Analysis of Working Capital Management

Of
CEAT Ltd.

&
Century Plyboards (India) Ltd.

Group Assignment
PROGRAMME: MBA (FT)
Batch: 2019-2021 Term-II
Corporate Finance-II

Submitted by: Submitted to:

Shalini Miharia (191151) Tirthank Shah

Sheryar Tavadia (191152)

Shivam Tiwari (191153)

Shubham Mahla (191154)

Siddhesh Goverdhan (191155)

 Table of contents

Introduction 2

Operating cycle & cash cycle 3-7

Analysis of operating cycle & cash cycle 8

Working capital financing policy 9-11

Short term surplus analysis 11-13

Trend & its analysis 14-16

Page 1 of 16
INTRODUCTION
CEAT Ltd, the premier company of RPG Enterprises, of a whopping 22,000 rupees is
Headquartered at Mumbai, was founded in 1958. Today, CEAT is one of India's leading tire
manufacturers and has a strong presence in the world market. CEAT produces more than 15
million tires and offers a variety of tires for all segments and produces world-class radial tires
for: heavy trucks and buses, small commercial vehicles, ground equipment, forklift truck,
transport trailers, cars, motorcycles and scooters.

Century Ply has been the first indicator of implementing existing workforce strategies. This
simple philosophy is essential in all our technological fields. It led us to formulate and
disseminate the myths of modern life. Their award-winning product has redefined real estate in
India and has brought a revolution in the concept of residential space. Century Ply is the
unprecedented choice of architects and interior designers. From flexible plywood that offer a
unique blend of form and functionality to specially treated, Fire Retardant plywood that find use
in a myriad of construction purposes, they have the right products to target different building
needs.

Page 2 of 16
 Part-A
OPERATING CYCLE & CASH CYCLE
Operating Cycle = Inventory Period + Receivables Period

Cash Cycle = Operating Cycle – Payables Period

• CEAT Ltd

Parameters 2019 2018 2017 2016 2015

Opening Inventory 78,461 94,348 66,206.39 68,014.53 75357.8

Closing Inventory 100560 78,461 94,348 66,206.39 68,014.53

Average Inventory 89510.5 86404.5 80277.195 67110.46 71686.165

Opening Receivables 74,723 61,380 61,879.64 70,495.18 75453.22

Closing Receivables 78,461 74,723 61,380 61,879.64 70,495.18

Average Receivables 76,592 68,052 61,630 66,187 72,974

Opening Payables 87,051 87,051 64348.47 65,828.14 68884.53

Closing Payables 105287 87,051 87,051 64,348.47 65828.14

Average Payables 96169 87051 75699.735 65088.305 67356.335

Net Sales 698451 639,968 644,130 571412.49 575213.89

COGS 430549 365,214 330888.19 295378.28 336261.03

Inventory Turnover 4.810039046 4.226793743 4.121820524 4.401374689 4.690738164

Inventory Period 75.8829599 86.35387061 88.55310362 82.92863612 77.81291286

Receivables
Turnover 9.119111657 9.40417184 10.45159794 8.633250493 7.882428173

Receivables Period 40.02582858 38.81256172 34.92288949 42.27839796 46.30552819

Payables Turnover 4.477004024 4.195402695 4.371061405 4.538116026 4.992270289

Payables Period 81.52773552 86.99999179 83.50374571 80.42985193 73.11302852

Operating Cycle 115.9087885 125.1664323 123.4759931 125.2070341 124.1184411

Page 3 of 16
Cash Cycle 34.38105296 38.16644054 39.9722474 44.77718214 51.00541254

• CENTURY PLYBOARD (INDIA) Ltd

Parameters 2019 2018 2017 2016 2015

Opening Inventory 38,275.72 30,062.48 29,749.67 33,221.19 30,290.13

Closing Inventory 46,130.84 38,275.72 30,062.48 29,749.67 33,221.19

Average Inventory 42203.28 34169.1 29906.075 31485.43 31755.66

Opening Receivables 35,720.14 34,217.52 28,725.70 26,834.53 20,886.92

Closing Receivables 29,568.21 35,720.14 34,217.52 28,725.70 26,834.53

Average Receivables 32,644.18 34,968.83 31,471.61 27,780.12 23,860.73

Opening Payables 17,528.27 14,098.19 8,688.17 6,215.18 5,991.46

Closing Payables 15,949.88 17,528.27 14,098.19 8,688.17 6,215.18

Average Payables 16,739.08 15,813.23 11,393.18 7,451.68 6,103.32

Net Sales 228039.36 206000.09 196186.23 166369.92 158844.14

COGS 103647.11 92,703.75 70,373.08 68,551.52 75,031.89

Inventory Turnover 2.455901769 2.713087263 2.353136612 2.177245793 2.362787925

Inventory Period 148.6215795 134.5330852 155.1121164 167.6429925 154.4785277
Receivables
Turnover 6.985606467 5.890963181 6.233752579 5.988813221 6.657138038

Receivables Period 52.25 61.96 58.55 60.95 54.83

Payables Turnover 6.191925778 5.862417103 6.17677242 9.19947797 12.29361888

Payables Period 58.94773501 62.26100832 59.09235037 39.67616437 29.69019973

Operating Cycle 200.87 196.49 213.66 228.59 209.31

Cash Cycle 141.92 134.23 154.57 188.91 179.62

Page 4 of 16
COMPETITORS OF CEAT LTD:
• MRF LTD

Parameters 2019 2018 2017 2016 2015

Receivables
Period 47 33 54 52 54

Inventory
turnover 7.32 10.83 6.2 6.47 6.19

Inventory
period 49.86339 33.70268 58.87097 56.41422 58.96607

Opening
payables 1568.51 1408.37 1126.15 810.24 708.74

Closing
Payables 1709.38 1568.51 1408.37 1126.15 810.24

Average
payables 1638.945 1488.44 1267.26 968.195 759.49

COGS 11301.22 10443.87 8715.118 13023.53 9646.197

Payable
turnover 6.895426 7.016657 6.877135 13.45135 12.70089

Payable period 52.93364 52.01907 53.07443 27.13483 28.73815

Operating
cycle 96.86339 66.70268 112.871 108.4142 112.9661

Cash cycle 43.92974 14.68361 59.79654 81.27939 84.22793

Page 5 of 16
• JK TYRES & INDUSTRIES LTD

Parameters 2019 2018 2017 2016 2015

Receivables
Period 68 68 85 74 72

Inventory
turnover 6.61 5.98 7.01 7.89 8.07

Inventory
period 55.21936 61.03679 52.06847 46.26109 45.22924

Operating
cycle 123.2194 129.0368 137.0685 120.2611 117.2292

Opening
payables 1165.38 1213.74 955.37 1054.53 1053.23

Closing
payables 1599.02 1165.38 1213.74 955.37 1054.53

COGS 7244.482 5725.878 4774.1 4216.058 5048.082

Average
payables 1382.2 1189.56 1084.555 1004.95 1053.88

Payable
turnover 5.241269 4.813442 4.401898 4.195291 4.789996

Payable period 69.63962 75.82931 82.91878 87.00231 76.20047

Cash cycle 53.57974 53.20748 54.14969 33.25878 41.02877

Page 6 of 16
COMPETITORS OF CENTURY PLYBOARD (INDIA) LTD
• GREENPLY INDUSTRIES LTD:

Parameters 2019 2018 2017 2016 2015

Receivables
Period 79 114 65 74 60

Inventory
turnover 7.05 4.68 11.22 10 5.1

Inventory period 51.77304965 77.99145299 32.5311943 36.5 71.56862745

Operating cycle 130.7730496 191.991453 97.5311943 110.5 131.5686275

Opening payables 304.51 229.62 249.06 228.03 352.59

Closing payables 244.53 304.51 229.62 249.06 228.03

Average payables 274.52 267.065 239.34 238.545 290.31

COGS 901.42 600.187 991.792 1014.923 1003.193

Payable turnover 3.283622323 2.247344279 4.143862288 4.254639586 3.455592298

Payable period 111.1577289 162.4139227 88.08207769 85.78870023 105.6258865

Cash cycle 19.61532073 29.57753033 9.449116602 24.71129977 25.94274091

• ARCHIDPLY INDUSTRIES LTD:

Parameters 2019 2018 2017 2016 2015

Receivables Period 109.45 106.59 109.99 76.01 73.29

Inventory turnover 3.99 3.81 3.95 3.97 3.1

Inventory period 91.47869674 95.80052493 92.40506329 91.9395466 117.7419355

Operating cycle 200.9286967 202.3905249 202.3950633 167.9495466 191.0319355

Opening payables 55.1 48.01 29.14 38.5 53.01

Closing payables 43.73 55.1 48.01 29.14 38.5
COGS 231.28 215.274 185.99 201.287 189.101
Average payables 49.415 51.555 38.575 33.82 45.755

Page 7 of 16
Payable turnover 4.680360215 4.175618272 4.821516526 5.951714962 4.132903508

Payable period 77.98545054 87.41220491 75.70232271 61.32686165 88.31563556

Cash cycle 122.9432462 114.97832 126.6927406 106.622685 102.7162999

ANALYSIS OF OPERATING CYCLE AND CASH CYCLE

CEAT LTD
Company in the last year was able to reduce its operating cycle slightly, to around 115 days
which is due to the reduction in the account receivables period of around 52 days in year
ending 2019. Overall it has been quite stable in maintaining its operating cycle and has
started showing signs of achieving operational efficiency as can be observed by the reduction
in its operating cycle. It is also doing better than its close competitor JK Tyres & Industries
which had an operating cycle of around 123 days in 2018-19 but it is still behind MRF Ltd
which had achieved an impressive 66 days operating cycle in 2018.

CEAT has also been able to maintain a stable cash cycle over the years and has been better
than its competitors MRF and JK tyres in 2019 with an impressive figure of 34 days which
on further introspection showed that CEAT has high payables period which helps it keep
lower cash cycle and retain more cash for its operations.

CENTURY PLYBOARD (INDIA) LTD

Company has not been able to reduce its operating cycle over the past 5 years. Infact, last
year they had an increased operational cycle of around 200 days which was due to an
increase in the inventory period which this company should try and reduce as the receivables
period is stable and not very high. It had similar operating cycle periods to its competitor
Archidply Industries Ltd which had the same operating cycle of 200 days in 2019 but loses
the race against Greenply Industries Ltd which is way ahead of both its competitors with an
operating cycle of 130 days in 2019.

Century Plyboard had cash cycle of 141 days in 2019 which is very high when compared to
its competitors Greenply with a cash cycle of just 19 days and Archidply with a cash cycle of
122 days in 2019. Greenply has been outperforming both its competitors as they have very
high payables period which helps them in retaining cash for their business operations
whereas it does not show healthy signs for Century Plyboard which has the lowest payables
period out of the three and hence would require external sources of funding to finance its
operations.

Page 8 of 16
 Part-B
WORKING CAPITAL FINANCING POLICY
As we know working capital shows a firm’s short-term liquidity and it is calculated as follows-

Working Capital= Current assets – Current liabilities

Working Capital Policy:

Working capital financing policy deals with sources and amount of working capital a firm should
maintain.

Aggressive Working Capital Policy:

It is a risky policy as under this policy fluctuating as well as the permanent current assets is
financed through short term debts. Under this policy debt is collected on time however payment
to creditors is made as late as possible. Current assets are proportionately low here.

Conservative Working Capital Policy:

As opposed to aggressive policy, under this policy relatively higher proportion of long-term
sources are used to finance current assets. Current assets are high here. Working capital is
financed more through current assets.

It follows Aggressive working capital

policy as it is evident from balance sheet that
the current assets amounted to 1,96,468 lacs
CEAT Ltd while current liabilities amounted to
2,05,895 lacs as at March 31,2019. For the
past five years the company follows the
same trend i.e. following an aggressive
policy to finance its working capital.

The goal of CEAT Ltd is to put as much

Reason for the current policy
money to work as possible to decrease the
time needed to produce products, turn over
inventory or deliver services. Speeding
up your business cycle grows your sales and
revenues and this can only be achieved by
having an aggressive working capital policy.

Page 9 of 16

Century Plyboards (India) Ltd
Reason for the current policy
Analysis of short time funding
CEAT Ltd.
Page 10 of 16
It follows Conservative working capital
policy as it is evident from balance sheet that
the current assets amounted to 82,232.69 lacs
while current liabilities amounted to
66,261.39 lacs as at March 31,2019. For the
past five years the company follows the same
trend i.e. following conservative policy to
finance its working capital. The company uses
current assets more to finance its working
capital.
For the past few years the company is in
volatile situation and it cannot afford to take
further risk by adopting aggressive policy
that’s why it is necessary to finance its short-
term liquidity from current assets rather than
current liabilities. It cannot afford to take
higher risks.
The company has gone for short term
borrowings through Cash credit facilities from
banks that is repayable on demand. All short-
term borrowings availed in Indian rupees during
the current year carry interest in the range of
7.80% p.a. to 12.30% p.a. and all short-term
borrowing availed in foreign currency during the
year carry interest in the range of LIBOR plus
70 bps to LIBOR plus 140 bps.(LIBOR is set
corresponding to the period of the loan). The
Company had also issued commercial papers
(total available limit Rs.35,000 lacs) at regular
intervals for working capital purposes with
interest ranging from 6.90% p.a. to 8.75% p.a.
The outstanding as at March 31, 2019 is Rs.
19,852 lacs.

Century Plyboards (India) Ltd
The sources of short-term borrowings of the
company are loans repayable on demand which
include loans from banks (secured) that includes
Indian currency loan of 1447.14 lacs and foreign
currency loan of $3063.10 lacs and Corporate
bodies which is amounted to 8.90 lacs as at
March 31, 2019.

Part-C
TO CHECK POSSIBILITY OF SHORT-TERM SURPLUS
ALONG WITH/ WITHOUT SHORT TERM BORROWINGS
Ceat Ltd. (amount in Rs lacs)
FY 2018-19:

• Net working capital: -Rs 12893

• Short Term Borrowings: Rs 22425
• Short term investment: nil

The company is currently having a negative net working capital which shows that they have
chosen a very aggressive policy by getting as much borrowings as possible and a decrease in
investments. As we can observe there is no short-term investment done and a lot of money is
spent on borrowings. This may result in a company not being able to fulfil its short-term
obligations. This is a pattern followed from previous year.

FY 2017-18:

• Net working capital: -Rs 2431

• Short Term Borrowings: Rs 19557
• Short term investment: Rs 4006

The company showed negative working capital after many years where you can clearly see the
disparity between the money invested in the short run compared to the huge amount borrowings.
The short-term borrowings have increased a lot compared to the previous years and investment
have decreased significantly. This shows the change from conservative to an aggressive working
capital policy.

Page 11 of 16
FY 2016-17:

• Net working capital: Rs 43412

• Short Term Borrowings: Rs 5799
• Short term investment: Rs 6427

The company has shown an increase in working capital which can be attributed to the increased
number of current inventories which shows that a lot of demand was not fulfilled and company
should be more aggressive in the next year to push more units. There has been an increase in
both the short-term borrowings and investments.

FY 2015-16:

• Net working capital: Rs 26176

• Short Term Borrowings: Rs 3354
• Short term investment: Rs 4021

The company has made a dramatic decrease in current transactions which has made a big
decrease in both Short term borrowings and investment but since the decrease has caused
investments to be more than borrowings it didn’t result in a big change in the net working
capital.

FY 2014-15:

• Net working capital: 32844 (in lacs)

• Short Term Borrowings: Rs27155 (in lacs)
• Short term investment: Rs31243

Here there is a lot of more short-term investments than borrowings which shows a more
conservative form of working capital policy which gave the result of a positive net working
capital.

Century Plyboard (India) Ltd.

(Amount in Rs Crores)

FY 2018-19:

• Net working capital: Rs 177.15

• Short Term Borrowings: Rs 349.34
• Short term investment: nil

Page 12 of 16
FY 2017-18:

• Net working capital: Rs 165.73

• Short Term Borrowings: Rs 367.68
• Short term investment: nil

FY 2016-17:

• Net working capital: Rs 171.4

• Short Term Borrowings: Rs 419.56
• Short term investment: nil

FY 2015-16:

• Net working capital: Rs 139.18

• Short Term Borrowings: Rs 355.34
• Short term investment: 0.15

FY 2014-15:

• Net working capital: Rs129.17

• Short Term Borrowings: Rs 386.32
• Short term investment: nil

The working capital policy and the strategy over the years for the company has been more or less
the same over the span of 5 years. It is a very aggressive policy of working capital as we can
observe there is next to nil short-term investments over the years and a lot of borrowing takes
place which indicates the aggressive working capital policy.

Page 13 of 16
 TREND AND ITS ANALYSIS

Analyzing the proportion of investment of current assets versus fixed asset for the past five
years we get:

• Ceat Ltd.

CEAT Ltd
4,500 4,194
4,000

3,500 3,233
3,011
3,000
2,526
2,500 2,356
2,122 2,045
1,974
2,000 1,739
1,581
1,500

1,000

500

0
FY2014-15 FY2015-16 FY2016-17 FY2017-18 FY2018-19

Fixed Assets Current Assets

As can be clearly seen in the bar chart above that fixed assets have seen a higher amount of
investment than the current assets. For the FY 2014-15 the difference between the investment in
the current assets and fixed assets wasn’t much, but it has increased continuously thereafter.

CEAT Ltd.

FY FY2014-15 FY2015-16 FY2016-17 FY2017-18 FY2018-19

Current Assets/Total Assets 0.45 0.38 0.40 0.39 0.36

Fixed Assets/Total Assets 0.55 0.62 0.60 0.61 0.64

The above table shows the ratio of fixed assets to total assets and also the ratio of current assets
to total assets. In all the financial years it can be observed that the ratio fixed assets to total assets
has been higher than the ratio of current assets to total assets.
Page 14 of 16
 CEAT Ltd. FY2014-15 FY2015-16 FY2016-17 FY2017-18 FY2018-19

FA % inc 28.84 19.04 19.20 7.37 29.72

CA% inc -9.71 -9.09 24.86 3.60 15.21

From the above table which shows the %change in fixed assets and current assets it can be
observed that the growth in the current assets has been more for the company between the years
2014-2017. But there has been a sharp growth In the FY 2018-19 for the fixed assets.

• Century Plyboards (India) Ltd.

Century Plyboards (India) Ltd

1200

974 944 942

1000
870
789 816
781
800
611
600

400 358
279

200

0
FY2014-15 FY2015-16 FY2016-17 FY2017-18 FY2018-19

Total Fixed assets Total Current Assets

As can be clearly seen in the bar chart above that fixed assets have seen a higher amount of
investment than the current assets. For the FY2018-19 the difference between the investment in
the current assets and fixed assets wasn’t much. This is because the difference between the
current assets and fixed assets of the company has been continually decreasing from FY2014-15.

Century Plyboards (India) Ltd

FY FY2014-15 FY2015-16 FY2016-17 FY2017-18 FY2018-19
Current Assets/Total Assets 0.74 0.70 0.61 0.55 0.52

Page 15 of 16
 Fixed Assets/Total Assets 0.26 0.30 0.39 0.45 0.48

The above table shows the ratio of fixed assets to total assets and also the ratio of current assets
to total assets. In all the financial years it can be observed that the ratio current assets to total
assets has been higher than the ratio of fixed assets to total assets.

Century Plyboards (India) Ltd. FY2014-15 FY2015-16 FY2016-17 FY2017-18 FY2018-19

FA % inc -18.66 28.32 70.67 27.82 11.40
CA % inc 16.03 3.42 19.36 -3.08 -0.21

From the above table which shows the %change in fixed assets and current assets it can be
observed that there has been an decrease in the current assets of the company while on the other
hand the fixed assets of the company increased with a huge % from FY2014-15 to FY2016-17,
but has decreased for the FY2017-18 and FY2018-19.

Comparative analysis

From the analysis of the data of the above two companies we can clearly see that for CEAT Ltd.
has more total current assets than fixed assets, while in the case of Century Plyboards (India)
Ltd. The case is opposite, Century Plyboards (India) Ltd. Has more total fixed assets than the
total current assets.

This means that century Plyboards has been investing in long term assets development rather
than short term assets development.

Page 16 of 16