period has also decreased. Payable turnover has decreased due to increased amount of trade payables compare to the increase of cost of raw material purchased. As a result Payable payment period has increased.
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C Management Cash conversion cycle has decreased over the years due to increase in accounts payable payment period with the increase in accounts receivable collection period. Current assets to total assets ratio has increased very slightly over the three years period which is good for the company’s liquidity position. Therefore, we can say that overall liquidity position of GSK BD Ltd. is at satisfactory level and has more liquidity than the industry average.
10
Assets
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Financing Current
C Management Glaxo SmithKline Bangladesh Limited finance their working capital from the following three sourcesLong term sources GSK BD Ltd. finances major part of their investment in current assets from their internal sources such as reserve and surplus. They do not use any long term debt to finance the investment in working capital. Short term sources Usually, GSK BD Ltd. do not take short term bank loans to finance the investment in current assets. But if the face any difficult situation then they use the line of credit facility to the contingent needs. Spontaneous sources GSK BD Ltd. uses the different components of spontaneous sources for financing investment in current assets. They use trade credit and outstanding expenses to support their working capital needs.
11findings &
conclusion
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C Management Findings analyzing the whole report we can obtain following findings: Gsk employed renowned and efficient professionals to conduct their management specially wc management. As a manufacturing business they consider different types of raw materials and WIP and various product as inventories. They maintain their accounts receivable considering their distributors as debtors. Liquidity condition of the company is satisfactory. Gsk limited meets their short term financing needs through short term bank overdraft from banks banks. Use of information technology at Gsk limited makes work easy and fast. Gsk makes an important role in our economy.
Conclusion Now a day’s education is not just limited to books and classrooms. In today’s world, education is the tool to understand the real world and apply knowledge for the betterment of the society as well as business. From education the theoretical knowledge is obtained from courses of study, which is only the half way of the subject matter. Practical knowledge has no alternative. The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between these two areas. Therefore, for the B.B.A. program we are assigned to prepare a report on the internet marketing. It is an important Working Capital Management (405) and it also plays a vital role on the over all corporate world. To find out the report requirements we had to analyze and some comparisons the information about the different tools that are used to manage the working capital efficiently. We also have collected some information from different books, periodicals, websites and specially the annual report of GlaxiSmithKline. We would like to mention that this report basically focuses only on the working capital management. A sincere effort had been placed while the information was collected and a
Page 45
C Management careful study of them made this report loaded with information and several recommendations when there is also pointed out decisions made. This report’s research focuses on present condition and use of working capital management of GlaxiSmithKline. For the purposes of the report some data are collected from given study sheet by our honorable course instructor and the annual report of GlaxiSmithKline. The data types are primary that is collected through survey and Secondary types of data is collected through different publications, here we have used only secondary data and only that one was possible and related with our topics.
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appendix
b i b l i o g r a p h y
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Persons
M. Shahjahan Mina Professor Department of Finance University of Dhaka
Books
Financial Management by I M Pandey Nine Edition Working Capital Management and Control ( Principles & Practice) by Satish B. Mathur Working Capital Management (A Comparative Study) by Vijayakumar
Websites
www.gsk.com
www.investopedia.com www.investinganswers.com
Others
Annual Report and Publications of GlaxiSmithKline. Bangladesh Information and Technology (IT) Firm owners Association Microsoft ® Student ® 2008. © 1993-2008 Microsoft Corporation Microsoft ® Math ® 2008. © 2007-2008 Microsoft Corporation
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