Company Assigned – Akzo Nobel India Ltd.

* Every figure unless and until mentioned otherwise is in Crore ( Cr.)

1. Gross Operating Cycle –
a. For year 2017-2018
➢ Calculation for RMCP ( Raw Material Conversion Period)
Opening Stock of raw material = 121.70
Closing Stock of raw material = 120.00
Raw material purchased = 1319.10
Average raw material consumed = Opening Stock + Closing Stock / 2
= 121.70 + 120. 00 / 2
= 120.85
Total raw material consumed = Opening Stock + Purchase Stock – Closing Stock
= 121.70 + 1319.10 - 120.00
= 1320.80
RMCP = (Average raw material consumed / Total raw material consumed ) * 365 days
= ( 120.85 / 1320.80 ) * 365 days
= 33.39 ≈ 33 days
➢ Calculation for WIPCP ( Work in progress conversion period )
Opening stock of WIP = 6.30
Closing stock of WIP = 7.80
Average Work in progress goods = Opening stock + Closing stock / 2
= 6.30 + 7.80 / 2
= 7.05
Total Cost of production = Salaries, wages & bonus + Power & fuel expenses
= 251.10 + 15.70
= 266.80
WIPCP = ( Average work in progress goods / total cost of production ) * 365
= ( 7.05 / 266.80 ) * 365
= 9.64 ≈ 10 days
➢ Calculation for FGCP ( Finished goods conversion period )
Opening stock of Finshed goods = 248.60
Closing stock of Finised goods = 222.60
Avergae stock of Finished goods = Opening stock + Closing stock / 2
= 248.60 + 222.60 / 2
= 235.60
Net Sales = 2719.30
Gross Profit = 536.30
Cost of goods sold ( COGS ) = Net Sales – Gross profit
= 2719.30 - 536.30
= 2183.00
FGGCP = ( Average stock of Finished goods / COGS ) * 365
= ( 235.60 / 2183 ) * 365
= 39.39 ≈ 39 days
➢ Calculation of DCP ( Debtors Conversion Period )
DCP = ( Debtors more than 6 months + Debtors Others - Less Provision / Net Credit
Sales ) * 365
= ( 0.00 + 415.00 - 19.70 / 2719.30 ) * 365
= ( 395.30 / 2719.30 ) * 365
= 53.05 ≈ 53 days
➢ Calculation of Gross Operating Cycle ( 2017-2018 )
Gross Operating Cycle = RMCP + WIPCP + FGCP + DCP
= 33 + 10 + 39 + 53
= 135 days
b. For year 2018-2019
➢ Calculation for RMCP ( Raw Material Conversion Period)
Opening Stock of raw material = 120.00
Closing Stock of raw material = 146.40
Raw material purchased = 1525.40
Average raw material consumed = Opening Stock + Closing Stock / 2
= 120.00 + 146.40 / 2
= 133.2
Total raw material consumed = Opening Stock + Purchase Stock – Closing Stock
= 120.00 + 1525.40 - 146.40
= 1499.00
RMCP = (Average raw material consumed / Total raw material consumed ) * 365 days
= ( 133.2 / 1499.00 ) * 365 days
= 32.43 ≈ 32 days
➢ Calculation for WIPCP ( Work in progress conversion period )
Opening stock of WIP = 7.80
Closing stock of WIP = 8.70
Average Work in progress goods = Opening stock + Closing stock / 2
= 7.80 + 8.70 / 2
= 8.25
Total Cost of production = Salaries, wages & bonus + Power & fuel expenses
= 240.30 + 17.20
= 257.50
WIPCP = ( Average work in progress goods / total cost of production ) * 365
= (8.25 / 257.50 ) * 365
= 11.69 ≈ 12 days
➢ Calculation for FGCP ( Finished goods conversion period )
Opening stock of Finshed goods = 222.60
Closing stock of Finised goods = 236.10
Avergae stock of Finished goods = Opening stock + Closing stock / 2
= 222.60 + 236.10 / 2
= 229.35
Net Sales = 2918.40
Gross Profit = 380.80
Cost of goods sold ( COGS ) = Net Sales – Gross profit
= 2918.40 – 380.80
= 2537.60
FGCP = ( Average stock of Finished goods / COGS ) * 365
= ( 229.35 / 2537.60 ) * 365
= 32.98 ≈ 33 days
➢ Calculation of DCP ( Debtors Conversion Period )
DCP = ( Debtors more than 6 months + Debtors Others - Less Provision / Net Credit
Sales ) * 365
= ( 0.00 + 471.40 - 27.40 / 2918.40 ) * 365
= ( 444.00 / 2918.40 ) * 365
= 55.53 ≈ 56 days
➢ Calculation of Gross Operating Cycle ( 2018-2019 )
Gross Operating Cycle = RMCP + WIPCP + FGCP + DCP
= 32 + 12 + 33 + 53
= 130 days
c. For year 2019 -2020
➢ Calculation for RMCP ( Raw Material Conversion Period)
Opening Stock of raw material = 146.40
Closing Stock of raw material = 152.30
Raw material purchased = 1206.80
Average raw material consumed = Opening Stock + Closing Stock / 2
= 146.40 + 152.30 / 2
= 149.35
Total raw material consumed = Opening Stock + Purchase Stock – Closing Stock
= 146.40 + 1206.80 – 152.30
= 1200.90
RMCP = (Average raw material consumed / Total raw material consumed ) * 365 days
= ( 149.35 / 1200.90 ) * 365 days
= 45.39 ≈ 45 days
➢ Calculation for WIPCP ( Work in progress conversion period )
Opening stock of WIP = 8.70
Closing stock of WIP = 13.50
Average Work in progress goods = Opening stock + Closing stock / 2
= 8.70 + 13.50 / 2
= 11.1
Total Cost of production = Salaries, wages & bonus + Power & fuel expenses
= 226.60 + 15.80
= 242.40
WIPCP = ( Average work in progress goods / total cost of production ) * 365
= (11.1 / 242.40 ) * 365
= 16.71 ≈ 17 days
➢ Calculation for FGCP ( Finished goods conversion period )
Opening stock of Finshed goods = 236.10
Closing stock of Finised goods = 257.20
Avergae stock of Finished goods = Opening stock + Closing stock / 2
= 236.10 + 257.20 / 2
= 246.65
Net Sales = 2661.80
Gross Profit = 402.20
Cost of goods sold ( COGS ) = Net Sales – Gross profit
= 2661.80 – 402.20
= 2259.60
FGGCP = ( Average stock of Finished goods / COGS ) * 365
= ( 246.65 / 2559.60 ) * 365
= 35.17 ≈ 35 days
135
130
151
115
120
125
130
135
140
145
150
155
2017 - 2018
2018 - 2019
2019 - 2020
Time (Days)
Years
Gross Operating Cycle (Days)
➢ Calculation of DCP ( Debtors Conversion Period )
DCP = ( Debtors more than 6 months + Debtors Others - Less Provision / Net Credit
Sales ) * 365
= ( 0.00 + 426.60 - 30.50 / 2661.80 ) * 365
= ( 396.10 / 2661.80 ) * 365
= 54.31 ≈ 54 days
➢ Calculation of Gross Operating Cycle ( 2019-2020 )
Gross Operating Cycle = RMCP + WIPCP + FGCP + DCP
= 45 +17 + 35 + 54
= 151 days
➢ ANALYSIS OF GROSS OPERATING CYCLE OF THREE YEARS
We can see that in 2017-18 the number of days for completion of the gross operating
cycle was 135 days, from there it went down to 130 days in 2018-19. So what was the
main reason behind this fall? The first main reason was the fall in the final goods
consumption period. The final goods consumption period in 2017-18 was 39 days and
in
the successive year, it went down to 33 days. That concludes that the final goods
were
faster consumed and converted into cash in the later year 2018-19. Next was one day
less
in the raw material conversion period which went from 33 days in 2017-18 to 32 days
in
2018-19. Now in 2019-20, the gross operating cycle got elongated to 151 days.
Needless
to say, the main reason was the effect on businesses due to covid 19. The housing
market
saw a fall and thus the fall in the paints and varnishes industry too. If we look
at the data
we can see this was caused primarily due to a spike in the raw materials conversion
period which went up from 32 days in 2018-19 to 45 days in 2019-20. We can conclude
that as availability of raw materials for the industries went on a halt and also
their
transportability was at stake when worldwide lockdowns happened. So that rise is
justifiable. The main idea is that the lower the gross operating cycle days, the
faster the
goods we sell will convert to cash. So we can faster pay off our debts to the
creditors,
especially during credit purchase of raw materials.
2. Net Operating Cycle
a. For year 2017-2018
Gross operating cycle = 135 days
Average creditors = Sundry Creditors + Creditors for goods + Creditors for capital
goods
3
= ( 643.50 + 635.30 + 8.20 ) / 3
= 1287.00 / 3
= 429. 00
Total annual credit purchase = purchase of raw material
= 1319.10

Creditors Deffered Period = ( Average Creditors / Total Annual Creditors ) *365

days
= ( 429.00 / 1319.10) * 365 days
= 118.70 ≈ 119 days
Net Operating Cycle (2017–2018) = Gross Operating cycle – Creditors deffered period
= ( 135 – 119 ) days
= 16 days
b. For year 2018 -2019
Gross operating cycle = 130 days
Average creditors = Sundry Creditors + Creditors for goods + Creditors for capital
goods
3
= ( 563.60 + 556.40 + 7.20 ) / 3
= 1127.20 / 3
= 375.73
Total annual credit purchase = purchase of raw material
= 1525.40
Creditors Deffered Period = ( Average Creditors / Total Annual Creditors ) *365
days
= ( 375.73 / 1525.40 ) * 365 days
= 89.90 ≈ 90 days
Net Operating Cycle (2018 –2019) = Gross Operating cycle – Creditors deffered
period
= ( 130 – 90 ) days
16
40
22
0
5
10
15
20
25
30
35
40
45
2017 - 2018
2018 - 2019
2019 - 2020
Time (Days)
Years
Net Operating Cycle (Days)
= 40 days
c. For year 2019 – 2020
Gross operating cycle = 151 days
Average creditors = Sundry Creditors + Creditors for goods + Creditors for capital
goods
3
= ( 649.60 + 647.80 + 1.80 ) / 3
= 1229.20 / 3
= 433.06
Total annual credit purchase = purchase of raw material
= 1206.80
Creditors Deffered Period = ( Average Creditors / Total Annual Creditors ) *365
days
= ( 433.60 / 1229.20 ) * 365 days
= 128.75 ≈ 129 days
Net Operating Cycle ( 2019 –2020 ) = Gross Operating cycle – Creditors deffered
period
= ( 151 – 129 ) days
= 22 days
➢ ANALYSIS OF NET OPERATING CYCLE FOR THREE YEARS
Now if we take a good look at the formula of the Net Operating cycle we can see
there’s a
term called “creditors deferred period” which separates GOC ( Gross Operating
cycle) from
(NOC) Net Operating cycle. Deferred creditors are those who we don’t need to pay
immediately, and we can put that off for a later time compared to the other
creditors. In this
case, we witness in the year 2017-2018 the NOC was of 16 days, which means except
for the
deferred creditors, others Akzo could pay off cash in just 16 days. But in the
following year
i.e 2018-2019 that value shoot through the roof and touched 40 days, creating a
massive
difference of 24 days. So what component influenced this radical change? Well, that
happens
to be the deferred creditors period. Deferred creditors period in 2017-2018 was 119
days, thus
indicating the big chunk was reserved in name of them while the rest of 16 days
were for
other creditors out of 130 days of the gross operating cycle. Unlike 2017-2018 only
90 days
were reserved in the names of deferred creditors while the bigger chunk lied with
giving back
money to the non-deferred ones, i.e 40 days which also is much more than the
previous year.
Now let’s look at 2019 – 2020. Here we can see it again drop to 22 days, which is
good as we
will be able to pay the money back to the non-deferred creditors faster than the
previous year
and also considering it could withstand the covid 19 lockdown pressure on
businesses. The
whole deal about this is that the lesser the days, the faster we can pay back our
debts to the
non-deferred creditors and the faster we start milking profits for our businesses.
Out of all
these three years, I would say the management took great decisions in the years
2017-2018
and 2019-2020 periods keeping the cash conversion cycle lower.
3. Gross Working Capital
a. For year 2017 -2018
Gross working capital = Sum of all the current assets of the firm.
1027.7
1109.9
1466.4
0
200
400
600
800
1000
1200
1400
1600
2017 - 2018
2018 - 2019
2019 - 2020
Rupees (Cr.)
Years
Gross Operating Capital (Cr.)
= 1027.70 Cr.
b. For year 2018 – 2019
Gross working capital = Sum of all the current assets of the firm.
= 1109.90 Cr.
c. For year 2019 – 2020
Gross working capital = Sum of all the current assets of the firm.
= 1466.40 Cr.
➢ ANALYSIS OF GROSS WORKING CAPITAL OVER THREE YEARS
Here we see, the Gross operating Capital which is basically the sum of all curret
assets of the
firm has been steadily increasing over the three years. In 2017-2018 it was Rs.
1027.7 Crores
and then it jumped to Rs. 1109.9 crores in 2018-2019 and finally to Rs. 1466.4
crores. That
means from 2017-2018 to 2018-2019 it increased by a margin of Rs. 82.2 Crores ad
from
2018-2019 to 2019-2020 it again increased by a hopping margin of Rs. 356.5 Crores.
This is
159
225.5
529.4
0
100
200
300
400
500
600
2017 - 2018
2018 - 2019
2019 - 2020
Rupees (Cr.)
Years
Net Operating Capital (Cr.)
a good news for the firm as it has abundant of current assets to pay off it’s
current liabilities.
So we can say the firm is in good financial position to cover all it’s short term
debts.
4. Net Operating Cycle
a. For year 2017-2018
Net operating Cycle = Total Current Assets – Total Current liabilities
= 1027.70 Cr. - 868.70 Cr.
= 159 Cr.
b. For year 2018 -2019
Net operating Cycle = Total Current Assets – Total Current liabilities
= 1109.90 Cr. - 884.40 Cr.
= 225.5 Cr.
c. For year 2019-2020
Net operating Cycle = Total Current Assets – Total Current liabilities
= 1466.40 Cr. - 937.00 Cr.
= 529.40 Cr.
➢ ANALYSIS FOR NET OPERATING CYCLE OVER THREE YEARS
Now as we can see the Net Operating Cycle has constantly increased from Rs. 159
Crores in
2017-2018 to Rs. 225.5 crores 2018-2019 and to Rs. 529.4 crores in year 2019-2020.
This
clearly indicates first, as the values aren’t negative, we can conclude we have
enough current
assets to pay of our current liabilities. Also this indicates a rise in production
also as current
assets grow. Which means there was heavy production activities and there was also a
rise in
demand and so was supply.