Report On

Working capital management of Walton Company

Course Code: FIN 423
Course Title: Working capital management

Prepared By
Takibul Hasan

Id: 18100042

Batch:12th

Prepared For
Nazmul Hasan
Associate Professor
Lecturer
School of Business
Ranada Prasad Shaha University

Date of Submission: 07th May, 2021

Ranada Prasad Shaha University

Cash flow to total debt
The cash flow-to-debt ratio is the ratio of a company’s cash flow from operations to its total debt.
This ratio is a type of coverage ratio and can be used to determine how long it would take a
company to repay its debt if it devoted all of its cash flow to debt repayment. Cash flow is
used rather than earnings because cash flow provides a better estimate of a company’s ability to
pay its obligations.
Net income+ Depr . expense
Cash flow to total debt 2019 ¿ s h ort term debt +long term debt

13761138603 +1331810588
= 16370583014+2837393300

15092949191
= 19207976314

=78.58%
Net income+ Depr . expense
Cash flow to total debt 2020¿ s h ort term debt +long term debt
7264493719+1541134098
= 22482089404+1913765877
8805627817
= 24395855281

=36.09%

Interpretation

Higher is better indicating ability to cover debt service (interest and principal repayments).Low
ratio often foreshadows bankruptcy. Company may be able to use large cash and securities
position to offset temporary declines in cash flow.
Cash cycle
The cash to cash cycle is the time period between when a business pays cash to its suppliers for
inventory and receives cash from its customers. The concept is used to determine the amount
of cash needed to fund ongoing operations, and is a key factor in estimating financing
requirements.

inventory 13530290768
DIH 2019= COGS = 30805628408 = 1.20 days
365 365

A /R 24479836553
DSO 2019= Sales = 51773237116 = 1.29 days
365 365

A /P 876557103
DPO 2019= COGS = 30805628408 = 7.79 days
365 365

CC2019=DIH+DSO-DPO
=1.20+1.29-7.79
=-5.3days
inventory 21933256222
DIH 2020= COGS = 25423508810 = 2.36 days
365 365

A /R 23863541822
DSO 2020= Sales = 41079248268 = 1.59 days
365 365

A /P 2274036392
DPO 2020= COGS = 25423508810 =2.45 days
365 365
CC2020=DIH+DSO-DPO
=2.36+1.59-2.45
=1.5days
Interpretation

A good cash conversion cycle is a short one. If your CC is a low or (better yet) a negative
number, that means your working capital is not tied up for long, and your business has greater
liquidity.

Cash Turnover
Cash Turnover is the amount of times a company has spent through its cash during the reporting
period. We calculate cash turnover based on a company's revenues over the average cash balance
during that period. High cash turnovers can mean that a company is going through its cash cycles
quickly.
365
CT 2019= CC
365
= −5.3

=-68.87days
365
CT 2020= 1.5

=243.33days
Interpretation

Turnover Ratio is negative which means that Company has not sufficient short term funds for
fulfilling the sales done for that period. This will cause a shortage of funds and can cause a
business to run out of money. A higher cash turnover ratio is preferred because it indicates that
you are turning your cash more frequently and are running a more efficient company.
Defensive Interval
Defensive Interval ratio is the ratio which measures the number of days within which the
company can continue its working without the requirement of using its non-current assets or the
outside financial resources and it is calculated by dividing the total current assets of the company
with its daily operating expenses.
cash+ st investment
DIR 2019¿ Daily operating expenses

1029902851+ 582901194
= 91894207.4

=17.55 days
cash+ st investment
DIR 2020¿ Daily operating expenses
2083890817
= 78177643.61

= 26.65 days
Interpretation

Let us look at the above chart. WALTON has a Defensive interval ratio in 2019 is 17.55 days
and 2020 is 26.65 days Does this mean that 2020 is better placed from the liquidity point of
view.

Timed Interest Earned ratio

The times interest earned (TIE) ratio is a measure of a company's ability to meet its debt
obligations based on its current income. The formula for a company's TIE number is earnings
before interest and taxes (EBIT) divided by the total interest payable on bonds and other debt.
EBIT
Time interest earned ratio 2019= Interest
13761138603
= 1402662630
 =9.81 Times

EBIT
Time interest earned ratio 2020= Interest
8330088710
= 1693864902

=4.91 Times

Interpretation

Times interest earned ratio is very important from the creditors view point. A high ratio ensures a
periodical interest income for lenders. The companies with weak ratio may have to face
difficulties in raising funds for their operations. So 2019 is better than 2020.

Long term debt to capital

A Long Term Debt to Capitalization Ratio is the ratio that shows the financial leverage of the
firm. This ratio is calculated by dividing the long term debt with the total capital available of a
company. The total capital of the company includes the long term debt and the stock of the
company.
Long term debt
Long term debt to capital 2019= Longterm debt+ Total equity

2837393300
= 2837393300+72978067368

=3.74%
Long term debt
Long term debt to capital 2020= Longterm debt+ Total equity
 1913765877
= 1913765877+79952218892

=2.33 %
Interpretation

Lower is better, we are measuring the percent of long-term financing that is borrowed. More debt
reduces financial flexibility and increase risk to other creditors including trade creditor. so 2020
is better than 2019 long term debt to capital ratio.

Total Liabilities to Total Assets

The liabilities to assets ratio is also known as the debt to asset ratio. The liabilities to assets ratio
shows the percentage of assets that are being funded by debt. The higher the ratio is, the more
financial risk there is in the company.

Total liabilities
Total liabilities to total assets 2019= Total assets

30450042398
= 103428109766

=0.2944
Total liabilities
Total liabilities to total assets 2020= Total assets

36468785598
= 116421004490

=0.3132

Interpretation
In general, many investors look for a company to have a debt ratio between 0.2944 and 0.3132
from a pure risk perspective, debt ratios of 0.2944 or lower are considered better, while a debt
ratio of 0.3132 or higher makes it more difficult to borrow money.

Return On Equity
Return on equity (ROE) is a measure of financial performance calculated by dividing net
income by shareholders' equity. Because shareholders' equity is equal to a company’s assets
minus its debt, ROE is considered the return on net assets. ROE is considered a measure of the
profitability of a corporation in relation to stockholders’ equity.

Net income
Return on Equity 2019= Total equity
13761138603
= 72978067368

=1.88%

Net income
Return on Equity 2020= Total equity
7264493719
= 79952218892

=9.08%
Interpretation

A high ROE suggests that a company’s management team is more efficient when it comes to
utilizing investment financing to grow their business (and is more likely to provide better returns
to investors). A low ROE, however, indicates that a company may be mismanaged and could be
reinvesting earnings into unproductive assets.
Profit margin on sales
The profit margin is a ratio of a company's profit (sales minus all expenses) divided by
its revenue. The profit margin ratio compares profit to sales and tells you how well the company
is handling its finances overall. It's always expressed as a percentage.
Net income
Profit margin on sales2019= sales
13761138603
= 51773237116

=26.57%

Net income
Profit margin on sales2020= sales

7264493719
= 41079248268

=17.68%
Interpretation

Higher is better. Measures ability to generate profits from each $1 of sales.

so here profit margin of 2019 is better than 2020

Return on Total Assets (ROA)

Return on Assets is one of the efficiency ratios that use to measure and assess how efficiently the
company’s assets are being used. The main indicators to measure the efficiency of assets in this
ratio are Net Income and Total Assets.
Net income
ROA 2019= Total assets
 13761138603
= 103428109766

=13.30%
Net income
ROA 2020= Total assets
7264493719
= 116421004490

=6.23%
Interpretation

Based on the calculation about, current ROA is only 6.23% while the previous year ROA was
13.30% Based on this ratio, we can say that the current performance is poor than the previous
year in term of efficiency ( using assets to generate revenue). This might be because of low
productivity, decreasing demand or highly competitive in the market.