bextex wcm final
TRANSCRIPT
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Executive Summary
This report is presenting the overall working capital management of BeximcoTextiles
Limited. In this report all of the information is collected from secondary data. As, Primary
data was too much confidential, the company didnt disclose it to us. In this report the
terms and conditions that we have learned in FIN 406 has implemented. In this report
financial analysis and recommendations are given.
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Introduction part
Company overview
The Beximco Textiles Ltd. was incorporated in Bangladesh as a Public Ltd. Company with
limited liability on 1994 & commenced commercial operation in 1995. The project was set
up as a state of the art fabric weaving, dyeing & finishing facilities for production of high
quality shirting fabric, unique wrinkle free fabric (Cortex-2000, cotra DP 3.5 +) & other
fabrics. BTL has an installed capacity of 288 high-speed air-jet looms in its weaving section
& a high-tech dyeing & finishing section with a capacity of 100,000 yards of finished fabric
per day. It is a member enterprise of the Beximco conglomerate. During the year the
company produced and sold high quality shirting and other fabric and bringing forth all the
latest in hard and soft technologies in weaving and finishing of fabric. It is the most modern
composite mill in the region. They have leveraged Bangladesh's labor cost advantage &
export competitiveness to the maximum.
Beximco Textiles Limited engages in manufacturing and marketing yarn, woven, knit, and
denim fabrics in Bangladesh. The company offers yarn products, such as count, fiber, CVC,
and TC yarn products; fabric products comprising solid dyed, yarn dyed, finishing, dobby
designs, and yarn count products; and denim products. It also provides special yarn
products consisting of plied yarn, fancy yarn, slub yarn, core spun, multi count, and multi
twist products, as well as wrinkle-free products. The company was formerly known asPadma Textile Mills Limited and changed its name to Beximco Textiles Limited in 2006.
Mission
Each of our activities must benefit and add value to the common wealth of our society. We
firmly believe that, in the final analysis we are accountable to each of the constituents withwhom we interact; namely: our employees, our customers, our business associates, our
fellow citizens and our shareholders.
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Purpose of this Study:
This study has been designed in such a way that students are going to learn the in-depth
knowledge about a companys financial condition. The main purpose of this report is to
reinforce the concept of financial policy of Beximco Textiles ltd. along with its all working
capital ratios, short-term financing and long-term financing. etc. Overall, this study will
help a finance student to familiar with the practical scenario.
Limitation:
The report is limited to the data that are available in the annual reports and in the
website related to Beximco textiles. Primary data was not available as they didnt disclose. Finally, we have used our own judgments in many ways from our Business
Finance courses in order to simplify the research, evaluate, calculation and advising.
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Financial Analysis
Working Capital of Beximco Textiles ltd.:
Working capital is defined as current (expected to be consumed or converted into cash
within one year) assets minus current liabilities. Working capital turnover indicates how
efficiently the company generates revenue with its working capital.
Year Current Assets Current Liabilities Working Capital of
particular year
2006 7572906611 5961381357 1605525254
2007 7881489387 8058498925 -177009538
2008 7230982538 7906937639 -675955101
2009 8677166758 4834823994 3842342764
2010 9031547621 6944110703 2087436918
Inventory:
Inventories are carried at the lower of cost and net realizable value as prescribed by IAS
2:Inventories, cost is determined on weighted average cost basis. The cost of inventories
comprises of expenditure incurred in the normal course of business in bringing the
inventories to their present location and condition. Net realizable value is based on
estimated selling price less any further costs expected to be incurred to make the sale.
Beximco textile ltd. Holds 5 types of inventory:
i Raw material inventory (Fibre, yarn, gray fabric, dyes & chemicals)
i Work in process inventory
i Finished goods inventory
i Packing materials
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i Stores and Spares
Amount of inventory in five years:
Year Amount of inventory
2006 3414768025
2007 3688016341
2008 2733063864
2009 2742675600
2010 2994596746
Accounts Receivable:
Their accounts receivable are recognized at cost which is fair value of the
consideration given for them. 5 years accounts receivable of Beximco Textile:
Year Amount of Accounts receivable
2006 3407687731
2007 3451582241
2008 3765912622
2009 49860860532010 5040220480
Current ratio:
Year Ratio
2006 1.27
2007 .97
2008 .91
2009 1.792010 1.3
Illustration:
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Quick Ratio:
Year Ratio2006 .69
2007 .52
2008 .56
2009 1.22
2010 .86
Illustration:
1.3
1.79
0.910.97
1.27
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
CurrentRatio
2010
2009
2008
2007
2006
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Activity ratios:
Working capital turnover:
Year ratio
2006 3.23
2007 -24.11
2008 -7.04
2009 2.04
2010 6.98
Illustration:
0.86
1.22
0.560.52
0.69
0
0.2
0.4
0.6
0.8
1
1.2
1.4
QuickRatio
2010
2009
2008
2007
2006
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Inventory Turnover:
year ratio
2006 .92
2007 .81
2008 1.13
2009 1.79
2010 3.15
Illustration:
6.98
2.04
-7.04
-24.11
3.23
-30
-25
-20
-15
-10
-5
0
5
10
20
20
20
20
20
Working Capital Turnover
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Days of inventory on hand (DOH):
Assuming that, Beximco Textiles number of days in period is 360. Then the DOH
would be:
Year DOH2006 391.30
2007 444.44
2008 318.58
2009 201.11
2010 114.29
3.15
1.79
1.13
0.810.92
0
0.5
1
1.5
2
2.5
3
3.5
InventoryTurnover
20
20
20
20
20
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Illustration:
Receivable turnover:
Year ratio
2006 1.52
2007 1.232008 1.26
2009 1.57
2010 2.89
114.29
201.11
318.58
444.44
391.3
0
50
100
150
200
250
300
350
400
450
500
days of inventory on hand
20
20
20
20
20
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Illustration:
Days sales outstanding(DSO):
Year
Ratio
2006 235.85
2007 291.20
2008 284.80
2009 228.19
2010 124.51
Illustration:
2.89
1.57
1.26 1.23
1.52
0
0.5
1
1.5
2
2.5
3
3.5
Receivable turnover
20
20
20
20
20
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Cash conversion cycle:(Inventory conversion period+ Receivables conversion period)-Payables
conversion period
Year CCC2006 523.12
2007 594.16
2008 417.5
2009 387.17
2010 143.36
114.29
228.19
284.8 291.2
235.85
0
50
100
150
200
250
300
350
days sales outstanding
20
20
20
20
20
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Collection & Disbursement
Cash Inflow and Cash Outflow by Operating Activities (in tk.):
2010 2009 2008 2007 2006
Cashreceived
from
customers& others
145187023 664608431 3190602600 4223133089 4887688455
Cash paid
tosuppliers
&
Employees
898661193
535932698
3043303205 3788738872 3703613507
Cash
Generatedfrom
Operations
5532091050 1286757473 147299395 434394217 1184074948
Interest
Paid
1445098454 2006166127 1261679027 766830156 906788267
Income
Tax Paid
43025787 56338512 20396366 74934103 8084912
124.51
387.17417.5
594.16
523.12
0
100
200
300
400
500
600
700
cash conversion cycle
20
20
20
20
20
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Net Cash
Generated
from
Operating
Activitie
4043966809 775747166 1134775998 407370042 269201769
Daily CashGeneratedfrom
Operating
Activities
11233241.14 2154853.24 3152155.55 1131583.45 747782.6917
Cash Flows from Investing Activities (in tk.):
2010 2009 2008 2007 2006
Acquisition of Property, Plant
& Equipment
3231593528 2381789851 986841760 39250045 205811905
Long-term
security
deposit
- - - - 46064
Net Cash Usedin Investing
Activities
3231593528 2381789851 986841760 39250045 205857969
Daily CashUsed in
InvestingActivities
8976648.69 6616082.92 2741227.1 1090279028 571827.917
Cash Flows from Financing Activities (in tk.):
2010 2009 2008 2007 2006
Allotment of shares - 6351789302 - - 10500000
(Decrease)/Increase
in Long Term
Borrowings
594878760 1605294361 1945272911 74392816 12734171
(Decrease)/Increase
in Short Term
Borrowings
201830690 1578840462 181255969 511187488 11819414
Dividend Paid - - - - 30405375
Net cash Generated
from Financing
796709450 3167654479 2126528880 436794672 13562833
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Activities
Daily Net cashGenerated from
Financing Activities
2213081.81 8799040.22 5907024.67 1213318.53 376745.38
Increase or
decrease in cashand cash
equivalents
15663831 10117462 4911122 9825415 72284537
Cash and Cash
Equivalents at
Beginning of Year
27249672 1713221o 12221088 22046503 94331040
Cash and Cash
Equivalents at End
of Year
42913503 27249672 17132210 12221088 22046503
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Interpretations:
1. Working capital: In 2007 and 2008 working capital of Bextex ltd. was negative.
That means; current assets have been lower than the current liabilities. So, the
company was in a risky position in terms of liquidity. But from 2009, it started to be
positive and the company is in a stable position.
2. Current ratio: This ratio expresses current assets in relation to current liabilities.
Current Ratio of bextex ltd.is highest in 2009 which indicates that the company has
higher level of liquidity and it can meet short term obligations. But during 2007 and
2008 the ratio had a smaller value than one, indicating that Bextex ltd. had lower
liquidity to meet its short term obligations. However, over the following years;
Beximco Textiles managed to solve this issue.
3. Quick ratio: The quick ratio is more conservative than current ratio, because it only
includes the more liquid current assets in relation to current liabilities. Beximco
Textiles Ltd. reached its peak in 2009 in terms of quick ratio but yet again it
dropped in 2010. Apart from that, there has been a steady improvement in this
aspect.
4. Activity Ratios:
a. Working capital Turnover: working capital turnover indicates how efficiently
the company generates revenue with its working capital. Bextex ltd. was in the
worst situation in 2007, that the ratio was -24.11; this ratio was negative in 2008
as well. The main reason behind it was that the current asset remained lower
than the current liabilities. The negativity in this aspect simply depicts that the
company took a very high amount of loans during those years. Yet, the
operations were efficient enough to improve that risky position over the years.
b. Inventory Turnover Ratio: Inventory turnover ratio shows the times a company's inventory
is sold and replaced over a financial period. A low turnover implies poor sales and,
therefore, excess inventory. A high ratio implies either strong sales or ineffective buying.During 2006 and 2007; the annual inventory on hand was way higher than the following
years. Consequently, the turnover was high as well. During the following years; the
management took new measures and managed to reduce the excess the inventory.
However, the total amount of inventory in 2010 was higher than that of 2009. Yet, the
inventory turnover almost doubled during 2010; which is a strong indication that the sales is
increasing in number.
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c. Days Sales Outstanding Ratio: It indicates the elapsed time between a sale and
cash collection. Bextex ltd.had the lowest DSO in 2010, which indicates a better
situation than that of the previous years. In 2007, the ratio was the highest
indicating the efficiency lapse in cash collection during that period.
5. Cash Conversion cycle: This metric indicates the amount of time that elapses from
the point when a company invests in working capital until the point at which the
company collects cash. Bextex ltd. had 523.12 CCC in 2006 which indicates poor
position and in 2010; they have decreased it from 523.12 to 143.36. So, it is a good
indication for the company. Basic reason behind this positive trend is that; Beximco
Textiles has improved the Inventory conversion and receivables Collection
operations dramatically. Both the Inventory conversion period and the Receivable
conversion period has been halved from the year 2006 to 2010.
6. Cash-Flow: Cash flow activities show that both the income from operational
activities and the return from investments have been increasing over the years. ThePayables are being paid out and the retained earnings are being reinvested heavily
to increase the efficiency to a higher level. This can be a reason why Beximco
Textiles have refrained from giving out dividends since 2007.
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References
1. BEXIMCO TEXTILES Ltd. (2007). Auditors Report
2. BEXIMCO TEXTILES Ltd. (2009). Auditors Report
3. BEXIMCO TEXTILES Ltd. (2010). Auditors Report
4. Fredric C. Scherr, Modern Working Capital Management, Prentice Hall International
Editions.
5. Ross, S. A, Westerfield, R. W & Jaffe, J. (2005). Corporate Finance 7th Edition. New Delhi:
McGraw Hill Publishing Company Limited.
6. Financial Reporting and Analysis CFA (level-1) 2011