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Working Capital

It 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.
Working capital refers to the investment in current assets such as investment in raw materials,
stock of finished goods, etc. Cash, Bank loans and advances are given to the employees in the
form of festival, scooter, advances, house building loans, etc. Working capital is used to meet the
day-to-day requirements of a business. Current assets are required for effective and efficient use
of fixed assets. For the investment in procurement of raw materials, funds are locked up in
debtors, cash and banks, prepaid expenditure, etc. is recognized as working capital.
Working capital is defined as difference between current assets and current liabilities.
Current assets are value of all assets that are reasonably expected to be converted into cash
within one year in the normal course of business. Current assets include cash, accounts
receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be
readily converted to cash.
Current liabilities are the company's debts or obligations that are due within one year. Current
liabilities appear on the company's balance sheet and include short term debt, accounts payable,
accrued liabilities and other debts.
Types of Working Capital
Working capital is classified into different types and the classification is based on the following
views:
1. Balance Sheet View
2. Operating Cycle View
On the basis of Balance Sheet View, types of working capital are described below:
Gross Working Capital (GWC): Gross working capital is the sum of all of a company's
current assets. Gross working capital includes assets such as cash, checking and savings
account balances, accounts receivable, short-term investments, inventory and marketable
securities.
Net Working Capital (NWC): There are two ways to understand net working capital. First
one says it is simply the difference of current assets and the current liabilities in the balance
sheet of a business. The other understanding discloses little deeper or hidden meaning of the
term. As per that, NWC is that part of current assets which are indirectly financed by long
term assets. Compared to gross working capital, net working capital is considered more
relevant for effective working capital financing and management. It is obtained by deducting
current liabilities from gross working capital.

On the basis of Operating Cycle View, types of working capital are as below:
Permanent / Fixed Working Capital: Dealing with current asset and fixed assets is totally
different. Determining the financing requirement in case of fixed assets is simply the cost of
the asset. Same is not true for current assets because value of current assets is constantly
changing and it is difficult to accurately forecast that value at any point of time. To simplify
the complexity to some extent, on the basis of past trend and experience, we can find a level
below which current asset has never gone. The current assets below this level are called
permanent or fixed working capital.
Regular Working Capital: It is the permanent working capital which is normally required
in the normal course of business for the working capital cycle to flow smoothly.
Reserve Working Capital: It is the working capital available over and above regular
working capital. It is kept for contingencies which may arise due to unexpected
situations.

Temporary / Variable WC: Temporary working capital is easy to understand after getting
hold over permanent working capital. In simple terms, it is the difference between net
working capital and permanent working capital. The main characteristic which can be made
out from the example is fluctuation. The temporary working capital therefore cannot be
forecasted. In the interest of measurability, this can be further bifurcated as below which can
create at least some base to forecast.
Seasonal Working Capital: Seasonal working capital is that temporary increase in
working capital which is caused due to some relevant season for the business. It is
applicable to businesses having impact of seasons for example, manufacturer of sweaters
for whom relevant season is the winters. Normally, their working capital requirement
would increase in that season due to higher sales in that period and then go down as
collection from debtors is more than sales.
Special Working Capital: Special working capital is that rise in temporary working
capital which occurs due to a special event which otherwise normally does not take place.
It has no basis to forecast and has rare occurrence normally. For example, country where
Olympic Games are held, all the business require extra working capital due to sudden rise
in business activity.

It was all about the types of working capital. It needs to be managed with several working capital
techniques so as to have the effective working capital management.

Need for Working Capital
Working capital is the life blood and nerve center of business. Working capital is very essential
to maintain smooth running of a business. No business can run successfully without an adequate
amount of working capital. The main advantages or importance of working capital are as
follows:
Strengthen the Solvency
Working capital helps to operate the business smoothly without any financial problem for
making the payment of short-term liabilities. Purchase of raw materials and payment of
salary, wages and overhead can be made without any delay. Adequate working capital
helps in maintaining solvency of the business by providing uninterrupted flow of
production.
Enhance Goodwill
Sufficient working capital enables a business concern to make prompt payments and
hence helps in creating and maintaining goodwill. Goodwill is enhanced because all
current liabilities and operating expenses are paid on time.

Easy Obtaining Loan
A firm having adequate working capital, high solvency and good credit rating can arrange
loans from banks and financial institutions in easy and favorable terms.

Regular Supply of Raw Material
Quick payment of credit purchase of raw materials ensures the regular supply of raw
materials from suppliers. Suppliers are satisfied by the payment on time. It ensures
regular supply of raw materials and continuous production.

Smooth Business Operation
Working capital is really a life blood of any business organization which maintains the
firm in well condition. Any day to day financial requirement can be met without any
shortage of fund. All expenses and current liabilities are paid on time.

Ability to Face Crisis
Adequate working capital enables a firm to face business crisis in emergencies such as
depression.

Ways to build working capital:
The most preferred way to build working capital is to create earnings. Outlined below are some
things to consider as you look to grow and maintain working capital during volatile times.
Minimize capital spending. Ask yourself, Are the purchases necessary to maintain the
productivity of my operation or are they done to avoid paying takes? Avoiding taxes
may not be the best strategy during volatile times. According to Dr. Kohl, Many
businesses go broke attempting to minimize taxes. If you do make capital purchases,
consider financing them instead of using cash at least until you determine your short-term
cash operating needs.
Minimize interest rate risk. Look for ways to lock in the interest rate for the term of the
loan or at least for a number of years to remove some the volatility.
Be careful about pre-paying intermediate and long-term debt. If you have excess
cash and want to reduce debt, you may want to consider using Midsouths Funds Held
product, which enables you to place up to two annual payments (additional restrictions
apply on fixed rate loans with prepayment limitations) on each loan in to a Funds Held
account to be used for future loan payments. You will receive interest on the account
balance at the same rate being charged on the loan. You will not be able to withdraw the
funds, but they will be classed as current assets when calculating working capital.
Reinvest intermediate or long-term assets into liquid assets. Take a critical look at
your balance sheet for assets that arent working for you. Do you have what Dr. Kohl
often refers to as Killer Toys or Ego Purchases? Can you re-invest the money you
spent on these into more liquid assets? Sometimes its a hard decision, but eliminating
non-essential, unproductive items can help your business in the long run.
Manage risk of production loss. Develop a comprehensive risk management plan. This
should include life insurance, property/casualty insurance, crop insurance, etc.
Unfortunately, unforeseen events can and do happen often without notice and at a time
when stakes are high. Being caught without the right risk protection in all facets of your
operation is similar to losing a leg on your three-legged stool. You stand a good chance
of collapsing, and even if you are able to remain seated, it wont be comfortable.
Additional ways to build working capital, which may be less desirable:
Restructure your balance sheet. Depending on the amount of equity you have in your
assets, you may be able to restructure debt from the current portion of your balance sheet
to intermediate-term or long-term notes. While this will build working capital, if
corrective actions to maintain working capital are not taken and/or profitability is not
improved, it will only be a short time before the operation is back in the same situation
and your future choices become even more limited.
Look for equity partners. Look for cash infusions through equity partners. However,
this comes at a cost, most often as a loss of control or having to answer for your decisions
to a new business partner.
Sell term assets. This goes beyond the liquidation of nonessential assets and moves
toward downsizing your operations. Doing this may limit your ability to take advantages
of future opportunities and/or impede future growth.
There are many ways to think about working capital: its the rainy day fund; it allows you to
farm another day; it helps you absorb the shocks or ride out the turbulence. The bottom line is
its important to think about working capital. In todays environment, adequate working capital
will be needed for long-term success and can help take the stress off you and your operation.

Adequacy of working capital
A firm must have adequate working capital. It should neither be excessive nor inadequate.
Excessive working capital is a situation where in the firm invests excessive funds in working
capital. These excessive or idle funds earn no profit for the firm.
Dangers of Excess Working Capital
It may result in unnecessary accumulation of inventory which may lead to increase in
wastage due to mishandling, theft etc.
It is an indication of defective credit policy. There is the possibility of higher incidence
of bad debts.
It may lead to complacency in managing day-to-day expenses of the firm.
Executives may be tempted to spend more.
Inadequate working capital is a situation where in the firm does not have sufficient funds to meet
day to day running expenses. This ultimately results in interruption in the production process.


Dangers of inadequate working capital
Operating inefficiencies creep in when it becomes difficult of meet day-to-day
commitments.
It becomes difficult to implement operating plans and achieve firms targets.
It directly affects firms liquidity position and the firm may find it difficult to honour
short-term obligations.
WC, Risk and Return
Higher level of WC decreases the risk as well as profitability. Lower level of WC increases the
risk as well as the possibility of profitability.


Determinants of Working Capital
Nature of Industry
Seasonality of Operations
Production Policy
Market Conditions
Conditions of supply
Size of Business
Volume of Sales
Terms of Purchase and Sales
Business Cycle
Growth and Expansion of the firm
Fluctuations in the supply of Raw material
Price Level Changes
Operating Efficiency of the firm
Profit Appropriation
Capital Structure of the firm

12 Main Factors Affecting Working Capital
Main factors affecting the working capital are as follows:
(1) Nature of Business:
The requirement of working capital depends on the nature of business. The nature of business is
usually of two types: Manufacturing Business and Trading Business. In the case of
manufacturing business it takes a lot of time in converting raw material into finished goods.
Therefore, capital remains invested for a long time in raw material, semi-finished goods and the
stocking of the finished goods.
Consequently, more working capital is required. On the contrary, in case of trading business the
goods are sold immediately after purchasing or sometimes the sale is affected even before the
purchase itself. Therefore, very little working capital is required. Moreover, in case of service
businesses, the working capital is almost nil since there is nothing in stock.

(2) Scale of Operations:
There is a direct link between the working capital and the scale of operations. In other words,
more working capital is required in case of big organizations while less working capital is
needed in case of small organizations.

(3) Business Cycle:
The need for the working capital is affected by various stages of the business cycle. During the
boom period, the demand of a product increases and sales also increase. Therefore, more
working capital is needed. On the contrary, during the period of depression, the demand declines
and it affects both the production and sales of goods. Therefore, in such a situation less working
capital is required.
(4) Seasonal Factors:
Some goods are demanded throughout the year while others have seasonal demand. Goods which
have uniform demand the whole year their production and sale are continuous. Consequently,
such enterprises need little working capital.
On the other hand, some goods have seasonal demand but the same are produced almost the
whole year so that their supply is available readily when demanded.
Such enterprises have to maintain large stocks of raw material and finished products and so they
need large amount of working capital for this purpose. Woolen mills are a good example of it.

(5) Production Cycle:
Production cycle means the time involved in converting raw material into finished product. The
longer this period, the more will be the time for which the capital remains blocked in raw
material and semi-manufactured products.
Thus, more working capital will be needed. On the contrary, where period of production cycle is
little, less working capital will be needed.
(6) Credit Allowed:
Those enterprises which sell goods on cash payment basis need little working capital but those
who provide credit facilities to the customers need more working capital.

(7) Credit Availed:
If raw material and other inputs are easily available on credit, less working capital is needed. On
the contrary, if these things are not available on credit then to make cash payment quickly large
amount of working capital will be needed.

(8) Operating Efficiency:
Operating efficiency means efficiently completing the various business operations. Operating
efficiency of every organization happens to be different.
Some such examples are: (i) converting raw material into finished goods at the earliest, (ii)
selling the finished goods quickly, and (iii) quickly getting payments from the debtors. A
company which has a better operating efficiency has to invest less in stock and the debtors.
Therefore, it requires less working capital, while the case is different in respect of companies
with less operating efficiency.
(9) Availability of Raw Material:
Availability of raw material also influences the amount of working capital. If the enterprise
makes use of such raw material which is available easily throughout the year, then less working
capital will be required, because there will be no need to stock it in large quantity.
On the contrary, if the enterprise makes use of such raw material which is available only in some
particular months of the year whereas for continuous production it is needed all the year round,
then large quantity of it will be stocked. Under the circumstances, more working capital will be
required.

(10) Growth Prospects:
Growth means the development of the scale of business operations (production, sales, etc.). The
organizations which have sufficient possibilities of growth require more working capital, while
the case is different in respect of companies with less growth prospects.
(11) Level of Competition:
High level of competition increases the need for more working capital. In order to face
competition, more stock is required for quick delivery and credit facility for a long period has to
be made available.

(12) Inflation:
Inflation means rise in prices. In such a situation more capital is required than before in order to
maintain the previous scale of production and sales. Therefore, with the increasing rate of
inflation, there is a corresponding increase in the working capital.


Working Capital:
The working capital ratio indicates whether a company has enough short term assets to cover its
short term debt. Anything below 1 indicates negative working capital. While anything over 2
means that the company is not investing excess assets. Most believe that a ratio between 1.2 and
2.0 is sufficient.

The formula to calculate the working capital is,
Current Assets Current Liabilities
Company
Amount in Crore Rupees
2013 2012 2011 2010
Glenmark 371.23 343.51 257.08 1326.06
Sun Pharma 1829.63 2147.66 2134.90 978.44
Piramal 2129.65 441.50 4156.91 949.34
Dr. Reddy's 4449.30 2676.80 2071.90 1936.70
Table 1.1: Working Capital

Figure 1.1: Working Capital
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.00
5,000.00
2013 2012 2011 2010
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Working Capital
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
As can be seen in the above graph, there is a sudden increase in the working capital of Piramal
Healthcare Limited in the year 2011 from 949.34 crores to 4156.91 crores. This is due to an
increase in cash and bank balances and loans and advances of the company from the year 2010 to
2011, from 15.64 crores to 1754.03 crores and 890.03 crores to 2827.50 crores respectively.
Also, the current liabilities have increase from 515.14 crores to 863.91 crores.
In the year 2012, the working capital of the same company dropped from 4156.91 crores to
441.50 crores. The cash and bank balances dropped again to 13.24 crores from 1754.03 crores
from the previous year. The loans and advances have dropped drastically too from 2827.5 crores
in 2011 to 942.14 crores in 2012. However, the current liabilities have increased from 863.91
crores to 1023.07 crores from the previous year.
In 2013, the working capital of Piramal Healthcare Limited has increased again from 441.50
crores to 2129.65 crores, mainly due to loans and advances, which have increase from 942.14
crores to 2645.08 crores.
The working capital of Glenmark Pharmaceuticals Limited decreased in the year 2011 from
1326.06 crores to 257.08 crores, and has been increasing steadily. The decrese was due to a drop
in the amount of loans and advances from 1051.11 crores to 105.08 crores, while the current
liabilities remained stable.
The working capital of Dr. Reddys Laboratories has been increasing steadily over the years,
with a sudden increase in the rate in the year 2013, where it has increased from 2676.8 crores to
4449.3 crores. The increase is mainly due to the loans and advances which have almost doubled
from 597.5 crores to 1019.2 crores.
The working capital of Sun Pharmaceutical Industries Limited has been steady over the yeard of
study.


Return on Working Capital:
Return on Working Capital shows the profitability of the working capital employed in the
organization. It is a method of increasing enterprise value by maximizing efficiency of working
capital. Maximum return on working capital is a key lever to increasing enterprise value.
The formula to calculate the return on capital is,
Profit Before Interest and Tax *100
Working Capital
Company 2013 2012 2011 2010
Glenmark 1.20 1.06 1.39 0.18
Sun Pharma 0.40 0.83 0.71 1.04
Piramal 0.11 0.90 4.01 0.76
Dr. Reddy's 0.47 0.60 0.63 0.68

Table 1.1: Return on Working Capital

Figure 1.1: Return on Working Capital
As can be seen in the above figure and graph, the return on working capital of Piramal
Healthcare Limited has gone up from 0.76 times in 2010 to 4.01 times in 2011. This is due to the
0
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1.5
2
2.5
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3.5
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Return on Working Capital
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
increase in working capital of the company, resulting from the increase in laons and advances,
and cash and bank balances of the company.
In 2012, the return on working capital of Piramal Healthcare Limited fell from 4.01 times to 0.90
times, owing to the decrease in the loans and advances, and cash and bank balances during that
period.
In 2013, despite the increase in working capital, the return on working capital of Piramal
Healthcare Limited has decreased to 0.11 times. This decrease is due to the losses suffered by the
company during that year of 247.88 crores.
The returns on working capital of Glenmark Pharmaceuticals Limited for the year 2011 has
increased, even though working capital has decreased during that year. This is due to the increase
in the profit before tax from 120.99 crores in 2010 to 250.79 crores in 2011.
The returns on working capital of Sun Pharmaceutical Industries Limited and Dr. Reddys
Laboratories have been steady over the years of study.

Current Ratio:
Current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations.
The ratio is mainly used to give an idea of the company's ability to pay back its short-term
liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher
the current ratio, the more capable the company is of paying its obligations.
The formula to calculate the current ratio is,
Current Assets
Current Liabilities
Company 2013 2012 2011 2010
Glenmark 1.55 1.87 2.14 7.29
Sun Pharma 2.63 3.19 3.90 2.61
Piramal 3.03 1.43 5.81 2.84
Dr. Reddy's 3.24 2.31 2.31 2.14

Table 1.1: Working Capital


Figure 1.1: Working Capital
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Current Ratio
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
As can be seen in the above graph and figure, the current ratio of Glenmark Pharmaceuticals
Limited dropped drastically in the year 2011 from 7.29 to 2.14. The main reason for the decrease
was due to a drop in the amount of loans and advances from 1051.11 crores to 105.08 crores,
while the current liabilities remained stable. The current ratio has been declining gradually since
then.
The current ratio of Piramal Healthcare Limited has been fluctuating over the period of study. In
2011, it increased from 2.84 to 5.81. In 2012, it falls to 1.43, and then in 2013, it increases again
to 3.03. the fluctuations are due to the increase and decrease in the loans and advances, and cash
and bank balances of the company. The current liabilities have been increasing progressively
over the period if study.
Sun Pharmaceutical Industries current ratio increased slightly in the year 2011, and has been
decreasing gradually since. The rise in the current ratio was due to the increase in both the
current assets, as well as current liabilities; with current assets increasing more than current
liabilities.
The current ratio of Dr. Reddys Laboratories has been even over the years of study.




Acid Test Ratio:
Acid Test Ratio, also known as Quick Assets or Liquid Assets, is an indicator of a companys
short-term liquidity. It measures a companys ability to meet its short-term obligations with its
most liquid assets. For this reason, the ratio excludes inventories from current assets
The formula to calculate the acid test ratio is,
Current Assets Inventories
Current Liabilities
Company 2013 2012 2011 2010
Glenmark 1.27 1.42 1.44 6.58
Sun Pharma 1.86 2.54 3.06 1.67
Piramal 2.78 1.17 5.54 2.28
Dr. Reddy's 3.14 1.97 1.98 1.88

Table 1.1: Working Capital

Figure 1.1: Working Capital
As can be seen in the above table and graph, the quick ratio of Glenmark Pharmaceuticals
Limited has dropped to 1.44 times in 2011 from 6.58 times in 2012. This is because of the
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Quick Ratio
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
decrease on the amount of loans and advances for that period. The quick ratio has been
decreasing gradually since.
The quick ratio of Piramal Healthcare Limited has been fluctuating over the period of study. The
fluctuations are due to the increase and decrease in the loans and advances, and cash and bank
balances of the company. The current liabilities have been increasing progressively over the
period if study.
Sun Pharmaceutical Industries quick ratio increased slightly in the year 2011, and has been
decreasing gradually since. The rise in the quick ratio was due to the increase in both the current
assets, as well as current liabilities; with current assets increasing more than current liabilities.
The quick ratio of Dr. Reddys Laboratories has been even over the years of study.


Cash Ratio:
The cash ratio is most commonly used as a measure of company liquidity. It can therefore
determine if, and how quickly, the company can repay its short-term debt. A strong cash ratio is
useful to creditors when deciding how much debt, if any, they would be willing to extend to the
asking party.
The formula to calculate the cash ratio is,
Cash
Current Liabilities
Company 2013 2012 2011 2010
Glenmark 0.25 0.12 0.13 0.02
Sun Pharma 0.38 1.35 1.69 0.14
Piramal 0.02 0.01 2.03 0.03
Dr. Reddy's 0.46 0.41 0.04 0.21

Table 1.1: Working Capital


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2013 2012 2011 2010
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Cash Ratio
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Figure 1.1: Working Capital

Current Assets Turnover:
The formula to calculate the current assets turnover ratio is,
Sales
Current Assets
Company 2013 2012 2011 2010
Glenmark 1.94 2.20 2.50 0.66
Sun Pharma 0.82 1.28 1.08 1.56
Piramal 0.44 0.78 0.16 1.81
Dr. Reddy's 1.31 1.42 1.43 1.24

Table 1.1: Working Capital


Figure 1.1: Working Capital

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2013 2012 2011 2010
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Current Assets Turnover Ratio
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Working Capital Turnover:
The formula to calculate the working capital turnover is,
Sales
Working Capital
Company 2013 2012 2011 2010
Glenmark 4.40 4.71 4.70 0.77
Sun Pharma 1.32 1.86 1.45 2.54
Piramal 0.65 2.61 0.19 2.79
Dr. Reddy's 1.89 2.51 2.53 2.32

Table 1.1: Working Capital


Figure 1.1: Working Capital

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2013 2012 2011 2010
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Working Capital Turnover
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Working capital to Cost of Sales:
The formula to calculate the working capital to cost of sales is,
Working Capital
Cost of Goods Sold
Company 2013 2012 2011 2010
Glenmark 0.44 0.49 0.55 2.80
Sun Pharma 1.32 1.18 1.87 0.92
Piramal 2.42 0.58 6.49 0.73
Dr. Reddy's 1.23 0.91 0.95 0.95

Table 1.1: Working Capital


Figure 1.1: Working Capital

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2013 2012 2011 2010
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Working Capital to Cost of Sales
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Debtors Turnover Ratio:
The formula to calculate the debtors turnover ratio is,
Sales
Debtors
Company 2013 2012 2011 2010
Glenmark 4.80 5.91 4.66 2.76
Sun Pharma 3.35 6.39 5.67 4.03
Piramal 5.78 5.10 3.37 8.35
Dr. Reddy's 3.43 3.62 3.70 3.63

Table 1.1: Working Capital


Figure 1.1: Working Capital

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2013 2012 2011 2010
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Accounts Receivable Turnover
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Average Collection Period:
The formula to calculate the average collection period is,
365
Debtors Turnover
Company 2013 2012 2011 2010
Glenmark 76.03 61.74 78.29 132.11
Sun Pharma 108.87 57.08 64.36 90.55
Piramal 63.14 71.44 108.04 43.71
Dr. Reddy's 106.18 100.56 98.54 100.31

Table 1.1: Working Capital


Figure 1.1: Working Capital

0
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140
2013 2012 2011 2010
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Receivable Days
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Creditors Turnover Ratio:
The formula to calculate the creditors turnover ratio is,
Purchases
Creditors
Company 2013 2012 2011 2010
Glenmark 1.18 1.65 1.62 1.37
Sun Pharma 1.86 2.94 3.11 2.02
Piramal 1.06 0.96 0.88 3.26
Dr. Reddy's 1.63 1.35 1.21 1.07

Table 1.1: Working Capital


Figure 1.1: Working Capital

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Accounts Payable Turnover
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Credit Payment Period:
The formula to calculate the
Company 2013 2012 2011 2010
Glenmark 307.87 220.11 224.95 265.82
Sun Pharma 195.46 124.07 117.26 180.38
Piramal 344.22 378.76 412.87 111.74
Dr. Reddy's 223.73 269.33 301.39 338.65

Table 1.1: Working Capital


Figure 1.1: Working Capital

0
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2013 2012 2011 2010
D
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Days Payable
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Inventory Turnover Ratio:
The formula to calculate the inventory turnover ratio is,
Cost of Goods Sold
Closing Stock
Company 2013 2012 2011 2010
Glenmark 4.51 4.15 2.99 3.36
Sun Pharma 1.82 2.88 1.91 1.99
Piramal 3.32 3.05 2.48 4.51
Dr. Reddy's 2.51 2.45 2.22 2.48

Table 1.1: Working Capital

Figure 1.1: Working Capital

0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2013 2012 2011 2010
A
x
i
s

T
i
t
l
e

Inventory Turnover
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Inventory Days:
The formula to calculate the inventory days is,
365
Inventory Turnover
Company 2013 2012 2011 2010
Glenmark 80.85 87.90 121.86 108.42
Sun Pharma 200.09 126.40 190.16 183.12
Piramal 109.92 119.44 146.94 80.89
Dr. Reddy's 145.10 148.77 164.22 147.17

Table 1.1: Working Capital

Figure 1.1: Working Capital

0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2013 2012 2011 2010
A
x
i
s

T
i
t
l
e

Inventory Turnover
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Current Assets Turnover Ratio:
The formula to calculate the current assets turnover ratio is,
Sales
Current Assets
Company 2013 2012 2011 2010
Glenmark 1.94 2.20 2.50 0.66
Sun Pharma 0.82 1.28 1.08 1.56
Piramal 0.44 0.78 0.16 1.81
Dr. Reddy's 1.31 1.42 1.43 1.24

Table 1.1: Working Capital

Figure 1.1: Working Capital



0
0.5
1
1.5
2
2.5
3
2013 2012 2011 2010
A
x
i
s

T
i
t
l
e

Current Assets Turnover Ratio
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Current Assets to Total Assets Ratio:
The formula to calculate the
Company 2013 2012 2011 2010
Glenmark 0.32 0.26 0.15 0.60
Sun Pharma 0.36 0.38 0.42 0.27
Piramal 0.20 0.11 0.41 0.67
Dr. Reddy's 0.64 0.56 0.48 0.55

Table 1.1: Working Capital

Figure 1.1: Working Capital

0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2013 2012 2011 2010
A
x
i
s

T
i
t
l
e

Current Assets to Total Assets
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Cash to Current Assets:
The formula to calculate the
Company 2013 2012 2011 2010
Glenmark 0.16 0.06 0.06 0.00
Sun Pharma 0.14 0.42 0.43 0.05
Piramal 0.01 0.01 0.34 0.01
Dr. Reddy's 0.14 0.17 0.01 0.10

Table 1.1: Working Capital

Figure 1.1: Working Capital

0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
2013 2012 2011 2010
A
x
i
s

T
i
t
l
e

Cash to Current Assets
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Inventories to Current Assets:
The formula to calculate the
Company 2013 2012 2011 2010
Glenmark 0.18 0.23 0.32 0.09
Sun Pharma 0.29 0.20 0.21 0.35
Piramal 0.08 0.18 0.04 0.19
Dr. Reddy's 0.23 0.28 0.29 0.24

Table 1.1: Working Capital

Figure 1.1: Working Capital

0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
2013 2012 2011 2010
A
x
i
s

T
i
t
l
e

Inventories to Current Assets
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Current Liabilities to Total Liabilities:
The formula to calculate the
Company 2013 2012 2011 2010
Glenmark 0.18 0.11 0.06 0.07
Sun Pharma 0.14 0.12 0.10 0.10
Piramal 0.04 0.05 0.05 0.16
Dr. Reddy's 0.15 0.20 0.17 0.22

Table 1.1: Working Capital

Figure 1.1: Working Capital

0
0.05
0.1
0.15
0.2
0.25
2013 2012 2011 2010
A
x
i
s

T
i
t
l
e

Current Liabilities to Total Liabilities
Glenmark
Sun Pharma
Piramal
Dr. Reddy's
Loans and Advances to Current Assets:
The formula to calculate the
Company 2013 2012 2011 2010
Glenmark 0.18 0.29 0.21 0.68
Sun Pharma 0.30 0.14 0.15 0.23
Piramal 0.83 0.64 0.56 0.60
Dr. Reddy's 0.15 0.12 0.20 0.35

Table 1.1: Working Capital

Figure 1.1: Working Capital

0
0.05
0.1
0.15
0.2
0.25
2013 2012 2011 2010
A
x
i
s

T
i
t
l
e

Current Liabilities to Total Liabilities
Glenmark
Sun Pharma
Piramal
Dr. Reddy's