RAW MATERIAL STORAGE PERIOD

Automobile Sector:

  2011 2010 2009

Force Motors

81.2314

9

112.882

4

50.6332

1

Hindustan Motors

973.739

9

495.380

3

666.149

4

Volkswagen

0.03089

7 0 0

Eicher Motors 16.2818

16.5441

8 36.5251

010002000

200920102011

Power Sector:

  2011 2010 2009

JP POWER

1050.74

7 -355.193

525.088

8

TATA POWER 8.89035

8.14364

4

10.2996

3

GVK POWER -1855.75 1190.93 -560.615

2011

2010

2009

-1000-500

0500

10001500

GVK POWERTATA POWERJP POWER

RAW MATERIAL STORAGE PERIOD ANALYSIS

It is the average time period taken to convert raw material into work in process.

FORMULA = AVERAGE RAW MATERIAL INVENTORY/ AVERAGE DAILY RAW

MATERIAL CONSUMPTION

RMSP = f (raw material consumption per day, raw material inventory)

Automobile Sector:

The raw material storage period for Hindustan Motors has decreased for the year 2010 due to the

comparative increase in the total consumption than the increase in average stock of raw material.

In the year 2011 there has been a decline in the raw material storage period due to the fall in the

total consumption.

The raw material storage period for Force Motors has suddenly increased during the year 2010

because of a significant increase in the consumption of raw materials as well as the average stock

of raw materials. The increase in the average stock of raw material is the main cause of an

increase in the RMSP.

The raw material storage period of Eicher has decreased from 2009 to 2010 and had remained

same from 2010 to 2011. The decrease in 2010 is because of the drastic fall of average stock of

raw material compared to total consumption of raw material. And both the values have remained

almost same from 2010 to 2011.

The raw material storage period for Volkswagen is minimal as compared to all the other

automobile firms. This can be attributed to the fact that Volkswagen does not manufacture in

India but has its operations in Germany and therefore the amount of raw material that they keep

here is minimal. They take orders from customers and order the various parts which are then

imported and assembled and delivered to the customer.

Power Sector:

The RMSP for Tata Power has almost remained same for the three years. There has been

consistency in operations.

The RMSP has decreased from 2009 to 2010 and has increased from 2010 to 2011.The reason

being is fluctuation in stock of their stores and spares.

The RMSP has been fluctuating over the years. It has been negative for the years 2011 and 2009

because of the fluctuation in raw material purchases.

Among all the power sector firms TATA power has been consistent while GVK has fluctuated a

lot. This shows the inefficiency of GVK.

WORK IN PROCESS CONVERSION PERIOD

Automobile Sector:

  2011 2010 2009

Force Motors 21.0187

13.5939

4 13.9763

Hindustan Motors

31.3615

7

28.9359

2

42.5380

5

Volkswagen 0 0 0

Eicher Motors

2.70914

7

2.66128

2

4.47352

3

060

120

200920102011

Power Sector:

  2011 2010 2009

JP POWER 0 0 0

TATA POWER

0.14777

3

0.22639

4

0.12952

5

GVK POWER 0 0 0

0

0.1

0.2GVK POWERTATA POWERJP POWER

WORK IN PROGRESS CONVERSION PERIOD

WIPCP is the average time taken to complete the semi finished work or work in process. Lower

the value of WIPCP, better it is i.e. the ability of the firm to complete the work in less number of

days. Also it shows the efficiency of the firm.

FORMULA = AVERAGE WORK IN PROCESS INVENTORY/ AVERAGE DAILY COST

OF PRODUCTION

WORK IN PROCESS CONVERSION CYCLE

Automobile Sector:

The work in process conversion period for Eicher motors is very small for all the three years.

This means that the management is quite efficient and they are converting their WIP to finished

goods as very fast. Also this means that not a lot of funds are stuck in WIP. For the years 2009

the WIPCP was approximately 5 days which dropped approximately 3 days for the year 2010

and 2011.

The WIPCP for Hindustan Motors has at first decreased from 43 days in the year 2009 to 29 in

the year 2010. This decrease may be due to the decrease in depreciation from the year 2009 to

2010. Also in the year 2011 the WIPCP has increased from 29 days to 32 days. This is due to a

decrease in the cost of production. Also there is a decrease in the average WIP but this decrease

is very less as compared to the decrease in the cost of production.

The WIPCP for Force Motors is consistent for the first two years of 2009 and 2010 but for the

year 2011 it has shown a significant increase in the year 2011 because of the significant increase

in depreciation in the year 2011.

Again the value of WIPCP is zero for the same reason as mentioned above for Volkswagon.

Power Sector:

The WIPCP for GVK, JP and Tata is zero because the average WIP is zero. This is because the

company functions in the power industry which has negligible work in progress. And therefore

the WIPCP is zero.

FINISHED GOODS STORAGE PERIOD

Automobile Sector:

  2011 2010 2009

Force Motors

21.1342

3

18.4292

4

17.8921

5

Hindustan Motors

18.3886

5

16.1680

9

16.7280

8

Volkswagen

13.3859

3

13.6393

2 0

Eicher Motors

8.15860

5

7.54732

1

24.3843

3

060

120200920102011200920102011

Power Sector:

  2011 2010 2009

JP POWER 0 0 0

TATA POWER 0 0 0

GVK POWER 0 0 0

FINISHED GOODS CONVERSION PERIOD

FGCP is the average time taken to sell the finished goods. Lower the value of FGCP, better it is

i.e. the ability of the firm to convert finished goods into sales is fast and it would also enhance

efficiency and lower inventory.

FGCP = AVERAGE FINISHED GOODS INVENTORY/ AVERAGE DAILY COST OF

SALES

The FGSP has been consistent for 2009 and 2010. However it has shown a slight increase in

2011 due to the increase in the average finished goods.

The FGSP has shown a continuous increase over the years which is because of the steady

increase in the average finished goods.

The FGSP has declined drastically from 2009 and has remained at almost the same level. The

decline is due drastic fall in average finished goods compared to the annual cost of sales.

The FGSP is zero for all the power companies because in power sector there cannot be any

storage for power generated. It is consumed as soon as produced.

ACCOUNTS COLLECTION PERIOD

Automobile Sector:

  2011 2010 2009

Force Motors

25.9928

2

32.5919

4

44.5636

5

Hindustan Motors

8.86515

1

8.46704

7

7.36495

7

Volkswagen

287.009

4

213.385

6 360

Eicher Motors

3.62487

7

4.92828

6

2.65536

1

0400800

200920102011

Power Sector:

  2011 2010 2009

JP POWER

86.5346

7

83.3811

1

143.823

5

TATA POWER

129.583

8

100.925

1

92.3034

3

GVK POWER

594.082

5

523.019

6

885.327

2

0

400

800

1200

GVK POWERTATA POWERJP POWER

AVERAGE COLLECTION PERIOD

ACP is the average time taken to convert debtors into cash.

FORMULA = AVERAGE DEBTORS/ AVERAGE DAILY CREDIT SALES

Lower the value of ACP, better it is i.e. the company is able to convert the debtors into cash at a

faster rate, so the cash received can be utilized for the faster operating cycle and hence its

efficiency is good. It also indicates the efficiency of the management. An effective control of

receivables helps a great deal in properly managing it.

The average collection period for Volkswagen is a little on the higher side which indicates the

inefficiency of the management to convert debtors into cash. As compared to all the automobile

companies the ACP for Volkswagen is the highest.

AVERAGE PAYING PERIOD

Automobile Sector:

  2011 2010 2009

Force Motors

224.811

2

204.175

7

178.706

7

Hindustan Motors

2553.65

1

2205.18

2

2434.73

7

Volkswagen

301.265

4 221.261 360

Eicher Motors

100.686

3

98.5373

9

50.8785

7

040008000

200920102011

Power Sector:

  2011 2010 2009

JP POWER

36311.4

5

11723.3

1 1587.47

TATA POWER

134.559

2

98.2562

7

76.4427

7

GVK POWER 0

7652.71

1 0

2011

2010

2009

010000200003000040000

GVK POWERTATA POWERJP POWER

AVERAGE PAYING PERIOD

APP is the average time taken by a firm to pay its suppliers or creditors.

FORMULA = AVERAGE CREDITORS/ AVERAGE DAILY CREDIT PURCHASES

Higher the value of APP, better it is i.e. the firm has more number of days to pay its creditors

back.

GROSS OPERATING CYCLE

Automobile Sector:

  2011 2010 2009

Force Motors

149.377

2

177.497

5

127.065

3

Hindustan Motors

1032.35

5

548.951

3

732.780

5

Volkswagen

300.426

2

227.024

9 360

Eicher Motors

30.7744

3

31.6810

6

68.0383

1

010002000

200920102011

Power Sector:

  2011 2010 2009

JP POWER

1137.28

1 -271.812

668.912

2

TATA POWER

138.621

9

109.295

1

102.732

6

GVK POWER 594.082 523.019 885.327

5 6 2

-5000

500100015002000

GVK POWERTATA POWERJP POWER

GROSS OPERATING CYCLE

GOC is the time taken to convert cash into cash.

The process of this conversion is as follows:

CASH RAW MATERIAL WORK IN PROCESS

SUPPLIERS FINISHED GOODS

DEBTORS CASH

FORMULA: GOC = RMSP + WIPCP + FGSP + ACP

NET OPERATING CYCLE

Automobile Sector:

  2011 2010 2009

Force Motors -75.4339 -26.6781 -51.6414

Hindustan Motors -1521.3 -1656.23 -1701.96

Volkswagen -0.83922

5.76390

3 0

Eicher Motors -69.9119 -66.8563

17.1597

5

-6000

-4000

-2000

0

200920102011

Power Sector:

  2011 2010 2009

JP POWER -35174.2 -11995.1 -918.558

TATA POWER

4.06270

8

11.0388

7

26.2898

2

GVK POWER 0 -7129.69 0

-40000

-30000

-20000

-10000

0

GVK POWERTATA POWERJP POWER

NET OPERATING CYCLE

NOC is the equal to difference between GOC and APP.

Lowe the value of NOC, better it is i.e. if the NOC is negative then it indicates that the firm had

those number of extra days to pay to its creditors or suppliers.

FORMULA: NOC = GOC - APP

The net operating cycle for Force Motors is in the negative which is a good sign which implies

that the management has an additional those many days to pay back their creditors. This also

shows that the operations of the firm are efficient and they are able to convert their raw materials

into cash far more efficiently than in any other company. For the year 2010 NOC is greater than

the other two years. This anomaly can be attributed to the sudden increase in the credit purchases

of the raw materials.

The NOC for Eicher Motors for the year 2009 is positive and the NOC for both 2010 and 2011 is

negative. This shows a significant drop in the NOC and this indicates a better and efficient

management of the company. This can be attributed to the significant increase in the average

purchasing period of the company in the years 2010 and 2011.

The NOC for Hindustan Motors has been negative for all the years. The APP has been very high

for the firm. Such a high NOC reflects the inability of the company to meet its financial charges

and the creditors will hesitate in lending the firm.

The net operating cycle for Volkswagen is relatively constant for all the three years with a

standard deviation of +/- 5 days. This indicates that Volkswagen is quite efficient in managing its

working capital but it can get better if it reduces its average collection period.

The net operating cycle shows that how many times the working capital is turned over in a year.

It represents the net time gap between investment of cash and its recovery out of sales revenue.

The length of the operating cycle is the indicator of the operational management of the company.

The NOC for Tata Power has declined over the years because of the drastic increase in payment

period compared to the increase in GOC. This shows that the firm has more time period to pay

its creditors which is good for the firm. Currently the power sector is reeling under huge losses

so it is good to have a high payment period.

The NOC for JP Power is decreasing over the years drastically but such huge fluctuations are not

accepted because the creditors will lose faith in the company. Also, because the company is in

huge loses so it is unable to meet its financial charges and hence APP has increased drastically.

This is leading to negative NOC.

The NOC for JP Power cannot be defined for 2011 and 2009 because the purchases is zero in

these years as the company in power sector is in loses and unable to meet its charges. In 2010 the

NOC is highly negative because the creditor’s payment period is very high.