Report On: Case on working capital management of

Transcom Group Bangladesh

Course Name: Working Capital Management (F- 405)

Submitted To:

Khaleda Khatun
Professor
Faculty of Business Studies
Dept. of Finance
University of Dhaka

Submitted By:
Md. Faysal (ID 20-006)

Ananta Prosad Paul (ID 20-036)

Mushfiqur Rahman (ID 20-060)

Of section B, 20th batch
Dept. of Finance
University of Dhaka
Date of Submission: April 30, 2017
 Group Profile
No. Students’ Name Students’ ID.

01. Md. Faysal 20-006

02. Ananta Prasad Paul 20-036
03. Mushfiqur Rahman 20-060
Letter of Transmittal
April 30, 2017

Khaleda Khatun

Professor

Department of Finance

University of Dhaka.

Subject: Submission of Term Paper on “Case on WCM of Transcom BD ltd”

Dear Mam:

Here is the report on the study of “Case on WCM of Transcom BD ltd” as per our requirement for
course F-405; Working Capital management.

Writing this report has been a challenging yet interesting experience for us. It enabled us to grasp
a thorough knowledge on the subject matter and we are confident that this knowledge will prove
to be of utmost value and importance to us in future.

We have undertaken our sincerest effort for successful completion of this report and we hope that
any unintentional error, omission or mistake committed by us while preparing this report will be
considered with sympathy.

We, therefore, hope that you would be happy to know that we have tried our best to make this
report more & more informative and factual.

Sincerely,

No. Students’ Name Students’ ID.

01. Md. Faysal 20-006

02. Ananta Prasad Paul 20-036
03. Mushfiqur Rahman 20-060

Group members:
3rd year – 2nd Semester (20th batch)
Section- “B”
Department of Finance
University of Dhaka
Acknowledgement and Declaration
For the completion of the study, we don’t deserve all praise. For any BBA student course,
thereport is an essential part of his/her educational life. One can gather a lot of practical
knowledge and experience by observing and doing the work on a specified topic. In this
regard, our report has been prepared on “Case on WCM of Transcom BD ltd”.

At first, we would like to express our gratitude from the heart to the Almighty for giving
us the strength and patience to prepare this report with perfection within the scheduled
time.

Then, we would like to thank our F-405 course teacher Khaleda Khatun, Department of
Finance, University of Dhaka. her constant presence and words of encouragement inspired
us to do our very best. It probably would be impossible to complete this report without his
guidance and availability.

Finally, we are grateful to all of our group members. Without their earnest effort, it was
impossible for us to complete the report.

This report is prepared for meeting our academic purpose, not for any other reason. It
might not be used for the benefit of any other purposes.
Table of Contents
Case Background: .................................................................................................................................................. 8

Production facilities: ......................................................................................................................................... 13

Competition and selling arrangements: .................................................................................................... 13

Expansion: ............................................................................................................................................................ 13

Future prospects: ............................................................................................................................................... 14

Discussion Question:......................................................................................................................................... 14

Q.1 Evaluate of Transcom’s performance and financing of its operations. ................................. 14

Q.2 How has Transcom managed its working capital in past? Illustrate with appropriate
calculations. .......................................................................................................................................................... 16

Q-3 What are the plans to improve its working capital management? Show calculation of
operating cycle. ................................................................................................................................................... 20

Q.4Do you accept the financial plan prepared by Transcom? What modifications would you
suggest in the plan and why?......................................................................................................................... 23

Conclusion: ........................................................................................................................................................... 24
Case for Transcom Group

Bangladesh Limited
Latifur Rahman, Chairman of the Transcom Group Bangladesh was concerned about the
company’s working capital management in the beginning of 2015. The management of
working capital components would assume greater importance, as the company was
expecting its net sales to increase from 626 lakh BDT in 2015 to 630,234 lakh BDT in 2016.
The company would require more working capital funds for increasing sales. Mr. Rahman
could realize that it is not easy to take loan from banks and so, he want to manage this by
reducing working capital requirements without affecting sales.

Case Background:
Transcom Group, also known as Transcom, Transcom Limited, is one of the oldest and
leading business conglomerates in Bangladesh. The founder of Transcom Group is Latifur
Rahman. At present, he is the Chairman & CEO of this Group. Transcom started its journey
in 1885 with tea plantations. It has over 10000 workforces. There seems a tremendous
change in the average capacity utilization from 2014 to 2015 year in terms of Transcom
Bangladesh. Average capacity utilization in 2014 was 70% and now it has be around 80%.
Some of the foreign brands managed by the group include: Pepsi, 7Up, Mirinda, Mountain
Dew, Diet Pepsi, 7u Light, Aquafina, Sting, Evervess, KFC, Pizza Hut, Philips N.V. Whirepool,
Maybelline, Garnier, Heinz, Frito-Lay, Lindt, Servier, Novo nordisk etc. it projects to utilize
83% of the capacity within 2016. It is obvious that the company incurred profit all the time
of its business duration. In the 2009, it has a loss of 642,208 lakh BDT due to the reason of
working capital de-formulation. They cannot manage their needs of cash on that time. It
wanted to manage their loss by hedging the cash and cash equivalents. The reason behind
working on the failure to incur net profit was more than that. As a result, total effort
resulted in poor profitability. So, they incurred loss in 2009 too. The fact is they get tax
benefit because of green approaches and their dividend payment and Retained earnings
and all the valuation is perfect and the consumers are satisfied to the company.

The actual and estimated balance sheets and the profit and loss account of the company are
given in the following tables-
 Transcom Bangladesh Ltd

Statement of Financial statement

At June 30, 2015

(in lakh BDT)

Assets (Actual) 2014 (Actual) 2015 (Projected) 2016

Non-current assets

Goodwill 101,824 107,491 110052

Other intangible assets 4,211 4,175 4500

Tangible assets 16,152 16,398 12,570

Deferred tax assets 2137 917 718

Other receivables 1534 1283 1260

Total non-current assets (1) 125858 130264 129100

Current Assets

Trade receivables 91935 87070 86030

Income tax variables 2483 3147 3500

Inventories 24586 18517 19520

Prepaid expenses and accrued income 20645 22115 22150

Cash and Cash equivalent 38173 24826 23872

Total current assets (2) 177822 155675 146332

Total assets (1+2) 303680 285939 275432

Equity and Liabilities

share capital 56084 56084 56084

Other contributed capital 8993 8993 8993

Reserves -12844 -8172 -7982

Retained earnings 67763 75108 77130

Total equity 119996 132013 134225

Non-current liabilities

interest bearing liabilities 47635 34894 33572

Employee benefit 3264 3177 4520

Provisions 135 - -

Deferred tax 1464 1343 1545

Income tax payable 2093 283 290

Other liabilities - 72 80

54591 39769 40007

Current liabilities

interest bearing liabilities 15119 7992 8552

Provisions 1501 3850 3850

Trade payables 27279 25428 24872

Income tax payables 8304 4669 5230

Other liabilities 27017 27360 27360

Accrued expenses 49873 44858 31336

Total liabilities 183684 153926 101200

Total equity and liabilities 303680 285939 275432

Transcom Bangladesh Ltd

Profit and loss account

For the year ended June 30, 2015

(in lakh BDT)

Particulars (Actual) 2014 (Actual) 2015 (Projected) 2016

Revenue 616840 626522 630234

Cost of sale -489257 -502833 -503872

Gross profit 127583 123689 126362

Marketing exp. -4451 -3585 -3585

Administrative exp. -97468 -99128 -89250

Restructuring exp. -515 - -

Net gain/loss on disposal of business -1498 -109 -115

Other operating income/ expenses -2325 -827 -872

Operating profit 21326 19950 32540

Financial income 2334 360 450

Financial expense -4858 -2913 -2100

Profit before tax 18802 17397 30890

Income tax -11934 -8744 17445

Profit after tax 6868 8653 13445

Cost of sales
(actual) (actual) (projected)
2014 2015 2016

Raw material 272000 278260 276540

Direct labor 153200 165320 158390

Manufacturing overhead 15000 12000 14500

Depreciation 25000 24000 23900

Total 465200 479580 473330

Add: Beginning WIP 38000 42350 39590

Less: Ending WIP 12000 13000 12000

Cost of production 491200 508930 500920

Add: opening finished goods 3000 2500 4000

Less: ending finished goods 4943 8097 1048

Cost of sale 489257 502833 503872

Production facilities:
Its product lines are mobile, television, refrigerators, air conditioners, home appliances,
kitchen appliances, personal care, lights and electronic services. The company’s existing
production facilities are considered to be adequate for operating the whole transaction at
the enhanced installed capacity. As the products are of high technology based it requires a
bunch of technologically sound raw materials to produce. Some raw materials are imported
from different countries. The main problem here occurs is late arrival. And so payments are
made late too.

Competition and selling arrangements:

Transcom digital has a bunch of competitor both in Bangladesh and outside the country./
the technology based appliances have become the sheer concern for most of the business as
the portion is deemed to be a prospective market space for future. The major buyers,
accounting for 80-85% is reputed firms. The remaining percent is small dealers. In spite of
stiff competition, Transcom has sustained its mark in the field with great competitive
advantage. Gradually the competition in the market is creating hustle for Transcom. The
growth prospect is hampering and the net income has become subjected to question
thereby. It is concerned about credit policy in respect of protecting its business operation
from sheer competition. The company is sear4ching for distinctive credit policy to offer to
the customer. The previous normal credit period has become obsolescence in recent times.
So the management is redirecting the credit policy as a result of buyer’s bargaining power.
Transcom wants to sell its product at a balanced price. It allows customer cash discount for
expanding sales. It uses CRG for verifying the creditworthiness of the customers.

Expansion:
Soon after the loss of 2009, it wanted to expand its business by bringing some new
production. It was expanded by manufacturing refrigerator bottom panel, bimetal, double
door heater part for refrigerator product in its curt. By this it can incur income and meet
up the losses within net3 years. And now the company wants to make profit by increasing
its selling capacity.

Future prospects:
As they produces more inventory and they lowered their price for products from 2014-15,
it can be expected that Transcom can sale more (630234 lakh BDT). The competitors are in
a balanced position and the expanded parts are situated in a developing area. The
company’s products are well accepted for the customers. Therefore, the occurrence of bad
debt will be decreased because of CRG rating in verifying creditworthiness. It will hedge
their cash needs and it can manage its capital requirements. The cash collection period can
be accelerated and can make delay in A/P payment. The normal credit period allowed by
the suppliers is 45 days; however, a discount of 2.5% for payments made within 15days of
the purchase date is allowed. In the past creditors did not object to Transcom’s stretching
of payments to them. The expenses have been estimated in line with the past experience.
The assets and liabilities also have been estimated in accordance with the past trends.

Discussion Question:
1. Evaluate Transcom’s performance and financing of its operations.
2. How has the company managed its working capital in the past? Illustration with
appropriate calculation.
3. What are Transcom’s plans to improve its working capital management? Show
calculation of operating cycle to justify answer.
4. Do the firm accept the financial plan prepared by Transcom? What modifications
would the firm suggest in the plan and why?

Q.1 Evaluate of Transcom’s performance and financing of its

operations.
By evaluating the degree of executing its target level benchmark can help us understanding
the performance of Transcom and its operation financing. we can use financial indicators to
have some glimpse over the financial stability of Transcom based on the past and projected
information.

Transcom has uses its assets in a way to generate sales in versatile amount. The technology
used in producing the products is tremendous and has competitive advantage. There has a
declining trend of asset in total number. It has been projected that the total asset will be
10507 lakh BDT lower in 2016 than in 2015. But at the same time it is generating more
sales revenue through these assets. The sales line is increasing at a great volume. Sales
revenue will be 3712 lakh BDT higher in 2016 than in 2015. Transcom has a substantial
market share and ranking the top suppliers in international market. The projected share
capital will be 56084 lakh and by this the total equity will be 134225 lakh that it can run its
business in a profitable way.

To analyze the performance and financing the operation, we need ratios to draw a
conclusion:

Criteria Formula Result

Current ratio CA/CL (155675/153926) = 1.01 : 1

Quick ratio CA- inventories/ CL (155675-18517/153926) =.89 : 1

Debt to equity ratio Debt/ Equity (153926/132013) = 1.17 : 1

Equity ratio TA/Equity (285939/132013) = 2.17 : 1

The profitability of Transcom has decreased from 1.40% in 2014 to 1.38% in 2015. On the
other hand, Transcom’s working capital condition is not good as the quick ratio signifies
that there is more current liabilities in the firm than the quick liquidated assets are. The
leverage ratio also says that the firm is running high leverage. There is more loan able fund
induced in the business has equity. As a result the assets are showed in an increased figure
though they are arranged from debt sectors.
Q.2 How has Transcom managed its working capital in past?
Illustrate with appropriate calculations.

Transcom has good working capital requirements in 2014 than in 2015. The situation was
a little bit different. The market boom condition reinforces all competitors to cut cost in the
following year and so the total working capital required for Transcom was lesser than
2014. It requires calculation to demonstrate the exact situation of working capital
requirements in Transcom Bangladesh.

Assets (Actual) 2014 (Actual) 2015

Non-current assets

Goodwill 101,824 107,491

Other intangible assets 4,211 4,175

Tangible assets 16,152 16,398

Deferred tax assets 2137 917

Other receivables 1534 1283

Total non-current assets (1) 125858 130264

Current Assets

Trade receivables 91935 87070

Income tax variables 2483 3147

Inventories 24586 18517

Prepaid expenses and accrued income 20645 22115

Cash and Cash equivalent 38173 24826

Total current assets (2) 177822 155675

Total assets (1+2) 303680 285939

Equity and Liabilities

share capital 56084 56084

Other contributed capital 8993 8993

Reserves -12844 -8172

Retained earnings 67763 75108

Total equity 119996 132013

Non-current liabilities

interest bearing liabilities 47635 34894

Employee benefit 3264 3177

Provisions 135 -

Deferred tax 1464 1343

Income tax payable 2093 283

Other liabilities - 72

54591 39769

Current liabilities

interest bearing liabilities 15119 7992

Provisions 1501 3850

Trade payables 27279 25428

Income tax payables 8304 4669

Other liabilities 27017 27360

Accrued expenses 49873 44858

Total liabilities 183684 153926

Total equity and liabilities 303680 285939

Working capital (2014) = Current assets – Current liabilities

= 177822 – 129093

= 48729

Working capital (2015) = Current assets – Current liabilities

= 155675 – 114157

= 41518

The working capital requirement is higher in 2014 than in 2015. So the firm had good
management over the working capital in a greater sense. Obviously Transcom took some
steps in managing working capital requirement in a tactful manner. In the past, Transcom
took five steps in managing working capital and these are:

1. Managing procurement and inventory

Prudent inventory management is an important factor in making the most of the firmr
working capital. Excessive stocks can place a heavy burden on the cash resources of any
business. On the other hand, insufficient stock can result in lost sales and damage to
customer relations. When looking at inventory, it’s important to monitor what one buy,
just as much as what one sell. The key challenge for companies is to establish optimum
stock levels: promoting better communication between departments and forecasting
demand are steps to take in order to prevent the firmr company from holding unnecessary
levels of stock. As well as driving up costs for physical storage and insurance, the stock
may be wasted if it is time-sensitive. Investing in procurement automation solutions can
greatly boost working capital. Streamlining and centralizing the purchasing process
enables a rigorous authorization process. This helps to prevent maverick spend by
ensuring that procurement officers are only permitted to order approved
products/services from preferred vendors.

2. Pay vendor on time:

Analysis of working capital levels shows that the biggest improvement comes from
improved payables performance and reduced days payable outstanding (DPO). Transcom
pays on time develop better relationships with their suppliers and are in a stronger
position to negotiate better deals, payment terms and discounts. It seems like a counter-
intuitive way of maintaining a steady working capital, but if the firm keeps the its suppliers
happy, it could save the firm money in the long run when it comes to getting larger
discounts for bulk buying, recurring orders and maximizing the credit period. This strategy
helps Transcom have higher working capital in the past.

3. Improve the receivables process

In order to shorten the receivables period, Transcom BD initiates a good collections system
in place. One important aspect of working capital is to send out invoices as soon as
possible. Transcom BD should reassess invoicing processes to eliminate inefficiencies that
may be causing delays in sending invoices to debtors (manual processing, lost invoices,
high volume of invoices to manage etc.) It’s also vital to ensure that invoices are accurate
before they are sent to debtors to avoid delays in getting paid. Maintaining accurate
debtors’ ledger ensures that Transcom is on top of debtor collection dates and can send
timely reminders to your customers regarding payment.

4. Manage debtors effectively

The best way to ensure you have working capital is to make sure money is coming in on
time. Reassessing the contracts and credit terms with debtors may be necessary to make
sure Transcom is not giving debtors too big a window to pay for goods and services – as
this may be impacting negatively on your own company’s cash flow. CFOs should review
credit terms with company management to ensure that the level of credit being offered to
debtors is appropriate for your company’s cash flow needs. More rigorous credit checks
and effective credit control procedures are required to chase late-paying customers to
lessen bad debt in future in time for Transcom.

5. Make informed financing decision

Prioritizing working capital allows companies to make strategic investment decision, which
drives operational performance and efficiencies. Conversely, not having enough operating
liquidity because assets are tied up in inventory or unpaid invoices can have a huge effect
on cash flow.

This is the way Transcom BD managed its working capital efficiently in the past

Q-3 What are the plans to improve its working capital

management? Show calculation of operating cycle.
The working capital requirement is not good in recent times in respect of Transcom. The
cash collection capacity has lowered. In 2014 cash and cash equivalents were 38175 lakh
BDT whereas it is now around 24826 lakh BDT. The reason behind working on this is
Transcom is unable to generate sales in a growing manner and cash collection period is
simply lowering day by day. Transcom may take some plans to improve the working capital
requirements.

 It can increase the price level of its product to inject enough cash. In terms of credit
sale, the firm should strict its credit policy to its customers.
 Transcom can delay its payments and can accelerate the receivables collection
period.
 Moreover, Transcom can use credit rating grade to identify the credit worthiness of
the customer. It will ultimately reduce the chance of bad debt and will increase the
cash collection.
 It can issue shares for cash both in common stock and in preferred stock. It will
increase the level of cash in the firm. and on the other hand to reduce short term
liability, it can take long term debt instead of short term debt.
  The company can limit its unnecessary expenses and manage cash to some extent.

Calculation:

Transcom wants to increase its sales by 12000 units of production in 2016. The following
information is given for the purpose for operating cycle as well as working capital
calculation.

1) Cost:

Direct Raw-materials cost per unit 20000 tk

Direct Labor cost per unit 6000 tk

Overhead (100% of direct labor)

Profit is 20% of selling Price.

2) Conversion Period:

a) Raw materials are expected to be in the stock for an average of 30 days before issue to
production.

b) Processing time is 15 days and finished goods are expected to remain in the store on an
average for 45 days.

c) Credit allowed to debtors 2 months, whereas the creditors allowed only 1 month.

d) Time lag in payment of wages is 15days.

Now, estimating the requirement in respect of each element cost-

1) Annual Production= 12000 units

2) Production per month = 12000/12 months = 1000 units

3) Average cost per month:

Raw Material = 1000 units* 20000 tk per = 2, 00, 00,000

 Direct labor = 1000 units* 6000 per = 60, 00,000

Overhead = 1000 units* 6000per = 60, 00,000

4) Operating cycle period for each element of cost:

Details Material Labor Overhead

Raw-material in stock: 30days - -

Processing Time (WIP) 15days 15days 15days
Finished Goods in stock 45days 45days 45days
Credit allowed to debtors 60days 60days 60days
Total 150days 120days 120days
Less: Credit allowed 30days 15days -
Net Operating Cycle period (In days) 120days 105days 120days

Net Operating Cycle period (In month) 4months 3.5moths 4months

5) Estimating Working Capital Requirement:

Raw materials = 2, 00, 00,000 per month* 4 months = 800 lakh

Direct Labor = 60, 00,000 per month* 3.5 months = 210 lakh

Overhead = 60 per month* 4 months = 240 lakh

So, Total Working Capital Requirement = (800+210+240) lakh BDT

= 1250 BDT (in lakh)

So the new plan to solve the inadequacy of working capital requirement is acceptable. It
shows the positive working capital requirement for the next year (forecasting year).
Q.4Do you accept the financial plan prepared by Transcom?
What modifications would you suggest in the plan and why?
The financial plan taken by Transcom is viable to grab more customers in the market. Their
projected financial statements of balance sheet, income statement and cost of sales
demonstrate that it can surely make profit in the coming years. Nonetheless, we would like
to add some suggestion in the plan which will modify it to some extend in order to get
better appeal.

Transcom should monitor the pricing strategy of other competitors with great care.
Transcom should fix such level of pricing that simultaneously enjoy optimum price appeal
and at the same time earn competitive edge in the market.

Sometimes customers require incentives which motivate them to purchase the product of a
distinctive group. Customer reward program can be arranged by Transcom to get better
exposure in this field. It will also make plausible customer into loyal customer. The offers
may be-

 Be a one year customer and “GET 55% DISCOUNT” on the first bill of second year as
customer
 Collect points and redeem points for discounts, gifts
 25% discount on your purchase if you shop for more than 20lakh

Transcom can set its production centers in different parts of the country so that it can
capture varieties of customer and learn their respective choice. This distinctive choice will
help Transcom deliver customer oriented product in a more sophisticated way.

It can also diversify its product range. As Transcom deals with electronics media, there is
always update version of products. The company should provide more technology
equipped product to the customers. It will enhance the possibility to grab more customer
appeal.
These are the suggested techniques which can be deployed within the financial plan of
Transcom BD in order to incorporate more profit in the near future.

Conclusion:
At last it can be said that Transcom Industries Ltd. has a greater chance to increase its sales.
Although it makes losses in 2009, it recovered it in a different way and to run the business
if a profitable way it can extend its operations and take some modifications in its business.
It creates forecasted sales condition for 2016 and it can be said that it may fulfill the
condition if it takes the expansion projects.