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Summer training report
1. 1
A
PROJECT REPORT
ON
(WORKING CAPITAL MANAGEMENT)
AT
(TEVA API LTD. MALANPUR GWALIOR)
Submitted to
JIWAJI UNIVERSITY
GWALIOR
For The Partial Fulfillment of the Award Of
BACHLOR OF BUSINESSADMINISTRATION
(2010-2013)
Submitted by
Mohini Sahu
PRESTIGE INSTITUTE OF MANAGEMENT
GWALIOR (M.P.)
2. 2
ACKNOWLEDGEMENT
A work is never a work of an individual. I owe a sense of gratitude to the intelligence and
cooperation of those people who had been so easy to let me understand what i needed
from time to time for completion of exclusive project.
I am greatly indebted to my guide Prof. TARIKA SINGH, faculty guide for summer
training of PRESTIGE INSTITUTE OF MANAGEMENT GWALIOR & Mr. MANOJ
JAIN Manager of finance department in TEVA API LTD MALANPUR BHIND M.P.for
their constant guidance, advice and help which enabled me to complete my project.
MOHINI SAHU
3. 3
Certificate Of Faculty Guide-
This is to certify that Ms. Mohini sahu student of BBA 4 sem programme
has completed his/her summer training of 4 weeks(10sep12 to 14 oct12)
and prepared this report under my guidance.
(Working capital management)
Name:
Faculty guide:
4. 4
TABLE OF CONTENT PAGE NO
GENRAL TRAINING 5-19
CHAPTER 1: INTRODUCTION 20-30
CHAPTER 2: OBJECTIVE OF THE STUDY 20
CHAPTER 3: RESULT AND DISCUSSION 28-29
CHAPTER 4: SUGGESTIONS AND
IMPLICATIONS 31
CHAPTER 5: CONCLUSION 32-33
REFERENCES 34
ANNEXURE 35
6. 6
HISTORY-
TAPI is a unit of Teva Pharmaceutical Industries, the world’s largest generic drug
manufacturer and one of the 15 largest pharmaceutical companies worldwide.
The rich history of the TAPI Division dates back to 1935 with the founding of Assia,
a company that specialized in the production of veterinary and pharmaceutical
ingredients.
TAPI has grown by acquiring and establishing top-rated manufacturing and development
facilities around the world. The already high-quality standards of each acquired plant are
fully synchronized with TAPI best practices through a comprehensive integration
program.
At the heart of TAPI lies the Israel-based Teva-Tech plant, a state-of the-art facility
established in 1995 with numerous dedicated high-volume production areas. TAPI today
operates 21 production plants and 7 research and development centers across the
globe. Each facility contributes to our accumulated knowledge and ongoing excellence in
R&D, production and customer service for the benefit of our demanding customer base.
ORGANIZATIONAL STRUCTURE-
Teva's organizational structure is an emblem of Teva's fundamental business strategy,
highlighting our global strength and our pharmaceutical diversity. It enables us to
continue to expand our core generic business across all geographies and leverage our
global reach and scientific strength to develop new innovative products and technologies.
7. 7
Dr. Jeremy M. Levin, DPhil, MB, BChir, became President and Chief Executive Officer
of Teva Pharmaceutical Industries Ltd. on May 9, 2012.
Prior to joining Teva, Dr. Levin was a member of the Senior Management Team at
Bristol-Myers Squibb (BMS) , as Senior Vice President of Strategy, Alliances and
Transactions. He was responsible for the company’s global and “String of Pearls”
strategies, as well as M&A, licensing, divestitures, and corporate and academic alliances.
At the same time, Dr. Levin served as President and Director of two wholly-owned BMS
subsidiaries.
Before joining BMS, Dr. Levin served as the Global Head of Strategic Alliances at
Novartis Institutes of Biomedical Research, where he managed alliances with academia
and biotechnology, and established strategic collaborations. In addition, Dr. Levin has
served on the executive committees and boards of numerous internationally renowned
biosciences, biotechnology, venture fund and research organizations.
He holds a BA in Zoology from Oxford, and an MA and doctorate (DPhil) in Cell
Biology and Chromatin Structure from the University of Oxford. He also holds an MB,
BChir degree (Bachelor of Medicine, Bachelor of Surgery) from the University of
Cambridge. He resides in Israel.
FINANCIAL PERFORMANCE-
Annual Financials for Teva Pharmaceutical Industries
Ltd. ADS
Assets
Fiscal year is
January-
December. All
values ILS
millions.
2007 2008 2009 2010 2011 5-
year
trend
Cash & Short
Term Investments
11.07B 7.2B 8.52B 4.55B 4.19B
Cash Only 5.73B 7B 1.94B 4.42B 4.19B
Short-Term 5.34B 200.18M 6.58B 127.49M -
8. 8
Investments
Total Accounts
Receivable
13.65B 17.57B 19.01B 19.45B 23.82B
Accounts
Receivables, Net
- 17.57B 19.01B 19.39B 23.76B
Accounts
Receivables, Gross
319.47M 18B 19.39B 19.39B 23.76B
Bad Debt/Doubtful
Accounts
(319.47M) (423.02M) (375.01M) - -
Other Receivables - 0 0 60.21M 65M
Inventories 9.39B 12.83B 12.62B 13.69B 19.16B
Finished Goods 5.45B 6.95B 6.28B 6.9B 9.57B
Work in Progress 1.27B 2.11B 1.98B 2.05B 2.99B
Raw Materials 2.55B 3.65B 4.06B 4.38B 6.08B
Progress Payments
& Other
115.47M 113.31M 303.04M 361.23M 535.33M
Other Current
Assets
3.84B 5.55B 5.84B 4.95B 8.09B
Miscellaneous
Current Assets
3.84B 5.55B 5.84B 4.95B 8.09B
Total Current
Assets
37.95B 43.16B 45.99B 42.65B 55.26B
2007 2008 2009 2010 2011 5-year
trend
Net Property, Plant &
Equipment
9.68B 13.97B 14.27B 15.43B 22.74B
Property, Plant &
Equipment - Gross
15.06B 19.8B 21.56B 23.45B 32.03B
Buildings 4.09B 5.92B 5.71B 6.85B 9.29B
Land & Improvements 619.69M 1.11B 1.39B 1.32B 1.73B
Computer Software
and Equipment
- - - - -
Other Property, Plant
& Equipment
2.31B 2.8B 3.14B 3.04B 4.06B
Accumulated
Depreciation
5.38B 5.83B 7.29B 8.02B 9.29B
Total Investments and
Advances
2.43B 1.61B 2.02B 1.81B 3.79B
Other Long-Term
Investments
2.43B 1.61B 2.02B 1.81B 3.79B
9. 9
Long-Term Note
Receivable
- 0 0 - 0
Intangible Assets 39.74B 63.75B 63.36B 74.31B 109.39B
Net Goodwill 32.36B 46.45B 48.01B 53.94B 69.95B
Net Other Intangibles 7.39B 17.3B 15.35B 20.37B 39.45B
Other Assets 130.87M 94.42M 140.16M 641.01M 305.9M
Tangible Other Assets 130.87M 94.42M 140.16M 641.01M 305.9M
Total Assets 90.11B 124.34B 128.07B 135.12B 191.73B
Liabilities & Shareholders' Equity
2007 2008 2009 2010 2011 5-
year
tren
d
ST Debt & Current
Portion LT Debt
7.09B 10.98B 4.93B 9.81B 16.37B
Short Term Debt 6.09B 10.09B 2.79B 2.63B 9.91B
Current Portion of
Long Term Debt
1B 883.82M 2.14B 7.19B 6.46B
Accounts Payable 5.32B 8.48B 10.15B 8.94B 14.31B
Income Tax Payable 30.79M 475.9M 484.86
M
265.61
M
175.89M
Other Current
Liabilities
8.23B 12.11B 13.23B 15.31B 22.09B
Dividends Payable - - - - -
Accrued Payroll - - - - -
Miscellaneous Current
Liabilities
8.23B 12.11B 13.23B 15.31B 22.09B
Total Current
Liabilities
20.67B 32.03B 28.8B 34.33B 52.95B
Long-Term Debt 12.88B 20.68B 16.33B 14.56B 39.14B
Long-Term Debt excl.
Capitalized Leases
12.88B 20.68B 16.33B 14.56B 39.14B
Non-Convertible Debt 7.37B 13.8B 13.24B 14.51B 39.14B
Convertible Debt 5.52B 6.88B 3.09B 46.04M 0
Capitalized Lease
Obligations
0 0 0 0 0
Provision for Risks &
Charges
573.5M 687.41M 643.96
M
782.67
M
-
10. 10
Deferred Taxes 1.59B 4.74B 4.3B 4.5B 9.74B
Deferred Taxes -
Credit
1.77B 6.51B 6.59B 4.77B 9.98B
Deferred Taxes - Debit 177.05
M
1.76B 2.29B 272.7M 237.07M
Other Liabilities 1.25B 2.35B 2.75B 2.75B 4.23B
Other Liabilities (excl.
Deferred Income)
1.25B 2.35B 2.75B 2.75B 4.23B
Deferred Income - - - - -
Total Liabilities 37.15B 62.25B 55.12B 57.2B 106.3B
Non-Equity Reserves 0 0 0 0 0
Preferred Stock
(Carrying Value)
0 0 0 0 0
Redeemable Preferred
Stock
0 0 0 0 0
Non-Redeemable
Preferred Stock
0 0 0 0 0
Common Equity
(Total)
52.82B 61.86B 72.81B 77.73B 84.87B
Common Stock
Par/Carry Value
177.05
M
181.3M 185.61
M
173.53
M
191.19M
Retained Earnings 19.4B 19.61B 25.24B 33.02B 43.15B
ESOP Debt Guarantee 0 0 0 0 0
Cumulative
Translation
Adjustment/Unrealize
d For. Exch. Gain
5.46B 1.54B 2.01B 1.12B (1.85B)
Unrealized Gain/Loss
Marketable Securities
(204M) (11.33M
)
128.79
M
159.37
M
(275.31M
)
Revaluation Reserves 0 0 0 0 0
Treasury Stock (3.78B) (3.49B) (3.5B) (3.62B) (7.36B)
Total Shareholders'
Equity
52.82B 61.86B 72.81B 77.73B 84.87B
Accumulated Minority
Interest
138.56
M
226.62M 140.16
M
194.78
M
565.92M
Total Equity 52.96B 62.09B 72.95B 77.92B 85.43B
Liabilities &
Shareholders' Equity
90.11B 124.34B 128.07B 135.12B 191.73B
11. 11
FINANCIAL POSITION-
TAPI - Teva Active Pharmaceutical Ingredients
TAPI is the leading international supplier of active pharmaceutical ingredients (APIs).
With the industry’s broadest portfolio of over 300 API products, TAPI achieved third-
party sales of some $747 million in 2011. A standalone unit within Teva Pharmaceutical
Industries, TAPI’s history in the generic API industry dates back over 75 years.
Headquartered in Israel, next to Tel Aviv, TAPI employs more than 5,000 professionals
at over 20 sites worldwide. TAPI’s state-of-the-art production facilities are located in
Italy, Hungary, the Czech Republic, Croatia, Israel, India, China, Mexico, Puerto Rico
andtheUnitedStates.
TAPI provides superior product quality, excellent customer service and unparalleled IP
assets that protect the freedom. Our significant ongoing investment in R&D generates a
steady flow of APIs, enabling timely introduction of new products to market. The large
R&D group comprises over 750 world-class scientists located in seven development
centers. Our dedicated professionals specialize in the fields of chemical synthesis,
fermentation, high potency APIs, plant extraction, synthetic peptides, vitamin D
derivatives, prostaglandins, and analytical and solid-state R&D. Read more about TAPI’s
expertise and value-added services.
OFFERINGS OF TEVA:
TAPI provides superior product quality, excellent customer service and unparalleled IP
assets that protect the freedom. Our significant ongoing investment in R&D generates a
steady flow of APIs, enabling timely introduction of new products to market. The large
R&D group comprises over 750 world-class scientists located in seven development
centers. Our dedicated professionals specialize in the fields of chemical synthesis,
fermentation, high potency APIs, plant extraction, synthetic peptides, vitamin D
derivatives, prostaglandins, and analytical and solid-state R&D. Read more about TAPI’s
API expertise and value-added services.
TAPI & you. This short phrase sums up our long-term commitment to you, our customer.
At TAPI, we believe that great things come from great partnerships. We spare no effort in
building and nurturing fruitful partnerships based on close collaboration and outstanding
support. Partnering together, we can help you bring the high-quality generic and
innovative products to market efficiently and effectively.
12. 12
MARKETING PERFORMANCE-
Teva Pharmaceutical Industries Ltd, the world’s biggest maker of generic drugs,
announced an ambitious plan on Friday to reshape the company as it faces increased
competition for its top-selling multiple sclerosis drug Copaxone.
The Israeli-based company said it plans to streamline operations, cut costs, and make
targeted acquisitions to improve profitability. It will discontinue certain research
programmers and integrate functions ranging from ordering to inventory control.
Teva said profit excluding some items will be between $4.85 and $5.15 a share in 2013,
while revenue will be $19.5 billion to $20.5 billion. Analysts were on average forecasting
earnings of $5.71 a share and revenue of $20.85 billion, according to Thomson Reuter’s
I/B/E/S.
Teva will outline its plans in detail at an investor day on 11 December. In the meantime,
it is predicting sales of Copaxone will fall somewhat in 2013 as it faces competition from
new drugs for multiple sclerosis. A new drug that is expected to be approved shortly from
Biogen Idec Inc, BG-12, is expected to pose particularly strong competition.
The reshaping of Teva is being driven by its new chief executive, Jeremy Levin, a former
senior executive at Bristol-Myers Squibb , who says he wants to make the company more
transparent and responsive to shareholders.
“Teva will look like a very different company going forward,” he told analysts on a
conference call.
As part of its reorganization, Teva plans to cut $1.5 billion to $2 billion in costs, with
most of those savings occurring over the next three years and the rest over the following
two years. The savings will come from every aspect of its business, Teva said, including
the way it procures raw materials, the amount of real estate it owns, and how it invests in
information technology.
“Most had anticipated below-consensus guidance and while clearly the magnitude will
surprise, we actually think the lowered bar will be welcome when the dust settles today
relative to the stock reaction,” said Randall Stanicky, an analyst at Canaccord Genuity.
Teva’s shares were up 0.7% at $40.52 in midday trading on the New York Stock
Exchange.
13. 13
Teva expects revenue from its generic drugs of $10.3 billion to $10.7 billion in 2013, and
sales of branded medications of $7.6 billion to $8 billion.
The company expects sales of Copaxone to range between $3.7 billion and $3.9 billion.
The company said it could not predict with accuracy the extent of the drug’s potential
sales decline until the trajectory of BG-12’s launch becomes clearer. It said it continues
to believe Copaxone will remain a strong player in the market. That drug currently
accounts for about 20% of Teva’s total sales.
The company said sales of branded products will be hurt somewhat by the launch of
multiple generic versions of Provigil, a sleep disorder drug the company acquired with its
$6.5 billion purchase of Cephalon Inc. On the other hand, Teva expects growth in other
branded products, including women’s health.
Teva has grown historically through acquisitions, some substantial such as the Cephalon
deal. But Levin said that going forward; Teva plans to make targeted acquisitions in its
core areas of expertise, such as central nervous system disorders.
Levin said Teva is determined to be more transparent with Wall Street and says there are
“different levers” the company can pull to return value to shareholders, including
potentially increasing stock buybacks and allocating cash more efficiently.
“Our intent is to divest businesses that don’t have the margins we want and at the same
time build businesses with margins that we want to have,” he said.
That means continuing to invest in treatments for multiple sclerosis and other central
nervous system disorders.
14. 14
EMPLOYEE BENEFIT –
Teva recognizes that its employees are its greatest asset and takes pride in offering highly
competitive, comprehensive benefits for employees and their families,including:
A variety of wellness and preventive programs and information
Health care information lines with access to health care professionals and related
services
Financial planning tools and resources
Adoption financial assistance
Discount programs for a variety of goods and services
Enhanced educational financial support for employees
As a new employee, you will have the opportunity to elect the coverage that meets the
needs, as well as those of the eligible dependents. As a new employee, you will need to
go to www.mytevabenefits.com to enroll in the medical, dental and/or FSA. In addition,
you must enter the beneficiary information for the company-paid life insurance. The
benefits are effective on the Date of Hire. It is important that you read the enclosed
materials and complete the enrollment steps below. Although you are qualified for
coverage on day one of the employment, you can only enroll via the Teva Benefits Web
site after you receive the first paycheck. Complete these steps in order to enroll in
The Teva benefits:
1. Thoroughly read and review the contents of this package:
• New Employee Benefits Guide 2010
• T. Rowe Price® 401(k) information
• Matrix Reliance Emergency Travel Assistance Service on Call®
• MetLife® Long-Term Care Letter
• Notice of Privacy Practice.
2. The New Employee Benefits Guide was designed to answer most of the questions.
However, for complete benefit details, including benefit summaries, provider
Directories, contact numbers, frequently asked questions and additional forms:
• Visit the Teva Employee Benefits Web site atwww.mytevabenefits.com.
• Contact the Employee Benefits Service Center via telephone at (800) 979-1733.
3. After you have received the first paycheck, you can enroll in the Aetna Plans via
www.mytevabenefits.com.
• You have 30 days from the date of the first paycheck to enroll. After this period, you
must wait until annual Open Enrollment or a Life Changing Event occurs (such
as marriage, divorce, birth, death, loss of spouse’s
15. 15
Coverage, etc.)
• If you are enrolling in the Aetna Select plan, remember to select a Primary Care
Physician (PCP) for each covered family member. You will find provider information on
the Teva Employee Benefits Web site.
• You can follow the How to Enroll section in the TevaNew Employee Benefits Guide.
• You will want to take advantage of the Health Risk Assessment (HRA). After you
receive the ID cards from Aetna, you will need to complete the HRA to receive a $50 gift
card from GiftCertificates.com. After approximately six to eight weeks, you will receive
an email from GiftCertificates.com, giving you directions on how to obtain the gift card.
4. Since the benefits are effective on the Date of Hire, it is important that you enroll in the
benefits as soon as you are able, and please remember to input the beneficiaries for
The company-paid life insurance.
• If you are enrolling in optional life for theself and are electing over $300,000, you will
need to complete the Evidence of Insurability form found on the Teva Employee Benefits
Web site.
• If you are enrolling the spouse in optional life, you must also enroll in this coverage
theself. If you are selecting over $50,000, the spouse will need to complete the Evidence
of Insurability form found on the Teva Employee Benefits Web site.
Teva is committed to providing its employees with a comprehensive, yet affordable,
benefits program. The company covers most of the expense associated with the benefits
plan; however, you are expected to cover a small portion of the cost for you and the
dependents. The amount you pay will depend on the level and type of coverage you
select. The share is automatically deducted from each paycheck for:
• Aetna Medical, Dental & Prescription Drug coverage
• Healthcare & Dependent Care Flexible Spending Account (FSA)
• Health Savings Account with the High Deductible Health Plan
• Optional Life Insurance
Teva covers all costs associated with:
• Accidental Death and Dismemberment (AD&D)
• Aetna Informed Health Line
• Baby Steps Maternity Management
• Basic Term Life Insurance
• Best Doctors
• Business Travel Accident Insurance
• Ernst & Young Financial Planners
• Free & Clear Tobacco Cessation
• Guidance Resources® Employee Assistance Program (EAP)
• Short-Term and Long-Term Disability• Wellness Counseling
16. 16
PRODUCTION:-
Teva's Technical Scientific Affairs (TSA) team is responsible for the smooth transfer
from the development stage to the production stage.
Types of production facilities correspond to the following product categories:
Oral Solids
Semi Solids
Liquids
Sterile
Inhalers
Biotechnology
Each production facility abides by specific regulatory standards, corresponding to
specific market requirements and regulatory demands.
The Production Process
The manufacturing process of both generic and innovative drugs is strictly regulated and
follows the same, strict, cGMPcGMPtandardsboth in the lab and on the production site.
The production process is generally divided into 5 main stages:
Receipt of API, excipients, ingredients, raw materials and packaging materials
Manufacturing
QA testing
Packaging and storage
Release and shipping
Teva's operational expertise is one of its core competitive advantages. Operational
efficiency has become a necessity in the pharmaceutical industry in general, and in
generic medicine in particular, due to increasing
competition.
Teva’s vast operational network successfully maintains high standards of performance,
efficiency and cost effectiveness. These achievements rely on the company’s unique
qualities, among them:
Expert knowledge of pharmaceutical production technologies
Presence in all leading markets worldwide
In-depth understanding of regulatory requirements and efficient Quality
Management System
17. 17
Production-focused new product development
Ongoing interaction among Teva's personnel worldwide allows for dissemination
of knowledge and ideas.
Quick Operational Facts
Teva operates in 60 countries
Teva distributes products to over 120 markets
During 2011, Teva's plants manufactured approximately 71 billion tablets and
capsules and over 535 million sterile units
Teva operates 35 solid manufacturing facilities, 12 sterile facilities and 4
respiratory facilities
Teva has 17 generic R&D centers and 17 innovative R&D centers
Teva operates 7 API R&D centers and 21 API production facilities
The Operational Process
Operational considerations are addressed early in the process of drug development. The
operational process typically consists of 3 components:
Procurement of active pharmaceutical ingredients (API),excipients (inactive
ingredients) and packaging materials
Production
Shipping and distribution.
Our commitment to service quality, coupled with our size and efficiency, enables us to
continuously supply our customers, even at times of extreme peaks in demand. TEVA
continues to leverage the size and diversity of its operations to bring the best quality
pharmaceutical products to the doorstep.
18. 18
STRENTHS AND WEAKNESSES:-
This SWOT analysis and company profile is a crucial resource for industry
executives and anyone looking to gain a better understanding of the company's business.
'Teva Pharmaceutical Industries Limited (TEVA): Company Profile and SWOT Analysis'
report utilizes a wide range of primary and secondary sources, which are analyzed and
presented in a consistent and easily accessible format.
WMI strictly follows a standardized research methodology to ensure high levels of data
quality and these characteristics guarantee a unique report.
Scope
- Examines and identifies key information and issues about 'Teva Pharmaceutical
Industries Limited' for business intelligence requirements
- Studies and presents the company's strengths, weaknesses, opportunities (growth
potential) and threats (competition). Strategic and operational business information is
objectively reported
- Provides analysis on financial ratios along with a competitor benchmarking section
- The profile also contains information on business operations, company history, major
products and services, key employees
Key Highlights
Teva Pharmaceutical Industries Limited (Teva) develops, produces and markets a range
of generic and branded pharmaceuticals, biogenerics and active pharmaceutical
ingredients (APIs). The company's products focus on various therapeutic areas including
multiple sclerosis, Parkinson's disease, autoimmune diseases, oncology, women's health
and respiratory disorders. Teva's principal pipeline products include Copaxone for
Multiple Sclerosis and Azilect for Parkinson's disease. It operates in 60 countries across
the world including Israel, Europe, Asia, North America and Latin America. The
company has 56 finished dosage pharmaceutical manufacturing sites, 21 API
manufacturing sites and 17 pharmaceutical research and development (R&D) centers.
Teva is headquartered in Tikva, Israel.
19. 19
CEO /MD/DEPARTMENT HEAD:-
CEO-ANANTSINGH
Chief Manager-HR at Teva API India Limited
Jyotiba Phule Nagar, Uttar Pradesh, India (Meerut Area, India) Pharmaceuticals
.MD-Ashok Uniyal
Executive Secretary to Managing Director / Manager Travel & Hospitality at Teva API
India Ltd. Noida Area, India.
DEPARTMENT HEAD-
MANOJJAIN (FINANCE DEPARTMENT)
Service at TEVA API INDIA LTD. India Pharmaceuticals
21. 21
OBJECTIVE OF THE STUDY:-
To determine the working capital management of TEVA API LTD.
PLACE OF STUDY:-
The project study is carried out at the Finance Department of TEVA.
Situated at MALANPUR, INDIA. The study is undertaken as a part of the
BBAcurriculum from 12 SEP 2012 to 15 OCT 2012 in the form of
summer TRAINING.
WORKING CAPITAL MANAGEMENT
Working capital (abbreviated WC) is a financial metric which represents operating
liquidity available to a business, organization or other entity, including governmental
entity. Along with fixed assets such as plant and equipment, working capital is
considered a part of operating capital. Net working capital is calculated as current assets
minus current liabilities. It is a derivation of working capital, that is commonly used in
valuation techniques such as DCFs (Discounted cash flows). If current assets are less than
current liabilities, an entity has a working capital deficiency, also called a working
capital deficit.
A company can be endowed with assets and profitability but short of liquidity if its assets
cannot readily be converted into cash. Positive working capital is required to ensure that a
firm is able to continue its operations and that it has sufficient funds to satisfy both
maturing short-term debt and upcoming operational expenses. The management of
working capital involves managing inventories, accounts receivable and payable, and
cash.
Current assets and current liabilities include three accounts which are of special
importance. These accounts represent the areas of the business where managers have the
most direct impact:
accounts receivable (current asset)
inventory (current assets), and
accounts payable (current liability)
The current portion of debt (payable within 12 months) is critical, because it represents a
short-term claim to current assets and is often secured by long term assets. Common
types of short-term debt are bank loans and lines of credit.
22. 22
An increase in working capital indicates that the business has either increased current
assets (that it has increased its receivables, or other current assets) or has decreased
current liabilities—for example has paid off some short-term creditors.
Implications on M&A: The common commercial definition of working capital for the
purpose of a working capital adjustment in an M&A transaction (i.e. for a working capital
adjustment mechanism in a sale and purchase agreement) is equal to:
Current Assets – Current Liabilities excluding deferred tax assets/liabilities, excess cash,
surplus assets and/or deposit balances.
Cash balance items often attract a one-for-one, purchase-price adjustment.
Working capital management
Decisions relating to working capital and short term financing are referred to as working
capital management. These involve managing the relationship between a firm's short-
term assets and its short-term liabilities. The goal of working capital management is to
ensure that the firm is able to continue its operations and that it has sufficient cash flow to
satisfy both maturing short-term debt and upcoming operational expenses.
Decision criteria
By definition, working capital management entails short-term decisions—generally,
relating to the next one-year period—which are "reversible". These decisions are
therefore not taken on the same basis as capital-investment decisions (NPV or related, as
above); rather, they will be based on cash flows, or profitability, or both.
One measure of cash flow is provided by the cash conversion cycle—the net
number of days from the outlay of cash for raw material to receiving payment
from the customer. As a management tool, this metric makes explicit the inter-
relatedness of decisions relating to inventories, accounts receivable and payable,
and cash. Because this number effectively corresponds to the time that the firm's
cash is tied up in operations and unavailable for other activities, management
generally aims at a low net count.
In this context, the most useful measure of profitability is return on capital (ROC).
The result is shown as a percentage, determined by dividing relevant income for
the 12 months by capital employed; return on equity (ROE) shows this result for
the firm's shareholders. Firm value is enhanced when, and if, the return on capital,
which results from working-capital management, exceeds the cost of capital,
23. 23
which results from capital investment decisions as above. ROC measures are
therefore useful as a management tool, in that they link short-term policy with
long-term decision making. See economic value added (EVA).
Credit policy of the firm: Another factor affecting working capital management is
credit policy of the firm. It includes buying of raw material and selling of finished
goods either in cash or on credit. This affects the cash conversion cycle.
Management of working capital
Guided by the above criteria, management will use a combination of policies and
techniques for the management of working capital. The policies aim at managing the
current assets (generally cash and cash equivalents, inventories and debtors) and the
short term financing, such that cash flows and returns are acceptable.
Cash management. Identify the cash balance which allows for the business to
meet day to day expenses, but reduces cash holding costs.
Inventory management. Identify the level of inventory which allows for
uninterrupted production but reduces the investment in raw materials - and
minimizes reordering costs - and hence increases cash flow. Besides this, the lead
times in production should be lowered to reduce Work in Process (WIP) and
similarly, the Finished Goods should be kept on as low level as possible to avoid
over production - see Supply chain management; Just In Time (JIT); Economic
order quantity (EOQ); Economic quantity
Debtors management. Identify the appropriate credit policy, i.e. credit terms
which will attract customers, such that any impact on cash flows and the cash
conversion cycle will be offset by increased revenue and hence Return on Capital
(or vice versa); see Discounts and allowances.
Short term financing. Identify the appropriate source of financing, given the
cash conversion cycle: the inventory is ideally financed by credit granted by the
supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to
"convert debtors to cash" through "factoring".
Cash working expenses: Each constituent of the working capital is valued on the basis of
valuation Enumerated above for the holding period estimated. The total of all such
valuation becomes the total estimated working capital requirement. The assessment of the
working capital should be accurate even in the case of small and micro enterprises
where business operation is not very large. We know that working capital has
a very close relationship with day-to-day operations of a business.
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INVENTORY MANAGEMENT
Effective inventory management is all about knowing what is on hand, where it is in
use, and how much finished product results.
Inventory management is the process of efficiently overseeing the constant flow of units
into and out of an existing inventory. This process usually involves controlling the
transfer in of units in order to prevent the inventory from becoming too high, or
dwindling to levels that could put the operation of the company into jeopardy. Competent
inventory management also seeks to control the costs associated with the inventory, both
from the perspective of the total value of the goods included and the tax burden generated
by the cumulative value of the inventory.
Balancing the various tasks of inventory management means paying attention to three key
aspects of any inventory. The first aspect has to do with time. In terms of materials
acquired for inclusion in the total inventory, this means understanding how long it takes
for a supplier to process an order and execute a delivery. Inventory management also
demands that a solid understanding of how long it will take for those materials to transfer
out of the inventory be established. Knowing these two important lead times makes it
possible to know when to place an order and how many units must be ordered to keep
production running smoothly.
Calculating what is known as buffer stock is also key to effective inventory management.
Essentially, buffer stock is additional units above and beyond the minimum number
required to maintain production levels. For example, the manager may determine that it
would be a good idea to keep one or two extra units of a given machine part on hand, just
in case an emergency situation arises or one of the units proves to be defective once
installed. Creating this cushion or buffer helps to minimize the chance for production to
be interrupted due to a lack of essential parts in the operation supply inventory.
Inventory management is not limited to documenting the delivery of raw materials and
the movement of those materials into operational process. The movement of those
materials as they go through the various stages of the operation is also important.
Typically known as a goods or work in progress inventory, tracking materials as they are
used to create finished goods also helps to identify the need to adjust ordering amounts
before the raw materials inventory gets dangerously low or is inflated to an unfavorable
level.
Finally, inventory management has to do with keeping accurate records of finished goods
that are ready for shipment. This often means posting the production of newly completed
25. 25
goods to the inventory totals as well as subtracting the most recent shipments of finished
goods to buyers. When the company has a return policy in place, there is usually a sub-
category contained in the finished goods inventory to account for any returned goods that
are reclassified as refurbished or second grade quality. Accurately maintaining figures on
the finished goods inventory makes it possible to quickly convey information to sales
personnel as to what is available and ready for shipment at any given time.
In addition to maintaining control of the volume and movement of various inventories,
inventory management also makes it possible to prepare accurate records that are used for
accessing any taxes due on each inventory type. Without precise data regarding unit
volumes within each phase of the overall operation, the company cannot accurately
calculate the tax amounts. This could lead to underpaying the taxes due and possibly
incurring stiff penalties in the event of an independent audit.
TOOLS USED BY TEVA -
It's a challenge for even the biggest firms: sustaining working capital while managing the flow of
cash through the business. But there are ways to ensure that the operation makes the best use of
its cash on-hand. They combine cash flow budgeting with the use of financial resources from
outside the company.
Managing the working capital: level of working capital is intimately related to the flow
of cash into and out of the business. Simply stated, you need enough working capital to
setup the business, pay operating costs, and continue to operate until payment arrives 30,
60 or maybe even 90 days later.
But if you've used a lot of that working capital to pay for fixed assets, you may come up
against a crash crunch that prevents you from paying suppliers, buying materials and
even paying theself a salary. It's a good idea then, to maintain a level of working capital
that allows you to make it through those crunch times and continue to operate the
business.
Short-term financing such as a line of credit (LOC) can be used to make emergency
purchases or to bridge the gap between month's-end payables and receivables. An LOC
can be negotiated with the financial institution, and this should be done before any need
actually arises. It's usually easier to negotiate an LOC when you don't really need one. A
good time to go to the financial institution is immediately after the end of a good year or
quarter. Bring the financial statements.
26. 26
In growth situations where you have to suddenly increase inventory that will be sold on
credit, you may need to increase the working capital. Shareholders and other investors
can sometimes provide this cash injection and BDC can also provide long-term financing
for working capital.
Large asset purchases such as equipment and real estate should be financed long-term
which allows you to spread the payments over the average life of the assets. Yes, you'll
be paying interest but, you'll still have a big portion of the capital on-hand for business
operations.
The federal and provincial governments provide loan-guarantee services for the purchase
of operating equipment and fixed assets, making it much easier for small businesses to
obtain loans from financial institutions. Under programs such as the Canada Small
Business Financing Program, the government agrees to pay up to 85% of the value of the
loan, back to the financial institution if you the borrower default on that loan.
And it's always a good idea to make a cash flow budget. The bookkeeper, accountant,
accounting software and even spreadsheets downloadable from the Internet can help you
anticipate inflows and outflows of money over a period of time. Budgeting allows you to
see when a cash crunch is likely to occur.
Manage the business risks: there are many risks involved in running a business, and
serious challenges should be expected at some time in the future. You need to consider a
number of scenarios such as "What if that big order suddenly comes in?", "What if that
big order is cancelled?" or "What if that important client under owes me money?" This
kind of risk analysis can become part of the cash-flow budgeting process. For instance, if
you're using a spreadsheet to enter cash inflows, simply reflect that situation by adding or
deleting. The repercussions in the weeks and months to come should be immediately
visible, so that you can consider what you would do if that occurred.
You can reduce the risk of cash-crunch due to this type of situation, by planning ahead
and having a more diversified client base. If you're not dependent on one large order or
client, the livelihood doesn't hinge on the health of someone else's business. Finding new
clients will increase revenue, improve the cash flow situation and make you less
susceptible to marketplace adversity.
Another risk associated with running a business, especially among startups, is mix ups
between business and personal bank accounts and credit cards. Since initial financing
often comes from the owner's personal savings it's easy to see how that can happen. This
situation has a simple remedy which consists of opening a separate bank account and
credit card for the business. The business account should be where you deposit customer
27. 27
cheques, draw the salary, and pay the employees and suppliers. Similarly, get a separate
credit card for the business, make business-related purchases on that card, and pay for
that card using the company cheques. Some credit cards provide management reports that
detail the types of purchases made over the month and over the past year, and this type of
information can then be used in the cash flow budget for next year.
Collect quickly
To guard against late payments, bill as early as possible and make those invoices as clear
and as detailed as possible. It may also be worth changing other billing practices such as
invoice frequency: instead of waiting until the end of the month, generate an invoice as
soon as the goods or services are delivered. Make sure those invoices are addressed to the
right person in the right department.
For those big orders, you may want to consider progressive invoicing while you
manufacture the goods or deliver the service. For example you can ask for a deposit with
the order and then a percentage of the payment at various agreed upon milestones.
Keep track of the receivables. It's easy to lose track and then neglect to follow up on an
overdue account. Experience shows that the longer you remain out of contact with a
customer, the less likely you are to recover the full amount owed, so if you can't take care
of it theself, hire someone to do it for you.
Monitor costs and inventory: Make sure you're getting the best possible deal from the
suppliers. You can do this by shopping around and getting quotes from other suppliers.
They may not be able to give a better price, but may be able to offer better payment terms
making it easier on the cash flow situation.
Analyze inventory turnover to determine which items are selling and which are duds that
are soaking up the working capital. Try to keep inventory levels lean so that the working
capital isn't tied-up unproductively and unprofitably.
Finally, if you feel you need help managing inventory or making cash flow projections
BDC Consulting can help you implement working capital strategies that are just right for
the business.
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SOURCES OF ADDITIONAL WORKING CAPITAL-
Sources of additional working capital include the following:
•Existing cash reserves
•Profits (when you secure it as cash!)
•Payables (credit from suppliers)
•New equity or loans from shareholders
•Bank overdrafts or lines of credit
Long-term loan If you have insufficient working capital and try to increase
sales, you can easily over-stretch the financial resources of the business. This is called
Overtrading Early warning signs include:
Pressure on existing cash
Exceptional cash generating activities e.g. offering high discounts for early cash
payment
Bank overdraft exceeds authorized limit
Seeking greater overdrafts or lines of credit
Part-paying suppliers or other creditors
Paying bills in cash to secure additional supplies
Management pre-occupation with surviving
Rather than managing Frequent short-term emergency requests to the
bank (to help pay wages, pending receipt of a cheque).
Handling Receivables (Debtors)
Cash flow can be significantly enhanced if the amounts owing to a business
are collected faster. Every business needs to know.... who owes them
money.... how much is owed.... how long it is owing.... for what it is owed.
Latepaymentserodeprofitsandcanleadtobaddebts.
Slow payment has a crippling effect on business; in particular on small businesses who
can least afford it.
If you don't manage debtors, they will begin to manage the business as you will gradually
lose control due to reduced cash flow and, of course, you could experience an increased
incidence of bad debt.
Thefollowingmeasureswillhelpmanagethedebtors
1. Have the right mental attitude to the control of credit and make sure that it
gets the priority it deserves.
2. Establish clear credit practices as a matter of company policy.
3. Make sure that these practices are clearly understood by staff, suppliers
and customers.
4. be professional when accepting new accounts, and especially larger ones.
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5 . C h e c k o u t e a c h c u s t o m e r t h o r o u g h l y b e f o r e y o u o f f e r
c r e d i t . U s e c r e d i t agencies, bank references, industry sources etc.
6. Establish credit limits for each customer... and stick to them.
7. Continuously review these limits when you suspect tough times are coming
or if operating in a volatile sector.
8. Keep very close to the larger customers.
9. Invoice promptly and clearly.
10. Consider charging penalties on overdue accounts.
11. Consider accepting credit /debit cards as a payment option.
12. Monitor the debtor balances and ageing schedules, and don't let any debts get too large
or too old. Recognize that the longer someone owes you, the greater the chance you will
never get paid. If the average age of the debtors is getting longer, or is already
very long.
You may need to look for the following possible defects:
•weak credit judgment
•poor collection procedures
•lax enforcement of credit terms
•slow issue of invoices or statements
•errors in invoices or statements
•Customer dissatisfaction. Debtors due over 90 days (unless within agreed credit
terms) should generally demand immediate attention. Look for the warning signs of a
future bad debt. For example.........
longer credit terms taken with approval, particularly for smaller orders use of post-dated
checks by debtors who normally settle within agreed terms evidence of customers
switching to additional suppliers for the same goods new customers who are reluctant to
give credit references Receiving part payments from debtors.
30. 30
LIMITATIONS:-
There may be limited to this study because the study duration (summer training )is very
short and it’s not possible to observe every aspect of working capital
management practices.
Each component of working capital (namely inventory, receivables and payables)has
two dimensions TIME and MONEY. When it comes to managing working
capital -
TIME IS MONEY
If you can get money to move faster around the cycle (e.g. collect monies due from
debtors more quickly) or reduce the amount of money tied up (e.g. reduce
inventory levels relative to sales), the business will generate more cash or it
will need to borrow less money to fund working capital as a consequences
you could reduce the cost of bank interest or you will h a v e additional free
money available to support additional sales growth or investment. Similarly, if you can
negotiate improved terms with suppliers e.g. get longer creditor an increased credit limit;
you effectively create free
Finance to help fund future sales.
. . . . . .
• collect receivables (debtors) faster you release cash from thecycle
• collectreceivables(debtors)slowerthereceivablessoak up cash
• get better credit (in terms of duration or amount) from suppliers you increase thecash
resources
• shiftinventory(stocks)fasteryoufreeupcash
•move inventory (stocks) slower you consume more cash it can be tempting to pay cash, if
available, for fixed assets e.g. Computers, plant, vehicles etc. If you do pay cash,
remember that this is now longer available for working capital. Therefore, if cash
is tight, consider other ways of financing capital investment - loans, equity, leasing etc.
Similarly, if you pay dividends or increase drawings, these are cash outflows and, like
water flowing downs a plug hole, they remove liquidity from the business. more businesses
failforlackofcashthanforwantofprofit.
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SUGGESTIONS:-
The company should improve the cash position to meet the current liabilities
immediately, when required.
The quick assets condition has to be improved.
As a manufacturing industry the company should show its endeavor towards decreasing
the net operating cycle.
The company has to make the debtors prompt in making payments.
Cash flow and fund flow statements should be prepared for the benefit of the company.
Even the cash budget to know the cash requirement for each month.
The company should invest in short term assets to meet the current liabilities.
The non-moving stocks have to be removed continuously.
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CONCLUSION:-
The plant being a small grinding plant is immediately contributing to the profitability of
the company. After taken over by the TEVA group the firm has increased the production
capacity. Its main advantage is the location for production and distribution of the product.
The company is located near to MALNPUR. The Fly Ash required for the production of
MEDICINE brought from TEVA. The company pays only the transportation charges. As
per the Working capital Analysis we saw the firm is retaining a small amount of current
assets, which is good for profitability but not for the health of the company. Being a small
grinding unit it depends upon the Head Office and fully fledged plant. It is advantageous
for the company as it gets raw materials and money on credit when required.
There is no doubt about the current assets management of the unit, it is managed
aggressively. The working capital management is not that much good as concerned to the
company. It is all due to the 24x7 support of the head office in every respect.
