3.
The capital of a business which is used in its day-to-day
trading operations, calculated as the current assets minus
the current liabilities
Types of Working Capital
Positive Working Capital
Negative Working Capital
Working Capital
4.
is the aggregate amount of all current assets and current
liabilities. It is used to measure the short-term liquidity of
a business, and can also be used to obtain a general
impression of the ability of company management to
utilize assets in an efficient manner
Formula
Net Working Capital
Net working capital = Current Assets – Current Liabilities
5.
Years 2010 2011 2012 2013 2014
Current Assets 56,043 56,032 57,660 56,405 49,569
Current
Liabilities
(45,750) (43,508) (43,555) (42,913) (36,749)
Net Working
Capital
10,293 13,024 14,105 13,492 12,840
Working Capital of Honda
o Selected Financial data (US $ in Millions)
6.
HONDA had maximum and profitable stability in 2012.
Means less Short term debts had been taken in this year.
In 2013 HONDA was still profitable and stable but not
like as in 2012.
Although they have taken less short term debts in 2014 but
their current assets also decreased as compare to 2013 &
2014.
Interpretation
7.
is also referred to as net sales to working capital. It
indicates a company's effectiveness in using its working
capital. The working capital turnover ratio is calculated as
follows
Working Capital Turnover Ratio =
𝐒𝐚𝐥𝐞𝐬
𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥
Working Capital Turnover Ratio
8.
Company 2010 20111 2012 2013 2014
Honda 10.50 7.60 6.40 7.45 6.66
Competitors 8.40 7.97 9.93 8.60 7.80
Working Capital Turnover
Selected Financial Data ( in Days )
10.
The cash conversion cycle (CCC) is a metric that expresses the length
of time, in days, that it takes for a company to convert resource inputs
into cash flows.
Five Components:
1. Average inventory processing period
2. Average Receivables period
3. Operating cycle
4. Average payment period
5. Cash conversion cycle
Cash Conversion Cycle
11.
An asset utilization ratio that indicates how long goods
remain in inventory or unsold. The average inventory
period ratio is measured by dividing days in a year
by inventory turnover,
Formula
Inventory Turnover Ratio (Days) =
365
Inventory Turnover
Average Inventory Period
12.
Years 2010 2011 2012 2013 2014
Honda 57 63 67 53 56
Competito
rs
55 60 66 68 70
Average Inventory Period
In Days
14.
The average collection period is the approximate amount
of time that it takes for a business to receive payments
owed in terms of accounts receivables
Formula
Average Collection Period (Days) =
Days x A/R
Credit Sales
Average Collection Period
15.
Year 2010 2011 2012 2013 2014
Honda 22 21 24 20 24
Competitors 22 20 25 24 28
Average Collection Period
In Days
17.
Collection period of Honda was increased in 2012 & 2014
.Longest collection periods were in these years.
Prompt receivables was in 2011 and that’s why considered
to be the most stabilized and profitable year.
Honda’s collection period as compare to it’s competitors
is better in past years however it is increased from the
recent year collection period of HONDA itself.
Interpretation
18.
The operating cycle is the average period of time required
for a business to make an initial outlay of cash to produce
goods, sell the goods, and receive cash from customers in
exchange for the goods.
Formula
Operating Cycle = Average Inventory Period +
Average collection Period
Operating Cycle
21.
Average payment period means the average period
taken by the company in making payments to its
creditors. It is computed by dividing the number of
working days in a year by creditors turnover ratio
Formula
Average Payment Period =
𝑁𝑜.𝑜𝑓 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐷𝑎𝑦𝑠
Creditors Turnover
Average Payment Period
22.
Years 2010 2011 2012 2013 2014
Honda 48 51 63 42 50
Competitors 56 53 50 54 52
Average Payment Period
24.
The cash conversion cycle (CCC) is a metric that
expresses the length of time, in days, that it takes for a
company to convert resource inputs into cash flows
Formula
Cash Conversion Cycle = OC - APP
Cash Conversion Cycle
27.
Cash conversion cycle of HONDA’s shows that it is
having a very stable condition as it gets its cash back very
earlier to reinvest it and to earn profit
In 2010, there ratio of colecting back their money is lower
than its competitors
In 2012 and 2014 they got their cash back very earlier to
reinvest it and to earn profit
Interpretation
28.
Years 2010 2011 2012 2013 2014
Honda 16.86 17.11 15.52 18.36 15.29
Competitors 16.64 17.82 14.46 14.94 13.36
Account Receivable Management
o Selected Financial data (US $ in Millions)
30.
While giving money, Honda:
Is Friendly but forceful, follow up in timely
Do research
Believes that being rude towards client will not get
payment any faster
Check credit status of new customers
Prepare account receivables aging schedule
Account Receivable Management
31.
Years 2010 2011 2012 2013 2014
Honda 7.57 7.09 5.81 8.63 7.37
Competito
rs
6.13 5.71 6.23 7.77 7.48
Account Payable Management
o Selected Financial data (US $ in Millions)
33.
HONDA tries to pay its account payables to the business
as soon as possible
HONDA tries to build a good relationship with supplier
HONDA takes money from those companies which have
best trade credit terms
HONDA shows its previous record to creditors
Account Payable Management
34.
√
𝟐 × 𝑨𝑫 × 𝑶𝑪
𝑪𝑪
AD = Annual Demand
OC = Operating Cycle
CC = Carrying Cost
Economic Order Quantity
35.
• EOQ of 2010
= √
2×9290×79
155.92
= 305.679 M
• EOQ of 2011
= √
2×107479×84
148.79
= 348.361 M
• EOQ of 2012
= √
2×96704×92
142.65
= 351.254 M
Calculation of Economic Order
Quantity
36.
• EOQ of 2013
= √
2×104906×73
135.97
= 335.625 M
• EOQ of 2014
= √
2×114998×80
130.35
= 375.707 M
Calculation of Economic Order
Quantity