Army Institute of Business Administration

Savar Cantonment, Dhaka

Term paper on
Cover letter and CV with various career progressions

COURSE TITLE: Working Capital Management

COURSE CODE: FIN 4707

Submitted to: Prepared by:

Kaniz Fatema
Name ID
Lecturer
Army Institute Of Business Administration, Savar Md. Modasser (B7200B049)
Islam Emon

Date: 11 November 2023

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 LETTER OF TRANSMITTAL

9 November, 2023

Kaniz Fatema

Lecturer-Finance

Army Institute of Business Administration,

Savar Cantonment, Dhaka.

Subject: Submission of a Report on ‘Working Capital Management of BSRM Ltd.’

Dear Madam,

Here is my report on “Working Capital Management BSRM Company Ltd of

Bangladesh” that you have assigned us to submit as a partial requirement for the course –
“Working Capital Management”; Course Code – FIN 4707 while preparing this report, I have
taken help from the internet, books, class lectures and relevant sources.

Though I have tried my best it may contain some unintentional errors. I hope this report will
come up with your expectations. I will be glad to answer any kind of question related to this
report and we will be glad to provide further clarification if needed.

Yours faithfully,

MD Modasser Islam Emon

ID: B7200B049

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 ACKNOWLEDGEMENT

I sincerely acknowledge my debt to my course advisor Kaniz Fatema, Lecturer, Army Institute

of Business Administration for her valuable counseling towards the improvement of the

report. Without her encouragement, this would have never been possible.

I am overwhelmed with gratitude to my course advisor as she helped me in terms of propulsion

and completing this term paper impeccably. The report is prepared only to meet academic

purposes not for any other reason.

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Executive Summary
Working capital management is a part of financial management of a company. To survive in this
competitive business scenario every company need to have dedicated financial manager and for
the manager it is obvious to have a strong working capital policy. Without effective working
capital management, a company cannot accomplish its goals and cannot continue to be
financially stable. In light of this, the current study is being conducted to examine working
capital management using ratio analysis. We take hypothetical data of a company and In this
report, the working capital management of BSRM Company Ltd of Bangladesh is really efficient
and as well as effective.
The empirical analysis of this report shows the company’s efficiency of inventory management
and also shows the satisfactory condition in cash management, and current assets, and the
condition of the company is also satisfactory to manage its creditors. Finally the decision as per
our learning is also stated there to justify the analysis.

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 Table of Contents
Executive Summary...................................................................................................................................4
Chapter 1.....................................................................................................................................................6
Introduction.................................................................................................................................................6
Chapter 2....................................................................................................................................................8
Literature Review........................................................................................................................................8
Chapter 3........................................................................................................................................11
Data analysis..................................................................................................................................11
Findings.........................................................................................................................................18
Recommendation...........................................................................................................................18
Conclusion.....................................................................................................................................19
Reference.......................................................................................................................................19

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Chapter 1

Introduction

Working capital is a critical component of a company's financial health and plays a vital role in
its day-to-day operations. It represents the funds needed to cover the company's short-term
obligations and ensure smooth business operations. Working capital management involves the
efficient management of these funds to optimize liquidity, maximize profitability, and minimize
financial risks.

Effective working capital management is essential for businesses of all sizes, from small startups
to large corporations. It involves striking the right balance between the company's current assets
(such as cash, inventory, and accounts receivable) and its current liabilities (such as accounts
payable and short-term debts).

The primary goal of working capital management is to ensure that the company has sufficient
funds to meet its short-term obligations while also utilizing its resources efficiently. By
effectively managing working capital, businesses can improve cash flow, enhance operational
efficiency, and reduce the need for external financing.

One crucial aspect of working capital management is managing the cash conversion cycle. The
cash conversion cycle represents the time it takes for a company to convert its investments in
inventory and other resources into cash through sales. It comprises three key components: the
average time it takes to sell inventory, the average time it takes to collect receivables from
customers, and the average time it takes to pay suppliers. By reducing the cash conversion cycle,
companies can free up cash and improve liquidity. This can be achieved by implementing
strategies such as optimizing inventory levels, negotiating favorable payment terms with
suppliers, and implementing efficient accounts receivable management practices.

Another aspect of working capital management is maintaining an optimal level of each current
asset. Holding too much inventory or keeping excessive cash on hand can tie up capital that
could be used elsewhere. On the other hand, insufficient inventory levels can lead to stock outs
and lost sales opportunities. Therefore, businesses need to strike a balance by using techniques
such as Just in-time inventory management and cash flow forecasting.

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Managing accounts payable is also crucial in working capital management. Negotiating extended
payment terms with suppliers can help improve cash flow by delaying cash outflows. However,
it is essential to maintain good relationships with suppliers and ensure timely payments to avoid
any negative consequences on the supply chain.

Furthermore, effective working capital management requires continuous monitoring and analysis
of key financial metrics. By regularly reviewing liquidity ratios, such as the current ratio and the
quick ratio, businesses can assess their ability to meet short-term obligations. Additionally, cash
flow statements provide insights into the sources and uses of cash, enabling companies to
identify areas where working capital management can be improved.

The objective of the Study:

The primary objective of this study is to analyze the significance of working capital management
and its effect on the financial performance of companies. The specific objectives are as follows:

 To examine the components of working capital, including current assets and current
liabilities, and their interrelationship within the operational context.
 To investigate the various factors influencing working capital management decisions,
such as industry characteristics, business cycles, and financial policies.
 To assess the impact of efficient working capital management on liquidity, profitability,
and overall financial performance of companies.
 To identify the challenges and potential risks associated with working capital
management and explore strategies to mitigate them.
 To provide recommendations and best practices for improving working capital
management practices, based on the findings of the study.

Methodology of the Study:

This study will adopt a mixed-methods approach to gather comprehensive and reliable data. The
research will begin with an extensive review of existing literature, including academic journals,
books, industry reports, and relevant publications. This literature review will provide a
theoretical framework and help identify key concepts, theories, and models related to working
capital management. Basically, this report is calculative, analytical, and empirical in nature and
executed using the data from BSRM Company Ltd.

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Chapter 2

Literature Review
The purpose of this chapter is to present a review of literature relating to the working capital
management of BSRM Company Ltd of Bangladesh. Although working capital is an important
ingredient in the smooth working of business entities, it has not attracted much attention from
scholars. Whatever studies have been conducted, those have exercised profound influence on the
understanding of working capital management good number of these studies that pioneered work
in this area have been conducted abroad, following which, Indian scholars have also conducted
research studies exploring various aspects of working capital. Special studies have been
undertaken, mostly by economists, to study the dynamics of inventory investment which often
represented the largest component of total working capital.

In this section, we will discuss past literature resulting from studies of Working capital
management and working capital structure across the globe-

Sagan in his paper (1955), 1 perhaps the first theoretical paper on the theory of working capital
management, emphasized the need for management of working capital accounts and warned that
it could vitally affect the health of the company. He realized the need to build up a theory of
working capital management. He discussed mainly the role and functions of money managers in
inefficient working capital management. Thus, Sagan concentrated mainly on the cash
component of working capital. Sagan indicated that the task of the money manager was to
provide funds as and when needed and to invest temporarily surplus funds as profitably as
possible in view of his particular requirements of safety and liquidity of funds by examining the
risk and return of various investment opportunities. He suggested that money managers should
take their decisions on the basis of cash budget and total current assets position rather than on the
basis of traditional working capital ratios. The study pointed out that there was a need to improve
the collection of funds but it remained silent about the method of doing it. Moreover, this study
is descriptive without any empirical support. Realizing the dearth of pertinent literature on
working capital management. Weston and Brigham (1972) 3 further extended the second
proposition suggested by Walker by dividing debt into long-term debt and short-term debt. They
suggested that short-term debt should be used in place of long-term debt whenever their use
would lower the average cost of capital to the firm. . They further suggested that current assets

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holding should be expanded to the point where marginal returns on increase in these assets
would just equal the cost of capital required to finance such increases. Lambrix and Singhvi
(1979) 5 adopting the working capital cycle approach to the working capital management, also
suggested that investment in working capital could be optimized and cash flows could be
improved by reducing the time frame of the physical flow from receipt of raw material to
shipment of 53 finished goods, i.e. inventory management, and by improving the terms on which
firm sells goods as well as receipt of cash. Babu and Chalam (2014) observed the relationship
between profitability and components of working capital. The study adopted Return on Assets
(ROA) as dependent variable and inventory conversion period, average payment period, average
collection period and cash conversion cycle as independent variables. Researchers found results
through statistical tools that ROA was positively and insignificantly related to the inventory
conversion period. The results also showed that there existed a statistically significant positive
relationship between profitability and average collection period. Padachi (2006) studied the
trends in working capital management and its effect on the profitability of Mauritian small
manufacturing firms during 1998-2003. The author’s aim in the study was an inquiry into the
impact of working capital on corporate profitability. Based on secondary data collected from
annual published financial reports, the author identified Return on Total Assets (ROTA) as the
dependent variable and inventory days, account receivables, and account payables as
independent variables in the study. The researcher, by application of statistical techniques like
regression analysis, found that working capital management, except cash cycle management,
significantly affected the firm’s profitability. He also found that excessive investment in
inventories resulted in lower profitability. He concluded that the owner-managers adopted the
best working capital management practices so that a balanced approach between assets and
liabilities was ensured.

 Limitations of the study:

Bata Shoe Company Ltd has less resources to maintain its working capital.

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In our country house building materials and its maintenance as a company is tough. Moreover
the daily to daily capital management is tough too. Same here for BSRM too.

BSRM Company Limited has excessive inventories which are not well organized.

BSRM Company LTD needs to improve in their Asset maximization.

 Organization Overview:
BSRM is the leading steel manufacturing company and one of the prominent corporate houses in
Bangladesh. Over the years, BSRM steel products have been chosen solely for building major
National landmarks and infrastructures. To name a few, the Padma Bridge, Rooppur Neuclear
Power Plant, Hatirjheel Project, Zillur Rahman Flyover, Mayor Hanif Flyover and Shah Amanat
Bridge were built with BSRM.

BSRM Xtreme is a product that was introduced when there were no graded steel in Bangladesh.
It was a major change in the steel industry of Bangladesh. The core driver was the belief in
evolution in steel products, which resulted in bringing the first EMF tested rod, the first steel
brand that passed 5 million cyclic loading Fatigue testing in the U.K. and conformed to 10 global
standards. With the largest steel producing factory in the country and employing the best
technology from Europe, the company maintains volume with uncompromising quality. BSRM
is dedicated to providing the best solution for the construction industry. The first ever 50 mm rod
was specially designed and rolled for the deep pilling requirements of Padma Bridge. Various
specialized products of BSRM are also designed to meet special needs for the construction
industry.

BSRM ventured into a new business area as part of continuous innovation philosophy and
diversification plan and set up BSRM Wires at Mirsarai, Chattogram to manufacture various
products such as galvanized wire, ACSR core wire, LRPC Mig Wire, Welding Electrodes, etc

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Chapter 3

Data analysis

1) Working Capital Policy: Working capital is a significant factor in a company’s operational

competency. Proper management of working capital ensures sufficient availability of funds to
finance the day-to-day operations of an organization, as well as, to fulfill growth and expansion
targets. Thus, experts often consider it to be a precursor to a business’s success or failure.

To end that, several businesses opt for working capital financing options. However, the policy a
business undertakes to finance its working capital is of utmost significance. With an inept policy,
an organization’s funds may remain underutilized, its growth may be hindered, or worse, it could
face immense losses.

In general, working capital policies involve determining the sources of finance. It also
determines the allocation of these finances towards current assets and liabilities. Broadly, three
strategies can help optimize working capital financing for a business, namely, hedging,
aggressive, and conservative, as per the risk levels involved.

2. Conservative Policy

An organization undertakes this strategy only when it requires minimizing risk to the furthest.
Under this policy, the management regulates the credit limits stringently to ensure low risk.

Moreover, current assets are always above par against the current liabilities to ascertain sufficient
availability of funds.

Organizations majorly utilize long-term funding options to finance fixed and fluctuating current
assets. The use of short-term sources is kept to a minimum for low-risk.

Observing a conservative working capital financing policy, hence, leads to underutilization of

funds, thus cutting down on returns and compromising growth.

Aggressive Policy

As the name may suggest, aggressive policies involve the maximum risk, and thus, also bring the
potential for multiplied growth.
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When observing this strategy, companies ensure their current assets, such as the value of debtors,
are minimized by ensuring timely payments or minimum credit sales. At the same time,
management also maintains that payments to creditors are delayed to the furthest.

Organizations aiming at accelerated growth can opt for this working capital policy. However,
since it involves immense risk, strong business acumen, and deft handling of finances are
critical.

Moderate Policy

Also known as the matching policy, adopting this strategy ensures that the current assets of a
company are always in sync with short-term liabilities.

In essence, this working capital financing policy aims to balance the two extreme strategies, both
in terms of risk and growth potential.

Most organizations observing this strategy use long-term sources of finance to invest in fixed
current assets and resort to short-term funding options for current asset financing.

2)Which policy does BSRM Company Ltd of Bangladesh follow: Before taking the decision,
first I researched their assets in two stages which can help me to identify their policy.

Particulars 2020 2021

Current assets 3,702,087,640 3,656,613,789
Fixed assets 2,902,305,372 2,783,242,537
In these two years, we can see that their Current asset >Fixed asset; that means they have more
current assets than their fixed assets which indicates they follow Conservative policy.

3)Inventory management:

Year -Inventory period = Inventories / Inventory Period

(COGS/365)
2020 2,888,579,146/(3,819,862,861/365)= 276 days
2021 2,773,817,825/(4,926,836,295/365)= 205 days
Comment: In the calculation of the year 2020 and 2021, their inventory period is decreasing. A
low days inventory outstanding indicates that Bata company is able to quickly turn its inventory

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into sales. Therefore, a low DIO translates to an efficient business in terms of inventory
management and sales performance.

Year Account Receivable Days: Account Receivable days

Account Receivable
period=
Receivables/ (Net Sales/ 365)
2020 192,137,684/(5,084,505,532/365)= 13 days
2021 40,309,098/(7,744,936,100/365)= 2 days

Comment: In the calculation of the years 2020 and 2021, BSRM company’s account receivable
days have been decreased and they can generate cash easily to create a good balance of current
assets. Accounts receivable decreased from one year to the next, the implication is that those old
accounts receivable were collected (i.e., credit sales were eventually converted into cash sales),
representing cash inflow for the company.

Year Account payable period = Trade Accounts Payables

payable / (COGS/365)

2020 193,270,212 /(3,819,862, 86/365)= 185 days

2021 1,280,267,118 /(4,926,836,295 /365)= 95 days

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Comment: In the calculation of the years 2020 and 2021, The company’s payables have been
decreased. If the accounts payable have decreased, this means that cash has actually been paid to
vendors or suppliers and therefore the company has less cash. For this reason, a decrease in
accounts payable indicates a negative cash flow.

Year Cash conversion period Cash Conversion

= (Inventory Period + Period
Accounts Receivable
Period) - Accounts
Payable Period
2020 (276+13) -185= 104 days
2021 (205+2) -95= 112 days

Comment: In the calculation of the years 2020 and 2021, the Company’s CCC has increased.
Longer CCC means it takes a longer time to generate cash, which can mean insolvency for small
companies. A shorter CCC means the company is healthier as it can use additional money can
then be used to make additional purchases or pay down outstanding debt.

4) Cash Management:

Year Current Ratio= Current asset/ Current ratio

current liabilities
2020 3,702,087,640/1,849,700,661= 2.001
2021 3,656,613,789/1,925,099,854= 1.899

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 Comment: In the calculation of the years 2020 and 2021, above 1.00 might indicate a
company is able to pay its current debts as they come due. But BSRM company formed in a
suitable position that’s why they don’t need to worry.
Year Quick ratio=(Cash+ Accounts Quick ratio
receivable)/current liabilities
2020 (125,919,383+192,137,684)/ 0.17
1,849,700,661=
2021 (622,781,937+40,309,098)/ 0.34
1,925,099,854=

Comment: In the calculation of the years 2020 and 2021, the Company’s quick ratio is less
than 1. Less than 1, means it doesn't have enough quick assets to meet all its short-term
obligations. If it suffers an interruption, it may find it difficult to raise the cash to pay its
creditors. In addition, the business could have to pay high interest rates if it needs to borrow
money.
Year Cash ratio = Cash and cash Cash Ratio
equivalents/Current
liabilities
2020 125,919,383/1,849,700,661= 0.06
2021 622,781,937/1,925,099,854= 0.32

Comment: In the calculation of the years 2020 and 2021, often better to have a high cash ratio.
This means a company has more cash on hand, lower short-term liabilities, or a combination of
the two. It also means a company will have greater ability to pay off current debts as they come
due. So, the company needs to increase its cash.

5. Hypothesis: 1. H0: There is no relationship between the receivable period and

profitability- If the BSRM Company tries to increase sales with accounts receivables, then they
can not generate profit because they have no cash.

H1: There is a relationship between receivable period and profitability- If

The BSRM company tries to generate sales with lower receivables, they can generate cash and
gain profit.

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2. H0: There is no relationship between the inventories days and the profitability- If the
BSRM company stores their inventories for long days, there is no chance of profitability.

H1: There is a relationship between the inventory days and the profitability- If the
BSRM company focuses on its inventories and tries to sell them, then they can generate
profit. The inventory days are negatively related to profitability – the higher the inventories
day lower the profitability.

3. H0: There is no relationship between the payable days and the profitability- If the
company tries to repay its debts, they have no cash and no other suppliers want to give its
products because of its short-term debt.

H1: There is a relationship between the payable days and the profitability- If the company
can avail to repay their loans, they can build trust in their suppliers and can generate profits.

4. H0: There is no relationship between the cash conversion cycle and the
Profitability- If the company cannot generate their cash, they cannot produce and sell to create
profits.

H1: There is a relationship between the cash conversion cycle and profitability the company
can generate cash, they can buy their raw materials and produce to sell their products to create
profits for the company.

5) ROA to Profitability:

Year ROA=Net Profit/Total assets

2020 (1,321,483,191)/ 6,439,856,326= -0.20%

2021 (106,196,517)/ 6,604,393,012= -0.01%

Comment: During the pandemic years, they could not generate a return on their asset that’s why
they faced losses.

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6)Debt to profitability:

Year Debt to profitability= Total liabilities/Net

income

2020 1,849,700,661/(1,321,483,191)= -1.39%

2021 2,987,979,931/(106,196,517)= -28.13%

Comment: Due to the pandemic years, they faced net loss and they have a huge burden of
liabilities which creates a negative percentage.

 Performance Evaluation:
BSRM Company has a perfect current ratio where they can create cash and cash equivalents to
bear the expenses of their daily activities. However, they need to improve their inventory
management to create profitability. The company’s main challenge is to complete those two on
time and start the business as quickly as possible. Moreover, they just can’t be relieved to
complete the work we also have to collect the bills from suppliers within a very short period of
time because, at the end of this month, BSRM will close their year account. If we cannot collect
the bills within time they will not be able to make them enter into Bata accounts and as a
consequence, the supplier will not get paid. Bata has a clear policy not to pay any bills which do
not belonging to the company.

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Findings

 Not proper inventory management to improve their profitability.

 Not proper monitoring in every branch regularly.
 Almost perfect balance between cash management and receivables.
 Need to create a path to repay the company’s loan and current liabilities so that the
suppliers can build trust in the company’s production.
 The company has already brand value throughout the country that’s why it needs to
monitor better services.

Recommendation

 Need to improve their inventory management to create profitability.

 Need proper monitoring in every branch regularly.
 Need to create a balance between cash management and receivables.
 Need to create a path to repay the company’s loan and current liabilities so that the
suppliers can build trust in the company’s production.

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Conclusion

Proper management of working capital is essential to a company's fundamental financial health

and operational success as a business. A hallmark of good business management is the ability to
utilize working capital management to maintain a solid balance between growth, profitability,
and liquidity. Working capital has its own importance for the operational efficiency, success, and
growth of every company but, in the case company’s internal concept, its management is quite
important because BSRM company may lack in working capital due to pandemic situation.

Reference

https://corporatefinanceinstitute.com/resources/valuation/what-is-net-working-capital/

https://www.geeksforgeeks.org/working-capital-meaning-types-operating-cycle-and-
factorsaffecting-the-working-capital/ https://www.wallstreetprep.com/knowledge/net-working-
capital-nwc/

https://www.americanexpress.com/en-gb/business/trends-and-insights/articles/working-
capitalformula/

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