Working capital analysis

It's stated that the shorter the working cycle, the higher. However within the above case it may be seen that the working cycle of Videocon is rising over time from 90. 98 days within the 12 months 2007 to 99. 92 within the 12 months 2008 to 118. 39 days within the 12 months 2009. INVENTORY MANAGEMENT PRACTICES Annual Report 2009 of Videocon, Pg. 55, Level No. 11 "Inventories are valued at value or web realizable worth whichever is decrease. Value of inventories includes all prices of buy, conversion and different prices incurred in bringing the inventories to their current location and situation. Value is set on Weighted Common Foundation. " three The corporate follows the weighted common technique of stock administration. Stock Turnover Ratio Stock turnover ratio refers to what number of instances an organization are in a position to convert its stock into gross sales and substitute it over a time period. The system for stock turnover is as follows: Formulation = Value of Items Bought Common Stock Value of Items Bought = Opening Inventory + Purchases + Direct Bills - Closing Inventory Larger the stock turnover ratio, higher it's. four The stock turnover ratio of Videocon and LG are as follows: It may be noticed from the above desk, that the stock turnover ratio of LG is rising steadily over time from 6. 14 within the 12 months 2006 to 7. 48 within the 12 months 2007 and at last eight. 67 within the 12 months 2008. This reveals that LG has been in a position to obtain better gross sales over the 12 months. Alternatively, Videocon's stock turnover ratio has declined from 6. 47 within the 12 months 2006 to five. 63 within the 12 months 2008. Not solely has it declined over time, however can also be lesser than that of LG its fundamental competitor. This means that the corporate has poor gross sales, in different phrases the corporate's gross sales are declining over time, and there is perhaps enhance in inventory. Moreover, a decline in gross sales may also point out that the corporate is shedding its prospects to its opponents. This isn't in any respect good for the corporate. We are able to observe from the above desk that the share of unhealthy money owed within the 12 months 2007 was three. 37% which steadily decreased to three. 1% within the 12 months 2008 and at last to 1. 6% within the 12 months 2009. This can be a superb indication for the corporate for the reason that debtors show to be good, and there are lesser unhealthy money owed, meaning lesser losses for the corporate. DEBTORS TURNOVER RATIO: "Debtor's turnover ratio / Accounts receivable turnover ratio refers back to the velocity of the debt assortment of the agency. In easy phrases it signifies the variety of instances common debtors (receivable) are turned over throughout a 12 months. " 5 Formulation for debtor's turnover ratio = NET CREDIT SALES AVAERAGE DEBTORS AVAERAGE DEBTORS = OPENING BALANCE OF DEBTORS + CLOSING BALANCE OF DEBTORS 2 Larger the debtors turnover ratio, higher it's. A excessive debtor's turnover ratio signifies that the debtors are extra liquid, and there's environment friendly administration of debtors on the a part of the corporate. Alternatively, a low debtor's turnover ratio signifies lack of administration of debtors on a part of the corporate, and that the debtors are usually not that liquid. There isn't any preferrred debtor's turnover ratio as this varies from firm to firm and from trade to trade. From the above desk we are able to see that the debtors turnover ratio for videocon is nearly half as in comparison with its rival / comopetitior LG. Due to this fact, we are able to conclude that the receivable administration of LG is much extra environment friendly than videocon and the corporate ought to pay extra consideration on this parameter0. REFERENCES http://www.investopedia.com
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