Working capital management system

Of
ACI limited

Assignment On
Working capital management system Of ACI
limited

Course Title : Working Capital Management

Course Code : FIN-408

SUBMITTED TO :
Ms. Sabrina Akhter
Sr. Lecturer
Department of Business Administration
Daffodil International University

SUBMITTED BY
Afzal Kabir

ID: 133-11-3501

Zannatul Ferdaus

ID : 133-11-

3526
Tahmina Tanjila

ID : 133-11-3525

Awrat Hossain

ID : 133-11-

Section: A

Daffodil International University

Executive summery

In this competitive market of Bangladesh to sustain and being profitable is necessary. To do

so, a company must focus on its well management of financial assets and keep satisfying its
stockholders to.

ACI Limited was established in 1992. ACI Agribusiness is the largest integrator in
Agriculture sector of Bangladesh, ACI Agribusiness deals with Crop Protection, Seed,
Fertilizer, Agri machineries, and Animal Health products and equipments, Fish and Poultry
medicine and feeds. It is also the most profitable business units of ACI Ltd after ACI
Pharmaceuticals. The main strength of ACI Limited is use of the assets in productive way,
well managed inventory and higher production capacity. In the bearish market ACI Limited is
offering very good return to the security holder which encouraging more investment.

ACI Ltd. has enough financial strength to expand its business in future. They have earned the
faith of the investors with its transparent financial system and ensuring the safe return of their
precious investment. In future ACI Limited will contribute more to the economy of
Bangladesh by expanding their business.

TABLE OF CONTENTS
Company overview
ICI Bangladesh Manufacturers Limited was a subsidiary of world renowned multinational ICI
Plc and was a listed public limited company under Dhaka Stock Exchange. In 1992 ICI Plc
divested its shareholding through a management buyout and the company name was changed
from ICI Bangladesh Manufacturers Limited to Advanced Chemical Industries (ACI)
Limited. ACI Formulations Limited, a subsidiary of ACI, became a public listed company
through direct listing.
ACI has diversified into four major strategic business divisions which include Health
Care,Consumer Brands, Agribusinesses and Retail Chain.

Strategic Business Units:

Pharmaceuticals

Consumer Brands & Commodity Products

Agribusinesses:
Crop Care Public Health
Animal Health
Fertilizer
Cropex
Seeds

ACI has the following subsidiaries:

ACI Formulations Ltd.
ACI Agrgochemicals
Apex Leathercrafts Limited
ACI Salt Limited
ACI Pure Flour Limited
ACI Foods Limited
Premiaflex Plastics Limited
Creative Communication Limited
ACI Motors Limited
ACI Logistics Limited

Joint Ventures
ACI Godrej Agrovet Private Limited
Tetley ACI (Bangladesh) Limited
Asian Consumer Care (Pvt) Limited

Mission
ACI's Mission is to enrich the quality of life of the people through responsible application of
knowledge, skills and technology. ACI is committed to the pursuit of excellence through
world-class products, innovative processes and empowered employees, to provide the highest
level of satisfaction to our customers.

Vision
To realize the Mission, ACI will:
Endeavour to attain a position of leadership in each category of our business.
Provide products and services of high and consistent quality, ensuring value for money to
our customers.
Promote an environment for learning and personal growth.
Attain a high level of productivity in all our operations through effective utilization of
time and adoption of appropriate technology.
Develop our employees by encouraging empowerment and rewarding innovation.
Ensure superior return on investment through judicious use of resources and efficient
operations, utilizing our core competencies.
Promote inclusive growth by encouraging and assisting our distributors and suppliers in
improving efficiency.

Values
Quality
Customer Focus
Fairness
Transparency
Innovation
Continuous Improvement

Organogram :

Meaning of working capital

As me ,Working capital is a measure of both a company's efficiency and its shortterm financial health. The concept of working capital is, perhaps, one of the most
misunderstood issues in the literature of finance. The reason is that it is subject to multiple
connotations. Some define it as excess of current assets over current liabilities. These net
concepts are based on going concern approach. A going concern approach takes a total view
of the business and considers gross current assets as the gross working capital requirement of
a business, and management of working capital as management of current assets and current
liabilities to ensure dynamic stability between generation of current assets and their funding
operations. Working capital is the capital that require day to day operations of the company .
There are two concept of working capital .

1. Gross working capital:It refers to the firms investment in current assets. The sum of total current assets is called
gross working capital. Current assets are the assets, which can be converted into cash within a
one accounting year or operating cycle, & include cash short-term securities, debtors,
receivable, & stock.

2. Net working capital:It is the difference between the current assets & current liabilities. Current liabilities are those
claim of outside which are expected to mature for payment within one accounting year. Net
working capital is positive & negatives both. If a current asset is more than current liabilities,
it will call positive net working capital & Current liabilities is more than current assets, it will
call negative working capital.

Financial Ratio Analysis:

Financial ratios are useful indicators of a firm's performance and financial situation. Most of
the ratios can be calculated from information provided in the financial statements.

Objectives of Financial Ratio Analysis:

To analyze the financial statements of ACI Ltd.

To calculate the different types of financial ratios of the company.

To know the financial condition of the company.

To know the companys financial development for last five years.

Methodology:

For calculating different types of ratios for the project work, the following formulae were
used:

Liquidity Ratios:

CURRENT ASSETS
1. Current Ratio = CURRENT LIABILITIES

Its a measures a companys ability to meet short term obligations with short term assets, a
useful indicator of cash flow in the near future. A social enterprise needs to ensure that it can
pay its salaries, bills and expenses on time. Failure to pay loans on time may limit your future

access to credit and therefore your ability to leverage operations and growth. The one
problem with the current ratio is that it does not take into account the timing of cash flows.

QUICK ASSETS
2. Quick Ratio (Acid-Test Ratio) = CURRENT LIABILITIES

A more stringent liquidity test that indicates if a firm has enough short-term assets (without
selling inventory) to cover its immediate liabilities. This is often referred to as the acid test
because it only looks at the companys most liquid assets only (excludes inventory) that can
be quickly converted to cash). A ratio of 1:1 means that a company can pay its bills without
having to sell inventory.

3. Working Capital = Current Asset Current Liabilities

Working Capital is a measure of both a company's efficiency and its short-term financial
health.

Activity Ratios:

1. Inventory Turnover Ratio =

SLAES or REVENUE
INVENTORY

It is the calculation the number of times inventory is turning over into sales during the year or
how many days it takes to sell inventory. This is a good indication of production and
purchasing efficiency. A high ratio indicates inventory is selling quickly and that little unused
inventory is being stored (or could also mean inventory shortage). If the ratio is low, it
suggests overstocking, obsolete inventory or selling issues.

2. Total Asset Turnover Ratio =

SALES or REVENUE

TOTAL ASSETS
Total Asset Turnover Ratio is the company's total revenue, the invoice, cash payments and
other revenues. Total Asset Turnover Ratio represents the value of goods and services
provided to customers during a specified time period - usually one year. How efficiently a
business generates sales on each currency of assets. An increasing ratio indicates a company
is using its assets more productively.

3. Days Sales Outstanding (DSO) =

ACCOUNTSRECIEVABLS

No.ofDAYS

TOTALSALES
It is a measurement of the average number of days that a company takes to collect revenue
after a sale has been made. A low DSO number means that it takes a company fewer days to
collect its accounts receivable. A high DSO number shows that a company is selling its
product to customers on credit and taking longer to collect money.

4. Average Payment Period = (ACCOUNTSPAYABLE NO. OFDAYS) NET

PURCHASES or COGS

The average time period in which a business or company typically takes in paying off its
purchases that have been made by credit. This will not have an effect on the company's
working capital. A shorter payment period indicates prompt payments to creditors.

Leverage Ratios:

1. Debt Ratio =

TOTAL DEBT

100

TOTAL ASSET

It is a financial ratio that measures the extent of a companys or consumers leverage. The
debt ratio is defined as the ratio of total debt to total assets, expressed in percentage, and can

be interpreted as the proportion of a companys assets that are financed by debt. The higher
this ratio, the more leveraged the company and the greater its financial risk.

Profitability Ratios:

NET PROFIT
1. Net Profit Ratio = SALES or REVENUE

A ratio of profitability calculated as net income divided by revenues, or net profits divided by
sales. It measures how much out of every currency of sales a company actually keeps in
earnings.
Profit margin is very useful when comparing companies in similar industries. A higher profit
margin indicates a more profitable company that has better control over its costs compared to
its competitors. This ratio measures your ability to cover all operating costs including indirect
costs.

2.Return on Equity =

NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS

STOCKHOLDER'S EQUITY

The amount of net income returned as a percentage of shareholders equity. Return on equity
measures a corporation's profitability by revealing how much profit a company generates
with the money shareholders have invested. This is one of the most important ratios to
investors. How does this return compare to less risky investments like bonds.

NET INCOME
3. Return on Assets (ROA) =
TOTAL ASSET

Its a measurement of the ability of a company to turn the assets into profit. This is a very useful
measure of comparison within an industry. A low ratio compared to industry may mean that your
competitors have found a way to operate more efficiently. After tax interest expense can be
added back to numerator since ROA measures profitability on all assets whether or not they are
financed by equity or debt.

4. Earnings per Share (EPS) =

NET INCOME

TOTAL NO. OF COMMON STOCK OUTSTANDING

The portion of a company's profit allocated to each outstanding share of common stock.
Earnings per share serve as an indicator of a company's profitability.

Inventory Management:
Inventory Management is the process of managing firms inventory and to keep optimum level of
inventory to avoid excess cost. But because of lack of proper information we just conducted a
trend analysis and show it in here.

Inventory
Finished Good
Work-in-process
Raw materials
Packing materials
Stores and spares
Stock in transit
(-) Provision
fordamaged goods
Total

2014

2012

2011

3,142,441,059

2013
1,774,219,427
56,750,090
502,928,357
169,566,009
30,789,189
198,109,813
2,732,362,885

1,411,884,326
55,334,309
449,579,159
184,335,981
32,460,196
154,304,945
2,287,898,916

1,176,656,093
59,307,201
347,515,033
156,759,539
19,673,154
105,948,267
1,865,859,287

181,265,088

179,032,543

158,914,520

95,377,510

1,951,960,246
82,684,794
724,011,984
241,697,100
26,850,950
115,235,985

2,961,175,971

2,553,330,342 2,128,984,396

1,770,481,777

2,000,000,000
1,800,000,000
1,600,000,000
1,400,000,000
1,200,000,000

2011

1,000,000,000

2012
2013

800,000,000

2014

600,000,000
400,000,000
200,000,000
0
Finished Goods

Work-in-process

Raw materials

Working capital components of ACI:

Current Assets
2012
2013
Inventories
Trade receivables
Other receivables
Advances,
deposits
and
prepayments
Advance income tax
Inter-company receivables
Cash and cash equivalents
Total

2014

2,128,984,396
1,292,368,456
107,406,234

2,553,330,342
1,576,569,332
146,161,380

2,961,175,971

460,184,564

371,619,030

700,887,177

150,489,441

350,013,451

4,033,776,402

4,077,096,197

161,461,711
8,334,671,204

250,325,251
9,325,114,983

5,802,572,938

462,525,465
9,927,161,551

12,000,000,000
10,000,000,000
8,000,000,000
6,000,000,000
4,000,000,000
2012
2,000,000,000

2013
2014

Current Assets in Graphical design

Current liabilities

2012

2013

2014

Bank overdrafts
Short-term loan from
banks
Long-term
loan
current portion
Trade payables

1,374,097,512
3,856,614,632

607,564,831
4,677,922,468

427,836,789
5,916,571,029 (Loans
and borrowings)

318,773,624

448,787,894

Other payables
Inter-company
payables
Obligation
under
finance
lease
current portion
Current tax liability
Total

856,449,976
172,929,856

1,017,887,416
364,070,950

761,582

888,386

208,193,234
7,101,682,744

466,635,771
7,964,837,356

313,862,328

381,079,640
1,624,157,078
and other)

(Trade

390,226,161
8,358,791,057

9,000,000,000
8,000,000,000
7,000,000,000
6,000,000,000
5,000,000,000
4,000,000,000
3,000,000,000
2,000,000,000
1,000,000,000
0
2012
2013
2014

Net working capital :

Current assets
Current liabilities
Net working capital

2012

2013

2014

8,334,671,204
7,101,682,744
1,232,988,460

9,325,114,983
7,964,837,356
1,360,277,627

9,927,161,551
8,358,791,057

1,568,370,494

Net working capital

Current liabilities

2012
2013
2014

Current assets

0
5,000,000,000
10,000,000,000

Analysis of the ratios :

Current Ratio : Current assets / Current liability
2014 =9,927,161,551 / 8,358,791,057 = 1.19
2013= 9,325,114,983 / 7,964,837,356 = 1.170
2012 = 8,334,671,204 / 7,101,682,744 =1.173
Current ratio is used to gauge the ability of a company to meet its liabilities with its assets. This
ratio gives an idea about the financial health of an organization. The higher ratio reflects the
more capability of a company to pay its liabilities. Current ratio of ACI Limited is 1.19 times in
2014. Current ratio of 2014 suggests that the company is liquid and in a good position to meet its
current obligations.

Current Ratio
1.2
1.19
1.19
1.18

Current Ratio

1.18
1.17
1.17
1.16
1.16
2014

2012

Quick Ratio: Quick assets / Quick liability

(Quick assets = current asset stock prepaid expenses

2011

Quick liability = current liabilities bank overdraft )

2014 = 0.83
2013 = 6,77,17,84,641 / 6,97,61,92,885 = 0.9706
2012 =6,20,56,86,808 / 5,41,37,22,904 = 1.1462

Its also known as Acid-test ratio. This ratio is an indicator of short-term liquidity of a company.
The quick ratio was highest, 1times, in 2010 after that it gradually decreased and in 2014 it was
0.83 times. This ratio is also a sign that the company is in liquid position to meet its short-term
obligations.

Working Capital:
2014 = 1568 Mio
2013 = 1360
2012 = 1233

Working capital indicates the operating liquidity of a company. Higher the working capital
higher the ability of the company to pay off its short term obligation and its also a signal that the
company can expand its business. In 2014 Working capital was BDT 1568 Million which was
the highest .

Inventory Turnover Ratio:

2014= 4.16
2013=4.18
2012= 4.55

Inventory turnover ratio indicates how well the company managed its inventory. High value of
the ratio reflects good management of inventory. In 2014 the ratio was 4.16 times and the ratio is
slightly decreasing.

Total Asset Turnover Ratio :

2014= 0.79
2013=0.73
2012=0.73
It is the calculation of how many BDT of Sales or revenues are generated by a company in
relation to its asset. The higher the ratio, the better the company is performing that is the
company is generating more revenue from each BDT of asset. The ratio was decreasing from
past time to 2013 but in 2014 it was 0.79 times which was higher than last three years.

Days Sales Outstanding (DSO):

2014= 170
2013=195
2012= 202
It is a measurement of average number of days that a company takes to collect revenues after a
sale has been made. The trend line of Days Sales Outstanding (DSO) of ACI Limited is
relatively stable. In 2014 Days Sales Outstanding (DSO) was 170 days which means it takes 170
days on an average to collect the revenue after the sales. In 2012 it took 202 days to collect
revenues.

Average Payment Period:

2014= 82
2013=103

2012= 80
Average payment period means the average time period is taken by a company in making
payments to its debtors. The average time period of ACI Limited is fluctuating year to year. In
2014 Average Payment Period was 82 days which mean prompt payment is made to the
creditors. In 2013 it took 103 days to make payment to the creditors which were higher in
between 2012 to 2014.

Debt Ratio :

2014= 0.79
2013=0.62
2012= 0.62
Debt ratio indicates the percentage of assets financed by all types of debts. It reflects the
financial structure of an organization. Higher percentage of debt ratio means more financial risk
in the organization. The debt ratio trend is more or less stable over the last five years but in 2014
the debt ratio percentage has increased which is 0.79. The percentage value is highest in last five
years which is alarming for the company.
Net Profit Ratio:
2014= 0.08
2013=0.07
2012=0.06
This ratio is an indicator of profitability of an organization. It shows how much money is kept
out of each BDT of sales or revenues by an organization in the form of its earning. Except the
year 2012, the percentage was stable for ACI Limited. In 2014 it was 0.08 which means BDT 8
was kept as earning of ACI Limited out of each BDT 100 of sales.

Return on Equity (ROE):

2014=0.11
2013=0.03
2012=(0.07)
ROE measures how much the shareholders earned for their investment in the company. The
higher percentage means higher returns to the investors. In 2012 the value of ROE was alarming
but in the next year ACI Limited recovers from the turmoil and in 2014 it produces highest value
of ROE which is 0.11.
Return on Assets (ROA):
2014= 0.06
2013=0.05
2012=0.04

It measures how profitably a firm has utilized its assets. The higher the ROA percentage the
more a company is earning, the more efficiently the company is converting its assets to profit. In
2014 the ROA percentage was 0.06 with less fluctuation than last five years.

Earnings Per Share (EPS):

2014= 27.64
2013=26.74
2012=22.93
Earnings per share indicate a companys profitability. In 2012 the EPS was highest but then it
decreases and in 2014 it was BDT 27.64

Summery

For better understanding of the financial condition of ACI Limited, various ratios have been
computed. All the ratios support good financial condition of ACI Limited.

Liquidity ratios (Current ratio, Quick ratio and Working capital) indicate ACI Limited has very
strong financial ground to expand its business in future and continuously supports its existing
business.

Activity ratio (Inventory turnover ratio, Total asset turnover ratio, Days sales outstanding and
Average payment period) illuminates that the total asset is managing well by ACI limited.
Inventory turnover ratio and Total asset turnover ratio reflects the good management of the
inventory, high production capacity and high efficiency in using total asset. Average payment
period is short (82 days) considering the payables but Days sales outstanding is too long (170
days). They need to concentrate to minimize Days sales outstanding days.

Leverage ratio (Debt ratio) suggests that ACI Limited has a good control on their debt and asset.
They are enjoying more financial leverage but higher financial risk is associated with ACI
Limited.

Profitability ratio (Net profit ratio, ROE, ROA, and EPS) of ACI Limited supports their good
liquid financial standing. ACI Limited is managing their wealth in a very productive manner and
in returns they are providing handsome amount in the form of earnings to the share holders.

With good financial position ACI Limited is providing earnings to the share holders which
ultimately increasing the image of ACI Limited and gaining confidence of the investors.