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Envoy Textiles Ltd.
Working Capital Management1
Working Capital Management
Sirajus Salekin
North South University
1
Envoy Textiles Ltd. Working Capital Management2
Executive Summary:
Working capital refers to that part of firm’s capital which is required for
financing short term or current assets such as cash, marketable securities,
debtors, and inventories. In other words working capital is the amount of
funds necessary to cover the cost of operating the enterprise. No business
can run successfully without an adequate amount of working capital.
A firm must have adequate working capital, i.e.; as much as needed the
firm. It should be neither excessive nor inadequate. Both situations are
dangerous. Excessive working capital means the firm has idle funds which
earn no profits for the firm. Inadequate working capital means the firm
does not have sufficient funds for running its operations. It will be
interesting to understand the relationship between working capital, risk
and return. The basic objective of working capital management is to
manage firms current assets and current liabilities in such a way that the
satisfactory level of working capital is maintained, i.e.; neither inadequate
nor excessive. Working capital sometimes is referred to as “circulating
capital”. Operating cycle can be said to be the heart of the need for
working capital. The flow begins with conversion of cash into raw
materials which are, in turn transformed into work-in-progress and then to
finished goods. With the sale finished goods turn into accounts receivable,
presuming goods are sold as credit. Collection of receivables brings back
the cycle to cash.
In this report we have presented the overall working capital management

of Envoy Textiles Ltd. We have gather maximum information as possible
from the annual reports and by taking interview of Mr. Aminur Rahman,
Manager Account Department. In this report we have done all kinds of
working capital analysis as possible like cash inflow and outflow,
seasonality and variation of sales, geographic spread, collection
procedure, payment system, credit policy, working capital need, cash
management system, financial statement analysis and gave
2
recommendation on how the company can improve it working capital

management and get better benefit.
Company Overview
Envoy Textiles Limited is a 100% export oriented manufacture of high

quality fashion denim in Bangladesh. Introducing rope dyeing denim for
the first time in the country, ETL has been designed with a combination of
superior man, machinery and management.
Envoy Textiles Ltd. was established in 2008 with a focus on producing a

consistent quality and offering a diversified product range through
continuous research and innovation.
We are the first to introduce the Rope Dyed Technology in the country.
The project is built on 100 acres of land with a factory plant of 360139 Sq.
Feet and is situated 60 Kms. North of Dhaka, Bangladesh.
Our annual production is 24 million meters. We produce a range of

products from 6.5oz to 15oz. of denim fabrics. Our denim comes in a
variety of shades and cast – basic indigos and sulphur topping or
bottoming, in 100% cotton and a variety of blends.
Our Vision
To achieve a global dominance through

- Consistency in product supply
- Continuous product innovation
- Customer orientation and cost effectiveness.
Certifications
- Oeko-Tex Certified
- GOTS Certified (Global Organic Textile Standards)
3
- OE100 or OE Blended (Organic Exchange)

- Also applied for ISO-9001:2008 and
- ISO-14001:2008 Certification Systems.
- Also Applied for BSR Audit (Business for Social Responsibility)
Products
With a production capacity of 24 million yards per annum. We produce a

range of products from 6.5oz to 15oz Denim fabrics. Our denim comes in a
variety of shades and cast – basic indigos and sulphur topping or
bottoming, in 100% cotton and a variety of blends.
Armed with the state of the art machinery , we make both basic and
premium denim for the most discerning customers in the world. We make
denim using
• Ring yarns
• Open-end yarns
• Slubs
• Mixed Warps
• Multi-count yarns
• Colored wefts
Technology
Our denim plant has the state-of-the-equipments with the latest machines
from USA, Japan, Belgium and Italy. These include:
• Ball Warping and Rebeamers from Griffin, USA

• Rope-Dyeing & Finishing from Morrisons from USA
• Sizing from Griffin, USA and Ukil, S.Korea
• Tsudokoma looms from Japan and Picanols Looms from Belgium
• Merceriser from Kyoto, Japan
• Coating machine from Rollmac, Italy
4
Working with the State Of the Art machinery, we are able to provide
consistent quality at an economical price. It also enables us achieve a
high productivity and produce a diverse product portfolio.
Products Market
Our customers are spread across the Globe. A bulk of the fabrics is
converted to garments in Bangladesh and then exported to different parts
of the Globe. The process is through fabric nominations from various
Brands/Retailers worldwide.
Recently, we have targeted new markets and started direct exports

(fabrics) to:
• Germany
• Turky
• Sri Lanka
• India
Corporate Social Responsibility
Own Power Genaration
We Commissioned our Captive Power Plant with a capacity of 4.1 MW. It

uses Gas. The Plant provides uninterrupted power supply to Envoy
Textiles Limited thereby reducing the high cost of power. Gas helps to
control the pollution. Envoy is dedicated towards cleaner & pollution free
environment
State of the Art Effluent Treatment Plant (ETP)
We are committed to maintaining a clean environment and have thus set

up a State of the Art ETP.
5
Rain water harvesting
We are in the process of installing a facility to harvest rain water within

factory premises. Rain water harvesting is one of the best methods of
replenishing the water table there by giving back to nature what we take
from it.
Employee Benefits
• Quarters for staff and workers

• Guest House
• Company Transport
• Healthy and Hygienic snacks at company Cost
• Monthly rewards for workers based on performance
• Quarter for family
• Provident Fund
• Welfare Fund
6
Daily cash inflow and outflow
Yea Annual Annual Daily Daily Daily Gross

r Sales COGS Sales COGS Profit
201 191270826 15001127 5313078.5 4166979.80 1146098.71
0 5 29 14 3 1
200 108292282 88369645 3008118.9 2454712.38 553406.572
9 4 8 56 3 2
200 215470050 20508693 598527.91 569685.922 28841.9944
8 2 67 2 4
Yea Operating Operatin Daily Daily Cash Daily

r Cash g Cash Cash Outflow Spontaneo
Inflow Outflow Inflow us
Financing
Needed
201 155423414 16329404 4317317.0 4535945.70 -
0 5 53 69 3 218628.633
3
200 692636843 11268418 1923991.2 313011.625 1610979.60
9 5 31 6
200 55616533 28512574 154490.36 792015.958 -
8 5 94 3 637525.588
9
In 2008 Envoy Textiles Ltd. had a daily cash inflow of 154490.3694TK and
daily cash out flow of 792015.9583TK. So there was a mismatch because
daily cash outflow is much higher than daily cash inflow and the daily
spontaneous financing needed was negative 637525.5889TK.
In 2009 Envoy Textiles Ltd. had a daily cash inflow of 1923991.231 and
daily cash inflow is much higher than daily cash outflow and the daily
spontaneous financing needed was positive 1610979.604TK.
7
In 2010 Envoy Textiles Ltd. had a daily cash inflow of 4317317.069TK and
daily cash inflow is higher than daily cash outflow and the daily
spontaneous financing needed was negative 218628.6333TK.
The mismatch in daily cash inflow and out flow occurs due to some
administrative delays. In generally the company takes 5 to 7 days to
make their products and it gets its payment with n 90 days and it clears
its payment within 120 days. Whenever it takes more than 90 days for
the company to receive payment they need to run their business by
investing from their Working Capital Account and thus makes the daily
cash outflow higher. And when they receive their payment on time it
makes the daily cash inflow higher. Again the mismatch occurs if payment
is delayed due to problems in raw material, legal and political affairs of
the country and internal problems of the company.
Short Term Loan and Marketable

Securities
Short Term Loans 2010 2009 2008

(Balance)
Pubali Bank Ltd Br.- 0 59424590 5190508
LATR 3
CC-37 83
CC-38 52
E7y Publicw Bank Ltd 0 141856741 2198221
Br.-IBP 1
98544075 439778265 3062723
29
Short Term Loans Change(20 Change(200
8
(Balance) 09-10) 8-09)

Pubali Bank Ltd Br.- -59424590 7519507
LATR
CC-37
CC-38
IBP
Envoy Textiles Ltd mainly takes its loan from Pubali Bank Ltd. The
company takes loan of four categories like Pubali Bank Ltd Br.-LATR,
Pubali Bank Ltd Br.-CC-37, Pubali Bank Ltd Br.-CC-38, Pubali Bank Ltd Br.-
IBP.
The company under loan category Pubali Bank Ltd Br.-LATR had a
short term loan balance in 2008 is of 51905083TK, in 2009 is of
59424590TK and in 2010 is 0. The change of short term loan balance
under this category in 2008-2009 is of positive 7519507TK means they
take additional loan of 7519507TK in 2009 than of 2008. And the change
of short term loan balance in 2009-2010 is negative 59424590TK and
the company repays the entire loan amount in 2010.
The company under loan category Pubali Bank Ltd Br.-CC-37 had a
113319799TK and in 2010 is of 98544075TK. The change of short term
loan balance under this category in 2008-2009 is of positive 4412716TK
means they take additional loan of 4412716TK in 2009 than of 2008. And
the change of short term loan balance in 2009-2010 is negative
14775724TK means the company repays this amount of loan in 2010.
The company under loan category Pubali Bank Ltd Br.-CC-38 had a
125177135TK and in 2010 is 0. The change of short term loan balance
under this category in 2008-2009 is of positive 1699183TK means they
take additional loan of 1699183TK in 2009 than of 2008. And the change
9
of short term loan balance in 2009-2010 is negative 125177135TK and

the company repays entire loan amount in 2010.
The company under loan category Pubali Bank Ltd Br.-IBP had a short
term loan balance in 2008 is of 21982211TK, in 2009 is of 141856741TK
and in 2010 is 0. The change of short term loan balance under this
category in 2008-2009 is of positive 119874530TK means they take
additional loan of 119874530TK in 2009 than of 2008. And the change of
short term loan balance in 2009-2010 is negative 141856741TK and the
company repays entire loan amount in 2010.
Recently in 2011 they are investing in Money Market

Securities for better performance in working capital
management.
Seasonality and Variation of Sales
Envoy Textile Limited is a manufacturer export oriented denims fabric.

Their major part of the sales come from the deam export. They
particularly accept export Letter of credit from the local Ready Made
Garments Industries. Different Garment companies open import Letter of
Credit. On the other hand once the company except the import Letter of
Credit they pledge it to their collection bank and open a back to back L/C
to order their raw materials needed. To process Denim jeans they mainly
require two things. The first one is Yarn and the other one is chemical. So
their cash inflow and out flow is on a periodic basis. Their export L/C
amount comes within 90 days and they pay for their import L/C within 120
days from the excepting date of the Pro Forma Invoice. But they also need
some additional chemical and other supplies from the local manufacturer.
These are the payment made once they start their production process. So
their sales is on a periodic basis. For example in the year 2009 their total
import of raw material imported BDT 101,210,498 and Exported BDT
1,009,996,871. Their sale and purchase is a continuous process. Once
they get an export L/C they open and Import L/C. When the raw material
10
arrives they turn it to finished goods within 7 days then forward the
fabrics to the local garment industry. That is how they are following Just
In Time Delivery to reduce their inventory holding cost. Besides that they
get an additional income from the sale of wastage and marketable
securities. In the year 2009 received BDT 13,418,443 from the sale of
wastage.. There is a little seasonal impact on their sales specially when
there is summer season in the western countries. Before three months of
the summer season in the western countries especially in June and July
there is less demand. And the impact on this starts in March and April in
our country. In these two months there is less order for the company
Geographic Spread
The geographic operation of Envoy Textile is multi dimensional. In one

side they import their raw materials from abroad mainly from yarn from
China, Africa, chemicals from Germany, equipment from Japan and
Technology from USA. They also take some supplies from the local
Trading Houses. On the other side they sell their fabric to local garment
that get order from the USA and other western and European countries.
Recently they are selling their fabric outside the country like Srilanka,
Turkey, India and Germany who are very efficient in the RMG Industry.
Amount they are selling outside the country in 2010 was USD 154,469
which roughly 5% of the total sales. Their market share in the industry is
15% efficiently competing with other countries and saving the reserve for
Bangladesh. 90% of their customer are located at Dhaka and rest are in
Chittagong and outside of the country.
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Collection Procedure
The payment collection is made according to international regulation.

When the impor L/C matures the import bank send a swift code to the
export bank. The DTC check comes to export bank via Bangladesh Bank
taking only 2 days. The export bank credit the amount taking one day and
then the whole process is done through this system.
Importer’s Account Debited
Importer
Importer Importer’s Bank
Received Bangladesh
Fabric Bank Receive
DT
Exporter
Exporter Exporter’s
Exporter’s
C Bank
Bank
Exporter’s Account Credited
Payment System
Payment System is the opposite scenario of the collection system. Once

the company gets the payment from the importer it passes the payment
to pay for its imported raw materials. But Envoy Textiles has also some
local supplier. The payment procedure is the following. First the
Commercial Department located at Panthapoth Dhaka initiate the
procurement. Then it goes to the Purchase Department on the same
place. When the supplier delivers the supplies to the Plant located at two
different places Tongi and Bhaluka near Dhaka they provide a number of
Invoices. The store keeper at the plant office check the supplies and
record in the book. Then tell the supplier to send one copy at the
commercial department and another two or three copies to the Head
Office located at Khilgaon, Dhaka. The Accounts Department is in the
Head office. Of the 2 copies left one copy goes to the Audit Department
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and another to the Finance Department. The Treasure makes a payment

initiation after contacting to the production facility whether the supplies
are up to the mark or not. The whole process Takes not more than 7 to 10
working days. All payments to the local suppliers are disbursed through
checks and their disbursement is Pubali Bank Ltd. The company make
several payment for each supplier to instead of one lump sum payment.
There is no scope to use a logbox system because the order and payment
is made through Letter of Credit.
For the payment of the imported items there is little scope to enjoy float.
On an average they get 30 days gap to make the payment. Because they
get their payment in 90 days and pay for their imported raw materials at
120 day. But due to administrative delays and beaurocratic redtapism
often they had to suffer to ship the goods and collect the payment on due
time. But in the case of local suppliers they get a float both paper
processing and check clearing but they cannot utilize float for not having
adequate knowledge about money and capital market investment.
Because they are not using the float the opportunity cost of the float is
5.8% (90 day Treasury bill rate). If they could use the float they could
have added more value to their company.
Credit Policy
Normally they have a conservative credit policy. They are not willing to
flexible their credit policies to increase their sales & revenue.. Also they
have to maintain some Government rules and regulations. They usually
emphasize on quality, as a result they maintain premium price. They have
to go by the law. That’s why they are not investing that much in A/R. They
are not willing to increase the risk.
When collecting payments, they give two warnings after exceeding the
credit limit. If they fail to collect payment despite these, then they realize
the bank guarantee.
13
They provide up to 60 => days of credit limit customers. But they

maintain more strict credit policy to the dealers, because of reliability.
They give credit to the dealers only if they can give bank guarantee.
Working Capital Need
Envoy Textiles Ltd. is using Just-In-Time approach for maintaining their

working capital. They don’t have enough cash to finance their working
capital. So they take short term loan from bank to finance their working
capital. Mainly they take short term loan from Pubali Bank. They manly
take four categories of short term loan from Pubali Bank like Pubali Bank
Ltd Br.-LATR, Pubali Bank Ltd Br.-CC-37, Pubali Bank Ltd Br.-CC-38 and
Pubali Bank Ltd Br.-IBP.
According to the financial statement in 2008 their Short Term Loan is of

306272383TK which is 63.33% of their current liabilities. In 2009 their
Short Term Loan is of 439778265TK which is of 51.41% of their current
liabilities. In 2010 their Short Term Loan is of 98544075TK which is of
26.30% of their current liabilities. In the period 2008-2009 they take
additional Short Term Loan for financing their Working Capital.
So we can see that gradually they are getting efficient enough in

maintaining their Working Capital. In the period 2009-2010 they are
repaying their short loans and in 2010 they repay most of its Short Term
Loans. Now they are trying to maintain their working capital by retained
earnings. Recently they are investing in Money Market Securities so that
they can finance their working capital entirely for equity without taking
loan from banks.
Cash Management System
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They do not have any electronic cash management system but for their
accounting purpose they maintain software. They have implemented Tally
to keep a record of daily necessary expenses. Before implementing the
software they had maintained register books and there were two
permanent employees who did the job. The employees were paid 12000
per month and the stationary cost were 5000 per month. It had cost BDT
100,000 to purchase and implement the software and a monthly charge of
BDT 12.000. By implementing TALLY they are now able to save BDT
80,000 operating cost. They do not maintain any concentration bank
because all the payables and receivables are maintained trough Pubali
Bank Limited
Cash Flow Timeline
Here we have shown the cash flow time line of Envoy Textiles Ltd of the
year 2009, 2010. As the company starts its operation in 2008 so we are
only showing cash flow timeline of year 2009 and 2010.
Cash Flow Time line of 2009
In 2009 Envoy Textiles had a Days Inventory Held of 50.5747 days, Days
Sales Outstanding of 178.2396 days, Days Payable Outstanding of
12.1307 days and Cash Conversion Period of 216.6836 days.
Inventory Cash
Stocked Received
50.5747 Days 178.2396 Days
Days Inventory Days Sales
12.1307 Days
Days Payable 216.6836 Days
Outstanding Cash Conversion
Cash
Disbursed
15
Cash Flow Time line of 2010`
In 2010 Envoy Textiles had a Days Inventory Held of 67.8509 days, Days
Sales Outstanding of 153.815 days, Days Payable Outstanding of 12.3858
days and Cash Conversion Period of 209.53524 days.
Inventory Cash
Stocked Received
67.8509 Days 153.815 Days
Days Inventory Days Sales
12.3858 Days
Days Payable 209.53524 Days
Outstanding Cash Conversion
Cash
Disbursed
Ratio Analysis
Current ratio 2008 2009 2010
0.818 0.942 1.743

8 2 5
The current ratio is in a very good position over the year. The company is
very much solvent to payout its current obligation. In the year 2010 its
Cash 16
Disbursed
current asset is 1.74 times its current liabilities. This indicates that Envoy
Textile is financing its long term sources of fund to run its operation. This
is indeed a safe strategy. But they can use noninterest bearing current
liabilities to reduce the cost of fund,
Quick Ratio 2008 2009 2010

(times) 0.499 0.801 1.376
9 6
In the starting period its quick ratio was not up to the mark but gradually
improved. Now it quick ratio position is very satisfactory. This also
indicates they have a handsome amount of highly liquid asset.
Cash Ratio (%) 2008 2009 2010
2.48 2.5 1.67
The cash and marketable securities are very insignificant to its current
liabilities. This shows that they have a huge amount of Account
Receivable. So they are not is a good position to handle any unusual
situation. The company should invest more to the money and capital
market in order to get protection of any unusual circumstances. Because
taking short term loan can be time consuming in the case when they need
immediate cash
Sales to NWC 2008 2009 2010

(Days) -2.40 -21.4 -3.38
1 46 5
Sales to net working capital shows they have used short term loans to
finance their working capital needs. Perhaps they do not have adequate
amount of cash. In the year 2009 they have heavily used CC loans to
finance their working capital needs
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A/R to 2008 2009 2010

Sales(Days) 0.710 0.488 0.421
1 3 4
Envoy textiles Accounts Receivables Turnover Ratio has decreased over

the period. It may be due to heavy international competition. Because
they are one of the few companies who produces Denim Fabric.
Collection 2008 2009 2010

period (Days) 259.41 178.2 153.8
67 4 15
Average Collection Period has improved but it is still very high. If this
situation goes on there will be problem to convert the receivable into
cash. They should take stricter credit terms to reduce the collection policy
Sales to 2008 2009 2010

Inventory 1.35 8.84 6.86
( Days)
Inventory turnover ratio has decreased during 2010. The company should
take some policy like cash discount or other measures to increase sales
Assets to Sales 2008 2009 2010
9.5 2.394 2.764
There could be two reason either the company has acquired more current
or fixed asset or sales has gone down. From our study we found they have
increased their fixed asset so the Total Asset turnover ratio has
decreased.
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Return on 2008 2009 2010

Assets - 0.22 3.47
3.67 % %
%
The company started its operation in 2008 so the ROA is negative. But it is
improving and showing there is a positive growth in the operation.
Return on 2008 2009 2010

Equity 138.50 0.96 12.07
% % %
The ROE is 138.5% because they started their operation with a huge
amount of project loan where equity was very low. As they started to pay
off the loan and running business with equity financing the leverage has
gone down so did the ROE.
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Suggestions and Recommendations
From our personal view we have experienced that their operation is not
highly concentrated. They scattered and cause huge delay. Cooperation
with different department is quiet time consuming. They do not maintain
any cash management software of other tool to better control over their
resources. So suggest them to implement Enterprise Resource Planning
ERP:
Enterprise Resource Planning(ERP) which has a market price of almost Tk.

20,000,000-Tk.30,000,000 (2-3 crore TK.). This software Provide a single
information system for organization-wide coordination and integration of
key business processes. This could be competitive advantage for Envoy
Textile. ERP connects all key business process (e.g.- manufacturing and
production, accounting and finance, human resources, sales and
marketing) and connects the suppliers & Dealers together in a single
place. By this all department can share information which helps business
increase efficiency or evaluates their output.
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1. ERP also enables to Ordering equipment, preparing inventory,

sending them to sites, activating them followed by routine
maintenance is a chain of daunting tasks. If there is a missing link in
this extremely complex process, they will be out of business in the
fiercely competitive market.
Earlier it took nearly thirty minutes to generate a purchase order but now
it takes a few seconds. The entire process is flawless and tamperproof as
a robust computer controls it centrally.
They can track every employee’s output and assess them accordingly. It
perfects the evaluation process of the company’s human capital. By using
ERP, Efficiency of. ERP maximize profit and minimize costs, while
providing superior service to its customers.
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Advantages of ERP
ERP is software which integrates all functionalities of the organization in a

single database. It streamlines all the business processes and gives
desired result on a click of a button.
• ERP software incorporates a large amount of industry specific

business functionalities which will ensure less customization or
sometime no customization (except reports) to make the package
suitable to your business operations.
• Most important advantage of ERP software is integration of all the

business solution in a single platform, which reduces unnecessary
paper work, documentation, repeated entry, cycle time etc. The
software also comes with its framework of upgrades to changing
technologies.
• In the ERP software business functionalities and operating processes

are built into standard software codes, thus it require lesser time to
understand process related issue of implementation and gives
industry specific best practices.
• ERP can be useful is order tracking. When a company receives

orders for a product, being able to properly track the orders can
allow the company to get detailed information on their customers
and marketing strategies. If different software packages are being
used, this data may not be consistent.
• ERP software automates the business processes and also forces its
own logic (industry specific) on the business.
• Accounting applications is another advantage of ERP. It can

integrate the costing, profit, and revenue information of sales that
are made etc.
Other Advantages
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• Speeding up the whole manufacturing process
• Better and systematic inventory handling with ABC analysis
• WIP (work in progress) control
• Easy project management
• Accessing the status of the goods on a click of a button
• Fast transmit commodities through online transactions
• Fastens the creation of reports
• Reduce paper works and repeated entry
• Quick processing of information
• Serving the customer efficiently in time
• Solve the customer problem quickly
• Information based decision
• Better finance reports
• Better supply chain management
• Better vendor management
• Reduce process cycle time
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Disadvantages of ERP
• Perhaps one of the biggest disadvantages to this technology is the

cost.
• Expert needed to run the ERP system. The employees must be

continually trained on how to use it, and it is also important for
companies to make sure the integrity of the data is protected. The
success of the system is fully dependent on how the workers utilize it.
• Even if a company has enough money to implement ERP, they may not
be able to successfully use it if they do not have enough money to
train their workers on the process of using it.
• One of the biggest problems with ERP is that it is hard to customize.

Very few companies can effectively use ERP right out of the box. It
must be modified to suit their needs, and this process can be both
expensive and tedious.
• Most ERP vendors will not allow the structure of the software to be
altered.ERP vendors may charge additional license fees, putting a
strain on companies that do not have enough resources to pay for
them. The technical support of ERP departments has been questioned,
and a number of problems could arise due to security, since corporate
representatives must give sensitive information to the tech support
department.
ERP inventory management

ERP inventory management handles everything from ordering, physical
inventory count, scheduling, shipping, receiving, purchasing, and supply
chain planning. Changes in inventory are automatically updated. It no longer
takes hours (sometimes up to 24) before the changes are recorded. This
24
helps inventory management employees to be able to see if an item is

currently in stock. Faster service means better customer service.
Management uses bar codes to keep up with inventory items. This makes
tracking stock much easier. As the bar-coded items leave inventory, they get
scanned and their product information is entered into the ERP inventory
management system. Placing bar code labels on stock helps Envoy Textile
save money because it keeps the list of stock updated. Employees can easily
see when certain quantities are low and need to be re-stocked. Customer
service also benefits from this because businesses and customers can see
what products are immediately available.
Advantages
ERP inventory management has many advantages. The main advantage for
a company is that the ERP system is company-wide and involves only one
software system.
Some other advantages include:

• Proper communication between different areas.
• Tracking of orders from the time the order was received to its delivery.
• Keeping up with the revenue cycle from when the invoice is issue
through when the payment is received.
• Provides a ‘top down’ overview of the workings of a company.
• Reduces the risk of loss of information
• Sets up a form of security to protect against theft from outside or
within a company.
Disadvantages
Despite the advantages using ERP inventory management, there are also
some problems with it. Most of these disadvantages stem from inadequately
trained employees as well as compromised data. But there are other
concerns that can arise from this type of system.
25
• Reformatting a business to make it more compatible with an ERP

system and thus conform it to industry standards may cause a loss of
advantage over the competition.
• By creating a company-wide system that connects all areas, it makes it
hard to figure out accountability. Problems that may arise in one area
could mistakenly be blamed on a different area.
• Not all departments in a company are willing to share information. This
withholding of sensitive data can interrupt the workflow.
• ERP inventory management systems may to too complex for the needs
of a company.
Conclusion
Envoy Textiles Ltd. is doing well but we have experienced that their
operation is not highly concentrated. They scattered and cause huge delay in
making cash management. Cooperation with different department is quiet
time consuming. They do not maintain any cash management software of
other tool to better control over their resources. So suggest them to
implement Enterprise Resource Planning so that they can maintain their
working capital properly and reduce different kinds of float and get better
benefit.
26
Appendix
27
2008: Days
• Liquidity ratios:
Assets to Sales
Current ratio
Days
0.8188
Quick Ratio
Sales to NWC
Days
Cash Ratio
A/P to Sales
• Efficiency ratios: Days
Collection period
Days
Sales to Inventory
28
Sales to Inventory
8.84 Days
Assets to Sales
2009: 2.394 Days
• Liquidity ratios:
Current ratio Sales to NWC
0.9422 -21.446 Days
Quick Ratio
A/P to Sales
0.8019
0.0271 Days
Cash Ratio
0.0250
• Efficiency ratios:
Collection period
Days
29
Sales to Inventory
6.86 Days
Assets to Sales
2010:
• Liquidity ratios: 2.764 Days
Current ratio
Sales to NWC
1.7435
Quick Ratio
3.385 Days
1.3766 A/P to Sales
Cash Ratio
0.0266 Days
0.0167
• Efficiency ratios:
Collection period
153.815 Days
30
OC = DIH + DSO
= 284.07 +
= 543.4867 days
CCP = 543.4867 -
= 519.1867 days
Cash Conversion Cycle: 2009:
Days Inventory Held, (DIH) DIH
Days Sales Outstanding (DSO)
Days Payables Outstanding (DPO)

= 50.5747 days
Operating Cycle (OC)
Cash Conversion Period (CCP) DSO
2008:
DIH
ays
DPO
= 284.07 days
DSO
ays
OC = DIH + DSO
ays =
= 228.8143 days
DPO
CCP = 228.8143 -
= 216.6836 days
ays
31
= 221.6659 days
CCP = 221.6659-
= 209.53524 days
2010:
DIH
= 67.8509 days
DSO
Categor 2008 2009 2010
y
DIH 284.07 50.574 67.8509
153.815 Days 00 7
DSO (+)
153.815
DPO
OC 543.48 228.81 221.665
67 43 9
DPO (-)
ays
CCP 519.18 216.68 209.535
OC = DIH + DSO 67 36 24
32
Reference
Web Sites:
• www.envoytextiles.com
• http://www.nickmutt.com/advantages-of-erp.htm
• http://www.benefitsoferp.com/
• http://www.askdeb.com/inventory-management/erp/
Books :
Short Term Financial Management by TERRY S. MANNES
Interview Taken of :
Mr. Aminur Rahman, Manager Account Department
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Envoy Textiles Ltd.

Working Capital Management1

Working Capital Management

North South University

In this report we have presented the overall working capital management

recommendation on how the company can improve it working capital

Envoy Textiles Limited is a 100% export oriented manufacture of high

Envoy Textiles Ltd. was established in 2008 with a focus on producing a

Our annual production is 24 million meters. We produce a range of

To achieve a global dominance through

- OE100 or OE Blended (Organic Exchange)

With a production capacity of 24 million yards per annum. We produce a

• Ball Warping and Rebeamers from Griffin, USA

Recently, we have targeted new markets and started direct exports

Corporate Social Responsibility

Own Power Genaration

We Commissioned our Captive Power Plant with a capacity of 4.1 MW. It

State of the Art Effluent Treatment Plant (ETP)

We are committed to maintaining a clean environment and have thus set

Rain water harvesting

We are in the process of installing a facility to harvest rain water within

• Quarters for staff and workers

Daily cash inflow and outflow

Yea Annual Annual Daily Daily Daily Gross

Yea Operating Operatin Daily Daily Cash Daily

Short Term Loan and Marketable

Short Term Loans 2010 2009 2008

Short Term Loans Change(20 Change(200

(Balance) 09-10) 8-09)

of short term loan balance in 2009-2010 is negative 125177135TK and

Recently in 2011 they are investing in Money Market

Seasonality and Variation of Sales

Envoy Textile Limited is a manufacturer export oriented denims fabric.

The geographic operation of Envoy Textile is multi dimensional. In one

The payment collection is made according to international regulation.

Importer’s Account Debited

Exporter’s Account Credited

Payment System is the opposite scenario of the collection system. Once

and another to the Finance Department. The Treasure makes a payment

They provide up to 60 => days of credit limit customers. But they

Working Capital Need

Envoy Textiles Ltd. is using Just-In-Time approach for maintaining their

According to the financial statement in 2008 their Short Term Loan is of

So we can see that gradually they are getting efficient enough in

Cash Management System

Cash Flow Timeline

Cash Flow Time line of 2009

Cash Flow Time line of 2010`

Current ratio 2008 2009 2010

0.818 0.942 1.743

Quick Ratio 2008 2009 2010

Cash Ratio (%) 2008 2009 2010

2.48 2.5 1.67

Sales to NWC 2008 2009 2010

A/R to 2008 2009 2010

Envoy textiles Accounts Receivables Turnover Ratio has decreased over

Collection 2008 2009 2010

Sales to 2008 2009 2010

Assets to Sales 2008 2009 2010

9.5 2.394 2.764

Return on 2008 2009 2010

Return on 2008 2009 2010

Suggestions and Recommendations