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The scope of financial

management and financing

working capital

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Task -1

Identify the areas of investments & analyze

factors which are needed to be considered

before investing.

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The areas of investmentsdepends on 3 factors:

Capital Asset

Working Capital

Financial Asset

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Capital assets

A critical decision because of the

strategic implications of many

investments,

financial considerations:- Return Vs Risk

- Profit & Cash flow pattern

- Liquidity

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Working capital

The cash resource

y available to the business on a day-to-day

basis

y used to fund the current assets such as

inventory and

receivables.

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Financial assets

Share, Bond/debantures, Bank notes etc.

Long term: Saving for Retirement

Short term : Saving for coming holiday spending

The key considerations are,

1. Risk , 2. Liquidity & 3. Return

Long Term Short Term

Return Risk

Risk Liquidity

Liquidity Return

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Task -2

Describe the nature of working capital

& identify the elements of BEXIMCO

SYN

THETICS

LTD

.

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IDENTIFY THE WORKING CAPITAL OF

BEXIMCO SYNTHETICS LTD.

Working capital Current Asset 1,429,542,275

Inventories 767,296,947Accounts & Other Receivables 527,839,772

Advances, Deposits & Prepayments 130,528,834Cash and Cash Equivalents 3,876,722

Current Liabilities 710,661,585

Debentures-Current Maturity (Secured) 33,305,500

Interest Free Block Account-Current Maturity 19,184,102

Short Term Loan from Banks (Secured) 518,709,213Accounts & Other Payables 73,826,489Accrued Expenses 65,636,281

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WORKING CAPITAL MANAGEMENT

CurrentAssets

Inventory

Receivables

Cash

Prepayments

Current Liabilities

Debentures

Payables

Bank Interest

Bank Loan

Accrued

Expenses

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WORKING CAPITAL MANAGEMENT

Current

Assets

1,429,542,275

Current

Liabilities

710,661,585

Working Capital

718,880,690

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Case Analysis

The working capital of Beximco Synthetics

Ltd. is very high. WORKING CAPITAL is

in a good position. The current assets are

more than the current liabilities which got

the working capital to a positive figure. The

level of activity of business is good because

their receivable & sales increaseaccordingly.

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Task -3

Apply & explain the Working Capital ratio in

the BEXIMCOSYNTHETICSLTD.

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BEXIMCOSYNTHETICSLTD.

Liquidity ratio

Current assets 1,429,542,275

Current ratio = = = 2.01: 1

Current Liabilities 710,661,585

(Current assets Stock) (1,429,542,275 - 767,296,947 )

Quick ratio = =

Current liabilities 710,661,585

= 1 : 1

CommentThe current ratio shows that the company is in good position whereason the other hand the liquidity ratio shows a very little change in theratio after deducting the stock from the current asset this shows thatcompanies liquidity position is much stable.

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Efficiency ratio

Receivables

Account receivables period = ----------------------- x 365

Credit sales

527,839,772

= ------------------------- x 365 = 243 days

792,781,515

Payables

Account payables period = x 365

Cost of sales

73,826,489

= x 365 = 40 days665,395,623

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Comment

The account receivable period of Beximco synthetics Ltd. is 243

days and their payables payment period is 40 this shows a muchbetter condition of the company. The company is receiving moneywithin 243 days and then paying within 203 days to their suppliersafter receiving the money.

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Stock

Stock holding period = x 365Cost of sales

767,296,947

= x 365

665,395,623

= 42 days

Comment

This shows that Beximco Synthetics stock turnover is 42 days.Beximco Synthetics is in a better position in stock holding period.

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Cash operating cycle

Stock holding period 42 days

Less: Account payables period (40) days

Account receivables period 243 days

-----------245 days

Comment

The cash operating cycle tells us it takes Beximco Synthetics Ltd.takes around 245 days between paying out for material inventoriesand eventually receiving cash back from customers.

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Task -4

Analyse the costs associated with

inventories. (You are also required to

describe typical volume of inventories

maintained by BEXIMCOSYNTHETICSLTD.)

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INVENTORY COST2009

(a) Raw Material :

y Chips 133,622,379

y Others 2,677,487

136,299,866

(b) Work-in-Process 1,493,940

(c) Finished Goods 297,455,231

(d) Packing Material 2,605,980

(e) Stores & Spares 222,003,252

(f) Stock-in- Transit 107,438,678

Tk. 767,296,947

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Case Analysis

According to the financial statement of holding

costs related to inventory has decreased along

with a greater amount of finished goods being

produced which means the company is having

an economies of scale.

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Task -5

Analyse various factors of non-current

and current assets funding strategies of

BEXIMCOSYNTHETICSLTD..

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FUNDINGOFWORKING

CAPITAL

Short term

y Payables 73,826,489

y Loan from Bank 518,709,213

Long term

y LT debt 5,107,298

y Equity 2,029,422,242

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FUNDING OFWORKING

CAPIT

ALAdvantages of short term funding for

working capital is that it is cheaper

according to liquidity preference theory,

Flexible, i.e. pay interest only of thebalance and easier to arrange, i.e. less

paper documents

Advantages of a long term funding forworking capital is that it is Secure over time

and less frequent replenishment.