project report on short term financial management

North South University

Section-5

Submitted To:

Syed Asif Hossain

Lecturer, Department of Accounting and Finance

School of Business and Economics,

North South University

Submitted By:

Name ID

William Banarjee 142 0369 030

Ahsan Fahmid Shumit 123 0283 630

Dewan Asif Al Arafat 123 0631 030

Ashfaq Bhuiyain 113 0979 030

Mehedi Hasan 112 0045 030

Letter of Transmittal

Date: 10 th December, 2015

Syed Asif Hossain

Lecturer, North South University

Subject: Letter of Transmittal

Respected Sir,

It has been a great pleasure and at the same time a great opportunity to have completed this course

under your supervision. We have prepared this report in accordance with the instructions provided

by you. Thanks to you, we have learned how to apply our knowledge of Short Term Financial

Management concepts we have learned from this course with practical situations. You have given

us the opportunity to analyze two companies of NYSE and two companies of DSE. We have

analyze their solvency and liquidity ratios. It was quite interesting to work on this topic as we have

learned a lot of things after doing the whole report.

This report has provided us learning opportunities and we are truly thankful for that. We hope we

have done justice to this report and we apologize beforehand for any kind of silly mistakes we

have done in this report.

Regards,

William Banarjee

Ahsan Fahmid Shumit

Dewan Asif Al Arafat

Ashfaq Bhuiyain

Mehedi Hasan

Abstract

The main purpose of this project was to make bridge between the theoretical contents taught in

this course with real world practices. The goal is to make understand the working capital practice

and trend throughout the world. In the first section of the project report we have picked two

companies of New York Stock Exchange (NYSE) and two companies from DSE from same

industry. Then we analyze the Solvency ratio and Liquidity ratios from their financial statement.

Then we show a comparative analysis of their findings between companies in Bangladesh and

LSE/NYSE with interpretation. In second portion of the report we analyzed local commodity store

working capital practices. We focused on their Inventory and A/R policies. From their policy we

have recommend to improve their problems.

We have completed this project on time and it was basically because of teamwork. We have

worked together and put in a lot of effort and in the end, we could finish making our product and

have completed the final report.

Table of Content

Section One:

Analysis of Current Ratio

Analysis of Quick Ratio

Analysis of Net Working Capital

Analysis of Working Capital Requirement

Analysis of Cash Ratio

Analysis of Cash Burn Rate

Analysis of Net Liquid Balance

Analysis of Days Sales Outstanding

Analysis of Days Inventory Held

Analysis of Days Payable Outstanding

Analysis of Inventory Turnover

Analysis of Cash Conversion Period

Analysis of Cash Conversion Efficiency

Section Two:

A/C Policy and Inventory policy of Local Business

Section 0ne:

Analysis of Current Ratio

Current ratio is a liquidity measure that measures a company’s ability to meet its short term

obligations by evaluating the level of current assets against its current liabilities.

GlaxoSmithKline Pharmaceuticals, USA

2012 2013 2014

Current Ratio 0.99 1.11 1.10

Interpretation & Analysis:

GSK USA has $0.99 in 2012, $1.11 in 2013 and $1.10 in 2014 of current asset to pay off every

$1 current liability. In the trend graph, this company had less than 1 current ratio meaning the

company was not in a good position but by the time it went to 1.11 in 2013 and then a little drop

in 2014 as 1.10. The company had a fluctuation over time in their current ratio but they had

minimum current asset to pay of their current liabilities.

Recommendation:

The Company should increase its current ratio to improve their ability to pay off their current

liabilities.

0.99

1.11 1.1

0.9

0.95

1

1.05

1.1

1.15

2012 2013 2014

Current Ratio

Current Ratio

Johnson & Johnson

2012 2013 2014

Current Ratio 1.9 2.19 2.36


J & J USA has maintained a good current ratio over time. In 2012 they had 1.9, in 2013 they had

2.19 and 2014 they had 2.36 current ratio. They followed an increased ratio over time. They had

enough current assets to pay their current liabilities.

Recommendation:

They should maintain their increasing growth to do better for the company.

GlaxoSmithKline Pharmaceuticals, Bangladesh

2014

1.92.18 2.36

0

1

2

3

2012 2013 2014

Current Ratio

Current Ratio

Current Ratio 1.73

Square Pharmaceuticals

2014

Current Ratio 2.27

Comparison:

As we can see that the current ratios in GSK USA & J & J USA was 1.10 and 2.36 in 2014.

Current ratios in GSK BD and Square Pharmaceuticals was 1.73 and 2.27 in 2014. So we can

assume that the current ratios was comparatively high in Bangladesh. Companies in BD have

higher current assets to pay off their current liabilities.

Analysis of Quick Ratio

Calculating the current ratio does not disclose the true liquidity position of a company since a

higher current ratio might include current assets that cannot be converted into cash immediately.

Quick ratio provides a stricter definition of the company’s financial ability to pay off its current

obligations.


2012 2013 2014

Quick Ratio 0.70 0.83 0.79


GSK USA had $0.70 in 2012, $0.83 in 2013 and $0.79 in 2014 of current assets excluding

inventories to pay off every $1 of current liabilities. By the time the non-inventorial current

assets had been decreased and the company had going through tough times. Solvency had

decreased substantially in 2012 and 2014.

Recommendation:

They should focus on increasing quick asset over 1.5 and maintain their ratio to pay off their

debts.

Johnson & Johnson

2012 2013 2014

Quick Ratio 1.59 1.89 2.04

0.7

0.830.79

0.6

0.7

0.8

0.9

2012 2013 2014

Quick Ratio

Quick Ratio


J & J USA had moderately good quick ratio compared to the GSK USA. J & J USA had their

ratio over 1.5 and they were increasing by the time. In 2014, they had their peak ratio 2.04 and

they had quite efficient management to pay off their current non-inventorial liabilities.

Recommendation: The Company should maintain their current increasing ratio to obtain future

benefits.



2014

Quick Ratio 1.58

Comparison:

As we can see that GSK USA and J & J USA had quick ratios of 0.79 and 2.04 in 2014. Quick

ratio of GSK BD and Square Pharmaceuticals Bangladesh was 1.39 and 1.58 in 2014 as well. We

1.591.89

2.36

0

1

2

3

2012 2013 2014

Quick Ratio

Quick Ratio

2014

Quick Ratio 1.39

can assume that GSK USA had less efficiency compared to GSK BD but J & J USA had their

quick ratio over 2 and they maintained a good ratio over time.

Analysis of Net Working Capital

It is the sum of all current assets and liabilities which is used to measure the short term liquidity

of a business. A positive net working capital requirement is favorable since it suggests the

company has adequate current assets to pay off its current debt obligations and vice versa. It also

enables to examine the solvency position and level of default risk of the business.



GSK USA had negative NWC in 2012 that is -123 meaning the firm financed long term assets

with current liabilities. Their solvency was badly impacted. But after that they came up with

-123

15501383

-500

0

500

1000

1500

2000

2012 2013 2014

Net Working Capital

Net Working Capital

2012 2013 2014

NWC -123 1550 1383

higher NWC in 2013 and 2014. NWC was more in 2013 that was 1550. It showed a good sign

about the company that they could manage to lower their current liabilities.

Recommendation:

They should maintain their liquid asset and increase current asset and hold the increasing rate.

Johnson & Johnson

2012 2013 2014

NWC 21854 30732 34226


J & J USA maintained a good NWC throughout 2012 to 2014. They had positive net working

capital meaning their long term funds were financed by current assets. They had a high growth

which is favorable for the company. They managed to reduce their current liabilities.

Recommendation:

They might follow their current progress in order to gain success in the upcoming days.

21854

3073234226

0

10000

20000

30000

40000

2012 2013 2014

Net Working Capital

Net Working Capital


2014

NWC 1876912


2014

NWC 4351448705

Comparison:

In USA, GSK and J & J had their NWC of 1384 & 34226 in 2014. GSK BD and Square

Pharmaceuticals Bangladesh had their NWC of 1876912 and 4351448705. Both results of 2014

are showing constant growth among themselves. But Bangladesh industry is showing quite good

result compared to them and they have long term funds which finances current assets.

Analysis of Working Capital

Requirement

Working capital requirement is an operating liquidity measure which is the minimum amount of

resources and funds a company requires to cover its costs and expenses to operate the business

efficiently. These are the spontaneous uses and sources of funds generated over the working

capital cycle.


2012 2013 2014

WCR 1157 1025 873


The WCR had been positive throughout 2012 to 2014. WCR was positive meaning that the firm

needed external financing to run their operating. Their current operating asset was higher than

current operating liabilities. The rate of WCR was falling throughout 2012 to 2014.

Recommendation:

They need to maintain negative WCR that they can get external financing from their supplier.

11571025

873

0

500

1000

1500

2012 2013 2014

Working Capital Requirements

Working CapitalRequirements

Johnson & Johnson

2012 2013 2014

WCR 2302

2771 1208


J & J USA maintained a falling WCR that showed a good vibe for the company. The falling

WCR meant that the firm needed less external financing from other sources and they could

depend on their supplier.

Recommendation:

They need to follow their falling WCR to get to negative WCR and they might arrange financing

from suppliers.

23022771

1208

0

1000

2000

3000

2012 2013 2014

Working Capital Requirements

Working CapitalRequirements


2014

WCR 780183


2014

WCR 499399970

Comparison:

WCR in GSK USA and J & J USA was 873 and 1208. WCR in GSK BD and Square

Pharmaceuticals Bangladesh was 780183 and 499399970. WCR was fluctuating in BD. Industry

in Bangladesh should lower their WCR to maintain the trend.

Analysis of Cash Ratio

Cash ratio is known as the stock of cash held on the balance sheet scaled by total assets. The cash

ratio provides the proportion of assets held in cash, this metric is a key measure used to assess

corporate liquidity. Here is the formula to calculate cash ratio

Cash Ratio = Cash ÷ Total Assets


Here is the 3 year’s Ratio of GlaxoSmithKline Pharmaceuticals,

This table shows in 2012, the Cash ratio of the GSK is .10 which means, for every one dollar of

asset, the company has $ 0.10 of cash.

Here we can see that the ratio is fluctuating over the years. It increased in 2013. But In 2014, the

ratio decreased which defines that the amount of cast held out of total asset declined.

10.00%

13.00%

11.00%

0.00%

5.00%

10.00%

15.00%

2012 2013 2014

Cash Ratio

2014

2013

2012

Cash Ratio .11 .13 .10

Johnson & Johnson

Here is the 3 year’s Cash Ratio of J &J,

This table shows in 2012, the Cash ratio of the J & J is .12 which means, for every one dollar of

asset, the company has $ 0.12 of cash.

Here we can see that the ratio is fluctuating over the years. It increased in 2013. But In 2014, the

ratio decreased which defines that the amount of cast held out of total asset declined.


12.00%

16.00%

11.00%

0.00%

5.00%

10.00%

15.00%

20.00%

2012 2013 2014

Cash Ratio

2014

2013

2012

Cash Ratio .11 .16 .12

2014

Cash Ratio .50

This table shows that, in 2013 the Cash ratio of the JSK is .50 which means, for every one dollar

of asset, the company has $ 0.50 of cash.


Here is the 1 year’s Cash Ratio of Square Pharmaceuticals:

This table shows in 2014, the Cash ratio of the SQUARE is .078 which means, for every one dollar

of asset, the company has $ 0.078 of cash.

COMPARISON

GSK VS J & J:

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

2012 2013 2014

GSK

J & J

2014

Cash Ratio .078

The Cash ratio of 2012 of GlaxoSmithKline Pharmaceutical is .10 which is higher than J & J which

is .12.

In 2013, the Cash Burn rate of GlaxoSmithKline Pharmaceuticals, USA which is .13 is lower than

the ratio of J & J which is .16.

In 2014, the Cash Burn rate of GlaxoSmithKline Pharmaceuticals which is .11 is equal to ratio of

J & J which is .11.

So, the ratios of J & J have been higher than the ratios of GSK USA over the recent years

GSK Bangladesh VS Square:

In 2014, the Cash ratio of GlaxoSmithKline Pharmaceutical, Bangladesh is .50 which is way

higher than Square which is only .078.

J & J VS GSK Bangladesh

In 2014, the cash ratio of GSK BD is .50 which is higher than the ratio of J & J which is only

.11. Which means it is performing better than the foreign firms.

RECOMMENDATION

GlaxoSmithKline Pharmaceuticals Bangladesh should maintain its upward trend in cash holdings,

but GSK USA, J & J and most importantly the Square must try to increase their ratio.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

2014

GSK BD

Square

Analysis of Cash Burn Rate

Cash holdings scaled by average daily cost of goods sold. This metric provides the number of

days of COGS that the firm can fund with cash without receiving additional cash inflows or

external financing. Increased burn rates imply a reduced likelihood of illiquidity. Here is the way

to get cash burn ratio,

Cash Burn Ratio = Cash ÷ (COGS ÷ 365 days)


Here is the 3 year’s Cash Burn Rate of GlaxoSmithKline Pharmaceuticals,

The cash burn rate in 2012 implies that there is only enough cash on hand to fund 192 days

(rounded off) of cost of goods sold.

The cash burn rate has markedly increased from 2012 to 2013 which means they had more cash

in 2013 in hand for funding COGS without generating additional external financing. But in 2014,

the ratio decreased.

192.00%

235.00%216.00%

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

2012 2013 2014

Cash Burn Rate

2014

2013

2012

Cash Burn Rate 216 235 192

Johnson & Johnson

Here is the 3 year’s Cash Burn Rate of J & J,



The cash burn rate has markedly increased from 2012 to 2013 which means they had more cash

in 2013 in hand for funding COGS without generating additional external financing. But in 2014,

the ratio decreased.




251.00%

341.00%

233.00%

0.00%

200.00%

400.00%

2012 2013 2014

Cash Burn Rate

2014

2013

2012

Cash Burn Ratio 233 341 251


Here is the 1 year’s Cash Burn Rate of 2014 of Square Pharmaceuticals,

The cash burn rate in 2014 implies that there is only enough cash on hand to fund 64 days (rounded

off) of cost of goods sold.

Comparison

GSK VS J & J:

The Cash Burn rate of 2012 of GlaxoSmithKline Pharmaceuticals is 192 days which is lower

than the ratio of J & J which is 251 days.

In 2013, the Cash Burn rate of GlaxoSmithKline Pharmaceuticals is 235 days which is lower


In 2014, the Cash Burn rate of GlaxoSmithKline Pharmaceuticals is 216 days which is lower


So, the ratios of J & J have been higher than the ratios of GSK USA over the recent years

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

300.00%

350.00%

2012 2013 2014

GSK

J & J

2014

Cash Burn Ratio 64 days


In 2014, the Cash Burn rate of GlaxoSmithKline Pharmaceutical, Bangladesh is 206 days which

is way higher than Square which is only 64 days.

J & J VS GSK Bangladesh

In 2014, the Cash Burn rate of GSK BD is 206 days which is lower than the ratio of J & J which

is only 233. Which means the foreign firm is performing better than the Bangladeshi firms.

RECOMMENDATION

GlaxoSmithKline Pharmaceuticals Bangladesh has an upward trend of the rate over recent years.

Therefore they should maintain its upward trend. GSK USA and J & J must try to increase the

rate and control the fluctuation. On the other hand, although Square Bangladesh had an upward

trend over the recent years, it has to lengthen the rate as much as possible to compete with its

competitors in the industry since its burn ratios are comparatively way low than the others.

0.00%

100.00%

200.00%

300.00%

2014

GSK BD

Square

Analysis of Net Liquid Balance

Net liquid balance is the sum of cash and short-term investments minus current non spontaneous

financial liabilities such as notes payable and current maturing debt. The NLB is the interaction

between sales growth and operating cycle. A negative NLB depends on outside financing and

suggests the minimum capacity needed for the credit line but it does not mean that the firm will

face default obligation, it implies reduce liquidity. The NLB equation is,

NLB = Cash – Notes Payable

GlaxoSmithKline Pharmaceuticals, USA Here is the 3 year’s Liquid balance of GlaxoSmithKline Pharmaceuticals,

This table shows in 2012, GSK had liquid balance in hand of total 1599 million euro.

0

1000

2000

3000

4000

2012 2013 2014

Net Liquid Balance

2014

2013

2012

NLB 1644 million Euro 2861 million Euro 1599 million Euro

Here we can see that, the net liquid balance of GSK has been fluctuating over the 3 years. It jumped

steeply from 2012 to 2013, however, dropped again significantly from 2013 to 2014.

So it suggests that, in 2013 the company had the most adequate immediate funds to pay off its

current liabilities whenever they are due and has lower chances of facing shortage and uncertain

availability of immediate funds.

Johnson & Johnson

This table shows in 2012, J & J had liquid balance in hand of total 10582 million dollar.

So as we can see, they have managed to maintain tremendous liquidity available within 2012 to

2014 where the amount continuously increased every year. It suggests that, over recent years, the

company has maintained considerable level of net liquid balance, suggesting the company has

adequate immediate funds to pay off its current liabilities whenever they are due and has lower

chances of facing shortage and uncertain availability of immediate funds

0

10000

20000

30000

2012 2013 2014

Net Liquid Balance

2014

2013

2012

NLB 21818 million

dollar

18088 million

dollar 10582 million dollar


Here is the 1 year’s Liquid balance of GlaxoSmithKline Pharmaceuticals,

This table shows in 2014, GSK BD had liquid balance in hand of total 2537032000 taka.


Here is the 1 year’s Liquid balance of Square Pharmaceuticals,

This table shows in 2014, Square BD had liquid balance in hand of total 3852048735 taka.

2014

NLB 2,537,032,000 taka

2014

NLB 3852048735 taka

COMPARISON


In 2014, net liquid balance of GlaxoSmithKline Pharmaceutical, Bangladesh is 2,537,032,000

taka which is lower than the balance of Square which is 3852048735 taka.

**Now, since the unit of total liquid balance in the financial statement differs between two

foreign companies (GSK- Euro and J & J- dollar), it is not logically possible for us to make

comparison unless we use a base to convert them into a common unit.

For the same reason, we cannot directly come to a certain conclusion saying that foreign firms

have been in better liquid balance availability position over BD firms or vice versa.**

RECOMMENDATION

Square Bangladesh should maintain its trend of sophisticated cash holdings, whereas the GSK

needs to increase the amount to compete with Square.

GSK USA should try to increase the amount since it had a sudden fall in cash holdings during

year 2013-2014.

On the other hand, J & J should maintain its upward trend of net liquid balance.

0

1E+09

2E+09

3E+09

4E+09

2014

GSK BD

Square

Analysis of Days Sales Outstanding

Days Sales Outstanding (DSO) represents the average number of days it takes for a supplier to

collect on credit sales. It shows the efficiency of the credit and collections department. DSO is also

referred to as the average collection period and it is common to compare the DSO to the trade

credit terms offered by suppliers. The Formula is,

DSO = Account Receivable ÷ (Sales ÷ 365 days)


This table shows in 2012, the DSO ratio of the GSK is 72.39 which means, they has collected the

credit from sales on an average 72.39 days. It has been fluctuating over the years and has increased

next year. But it declined again in 2014.

72.39%

74.94%

72.98%

71.00%

72.00%

73.00%

74.00%

75.00%

76.00%

2012 2013 2014

DSO

2014

2013

2012

DSO 72.98 74.94 72.39

Here we can see there is increase and decrease in DSO. DSO increased in 2013 than 2012. That

defines their supplier take more time to pay the money so this is bad for them. Again In 2013 to

2014 defines that their supplier takes less time to pay the money so this is good for them.

Johnson & Johnson

This table shows in 2012, the DSO ratio of the J & J is 61.40 which means, they has collected the

credit from sales on an average 61.40 days. It has been fluctuating over the years and has declined

next 2 year.

Here we can see there is a decrease in DSO. DSO decreased in 2013 than 2012. That defines their

supplier take less time to pay the money so this is good for them. Again In 2013 to 2014 defines

that their supplier takes less time to pay the money so this is good for them.

61.94%

59.95%

53.07%

48.00%

50.00%

52.00%

54.00%

56.00%

58.00%

60.00%

62.00%

64.00%

2012 2013 2014

DSO

2014

2013

2012

DSO 53.94 59.95 61.40


This table shows in 2014, the DSO ratio of the GSK is 53.07 which means, they has collected the

credit from sales on an average 53.07 days.


This table shows in 2014, the DSO ratio of the SP is 11.43which means, they has collected the

credit from sales on an average 11.43 days.

Here we can see there is a decrease in DSO. DSO decreased in 2014 on GSK, BD between Square

Pharmaceuticals. That defines their supplier take less time to pay the money so this is good for

them.

53.07%

11.43%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Gsk SP

DSO

2014

DSO 53.07

2014

DSO 11.43

COMPARISON

Between GlaxoSmithKline Pharmaceuticals, USA and J&J-

o 2014 – J & J is better; as 72.98 >53.94

o 2013 - J & J is better; as 59.95<74.94

o 2012 – J & J is better; as 61.40<72.39

Between GlaxoSmithKline Pharmaceuticals, Bangladesh and Square

Pharmaceuticals, Bangladesh –

o 2014 - Square Pharmaceuticals, Bangladesh is better; as 11.43<53.07

Between J & J and Square Pharmaceuticals, Bangladesh –

o Square Pharmaceuticals, Bangladesh is better; as it has the lowest DSO.

RECOMMENDATION

GlaxoSmithKline Pharmaceuticals, USA, GlaxoSmithKline Pharmaceuticals, Bangladesh and J

& J should decrease their DSO.

Analysis of Days Inventory Held

The Days Inventory Held (DIH) represents the average number of days inventory sits idle. This

means the delay between acquisition of inventory and selling the item to a customer. Also, given

that Cost of Goods Sold (COGS) represents inventory production costs, the DIH can be interpreted

as the number of days of days of inventory held on a balance sheet at a given point in time. The

formula of Days Inventory Held (DIH) is:

DIH = Inventory ÷ (COGS ÷ 365 Days)


This table shows in 2012, the DIH ratio of the GSK, USA is 182.80which means inventory sit idle

on an average for 182.80 days. It has been fluctuating over the years and has decreased next year.

But it increased again in 2014.

In 2012 DIH was high which means the inventory was sitting idle. In 2013 it becomes less to

165.81 days. It increased in 2014.

Johnson & Johnson

182.80%165.81%

210.89%

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

2012 2013 2014

DIH

2014

2013

2012

DIH 210.89 165.81 182.80

This table shows in 2012, the DIH ratiois126.31which means inventory sit idle on an average for

126.31 days. It has been fluctuating over the years and has increased next 2 year.

In 2012 DIH was low which means the inventory was sitting idle. In 2013 and 2014 it becomes

high.


This table shows in 2014, the DIH ratio of the GSK is 70.78 which means inventory sit idle on

an average

for 70.78

days.

126.31%

128.70%

131.33%

122.00%

124.00%

126.00%

128.00%

130.00%

132.00%

2012 2013 2014

DIH

2014

2013

2012

DIH 131.33 128.70 126.31

2014

DIH 70.78


This table shows in 2014, the DIH ratio is 70.99 which means inventory sit idle on an average for

70.99 days.

In 2014 DIH was high which means the inventory was sitting idle. In 2014 DIH was high for

Square Pharmaceuticals than GSK.

COMPARISON


70.78%

72.99%

69.50%

70.00%

70.50%

71.00%

71.50%

72.00%

72.50%

73.00%

73.50%

Gsk SP

DIH

2014

DIH 72.99

o 2014 – J & J is better; as 210.89>131.33

o 2013 - J & J is better; as 5128.70<165.81

o 2012 – J & J is better; as 126.31<182.80



o 2014 - GlaxoSmithKline Pharmaceuticals, Bangladesh is better; as 70.78<72.99

Between J & J and GlaxoSmithKline Pharmaceuticals, Bangladesh –

o GlaxoSmithKline Pharmaceuticals, Bangladesh is better; as it has the lowest

DIH.

RECOMMENDATION

GlaxoSmithKline Pharmaceuticals, USA and J & J should decrease their DIH.

Analysis of Days Payable Outstanding

Days Payable Outstanding (DPO) is the elapsed time between receipt of inputs and when payments

are made to suppliers. Formula to find out DPO is,

DPO = Accounts Payable ÷ (COGS ÷ 365 days)


This table shows in 2012, the DPO ratio of the GSK is 529.91 which meanstime betweenreceipt

of inputs and when payments are made to supplierson an average is 529.91 days. It has been

fluctuating over the years and has increased next 2 year.

Here we can see there is a fluctuation in DPO. DPO decreased in 2013 than 2012. Again In 2013

to 2014 defines that they took more time in 2014.

529.91%

505.15%

566.64%

460.00%

480.00%

500.00%

520.00%

540.00%

560.00%

580.00%

2012 2013 2014

DPO

2014

2013

2012

DPO 566.64 505.15 529.91

Johnson & Johnson

In 2012, the DPO ratio is 174.97 which meantime between receipt of inputs and when payments

are made to suppliers on an average is 174.97 days. It has been fluctuating over the years and has

decreased next 2 year.

Here we can see there is a fluctuation in DPO. DPO decreased in 2013 than 2012. Again In 2014it

decreased again.


In 2014, the DPO ratio of the GSK is 92.37 which means time between receipt of inputs and when

payments are made to suppliers on an average for 92.37days.

174.97%

146.23% 140.38%

0.00%

50.00%

100.00%

150.00%

200.00%

2012 2013 2014

DPO


This table shows in 2014, the DPO ratio is 53.43 which means time between receipt of inputs

and when payments are made to suppliers on an average for 53.43days.

Here we can see in 2014 the DPO increase for GSK than Square Pharmaceuticals.

COMPARISON


o 2014 – J & J is better; as 566.64>140.38

o 2013 - J & J is better; as 505.15>146.23

o 2012 – J & J is better; as 529.91>174.97

92.37%

53.43%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

GsK SP

DPO

2014

DPO 53.43



o 2014 - Square Pharmaceuticals, Bangladesh is better; as 92.37>53.43

Between J & J and Square Pharmaceuticals, Bangladesh –

o Square Pharmaceuticals, Bangladesh is better; as it has the lowest DPO.

RECOMMENDATION

GlaxoSmithKline Pharmaceuticals, USA and J & J should decrease their DPO.

Analysis of Inventory Turnover

Rapid Inventory Turnover indicates the efficiency of using the inventory. Formula of inventory

turnover is,

Inventory Turnover = Cost of Goods Sold ÷ Inventory


This table shows in 2012, the Inventory Turnover ratio of the GSK is 1.73 which means inventory

is sold and replaced on an average is 174.97 days. It has been fluctuating over the years.

Here we can see there is a fluctuation in Inventory Turnover increased in 2013 than 2012. Again

In 2013 to 2014 defines that they took less time in 2014.

1.73%

2.20%2.00%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

2012 2013 2014

Inventory Turnover

2014

2013

2012

Inventory Turnover 2.00 2.20 1.73

Johnson & Johnson

This table shows in 2012, the IT ratio is 2.89 which means inventory is sold and replaced

on an average is 2.89 days. It has been fluctuating over the years.

Here we can see there is a fluctuation in Inventory Turnover decreased in 2013 and 2014 than

2012.

2.89%

2.84%

2.78%

2.72%

2.74%

2.76%

2.78%

2.80%

2.82%

2.84%

2.86%

2.88%

2.90%

2012 2013 2014

Inventory Turnover

2014

2013

2012

Inventory Turnover 2.78 2.84 2.89


This table shows in 2014, the Inventory Turnover ratio is 5.16 which means inventory is

sold and replaced on an average is 5.16 days.


This table shows in 2014, the Inventory Turnover ratio is 16.25which means inventory is

sold and replaced on an average is 16.25 days.

2014

Inventory Turnover 5.16

2014

Inventory Turnover 16.25

Here we can see there is a fluctuation in Inventory Turnover. Inventory Turnover decreased in

2014 on GSK than Square Pharmaceuticals.

COMPARISON


o 2014 – GlaxoSmithKline Pharmaceuticals, USA is better; as 2<2.78

o 2013 - GlaxoSmithKline Pharmaceuticals, USA is better; as 2.20<2.84

o 2012 – GlaxoSmithKline Pharmaceuticals, USA is better; as 1.73<2.89



o 2014 - GlaxoSmithKline Pharmaceuticals, Bangladesh is better; as 16.2>5.25

Between GlaxoSmithKline Pharmaceuticals, Bangladesh and GlaxoSmithKline

Pharmaceuticals, USA –

o GlaxoSmithKline Pharmaceuticals, USA is better; as it has the lowest IT.

RECOMMENDATION

GlaxoSmithKline Pharmaceuticals, USA, Square Pharmaceuticals, Bangladesh and J & J must

increase the ratio by decreasing total liabilities or increasing total asset in better position.

5.16%

16.25%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

GsK SP

Inventory Turnover

Analysis of Cash Conversion Period

It measures how long a firm will be deprived of cash if it increases its investment in resources in

order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth. The

Cash Conversion Period can be found by following formula.

Cash Conversion Period = Days Inventory Hold + Days Sales Outstanding – Days Payable

Outstanding


2012 2013 2014

CCP -274.73 -264.4 -282.78

The above chart is showing the performance of CCP of GSK, USA. Here, it’s seen that their CCP

is negative. That says that GSK, USA is delaying its creditors more than its DIH and DSO.

Negative CCP is good for the firm cause, it says the firm’s disbursement float is greater than its

collection float. Over three years GSK, USA is performing well and has better CCP in recent year.

Johnson & Johnson

2012 2013 2014

CCP 47.33 42.41 10.29

The above chart is showing the performance of CCP of Johnson & Johnson, USA. Here J &J’s

CCP is positive. Which states that its collection float is greater than disbursement float. That means

it takes more time to turn inventory into cash. For this they may need external financing. Over

three years its CCP is decreasing. In 2014, it’s least. So, J & J is performing well as years passing

by.

Comparison between GSK, USA and J & J, USA

From the above chart, it’s clear that GSK, USA is performing well than J & J. because negative

CCP is good for the firm. J & J’s performance is getting better but not better than GSK, USA.

GSK, USA is doing well and its CCP is getting more negative in recent years. So, GSK, USA is

the better performer.


2014

CCP -66.75

The above chart is showing the performance of CCP of GSK, BD. Its CCP is negative, which states

that it’s delaying its creditor. It doesn’t need extra financing for support.


2014

CCP 30.98

The above chart is showing the performance of CCP of Square Pharmaceuticals. It is seen that its

CCP is positive. Which states that they take 30.98 days to convert sales into cash.

-274.73 -264.4-282.78

47.33 42.4110.29

-300

-200

-100

0

100

2012 2013 2014

CCP

GSK USA J & J

Comparison between GSK, BD and Square Pharmaceuticals

The above graph is illustrating the comparative performance of GSK, BD and Square

Pharmaceuticals. It’s clear that GSK, BD is doing well than Square Pharmaceuticals. As negative

CCP preferable.

Comparison between GSK, USA and GSK, BD

Between USA and Bangladeshi Pharmaceuticals Company, we are comparing the best two

companies CCP of 2014. It is seen that USA Company is doing much better than Bangladeshi

company. GSK, USA is doing well compare to Bangladeshi GSK.

-66.75

30.98

-80

-60

-40

-20

0

20

40

1

CCP

GSK BD Square

GSK USA GSK BD

Series1 -282.78 -66.75

-300

-250

-200

-150

-100

-50

0

CCP

Analysis of Cash Conversion Efficiency

The proportion of sales that yield operating cash flow, dubbed Cash Conversion Efficiency (CCE)

which is very critical for firm’s long term viability. Adequate CCE involves monitoring the

financial supply chain, including managing costs and operating working capital.

Formula:

Cash Conversion Efficiency = Operating Cash Flow / Revenue


2012 2013 2014

CCE 17% 27% 22%

The above table is showing the CCE of GSK, USA over 2012, 2013, and 2014. It’s clear that the

performance of company is good though it falls in 2014 from 27% to 22%. Overall it is doing

great.

Johnson & Johnson

2012 2013 2014

CCE 23% 24% 25%

The above table is showing the CCE of J & J, USA over 2012, 2013, and 2014. Here, it is shown

that the CCE of J & j is good and it is doing better as year’s passes by. It is showing an upward

trend of CCE.

Comparison between J & J and GSK USA

The above graph is showing the comparative performance of GSK, USA and J & J’s CCE. Over

three years J & J’s CCE is rising where GSK, USA’s CCE has fluctuated. This means that J & J is

better performer here. J & J is managing their cost, financial supply chain and working capital

more efficiently than GSK, USA.


2014

CCE 19%

The above table is showing the Cash Conversion efficiency of GSK, BD in 2014. Here it’s seen

that GSK, BD is 19% efficient to convert cash.

2012 2013 2014

GSK USA 17% 27% 22%

J & J 23% 24% 25%

0%5%

10%15%20%25%30%

CCE

GSK USA J & J


2014

CCE 26%

The above table is showing the Cash Conversion efficiency of Square Pharmaceuticals in 2014.

It can be stated that Square Pharmaceuticals is 26% efficient to convert cash.

Comparison between Square Pharmaceuticals & GSK BD

The above graph is showing the comparative performance of GSK, BD and Square

Pharmaceuticals CCE. It’s clear from that, Square Pharmaceuticals is more efficient than GSK,

BD in terms of CCE. Square Pharmaceuticals is managing its cost, financial supply chain and

working capital more efficiently than GSK, BD.

GSK BD Square Pharma

2014 19% 26%

0%

5%

10%

15%

20%

25%

30%

CCE

Comparison between J&J and Square Pharmaceuticals

The above graph is showing the comparative performance of J&J, USA and Square

Pharmaceuticals performance in Cash Conversion Efficiency. They are both better performer in

their own country. It’s showing that is Square Pharmaceuticals is better than J&J by only 1%. That

means that Square is managing its cost, financial supply chain and working capital more efficiently

than J&J, USA only by 1%.

Section Two:

Summary:

Nurjahan Garments store basically a wholesale store. They sell their product across the country.

But they sell their product mostly in Chittagong, Sylhet & Khulna origin. Many retailer store from

that origin come there & buy garments product from them. They also have some permanent

customer from various market & they sell product on credit to them.

A/C polices:

They sell their product both in credit and payment on purchase time.

For credit sell they give buyers 3 option to pay their payment:

1. Payment on purchase time

J & J Square Pharma

2014 25% 26%

25%

26%

24%25%25%25%25%25%26%26%26%26%

CCE

2. Check

3. Pay later within a particular given time

Temporary or 1st time coming customer usually have to on purchase time. Those customers

are not able to buy product on credit.

Loyal customer or known customer is paying their payment on check. Sometimes customer

paying check but when sellers going to bank for check cashing, they found their not have

enough money. So they give a specific time to buyers.

Loyal customer and who usually come over & over again, Nurjahan garment giving them

a especial service. They allow to them to pay their payment later & giving them a specific time

to pay like 30 days.

For permanent customer, they delivered ordered product to customer by courier service

and after reached the product to the customer they ask for the bill to pay.

They have some bed debt customer. For them they say to customer, you give 60% money

of bill then in future you may buy product from us later.

Discount offer:

If any particular buyers pay full payment on purchase time then buyer gets a 5-10% discount.

If buyer pay check and payment amount is in the bank then buyer get 5-8% discount

Or any loyal buyers pay their payment on giving particular time they get 3-5% discount

For permanent customer they delivered their product across the country. After reaching the

product if customer pay the bill on time by courier they give 3-5% discount to them.

Inventories:

Nurjahan Garments only sell garment product. They collect their product from 2-3particular

garments and then store in their own store room. They have to pay for the store room.

They basically store product 3-6 days then delivered product to the buyers.

They store more winter garments product on winter season & summer product in summer

season. It means they basically store product on basis on customer demand.

Recommendation:

Nurjahan Garments Store doesn’t follow a specific financial standard. They practice different

polices to different customers. They also have some bed debt. So I suggest them for unknown

or temporary customer they should get security money before product delivered. They should

practice just one polices for all customer.

Store Name: Nurjahan Garments

Manger Name: Jashimuddin Sujon

Contract Number: 01677056220

Address: 1859-60, Bongo-bazar Complex, Bongo Bazar, Dhaka-10000

fin340.3gpp

project report on short term financial management

Education