SLS PRESENTATION

PROJECT TITLE
A CRITICAL ANALYSIS OF THE
MANAGEMENT OF CDC’S
WORKING CAPITAL FROM
2009-2011 AND ITS IMPACT
ON ITS FUNDING
STRATEGIES
Tuesday, 10 May 2016 1Project Presentation

ABOUT THE CDC
 It is an agro-industrial enterprise which is 100% state
owned.
 It is Cameroon’s second largest employer after the
government of Cameroon, employing about 21000
workers excluding temporal workers.
 It grows and sells three main tropical crops: semi-finished
rubber, banana ,palm oil and palm kernels which is its by-
product.

CDC PLANTATION PICTURES
Palm plantation Banana plantation Rubber plantation

OBJECTIVES
 Explain what is working capital and working capital
management.
 Explain how working capital components are managed using
information gathered.
 Analyse the management of CDC’s working capital
components from 2009 to 2011.
 Evaluate trade-off between liquidity and profitability of CDC
from 2009 to 2011.
 Identify funding options used for each working capital
component.
 Assess the impact of management of CDC’s working capital
components on its funding options.

RESEARCH QUESTIONS
 Have CDC’s working capital components been efficiently
managed from 2009 to 2011?
 Are CDC’s current assets liquid enough to minimise the
risk of insolvency and at the same time maximise profit
from sales?
 What funding options are used for each working capital
component?
 To what extent does the management of CDC’S working
capital components affect their funding options?

SOURCES OF INFORMATION
 Primary data source was face to face interview with
selected staff at the CDC.
 Secondary data sources used for the purpose of this
project included: books from the metropolitan library and
the internet, CDC financial statements from 2009-2011,
management records.

LIMITATIONS OF DATA
COLLECTED
 Management refused to disclose confidential information
which were necessary for detailed analysis.
 Some information relevant to this research during some
interviews was lost as the researcher wrote down answers
from respondents because the recorder which was
burrowed was taken earlier than expected.
 Some of the information in the company records provided
to the researcher, were not directly related to the study,
therefore a reasonable length of time was spent trying to
sort out relevant information from all the records
available.

ACCOUNTING AND BUSINESS
MODELS
 Ratio Analysis: was used to calculate working capital
ratios, the cash conversion cycle, liquidity ratios-current
and quick ratios and profitability ratios.
 Horizontal Analysis: was used in analysing trends derived
from all the ratios calculated.
 Component percentage analysis: was used in calculating
the overall funding strategy used by the CDC from 2009-
2011.

LIMITATION OF ACCOUNTING
AND BUSINESS MODELS
 All ratios calculated were subjected to limitations of ratio
analysis which included non-consideration of off balance
sheet items, distortion due to growth and inflation.
 Horizontal analysis does not provide an in-depth
understanding as to why the trend occurred.

DEFINITION AND ORIGIN OF
WORKING CAPITAL
 Working capital is the excess of current assets over current
liabilities.
 Current assets include stock, debtors, bills receivable, cash
and bank.
 Current liabilities bank overdrafts, short term loans and
bills payable just to name a few.
 ‘Working Capital’ originated at a time when industries
were closely related to agriculture.

WORKING CAPITAL
MANAGEMENT
 Working capital management involves the management of
components of both current assets, current liabilities, how
they were used and how their mix affected the risk and
return characteristics of the industry.

CDC STOCK
MANAGEMENT
 Stock in CDC is made of raw materials and supplies,
work-in progress and finished goods. All stock is valued at
lower of cost and net realisable value. The inventory
management systems used are: rubber- Economic Order
Quantity model, banana-Just in time System and oil palm-
the two bin system. In order for stock management to be
efficient, the time from nursing to planting to harvest and
also to production needs to be as short as possible.

ANALYSIS OF RAW MATERIAL
HOLDING PERIOD
0
20
40
60
80
100
120
140
2009 2010 2011
Days
Year
Raw Material Holding Period
CDC Raw Material
Holding Period
Industrial average
 The 2009 figure is lower
than the corresponding
sector averages. This was
due to underproduction of
crops in the nurseries.
 The increase in 2010 and
2011was due to water
problems.

ANALYSIS OF WORK-IN-
PROGRESS HOLDING
PERIOD
0
5
10
15
20
25
2009 2010 2011
Days
Year
WIP Holding Period
CDC Work-in-progress
Holding Period
Industrial Average
 frequent machine
breakdown due to ageing
caused long production
stoppages production in
the rubber factories in
2010 and 2011.
 Installation of new
production plant took
longer than expected time

ANALYSIS OF FINISHED
GOODS HOLDING PERIOD
0
10
20
30
40
50
60
70
2009 2010 2011
Days
Years
Finished Goods Holding Period
CDC Finished Goods
Holding Period
Industrial Average
 high figure in 2009 was
due to poor performance
of group oil palm
harvesting contractors.
 2010 and 2010 figures due
to underproduction as a
result of thefts and labour
shorttages.

CDC STOCK FUNDING
SOURCES
 Investment grants and subsidies from the Cameroon
Government.
 Also bank overdraft facilities and other short term loans
are used to finance all CDC stock

CDC TRADE RECEIVABLE
MANAGEMENT
 Rubber and banana are sold to international customers on
credit and credit policy is 30 days.
 Palm oil and palm kernels are sold locally on cash basis
only.
 CDC does not offer early settlement discounts.
 Only old customers’ credit worthiness are periodically
assssed before sales

ANALYSIS OF DEBTORS
COLLECTION PERIOD
0
5
10
15
20
25
30
35
2009 2010 2011
Days
Year
Debtors Collection Period
CDC Debtors
Collection Period
Industry average
 Increase in 2010 figure was
due to delays in invoicing
following delivery of goods,
failure to issue reminder
letters and also inadequate
age analysis. This was
remedied in 2011 by prompt
invoicing, issuing of
reminder letters to old
customers and adequate age
and statistical data analysis.

TRADE RECEIVABLE
FUNDING SOURCES
 Early collection periods and short term loans.
 An early collection period increase CDC’s liquidity and is
a free source of finance.
 Unfortunately strict collection periods may scare away
customers to other competitors.

CDC CASH MANAGEMENT
 Cash budget is prepared yearly and flexed every three
weeks in order to meet up with anticipated demands. Cash
surpluses are reinvested into major projects included in
the yearly budget. Cash deficits are covered up by short
term loans taken from banks. Cash needs are determined
by the use of cash forecasts. These cash forecasts are
prepared every month with and include three weeks
anticipation of cash needs

CASH FUNDING SOURCES
 Short and long term loans are used together with cash
from the sale of its finished goods.

TRADE PAYABLE
MANAGEMENT
 The main objective of trade payable management is
managing the credit extended by operating suppliers to the
company.
 The CDC has a 90 day period to pay its suppliers. It has
an edge over other ago-industrial companies with a credit
period of about 77 days

SUPPLIERS’ PAYMENT
PERIOD
0
20
40
60
80
100
120
2009 2010 2011
Days
Year
Suppliers Payment Period
CDC Suppliers
Payment Period
Industry average
 2009 credit period was
renegotiated due to acute
liquidity problems the
CDC faced.
 Early 2010 payment led to
loss of free source of
finance which the CDC
later gained in 2011.

TRADE PAYABLE FUNDING
SOURCES
 Cash from sale of finished goods is used to settle
suppliers’ debts.
 In cases where sales from its products were lower than
expected, overdraft facilities were used to settle its debts.

ANALYSIS OF CASH
CONVERSION CYCLE
-20
0
20
40
60
80
100
120
140
2009 2010 2011
Days
Year
Cash Conversion Cycle
CDC Cash
Conversion cycle
Industry aversge
 Increase in 2010 due to
banana and oil palm sector
expansion projects ,
machine breakdowns and
poor receivable
management.
 Drop in 2011 due to good
trade receivable and
payable management.

CURRENT RATIO
ANALYSIS
 the ratio dropped in
2010due to very early
payment of operating
suppliers’ debt and late
collection of debt.
 THE 2011 increase was
due to increase in sales
which resulted from
increase in production and
sales prices.0 0.5 1 1.5 2
2009
2010
2011
Time
Year
Current Ratio
Industry ratio
CDC Current ratio

ANALYSIS OF QUICK
RATIO
 late debt collection period
and early payment to
suppliers’ considerably
reduced the ratio in 2010.
 overdraft facility obtained,
prompt collection of debts
and increase in world
rubber prices increased the
2011 ratio.
0 0.5 1 1.5
2009
2010
2011
Time
Year
Quick Ratio
Industry average
CDC Quick ratio

ANALYSIS OF RETURN ON
CAPITAL EMPLOYED
 The drop in 2010 was due
to failure of all crops to
achieve expected sales
except for rubber.
 The increase in 2011 was
mainly due to the increase
in world rubber prices and
increase in palm oil sales.
0%
5%
10%
15%
20%
25%
2009 2010 2011
Percentage
Year
Return on Capital Employed
CDC Retun on Capital
Employed
Industry average

OVERALL FUNDING
STRATEGY
 the non current liability
which is the main source
of finance increased in
2009 due to the finance
lease the CDC obtained
from banks. This figure
dropped over the years due
to repayment in 2010 and
2011.
0%
10%
20%
30%
40%
50%
60%
70%
2009 2010 2011
Percentage
Year
Component Analysis Graph
Non-current liabilities
Current liabilities
Capital and Equity

CONCLUSION
 There is a trade off between liquidity and profitability
from 2009-2011.
 Increase in world rubber prices have contributed to
increase in sales revenue in 2010 and 2011.
 Pests thefts labour shortages water problems and climate
change contributed to underproduction of crops from
2009-2011.

RECOMMENDATIONS
 CDC should conduct a cost/benefits analysis of early
settlement discounts proposed by some of its suppliers and
revise its trade payable policy if it is cost beneficial.
 The CDC could use prolonged trade credit to act as its
own free source of finance.
 CDC should adopt a cash management model which will
foster cash management efficiency.

SLS PRESENTATION

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