Project HLL Final

CHAPTER 1
INTRODUCTION
1.1 INTRODUCTION
Working Capital Management at HLL Lifecare Limited - Peroorkada Plant
Working capital management is a critical component of financial management that ensures a company's
operational efficiency and short-term financial stability. It involves managing the balance between a
company's current assets and current liabilities to ensure the firm has sufficient liquidity to meet its
short-term obligations. Effective working capital management can significantly enhance a company's
profitability and sustainability, especially in dynamic sectors such as healthcare.
HLL Lifecare Limited (HLL), a Government of India enterprise, is a prominent manufacturer and
marketer of a diverse range of healthcare products and services. Since its establishment in 1966, HLL
has grown into a major player in the healthcare sector, renowned for its commitment to quality and
innovation. The Peroorkada plant, one of HLL's key manufacturing facilities, plays a crucial role in the
company's production capabilities. This plant specializes in the production of contraceptives, hospital
supplies, pharmaceuticals, and diagnostic kits, among other essential healthcare products.
This research project aims to provide an in-depth analysis of the working capital management practices
at the Peroorkada plant of HLL Lifecare Limited. The study will focus on evaluating the efficiency of
the plant's management of current assets and liabilities, computing key working capital management
ratios, analyzing the schedule of changes in working capital, and predicting future working capital
requirements using advanced business analytics tools. The primary data for this study is sourced from
the plant’s financial statements.
1.2 OBJECTIVES OF THE STUDY

• To analyze the working capital management practices at HLL Lifecare Limited's Peroorkada
plant.
• To compute and interpret key working capital management ratios for the given period.
• To create a detailed schedule of changes in working capital.
• To predict Scenario-Based Working Capital Forecasting using business analytics techniques.
• To provide actionable recommendations for improving working capital management at the
Peroorkada plant.
1.3 METHODOLOGY
The research will employ a combination of quantitative and qualitative methods. Primary data will be
collected from the Peroorkada plant’s financial statements. Key working capital management ratios,
such as the current ratio, quick ratio, inventory turnover ratio, and receivables turnover ratio, will be
computed to assess the plant's liquidity and operational efficiency.
A detailed schedule of changes in working capital will be created to track the movements in current
assets and liabilities over the study period. Predictive analytics techniques will be employed to forecast
future working capital needs, utilizing Python for data analysis and visualization.
1.4 SCOPE OF THE STUDY

The main scope of the study is to put the theoretical aspect of the study into real life work experiences.
The study brings out the pattern of working capital in HLL Lifecare Ltd- Peroorkada Plant.
1.5 TOOLS FOR THE ANALYSIS

• Ratio Analysis
• Schedule of Changes in Working Capital
• Future Working Capital Forecasting
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CHAPTER 2
RESEARCH METHODOLOGY
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2.1 RESEARCH METHODOLOGY
The research methodology for studying the working capital management at HLL Lifecare Limited's
Peroorkada plant involves a systematic approach to collect, analyze, and interpret data related to the
company's working capital components. The study aims to compute various working capital
management ratios, prepare a schedule of changes in working capital and predict future working capital
needs.
2.2 RESEARCH DESIGN

This study adopts a descriptive research design, focusing on the detailed examination of the working
capital management practices at HLL Lifecare Limited's Peroorkada plant. The study relies on both
primary and secondary data sources.
Data Collection
• Primary Data
The primary data for this study is collected from the financial statements of the Peroorkada
plant, including balance sheets and income statements.
• Secondary Data
Supplementary information is gathered from annual reports, industry publications, and relevant
literature to provide context and support the analysis.
2.3 Data Analysis

The data analysis will involve the following steps:
Computation of Working Capital Management Ratios
The key ratios to be computed include:
1. Current Ratio: Current Assets / Current Liabilities
2. Quick Ratio: (Current Assets - Inventory) / Current Liabilities
3. Cash Ratio: Cash and Cash Equivalents/(Current Liabilities )
4. Inventory Turnover Ratio: Cost of Goods Sold / Average Inventory
5. Receivables Turnover Ratio: Net Credit Sales / Average Accounts Receivable
6. Payables Turnover Ratio: Net Credit Purchases / Average Accounts Payable
7. Working Capital Turnover Ratio: Net Sales / Working Capital
8. Days Inventory Outstanding: Average Inventory/Cost of Goods Sold×365
9. Days Sales Outstanding: Average Accounts Receivable/Net Credit Sales×365
10. Operating Cycle: Days Inventory Outstanding + Days Sales Outstanding
11. Days Payable Outstanding: Average Accounts Payable/Cost of Goods Sold×365
12. Cash Conversion Cycle: Days Inventory Outstanding + Days Sales Outstanding - Days Payable
Outstanding
Schedule of Changes in Working Capital
A schedule of changes in working capital will be prepared to track the changes in current assets and
current liabilities over the study period. This will involve:
• Analyzing the year-on-year changes in each component of working capital.

• Identifying trends and significant fluctuations.
• Evaluating the impact of these changes on the overall working capital position.
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Predictive Analysis
Business analytics tools will be used to predict future working capital requirements.
Techniques Used for Scenario-Based Working Capital Forecasting
The technique used for scenario-based working capital forecasting in this project is a combination of
Historical Average Ratios and Scenario Analysis.
1. Historical Average Ratios
Historical average ratios involve calculating the average relationship between key financial metrics
(such as receivables, payables, and inventory) and sales (or COGS) based on historical data. This
method assumes that these relationships will hold in the future, providing a basis for forecasting.
Steps Involved:
• Data Collection: Historical financial data is collected, including sales, receivables, payables,
inventory, and COGS.
• Ratio Calculation: Calculate the average ratios of receivables to sales, payables to COGS, and
inventory to sales over the historical period.
• Application: Apply these historical average ratios to forecast future values of receivables,
payables, and inventory based on projected sales and COGS.
2. Scenario Analysis
Scenario analysis involves creating multiple projections of a company's future financial performance
based on different sets of assumptions. This technique helps businesses prepare for various potential
outcomes by analyzing how changes in key variables impact financial metrics.
Steps Involved:
• Defining Scenarios: Create multiple scenarios (base case, optimistic case, pessimistic case,
and stress case) based on different assumptions about future growth rates.
• Forecasting: Use these scenarios to project future sales and then apply the historical average
ratios to estimate future values of receivables, payables, and inventory.
• Analysis: Analyze the impact of each scenario on working capital to understand the potential
range of outcomes and prepare accordingly.
2.4 TOOLS AND TECHNIQUES

The study will use various tools and techniques for data analysis, including:
Microsoft Excel: For data entry, computation of ratios, and preparation of schedules.
Python: For forecasting future working capital.
2.5 PERIOD OF STUDY

The period of study is from 8th April to June 7th, 2024.
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CHAPTER 3
LITERATURE REVIEW
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3.1 LITERATURE REVIEW
Working capital management is an essential element of financial management that focuses on the
administration of a company's short-term assets and liabilities to ensure operational efficiency and
financial stability. Managing components such as inventory, receivables, and payables effectively is
crucial for maintaining liquidity, minimizing risks, and enhancing profitability. Numerous studies have
explored various dimensions of working capital management, underscoring its significance in the
overall financial health of a business.
One of the primary tools for assessing a company’s operational efficiency and short-term financial
health is through working capital ratios. The current ratio measures a company's ability to meet its short-
term obligations with its short-term assets. A higher current ratio suggests better liquidity and a stronger
position to cover liabilities (Eljelly, 2004). Similarly, the quick ratio, or acid-test ratio, excludes
inventory from current assets, offering a more stringent measure of liquidity. This ratio is particularly
valuable for assessing the liquidity of companies with substantial inventory holdings (Richards &
Laughlin, 1980).
The cash conversion cycle (CCC) is another critical metric, evaluating the time taken by a company to
convert its investments in inventory and other resources into cash flows from sales. A shorter CCC
indicates a more efficient working capital cycle and better management of the company's liquidity
(Deloof, 2003). The inventory turnover ratio shows how often a company’s inventory is sold and
replaced over a specific period. Higher turnover indicates efficient inventory management (Shin &
Soenen, 1998). The receivables turnover ratio measures how effectively a company collects its
receivables, with a higher ratio indicating efficient credit policies and collection efforts (Jose, Lancaster,
& Stevens, 1996). Conversely, the payables turnover ratio assesses how quickly a company pays its
suppliers, where a lower ratio may suggest that the company is effectively utilizing credit terms to its
advantage (Gentry, Vaidyanathan, & Lee, 1990).
A schedule of changes in working capital is an invaluable tool for understanding the movements in
working capital components over a specific period. This schedule highlights the changes in current
assets and current liabilities, enabling businesses to identify trends and areas requiring attention. By
analyzing these fluctuations, companies can better manage their short-term financial needs and ensure
adequate liquidity (Hager, 1976).
Forecasting future working capital is a critical practice that involves projecting the future levels of
current assets and liabilities based on historical data, industry trends, and business plans. Techniques
such as trend analysis, regression analysis, and cash flow projections are commonly used. Trend
analysis utilizes historical data to identify patterns and project future values, making it particularly
useful for detecting seasonal variations and long-term trends (Peel & Wilson, 1996). Regression
analysis employs statistical methods to estimate the relationships between working capital components
and influencing factors, aiding in the prediction of future needs (Fazzari & Petersen, 1993).
In conclusion, effective working capital management is vital for maintaining liquidity, supporting
operational efficiency, and enhancing profitability. Analyzing working capital ratios, monitoring
changes in working capital, and accurately forecasting future needs are crucial practices that ensure
financial stability and support sustainable growth. Integrating advanced analytical tools and techniques
can further enhance the precision and effectiveness of these practices, as evidenced by numerous studies
in the field. This multifaceted approach to managing working capital not only improves a company's
financial health but also positions it for long-term success.
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3.2 REFERENCES
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of
Business Finance & Accounting, 30(3-4), 573-588.
Eljelly, A. M. (2004). Liquidity‐profitability tradeoff: An empirical investigation in an emerging market.
International Journal of Commerce and Management, 14(2), 48-61.
Fazzari, S. M., & Petersen, B. C. (1993). Working capital and fixed investment: New evidence on
financing constraints. The RAND Journal of Economics, 24(3), 328-342.
Gentry, J. A., Vaidyanathan, R., & Lee, H. W. (1990). A weighted cash conversion cycle. Financial
Management, 19(1), 90-99.
Gitman, L. J. (1974). Estimating corporate liquidity requirements: A simplified approach. The Financial
Review, 9(1), 79-88.
Hager, H. C. (1976). Cash management and the cash cycle. Management Accounting, 57(9), 19-21.
Jose, M. L., Lancaster, C., & Stevens, J. L. (1996). Corporate returns and cash conversion cycles.
Journal of Economics and Finance, 20(1), 33-46.
Peel, M. J., & Wilson, N. (1996). Working capital and financial management practices in the small firm
sector. International Small Business Journal, 14(2), 52-68.
Richards, V. D., & Laughlin, E. J. (1980). A cash conversion cycle approach to liquidity analysis.
Financial Management, 9(1), 32-38.
Shin, H. H., & Soenen, L. (1998). Efficiency of working capital management and corporate profitability.
Financial Practice and Education, 8, 37-45.
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CHAPTER 4
COMPANY PROFILE
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4.1 COMPANY PROFILE
HLL Lifecare Limited (HLL) is a Government of India enterprise under the Ministry of Health and
Family Welfare. Established in 1966, the company is headquartered in Thiruvananthapuram, Kerala.
Initially set up as Hindustan Latex Limited, the organization was primarily focused on producing
contraceptives. Over the years, it has diversified into various healthcare product segments and services,
making significant contributions to public health in India.
Core Business Areas:
• Contraceptives and Healthcare Products:

HLL began its journey by manufacturing condoms, and it continues to be one of the largest
producers in the world. Brands like Moods, Rakshak, and Ustad are well-recognized. The
product range has expanded to include oral contraceptives, copper-T IUDs, blood bags, surgical
sutures, hydrocephalus shunts, and other medical devices.
• Pharmaceuticals and Vaccines:
HLL has ventured into the pharmaceutical sector with a focus on generic drugs, vaccines, and
immunization products, aiming to provide affordable medicines to the masses. This includes a
variety of essential medicines and preventive healthcare solutions.
• Diagnostics:
The company offers diagnostic services through its HINDLABS network, providing high-
quality diagnostic tests at affordable prices. This network includes both standalone diagnostic
centers and partnerships with government hospitals. These labs are equipped to perform a wide
range of tests from basic blood tests to advanced molecular diagnostics.
• Healthcare Infrastructure Development:
HLL Infratech Services Limited (HITES), a subsidiary, focuses on infrastructure development
for healthcare institutions, including project management, consultancy services, and turnkey
projects. HITES undertakes construction of hospitals, medical colleges, and other healthcare
facilities, ensuring they are built to the highest standards.
• Sanitary Napkins and Women's Health:
HLL is committed to promoting menstrual hygiene through its affordable sanitary napkin brand,
Happy Days. It also engages in various awareness programs on women's health, aiming to break
the taboos around menstruation and encourage healthy practices.
• Retail Pharmacy and Wellness:
HLL runs a chain of retail pharmacy outlets under the brand names AMRIT and HLL Lifecare
Pharmacy, offering a range of healthcare and wellness products. These outlets provide
medicines, health supplements, and wellness products at affordable prices, aiming to make
healthcare more accessible.
• Strategic Partnerships and Collaborations:
HLL collaborates with various national and international organizations, including the World
Health Organization (WHO), United Nations Population Fund (UNFPA), and various state
governments in India. These collaborations enhance its reach and impact in public health
initiatives. By partnering with global organizations, HLL ensures that its products and services
meet international standards.
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Date of March 1, 1966
Incorporation
Mode of Initially as a private limited company, later converted to a public limited company on
Incorporation February 2, 2012
Administrative Ministry of Health and Family Welfare, Government of India
Ministry
Present Status Government Company as per Companies Act 2013
Share Capital Authorized capital: Rs. 300 crore, Paid-up capital: Rs. 290.42 crore
4.2 SUBSIDIARIES AND HOLDINGS AND FACTORIES OF THE

COMPANY
HLL Lifecare Limited (HLL) has several subsidiaries and holdings, along with multiple manufacturing
facilities across India.
Subsidiaries and Holdings:
• HLL Infra Tech Services Ltd. (HITES): Provides infrastructure development and procurement
services in the healthcare sector.
• Goa Antibiotics and Pharmaceuticals Ltd. (GAPL): Manufactures ayurvedic and homeopathic
products, and operates retail pharmacy outlets in Goa.
• Hindustan Latex Family Planning Promotion Trust (HLFPPT): A not-for-profit organization
promoting family planning and reproductive health.
• HLL Management Academy (HMA): HMA is a not-for-profit-organisation, which is the
learning division of HLL. The Academy conducts specialized courses and training programes
for healthcare industry.
• LifeSpring Hospitals: Lifespring Hospitals, based in Hyderabad, hold an equity partnership
between HLL and Acumen Fund Inc., a U.S.-based nonprofit global venture philanthropy fund.
The hospital provides dignified maternity care and support services for the marginalised
population.
Production facilities:
• Peroorkada Factory, Trivandrum (PFT)

• Akkulam Factory, Trivandrum (AFT)
• Kanagala Factory, Belgaum (KFB)
• Kakkanad Factory, Cochin (KFC)
• Pharma Factory, Indore (PFI)
• Irapuram Factory, Cochin (IFC)
• Bhagwanpur Factory, Haridwar (BFH)
4.3 VISON AND MISSION

Our Vision
To be a globally respected organisation, focusing on inclusiveness by providing affordable and quality
healthcare solutions through continuous innovation.
Mission
To accomplish the Corporate Vision, HLL Lifecare Ltd has outlined following Mission which focus on
six key areas:
• Provide quality products and services meeting international standards.

• Excellence through continual improvement by adoption of best technologies and practices.
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• Customer delight and value creation through innovation, R & D, cost management and
customer care.
• Focusing on human resource development to meet the needs of challenging business
environment.
• Be a socially committed corporate by maintaining highest standards of corporate governance
and corporate social responsibility.
• Committed to the well-being of mother earth and future generations through green initiatives
and promotion of sustainable development.
4.4 PEROORKADA FACTORY
The manufacturing unit at Peroorkada, located in the Thiruvananthapuram district of Kerala, was
established in 1969 in technical collaboration with Okamoto Industries Inc., Japan. Over the years, the
plant has undergone continuous modernization and now boasts an annual production capacity of 1,947
million condoms. Equipped with state-of-the-art machinery and equipment for production, inspection,
and quality testing, the facility adheres to GMP standards and meets international benchmarks. This unit
produces various condom variants, featuring different flavors and textures.
The condoms produced at this facility hold certifications such as CE and SABS, and comply with a
range of international quality specifications and standards, including WHO 510K, ISO 4074, SANS
ISO 4074, ASTM D 3492, and GOST - 4645-81. Additionally, the facility is certified under ISO
9001:2015, ISO 14001:2015, ISO 13485:2016, ISO 45001:2018, WHO cGMP, and NABL as per ISO
17025.
4.4.1 PRODUCTS MANUFACTURED AT PFT:

• Male Condoms: Moods brand for the domestic market
• Female Condoms
• Assembly of sanitary napkin vending machines and incinerators
4.5 DEPARTMENTS OF PFT

➢ Primary production
• Compounding
• Moulding
• Vulcanization
➢ Secondary production
• Quality assurance
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• Electronic testing department
➢ Packaging
• Primary packaging
• Secondary packaging
➢ Stores
• Engineering
• Mechanical division
• Utilities
• Instrumentation
• Electrical division
• Boiler and chiller
➢ Material testing department
• Research and development department
• Material testing lab
➢ Purchase department
➢ Sales department
➢ Information technology
➢ Finance department
➢ Safety and security department
➢ Human resources department
➢ ETP and RO Plant.
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CHAPTER 5
INDUSTRY PROFILE
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5.1 HEALTHCARE INDUSTRY
The healthcare industry, often referred to as the medical industry or health economy, is a broad and
intricate sector that includes all businesses and organizations involved in delivering goods and services
related to human health and well-being. Here's an overview of its main components:
5.1.1 SCOPE OF THE INDUSTRY:

• Medical Services: This category covers hospitals, clinics, doctors, nurses, therapists, and other
healthcare professionals who provide diagnostic, preventive, curative, and rehabilitative care.
• Healthcare Products: This includes pharmaceuticals (medicines and drugs), medical devices
(equipment and instruments used in diagnosis and treatment), and other related products such
as personal protective equipment (PPE) and health supplements.
• Healthcare Finance: This involves health insurance companies, health maintenance
organizations (HMOs), and other financial entities that facilitate the funding of healthcare
services. It also includes public health funding, private health insurance, and government
programs like Medicare and Medicaid.
• Research and Development (R&D): This area includes pharmaceutical companies, research
institutions, and universities that develop new drugs, treatments, and medical technologies. It
also encompasses clinical trials and advancements in biotechnology.
• Public Health and Policy: This involves government and non-government organizations that
work on public health initiatives, policy-making, and regulation to ensure the safety, efficacy,
and accessibility of healthcare services.
• Health Information Technology (HIT): This includes the development and implementation of
electronic health records (EHRs), telemedicine, health information exchanges, and other digital
health innovations that enhance healthcare delivery and management.
• Education and Training: This covers medical schools, nursing schools, and other educational
institutions that train healthcare professionals. It also includes continuous professional
development and certification programs.
• Wellness and Preventive Care: This focuses on services and products aimed at maintaining
health and preventing diseases, including fitness centers, wellness programs, nutritional
counseling, and preventive screenings.
• Home Healthcare: This involves providing medical services and assistance to patients in their
homes, such as nursing care, physical therapy, and home health aides.
• Alternative and Complementary Medicine: This includes practices like acupuncture,
chiropractic care, herbal medicine, and other non-traditional treatments that are increasingly
being integrated into mainstream healthcare.
5.2 GLOBAL SCENARIO

The global healthcare industry is experiencing significant growth driven by various factors such as
aging populations, the prevalence of chronic diseases, technological advancements, and increased
health awareness and spending. This dynamic environment is shaping a future where healthcare is more
comprehensive, accessible, and effective for people worldwide. With a current value of around $10
trillion, the global healthcare industry is expected to continue growing. This growth is attributed to
several key factors. As populations around the world age, the demand for medical services is increasing.
Moreover, the rise in chronic diseases requires ongoing treatment and management. Technological
advancements, including artificial intelligence (AI) and telemedicine, are revolutionizing healthcare
delivery, making it more efficient and accessible than ever before. Furthermore, with higher disposable
incomes and greater awareness of health issues, people are investing more in their healthcare.
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5.3 INDIAN HEALTHCARE INDUSTRY
The Indian healthcare industry is one of the fastest-growing sectors, with a projected market size of
around $372 billion by 2022. Key aspects include:
Healthcare Services: Includes a vast network of hospitals, clinics, and primary care centers providing
diverse medical services.
Pharmaceuticals: India is a global leader in generic drug manufacturing, supplying over 50% of the
world's demand for various vaccines.
Medical Devices: Growing market for diagnostic equipment, surgical instruments, and medical
technologies.
Health Insurance: Increasing coverage with government schemes like Ayushman Bharat, aimed at
providing affordable healthcare to millions.
Telemedicine and Digital Health: Rapid adoption of telehealth services, especially accelerated by the
COVID-19 pandemic.
Public Health Initiatives: Focus on improving healthcare access and quality, addressing rural healthcare
needs, and combating diseases through vaccination programs.
India's healthcare industry is set for robust growth, driven by rising incomes, greater health awareness,
technological advancements, and supportive government policies.
5.4 INDIAN CONTRACEPTIVE INDUSTRY

The Indian contraceptive industry is a vital segment of the healthcare market, playing a crucial role in
family planning and reproductive health. This sector includes a wide range of products such as condoms,
oral contraceptive pills, intrauterine devices (IUDs), injectables, implants, and emergency
contraceptives. The industry is driven by both government initiatives and private sector involvement to
promote contraceptive use and address the growing need for effective family planning methods.
5.4.1 KEY FACTORS DRIVING GROWTH

Government Initiatives: The Indian government has implemented various programs and policies
aimed at improving access to contraceptive products and services. National campaigns and schemes
like the National Family Planning Program and Mission Parivar Vikas focus on increasing awareness
and availability of contraceptives, particularly in rural and underserved areas.
Awareness and Education: Increasing awareness about family planning and reproductive health
through education and media campaigns has significantly contributed to the growth of the contraceptive
market. NGOs and healthcare providers play a critical role in educating the public about the benefits
and usage of contraceptives.
Private Sector Participation: The involvement of private companies in manufacturing and distributing
contraceptive products has expanded the market. These companies invest in research and development
to introduce new and improved products that cater to the diverse needs of the population.
Rising Demand: The increasing need for effective contraceptive methods due to a growing population,
changing lifestyles, and higher literacy rates has driven the demand for contraceptives in India.
Major Products
• Condoms: Widely used due to their affordability, availability, and dual protection against
sexually transmitted infections (STIs) and pregnancy.
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• Oral Contraceptive Pills: Popular among women for their effectiveness and ease of use.
• Intrauterine Devices (IUDs): Long-term contraceptive solutions that are gaining popularity for
their convenience and effectiveness.
• Injectables and Implants: Emerging options that provide long-term contraception without the
need for daily administration.
5.5 COMPETITORS OF HLL LIFECARE LTD.

HLL Lifecare Ltd. (HLL), a government-owned corporation, is a major player in the Indian
contraceptive industry, known for its affordable and accessible contraceptive products. However, it
faces competition from several other companies, both domestic and international. Key competitors
include:
• Mankind Pharma: A leading pharmaceutical company in India, Mankind Pharma offers a wide
range of contraceptive products, including condoms, oral contraceptive pills, and emergency
contraceptives. Their brand "Unwanted" is well-known in the oral contraceptive segment.
• Durex (Reckitt Benckiser): Durex is a globally recognized brand of condoms and is known for
its high-quality products. It competes with HLL's condom brands in the premium segment of
the market.
• Bayer Zydus Pharma: This joint venture between Bayer and Zydus Cadila offers various
contraceptive options, including oral pills and IUDs. Bayer's brand "Yasmin" is a well-known
oral contraceptive in the market.
• Pfizer: Pfizer, a global pharmaceutical giant, provides oral contraceptive pills and other
reproductive health products, competing with HLL in the contraceptive pills segment.
• Cipla: Cipla is a prominent Indian pharmaceutical company offering a range of contraceptive
products, including emergency contraceptive pills and IUDs, under various brand names.
• TTK Healthcare: Known for its popular condom brand "Skore," TTK Healthcare is a significant
competitor in the condom market, challenging HLL's dominance.
• Merck (MSD India): Merck offers a variety of contraceptive products, including oral pills and
long-acting reversible contraceptives (LARCs), competing in the higher-end segment of the
market.
HLL Lifecare Ltd. continues to maintain a strong presence in the Indian contraceptive market through
its diverse product range, affordability, and government backing. However, competition from both
domestic and international players drives innovation and improvements in product quality and
accessibility, ultimately benefiting consumers.
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CHAPTER 6
DATA ANALYSIS AND INTERPRETATION
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6.1 WORKING CAPITAL MANAGEMENT OF HLL PFT FACTORY
Working capital management is a critical aspect of financial management that involves managing the
short-term assets and liabilities of a company to ensure operational efficiency and financial stability.
Effective working capital management ensures that a company has sufficient liquidity to meet its short-
term obligations and invest in its operations. The main components of working capital are current assets
(such as cash, accounts receivable, and inventory) and current liabilities (such as accounts payable and
short-term debt).
Importance of Working Capital Management
• Liquidity Management: Ensures that the company has enough cash flow to meet its short-term
liabilities.
• Operational Efficiency: Helps in maintaining the smooth operation of the business by managing
the cash conversion cycle.
• Profitability Enhancement: Efficient management can lead to reduced financing costs and
increased profitability.
• Risk Management: Mitigates the risk of insolvency by maintaining a balance between current
assets and current liabilities.
6.2 WORKING CAPITAL RATIOS OF HLL PFT FACTORY

Working capital ratios are financial metrics used to assess the efficiency and effectiveness of a
company's working capital management. These ratios provide insights into liquidity, operational
efficiency, and overall financial health. Here are the key working capital ratios explained in detail:
1. Current Ratio
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
The Current Ratio measures a company's ability to pay off its short-term liabilities with its
short-term assets. It is a liquidity ratio that indicates the financial health of a company. A ratio
above 1 indicates that the company has more current assets than current liabilities, suggesting
a healthy liquidity position.
2. Quick Ratio (Acid-Test Ratio)

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠−𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
The Quick Ratio, also known as the Acid-Test Ratio, provides a more stringent measure of
liquidity by excluding inventory from current assets. A ratio above 1 indicates that the company
can meet its short-term liabilities without relying on the sale of inventory.
3. Cash Ratio
𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝐶𝑎𝑠ℎ 𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠
𝐶𝑎𝑠ℎ 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
The Cash Ratio measures the company's ability to pay off short-term liabilities with its most
liquid assets. This ratio focuses strictly on cash and cash equivalents, providing the most
conservative measure of liquidity.
4. Working Capital Turnover Ratio
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𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
The Working Capital Turnover Ratio shows how efficiently a company is using its working
capital to generate sales. A higher ratio indicates efficient use of working capital to generate
sales.
5. Inventory Turnover Ratio
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
The Inventory Turnover Ratio measures how many times inventory is sold and replaced over a
period.
6. Accounts Receivable Turnover Ratio

𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
This ratio measures how efficiently a company collects receivables from its customers. A higher
ratio indicates efficient inventory management.
7. Payables Turnover Ratio
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠
𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒
The Accounts Receivable Turnover Ratio measures how efficiently a company collects
receivables from its customers. A higher ratio indicates efficient collection processes.
8. Days Inventory Outstanding (DIO)

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
𝐷𝐼𝑂 = × 365
Days Inventory Outstanding (DIO) measures the average number of days that inventory is held
before it is sold. A lower DIO indicates that inventory is being sold quickly.
9. Days Sales Outstanding (DSO)

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
𝐷𝑆𝑂 = × 365
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
Days Sales Outstanding (DSO) measures the average number of days it takes to collect payment
from customers. A lower DSO indicates that the company is collecting receivables more
quickly.
10. Operating Cycle

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑦𝑐𝑙𝑒 = 𝐷𝑎𝑦𝑠 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 + 𝐷𝑎𝑦𝑠 𝑆𝑎𝑙𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
The Operating Cycle measures the total time taken to convert inventory into cash. It is the sum
of DIO and DSO. A shorter operating cycle indicates faster conversion of inventory into cash.
11. Days Payable Outstanding (DPO)

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒
𝐷𝑃𝑂 = × 365
20
Days Payable Outstanding (DPO) measures the average number of days it takes for a company
to pay its suppliers. A higher DPO indicates that the company is taking longer to pay its
suppliers, which can be advantageous for cash flow.
12. Cash Conversion Cycle (CCC)

𝐶𝐶𝐶 = 𝐷𝑎𝑦𝑠 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 + 𝐷𝑎𝑦𝑠 𝑆𝑎𝑙𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
− 𝐷𝑎𝑦𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
The Cash Conversion Cycle (CCC) measures the time taken to convert resource inputs into cash
flows. It is the difference between the operating cycle and DPO. A shorter CCC indicates a more
efficient conversion of inventory and receivables into cash.
6.3 SCENARIO-BASED WORKING CAPITAL FORECASTING OF HLL

PFT FACTORY
Working capital is a critical component of a company's operational efficiency and short-term financial
health. Effective management of working capital ensures that a company can meet its short-term
obligations and operate smoothly. Scenario-based working capital forecasting is a strategic tool that
helps businesses anticipate future needs and prepare for various potential outcomes. Here’s why it’s
essential:
1. Preparation for Uncertainty
Business environments are inherently uncertain, with factors such as economic conditions, market
trends, and internal changes impacting operations. Scenario-based forecasting allows companies to
prepare for these uncertainties by considering multiple potential futures. This preparation helps in:
• Mitigating risks associated with cash flow shortages.
• Ensuring liquidity during economic downturns or unexpected events.
2. Strategic Decision Making
By analyzing different scenarios, businesses can make more informed strategic decisions.
Understanding how various factors affect working capital components enables management to:
• Allocate resources efficiently.
• Plan for investments or expansions in favorable conditions.
• Implement cost-cutting measures or secure additional financing in adverse conditions.
3. Enhanced Financial Planning
Scenario-based forecasting integrates financial planning with operational strategies, providing a
comprehensive view of the company's financial health. This holistic approach helps in:
• Identifying trends and patterns in working capital components.
• Setting realistic financial goals and targets.
• Aligning operational activities with financial objectives.
4. Risk Management
Understanding the impact of different scenarios on working capital helps in developing robust risk
management strategies. Businesses can:
21
• Create contingency plans for adverse scenarios to ensure continuity.
• Manage supplier and customer relationships more effectively by anticipating changes in
payables and receivables.
• Optimize inventory levels to prevent overstocking or stockouts.
5. Improved Cash Flow Management
Effective working capital management is crucial for maintaining healthy cash flow. Scenario-based
forecasting helps in:
• Predicting future cash inflows and outflows.
• Ensuring that there are sufficient funds to cover operational expenses.
• Reducing the need for expensive short-term borrowing by anticipating cash shortages.
6. Optimizing Operational Efficiency
By understanding the dynamics of working capital under different scenarios, businesses can optimize
their operations. This includes:
• Streamlining inventory management to reduce holding costs.
• Enhancing receivables collection processes to improve cash inflow.
• Negotiating better payment terms with suppliers to extend payables without harming
relationships.
6.4 SCHEDULE OF CHANGES IN WORKING CAPITAL OF HLL PFT

FACTORY
A schedule of changes in working capital provides a detailed breakdown of changes in the components
of working capital over a specific period. This schedule helps in understanding the factors contributing
to changes in working capital and assists in planning for future needs.
Benefits of Analysing an SCWC:
• Understanding Working Capital Management: The SCWC helps assess a company's ability
to meet its short-term obligations. A positive change in working capital (current assets
increasing faster than current liabilities) could indicate improved liquidity.
• Identifying Efficiency: Changes in specific current asset categories (e.g., inventory) can reveal
if the company is managing its resources effectively. Decreases in inventory might indicate
improved sales efficiency, while increases could suggest potential overstocking or supply chain
issues.
• Financial Performance Insights: Analysed alongside other financial statements, the SCWC
can provide valuable insights into a company's overall financial performance and future
prospects.
Limitations of an SCWC:
• Seasonal Fluctuations: Working capital can fluctuate due to seasonal factors. It's important to
consider seasonality when analysing the SCWC.
• Limited Context: The SCWC doesn't provide the reasons behind the changes. Further analysis
of other financial statements is needed to understand the underlying causes.
22
RATIO ANALYSIS OF HLL PFT FACTORY
1. CURRENT RATIO
Table 1: Current Ratio

Year Current assets Current Liabilities Current Ratio
2018-19 4074703888 4,77,94,93,776.28 0.8525388
2019-20 4340381208 4,32,96,27,522.08 1.002483744
2020-21 4293083316 4,27,55,27,994.50 1.004106001
2021-22 4542366064 4,33,80,30,428.54 1.04710332
2022-23 4793782547 4,21,03,56,498.92 1.138569275
AVERAGE 1.008960228
Chart 1: Current Ratio

1.2 1.138569275
1.04710332
1.002483744 1.004106001
1
0.8525388
0.8
0.6
0.4
0.2
0
2018-19 2019-20 2020-21 2021-22 2022-23
Interpretation
Over the five years from 2018-19 to 2022-23, the company's current ratio has improved. On
average, the current ratio was about 1.009, meaning the company just had enough current assets
to cover its short-term debts. Initially, in 2018-19, the ratio was below 1, which indicated
potential problems in paying short-term debts. However, each year showed improvement, with
the ratio reaching 1.139 in 2022-23. This upward trend shows that the company has become
better at managing its finances and is now more capable of paying off its short-term debts. This
improvement highlights successful strategies in working capital management, ensuring the
company is in a strong position to handle its financial obligations.
23
2. Quick Ratio
Table 2: Quick Ratio
Year Quick Assets Current Liabilities Quick Ratio

2018-19 3,70,24,25,567.65 4,77,94,93,776.28 0.774648057
2019-20 3,81,16,56,127.26 4,32,96,27,522.08 0.88036583
2020-21 3,71,88,63,316.07 4,27,55,27,994.50 0.869802121
2021-22 3,92,26,21,122.85 4,33,80,30,428.54 0.904240113
2022-23 3,86,52,79,693.64 4,21,03,56,498.92 0.918040953
AVERAGE 0.87
Chart 2: Quick Ratio

0.95
0.918040953
0.904240113
0.9
0.88036583
0.869802121
0.85
0.8
0.774648057
0.75
0.7
2018-19 2019-20 2020-21 2021-22 2022-23
Interpretation
The Quick Ratio shows an overall increasing trend from 0.77 in 2018-19 to 0.92 in 2022-23, indicating
an improvement in liquidity. The average Quick Ratio over these five years is 0.87, which is below the
ideal benchmark of 1.0, suggesting that while the company’s liquidity position has improved, it may
still face challenges in covering its short-term liabilities without selling inventory. This gradual increase
reflects positively on the company's financial health, signalling a strengthening ability to meet
immediate liabilities with its most liquid assets.
24
3. Cash Ratio
Table 3: Cash Ratio

Year Cash Current Liabilities Cash Ratio
2018-19 2,75,92,33,932.93 4,77,94,93,776.28 0.577306732
2019-20 2,75,77,12,317.91 4,32,96,27,522.08 0.636939853
2020-21 2,76,15,61,773.80 4,27,55,27,994.50 0.645899589
2021-22 3,24,97,49,166.78 4,33,80,30,428.54 0.7491301
2022-23 2,91,57,62,880.48 4,21,03,56,498.92 0.692521615
AVERAGE 0.660359578
Chart 3: Cash Ratio

0.8 0.7491301
0.692521615
0.7 0.636939853 0.645899589
0.577306732
0.6
0.5
0.4
0.3
0.2
0.1
0
2018-19 2019-20 2020-21 2021-22 2022-23
Interpretation
The Cash Ratio shows a generally increasing trend over the period, rising from 0.58 in 2018-19 to
0.75 in 2021-22 before slightly decreasing to 0.69 in 2022-23. The average Cash Ratio over these
five years is approximately 0.66, which is below the ideal benchmark of 1.0, suggesting that the
company may still face difficulties in meeting its short-term liabilities using only its cash reserves.
However, the improvement in the ratio over time reflects positively on the company's liquidity
management, indicating a stronger position in handling short-term obligations with available cash.
This trend demonstrates a cautious but consistent effort by the company to bolster its cash
reserves relative to its current liabilities.
25
Table 4: Working Capital Turnover Ratio

Working Capital
Year Net Sales Average Working Capital
Turnover Ratio
2018-19 1,26,23,19,361.91 -95,92,08,642.43 -1.316000822
2019-20 1,39,79,75,474.37 -34,70,18,101.16 -4.028537617
2020-21 1,33,20,47,732.64 1,41,54,503.67 94.1076963
2021-22 1,21,66,67,731.04 11,09,45,478.55 10.96635705
2022-23 1,41,07,22,455.83 39,38,80,841.57 3.581597039
AVERAGE 20.6622224
Chart 4: Working Capital Turnover Ratio

100 94.1076963
80
60
40
20
10.96635705
3.581597039
-1.316000822 -4.028537617
0
2018-19 2019-20 2020-21 2021-22 2022-23
-20
Interpretation
Over the five years from 2018-19 to 2022-23, the company's working capital turnover ratio varied
widely. The average ratio was about 20.66, indicating that, on average, the company generated
₹20.66 in sales for every ₹1 of working capital. However, the early years showed negative ratios,
meaning the company was struggling to manage its working capital effectively, possibly due to
having negative working capital. In recent years, the ratio improved significantly, demonstrating
that the company became much better at using its working capital to generate sales. This
improvement highlights the company's enhanced efficiency in managing its resources and its ability
to generate more sales from its working capital over time.
26
Table 5: Inventory Turnover Ratio

Inventory Turnover
Year Cost of Goods Sold (COGS) Average Inventory
Ratio
2018-19 1,45,52,89,233.57 11,94,00,268.92 12.18832459
2019-20 1,77,32,95,835.40 27,63,78,128.25 6.416194533
2020-21 1,65,17,32,289.70 33,31,22,835.12 4.958328027
2021-22 2,02,98,06,533.49 38,57,86,250.75 5.261479717
2022-23 2,46,67,30,106.91 56,65,32,752.19 4.354082085
AVERAGE 6.63568179
Chart 5: Inventory Turnover Ratio

14
12.18832459
12
10
8
6.416194533
6 4.958328027 5.261479717
4.354082085
4
0
2018-19 2019-20 2020-21 2021-22 2022-23
Interpretation
Over the observed period, there is a noticeable decline in the Inventory Turnover Ratio, starting at
12.19 in 2018-19 and dropping to 4.35 in 2022-23. The average Inventory Turnover Ratio across
these years is approximately 6.64. This declining trend suggests that the company is taking longer
to sell its inventory, which could imply overstocking, decreased sales efficiency, or reduced
demand for its products. This trend might signal potential inefficiencies in inventory management
or changes in market conditions affecting sales performance. Effective inventory management is
crucial, and this downward trend indicates that the company may need to reassess its inventory
strategies to improve turnover and operational efficiency.
27
Table 6: Accounts Receivable Turnover Ratio

Accounts Receivable
Year Net Credit Sales
Average Accounts Receivable Turnover Ratio
2018-19 1,26,23,19,361.91 47,15,95,817.36 2.676697535
2019-20 1,39,79,75,474.37 99,85,67,722.04 1.399980636
2020-21 1,33,20,47,732.64 1,00,56,22,675.81 1.324599937
2021-22 1,21,66,67,731.04 81,50,86,749.17 1.492684959
2022-23 1,41,07,22,455.83 81,11,94,384.62 1.73906832
AVERAGE 1.726606277
Chart 6: Accounts Receivable Turnover Ratio

3
2.676697535
2.5
2
1.73906832
1.492684959
1.5 1.399980636 1.324599937
0.5
0
2018-19 2019-20 2020-21 2021-22 2022-23
Interpretation
Over the five years from 2018-19 to 2022-23, the company's average accounts receivable turnover
ratio was about 1.73. This means, on average, the company collected its receivables about 1.73
times a year. The ratio varied from year to year, showing that there were some periods when the
company was more efficient at collecting money and others when it was less so. Overall, a higher
ratio indicates better performance, as the company collects its debts more quickly. Although the
company's efficiency in collecting receivables fluctuated, the average ratio suggests that it was
generally able to manage its credit sales and collections effectively. This stability in the average
accounts receivable turnover ratio highlights the company's ability to maintain a relatively
consistent collection process over the years.
28
Table 7: Payables Turnover Ratio

Year Net Credit Purchase Average Accounts Payable Payable Turnover Ratio
2018-19 47,87,63,703.91 9,39,34,078.71 5.09681
2019-20 70,55,81,242.09 9,22,50,253.04 7.64856
2020-21 60,96,08,613.66 10,00,32,814.46 6.09409
2021-22 83,07,94,672.91 9,11,09,126.14 9.11868
2022-23 1,11,80,99,480.56 14,05,92,641.82 7.95276
AVERAGE 7.18218
Chart 7: Payable Turnover Ratio

10.00000
9.11868
9.00000
7.95276
8.00000 7.64856
7.00000
6.09409
6.00000
5.09681
5.00000
4.00000
3.00000
2.00000
1.00000
0.00000
2018-19 2019-20 2020-21 2021-22 2022-23
Interpretation
Over the five years from 2018-19 to 2022-23, the company's average payables turnover
ratio was about 7.18. This means that, on average, the company paid its suppliers around 7
times a year. A higher ratio indicates that the company is paying its suppliers quickly, which
can be a sign of good financial health and strong relationships with suppliers. Conversely,
a lower ratio might suggest slower payments, which could indicate cash flow problems.
The variation in the yearly ratios shows that the company’s speed of paying its suppliers
has fluctuated, but the overall average suggests it has been relatively prompt in settling its
accounts. This consistency in paying suppliers helps maintain good credit terms and ensures
a smooth supply chain.
29
8. Days Inventory Outstanding
Table 8: Days Inventory Outstanding

Year Avg Inventory Cost of Goods Sold (COGS) DIO
2018-19 11,94,00,268.92 1,45,52,89,233.57 29.9466918
2019-20 27,63,78,128.25 1,77,32,95,835.40 56.88730261
2020-21 33,31,22,835.12 1,65,17,32,289.70 73.61352416
2021-22 38,57,86,250.75 2,02,98,06,533.49 69.37211956
2022-23 56,65,32,752.19 2,46,67,30,106.91 83.82937962
AVERAGE 62.72980355
Chart 8: DIO
90 83.82937962
80 73.61352416
69.37211956
70
60 56.88730261
50
40
29.9466918
30
20
10
0
2018-19 2019-20 2020-21 2021-22 2022-23
Interpretation
DIO shows a clear increasing trend, rising from approximately 30 days in 2018-19 to nearly 84
days in 2022-23. The average DIO over these five years is about 63 days. This upward trend
suggests that the company is taking progressively longer to convert its inventory into sales, which
could imply slower-moving inventory, overstocking, or declining sales efficiency. The increasing
DIO can be a sign of inefficiencies in inventory management, potentially leading to higher
holding costs and reduced liquidity. To address this, the company may need to reassess its
inventory policies, improve demand forecasting, or enhance its sales strategies to reduce the
inventory holding period and optimize operational efficiency.
30
9. Days Sale Outstanding
Table 9: Days Sale Outstanding

Year Avg Accounts Receivable Net Credit Sales DSO
2018-19 47,15,95,817.36 1,26,23,19,361.91 136.3620638
2019-20 99,85,67,722.04 1,39,79,75,474.37 260.7178919
2020-21 1,00,56,22,675.81 1,33,20,47,732.64 275.5548977
2021-22 81,50,86,749.17 1,21,66,67,731.04 244.5258108
2022-23 81,11,94,384.62 1,41,07,22,455.83 209.8824961
AVERAGE 225.4086321
Chart 9: DSO
300 275.5548977
260.7178919
244.5258108
250
209.8824961
200
150 136.3620638
100
50
0
2018-19 2019-20 2020-21 2021-22 2022-23
Interpretation
Over the five years from 2018-19 to 2022-23, the company's average DSO was about
225.41 days. This means that, on average, it took the company around 225 days to collect
payments from its customers. A lower DSO is generally better because it means the
company is collecting its receivables quickly. However, a higher DSO can indicate that the
company is taking longer to collect payments, which can affect its cash flow. The yearly
data shows that the company's DSO has varied, with some years taking longer to collect
payments than others. Overall, the average DSO suggests that the company takes about
seven and a half months to collect its receivables.
31
10. Operating Cycle
Table 10: Operating Cycle

Year DIO DSO Operating Cycle
2018-19 29.9466918 136.3620638 166.3087556
2019-20 56.88730261 260.7178919 317.6051945
2020-21 73.61352416 275.5548977 349.1684218
2021-22 69.37211956 244.5258108 313.8979304
2022-23 83.82937962 209.8824961 293.7118758
AVERAGE 288.1384356
Chart 10: Operating Cycle

400
349.1684218
350 317.6051945 313.8979304
293.7118758
300
250
200 166.3087556
150
100
50
0
2018-19 2019-20 2020-21 2021-22 2022-23
Interpretation
Over the given period, the Operating Cycle has shown a significant increase from 166.31 days in 2018-
19 to 293.71 days in 2022-23, with an average of 288.14 days. The rising trend in the Operating Cycle
suggests that the company is taking longer to convert its inventory into cash. This is driven by increases
in both DIO and DSO, indicating potential inefficiencies in inventory management and receivables
collection. Specifically, the increase in DIO highlights a slower inventory turnover, while the rise in
DSO points to delays in collecting payments from customers. These extended durations can impact the
company's cash flow and liquidity, potentially leading to higher working capital requirements and
increased financial costs. To improve its Operating Cycle, the company may need to focus on
optimizing inventory levels, enhancing sales processes, and tightening credit policies to reduce the time
taken to collect receivables.
32
11. Days Payable Outstanding
Table 11: Days Payable Outstanding

Year Average Accounts Payable Cost of Goods Sold (COGS) DPO
2018-19 9,39,34,078.71 1,45,52,89,233.57 23.55953575
2019-20 9,22,50,253.04 1,77,32,95,835.40 18.98800058
2020-21 10,00,32,814.46 1,65,17,32,289.70 22.10526337
2021-22 9,11,09,126.14 2,02,98,06,533.49 16.38325155
2022-23 14,05,92,641.82 2,46,67,30,106.91 20.80337615
AVERAGE 20.36788548
Chart 11: DPO

25 23.55953575
22.10526337
20.80337615
20 18.98800058
16.38325155
15
10
0
2018-19 2019-20 2020-21 2021-22 2022-23
Interpretation
DPO measures the average number of days the company takes to pay its suppliers, calculated as
(Average Accounts Payable / Cost of Goods Sold) * 365. Over the observed period, DPO fluctuates,
starting at approximately 23.56 days in 2018-19, dipping to around 16.38 days in 2021-22, and rising
to about 20.80 days in 2022-23, with an average of approximately 20.37 days. This variability suggests
that the company’s payment practices to suppliers are not consistent year over year. A lower DPO
indicates faster payments to suppliers, enhancing supplier relationships but potentially straining the
company's cash flow. Conversely, a higher DPO means the company is taking longer to pay its suppliers,
which can improve short-term liquidity but might risk supplier satisfaction and lead to less favorable
credit terms. Overall, while the company has generally maintained a relatively short DPO, indicating a
tendency towards prompt payment practices, it might benefit from evaluating its payment strategies to
balance maintaining good supplier relationships and optimizing cash flow.
33
12. Cash Conversion Cycle
Table 12: Cash Conversion Cycle

Year Operating Cycle DPO CCC
2018-19 166.3087556 23.55953575 142.7492198
2019-20 317.6051945 18.98800058 298.6171939
2020-21 349.1684218 22.10526337 327.0631585
2021-22 313.8979304 16.38325155 297.5146788
2022-23 293.7118758 20.80337615 272.9084996
AVERAGE 267.7705501
Chart 12: CCC

350 327.0631585
298.6171939 297.5146788
300 272.9084996
250
200
142.7492198
150
100
50
0
2018-19 2019-20 2020-21 2021-22 2022-23
Interpretation
The CCC measures the average time in days that a company takes to convert its investments in
inventory and other resources into cash flows from sales. Over this period, the CCC increased
significantly from approximately 143 days in 2018-19 to nearly 273 days in 2022-23, with an
average of around 268 days. This rising trend suggests that the company is taking longer to convert
its investments into cash, indicating potential inefficiencies in managing inventory, receivables, and
payables. The longer CCC implies that the company may face challenges in maintaining liquidity
and may need additional working capital to support its operations. To improve its cash flow cycle,
the company should consider strategies to enhance inventory management, expedite receivables
collection, and optimize payables timing.
34
SCHEDULE OF CHANGES IN WORKING CAPITAL OF HLL PFT
FACTORY
2018 – 2019
Table 30
Schedule of Change in Working Capital for year 2018 and 2019
Particulars 2018-19 2019-20 Increase/Decrease % Change
Current Assets
Cash and Cash 2,759,233,932.93 2,757,712,317.91 -1,521,615.02 -0.06
equivalent
Trade 943,191,634.72 1,053,943,809.35 110,752,174.63 11.74
Receivables
Inventory 238,800,537.84 313,955,718.65 75,155,180.81 31.47
Other Current 133,477,782.93 214,769,361.72 81,291,578.79 60.90
Assets
Total Current 4,074,703,888.42 4,340,381,207.63 265,677,319.21 6.52
Assets
Current Liabilities
Trade Payables 101,798,539.28 82,701,966.79 -19096572.49 -18.76
Current Provision 87,009,490.36 122,102,509.11 35093018.75 40.33
Other Current 4,590,685,746.64 4,124,823,046.18 -465862700.5 -10.15
Liability
Total Current 4,779,493,776.28 4,329,627,522.08 -449,866,254.20 -9.41
Liabilities
Working Capital -704,789,887.86 10,753,685.55 715,543,573.41 101.53
Interpretation:
The above schedule of change in working capital for the financial year 2018 and 2019, shows that the
working capital has tremendously increased by 101.53% from the year 2018.
It was because in 2019-20 there was increase in total current assets and also decrease in trade payables
leading to a good working capital compared to the previous year.
35
2019 – 2020
Table 31
Particulars 2019 2020 Increase/Decrease % Change
Current Assets
Cash and Cash 2,757,712,317.91 2,761,561,773.80 3,849,455.89 0.14
equivalent
Trade 1,053,943,809.35 957,301,542.27 -96,642,267.08 -9.17
Receivables
Inventory 313,955,718.65 352,289,951.58 38,334,232.93 12.21
Other Current 214,769,361.72 221,930,048.63 7,160,686.91 3.33
Assets
Total Current 4,340,381,207.63 4,293,083,316.28 -47,297,891.35 -1.09
Assets
Current Liabilities
Trade Payables 82,701,966.79 117,363,662.13 34,661,695.34 41.91
Current Provision 122,102,509.11 79,009,281.64 -43093227.47 -35.29
Other Current 4,124,823,046.18 4,079,155,050.73 -45667995.45 -1.11
Liability
Total Current 4,329,627,522.08 4,275,527,994.50 -54,099,527.58 -1.25
Liabilities
Working 10,753,685.55 17,555,321.78 6,801,636.23 63.25
Capital
Interpretation:
The above schedule of change in working capital for the financial year 2019 and 2020 shows that the
working capital has increased further more by 63.25 %.
There was subsequent increase in trade payables and a 35.29% decrease in current provision. All this
led to increase in working capital for the year 2020-21.
36
2020 – 2021
Table 32
Current Assets
Cash and Cash 2,761,561,773.80 3,249,749,166.78 488,187,392.98 17.68
equivalent
Trade 957,301,542.27 672,871,956.07 -284,429,586.20 -29.71
Receivables
Inventory 352,289,951.58 419,282,549.91 66,992,598.33 19.02
Other Current 221,930,048.63 200,462,391.11 -21,467,657.52 -9.67
Assets
Total Current 4,293,083,316.28 4,542,366,063.87 249,282,747.59 5.81
Assets
Current Liabilities
Trade Payables 117,363,662.13 64,854,590.15 -52,509,071.98 -44.74
Current Provision 79,009,281.64 56,343,458.81 -22665822.83 -28.69
Other Current 4,079,155,050.73 4,216,832,379.58 137677328.9 3.38
Liability
Total Current 4,275,527,994.50 4,338,030,428.54 62,502,434.04 1.46
Liabilities
Working Capital 17,555,321.78 204,335,635.33 186,780,313.55 1063.95
Interpretation:
The above schedule of change in working capital for the financial year 2020 and 2021 shows that the
working capital has drastically increased by 1063.95%.
This was mainly due to 17.68% increase in cash and cash equivalent and 44.74% decrease in trade
payables and 28.69 % decrease in provision compared to the previous year.
37
2021 – 2022
Table 33
Current Assets
Cash and Cash 3,249,749,166.78 2,915,762,880.48 -333,986,286.30 -10.28
equivalent
Trade Receivables 672,871,956.07 949,516,813.16 276,644,857.09 41.11
Inventory 419,282,549.91 713,782,954.47 294,500,404.56 70.24
Other Current 200,462,391.11 214,719,898.59 14,257,507.48 7.11
Assets
Total Current 4,542,366,063.87 4,793,782,546.70 251,416,482.83 5.53
Assets
Current Liabilities
Trade Payables 64,854,590.15 216,330,693.48 151,476,103.33 233.56
Current Provision 56,343,458.81 75,161,905.30 18818446.49 33.40
Other Current 4,216,832,379.58 3,918,863,900.14 -297968479.4 -7.07
Liability
Total Current 4,338,030,428.54 4,210,356,498.92 -127,673,929.62 -2.94
Liabilities
Working Capital 204,335,635.33 583,426,047.78 379,090,412.45 185.52
Interpretation:
The above schedule of change in working capital for the financial year 2021 and 2022 shows that
there has been a 185% increase in working capital over the previous year.
Even though there was a decrease in cash and cash equivalent by 10.28% and also increase in trade
payables by 233%, the company was able to manage to get more working capital because of 70%
increase in the inventory.
38
SCENARIO-BASED WORKING CAPITAL FORECASTING OF HLL
PFT FACTORY
1. Introduction
Working capital management is a crucial aspect of a company's financial health. This analysis focuses
on forecasting working capital under different scenarios to prepare for potential changes in the
business environment.
2. Data Overview
The dataset includes financial metrics for multiple years. The relevant columns in the dataset are:
• Date
• Current assets
• Inventory
• Receivables
• Cash
• Current liabilities
• Payables
• Short-term debt
• Net sales
• Total revenue
• Cost of goods sold (COGS)
• Net profit
• Working capital
3. Calculating Sales Growth Rate
The sales growth rate is calculated using historical net sales data. The formula used is:
𝑆𝑎𝑙𝑒𝑠 𝑖𝑛 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑃𝑒𝑟𝑖𝑜𝑑 − 𝑆𝑎𝑙𝑒𝑠 𝑖𝑛 𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑃𝑒𝑟𝑖𝑜𝑑

𝑆𝑎𝑙𝑒𝑠 𝐺𝑟𝑜𝑤𝑡ℎ 𝑅𝑎𝑡𝑒 = ( ) × 100
𝑆𝑎𝑙𝑒𝑠 𝑖𝑛 𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑃𝑒𝑟𝑖𝑜𝑑
Python Code:
import pandas as pd
# Load the data

data = pd.read_excel('/mnt/data/DATA.xlsx')
# Clean column names

data.columns = data.columns.str.strip()
# Calculate the sales growth rate

data['Sales Growth Rate'] = data['Net Sales'].pct_change() * 100
# Display the sales growth rates

sales_growth_rates = data[['Date', 'Net Sales', 'Sales Growth Rate']].dropna()
print(sales_growth_rates)
39
4. Historical Sales Growth Rates
The historical sales growth rates calculated are:
• From 2018-19 to 2019-20: 10.75%

• From 2019-20 to 2020-21: −4.72%
• From 2020-21 to 2021-22: −8.66%
• From 2021-22 to 2022-23: 15.95%
5. Defining Scenarios
Based on historical growth rates, the following scenarios are defined:
• Base Case: Average historical growth rate

• Optimistic Case: Highest historical growth rate
• Pessimistic Case: Lowest historical growth rate
• Stress Case: Assumes a significant decline in sales
Assumptions:
• Base Case: Represents the expected growth under normal business conditions.
• Optimistic Case: Represents an optimistic outlook with maximum historical growth.
• Pessimistic Case: Represents a cautious outlook with minimum historical growth.
• Stress Case: Represents an adverse scenario with significant sales decline.
Python Code:
# Define scenarios
base_growth = sales_growth_rates['Sales Growth Rate'].mean()
optimistic_growth = sales_growth_rates['Sales Growth Rate'].max()
pessimistic_growth = sales_growth_rates['Sales Growth Rate'].min()
stress_growth = -10 # assuming a significant decline for stress scenario
# Initial values for the forecast
initial_sales = data['Net Sales'].iloc[-1]
# Define the forecasting function
def forecast_sales(initial_sales, growth_rate, periods=1):
sales_forecast = initial_sales * (1 + growth_rate / 100) ** periods
return sales_forecast
40
# Forecast sales for each scenario
forecast_base = forecast_sales(initial_sales, base_growth)
forecast_optimistic = forecast_sales(initial_sales, optimistic_growth)
forecast_pessimistic = forecast_sales(initial_sales, pessimistic_growth)
forecast_stress = forecast_sales(initial_sales, stress_growth)
# Display the forecasted sales
forecasted_sales = pd.DataFrame({
'Scenario': ['Base Case', 'Optimistic Case', 'Pessimistic Case', 'Stress

Case'],
'Forecasted Sales': [forecast_base, forecast_optimistic, forecast_pessimistic,

forecast_stress]
})
print(forecasted_sales)
6. Forecasting Sales
Using the defined scenarios, the forecasted sales for each scenario are:
• Base Case: ₹1,457,694,000

• Optimistic Case: ₹1,635,728,000
• Pessimistic Case: ₹1,288,528,000
• Stress Case: ₹1,269,650,000
7. Estimating Working Capital Components
Estimating working capital components is essential for understanding the financial health of a
company. Working capital is the difference between a company’s current assets and current liabilities,
and it indicates the company’s efficiency and short-term financial health. To forecast working capital
under different scenarios, we need to estimate the future values of its key components: receivables,
payables, and inventory.
Why Use Historical Average Ratios?
Using historical average ratios to estimate working capital components provides a consistent and
realistic basis for forecasting. These ratios help us understand the relationship between sales (or
COGS) and the working capital components. Here’s why each ratio is important:
1. Receivables to Sales Ratio:

o Purpose: Indicates how much of the sales are tied up in receivables.
41
o Need: Helps in understanding how quickly the company collects cash from its
customers. A high ratio could indicate that a significant portion of sales is not yet
collected, impacting liquidity.
2. Payables to COGS Ratio:
o Purpose: Shows how much of the COGS is financed by payables.
o Need: Helps in assessing how much credit the company is getting from its suppliers.
A higher ratio indicates that the company relies more on supplier credit, which can be
beneficial for liquidity but risky if not managed properly.
3. Inventory to Sales Ratio:
o Purpose: Measures how much inventory is held relative to sales.
o Need: Helps in determining the efficiency of inventory management. A higher ratio
could indicate overstocking, which ties up capital, while a lower ratio could indicate
efficient inventory management.
Formulas Used:
To project the working capital components for future scenarios, we use these historical average ratios:
• Receivables: Forecasted Sales * Receivables to Sales Ratio

o Explanation: This formula estimates the future receivables based on the projected
sales and the historical average proportion of sales that are tied up in receivables.
• Payables: Forecasted COGS * Payables to COGS Ratio
o Explanation: This formula estimates the future payables based on the projected
COGS and the historical average proportion of COGS that are financed by payables.
• Inventory: Forecasted Sales * Inventory to Sales Ratio
o Explanation: This formula estimates the future inventory levels based on the
projected sales and the historical average proportion of sales that are held in
inventory.
Python Code:
# Calculate historical ratios

data['Receivables to Sales'] = data['Receivables'] / data['Net Sales']
data['Payables to COGS'] = data['Payables'] / data['Cost of Goods Sold
(COGS)']
data['Inventory to Sales'] = data['Inventory'] / data['Net Sales']
# Calculate average ratios

avg_receivables_to_sales = data['Receivables to Sales'].mean()
avg_payables_to_cogs = data['Payables to COGS'].mean()
avg_inventory_to_sales = data['Inventory to Sales'].mean()
# Display average ratios

avg_receivables_to_sales, avg_payables_to_cogs, avg_inventory_to_sales
8. Forecasted Working Capital Components
Using these average ratios, we can project the working capital components for each scenario.
Python Code:
42
# Function to forecast working capital components
def forecast_components(forecasted_sales, receivables_ratio, payables_ratio,
inventory_ratio, cogs_ratio):
receivables = forecasted_sales * receivables_ratio
inventory = forecasted_sales * inventory_ratio
cogs = forecasted_sales * cogs_ratio
payables = cogs * payables_ratio
working_capital = receivables + inventory - payables
return receivables, payables, inventory, working_capital
# Historical COGS to Sales ratio

avg_cogs_to_sales = data['Cost of Goods Sold (COGS)'].mean() / data['Net
Sales'].mean()
# Forecast components for each scenario

components_base = forecast_components(forecast_base, avg_receivables_to_sales,
avg_payables_to_cogs, avg_inventory_to_sales, avg_cogs_to_sales)
components_optimistic = forecast_components(forecast_optimistic,
avg_receivables_to_sales, avg_payables_to_cogs, avg_inventory_to_sales,
avg_cogs_to_sales)
components_pessimistic = forecast_components(forecast_pessimistic,
avg_cogs_to_sales)
components_stress = forecast_components(forecast_stress,
avg_cogs_to_sales)
# Create DataFrame to display results

forecasted_working_capital = pd.DataFrame({
'Scenario': ['Base Case', 'Optimistic Case', 'Pessimistic Case', 'Stress
Case'],
'Receivables': [components_base[0], components_optimistic[0],
components_pessimistic[0], components_stress[0]],
'Payables': [components_base[1], components_optimistic[1],
'Inventory': [components_base[2], components_optimistic[2],
'Working Capital': [components_base[3], components_optimistic[3],
components_pessimistic[3], components_stress[3]]
})
print(forecasted_working_capital)
43
9. Detailed Interpretation
Base Case Scenario
In the base case scenario, which assumes the average historical sales growth rate, the company is
expected to maintain a stable growth trajectory. The forecasted working capital components are:
• Receivables: ₹ 1,004,608,000
• Payables: ₹130,866,100
• Inventory: ₹445,708,200
• Working Capital: ₹1,319,450,000
Interpretation: The receivables and inventory levels indicate a healthy turnover, while payables
remain manageable. The overall working capital suggests that the company will have sufficient
liquidity to support its operations and short-term obligations. The base case represents the most likely
scenario if the company continues to perform as it has historically.
Optimistic Case Scenario
In the optimistic scenario, which assumes the highest historical sales growth rate, the forecasted
working capital components are:
• Receivables: ₹1,127,305,000
• Payables: ₹146,849,300
• Inventory: ₹500,144,400
Interpretation: Under this scenario, the company anticipates a significant increase in sales, leading to
higher receivables and inventory levels. The increase in payables is also higher but remains
proportional to the growth in COGS. The working capital shows a robust increase, indicating
enhanced liquidity and potential for further investment or expansion. This scenario suggests a strong
growth environment where the company can leverage its improved financial position to capitalize on
new opportunities.
Pessimistic Case Scenario
In the pessimistic scenario, which assumes the lowest historical sales growth rate, the forecasted
working capital components are:
• Receivables: ₹888,022,900
• Payables: ₹115,679,000
• Inventory: ₹393,983,500
Interpretation: This scenario reflects a cautious outlook with reduced sales growth. The receivables
and inventory are lower, which could indicate slower turnover rates. However, the payables are also
reduced, maintaining a positive working capital. The company will need to be cautious with its cash
flow management to ensure liquidity. This scenario helps the company prepare for slower growth and
ensures that it remains solvent during periods of lower revenue.
Stress Case Scenario
In the stress scenario, which assumes a significant decline in sales, the forecasted working capital
components are:
44
• Receivables: ₹875,013,000
• Payables: ₹113,984,300
• Inventory: ₹388,211,500
Interpretation: This adverse scenario represents a significant challenge with declining sales affecting
all components of working capital. The receivables and inventory levels are the lowest among all
scenarios, which might lead to liquidity constraints. The company must implement stringent cash flow
management and possibly explore financing options to maintain operations. This scenario helps the
company plan for worst-case situations, ensuring it has strategies in place to navigate severe economic
downturns.
10. Conclusion
The scenario-based working capital forecasting provides valuable insights into the financial health
and resilience of the company under various potential future scenarios. Here are the key takeaways:
1. Preparedness: By evaluating different scenarios, the company can prepare for a range of
possible future conditions. This proactive approach helps in making informed strategic
decisions.
2. Liquidity Management: The analysis highlights the importance of managing receivables,
payables, and inventory levels. Efficient management of these components ensures that the
company maintains adequate liquidity to meet its short-term obligations.
3. Risk Mitigation: Understanding the impact of adverse scenarios, such as the stress case,
allows the company to develop contingency plans. These plans might include optimizing
operational efficiencies,
45
CHAPTER 7
FINDINGS AND SUGGESTIONS
46
7.1 FINDINGS
7.1.1 FINDINGS FROM RATIO ANALYSIS OF HLL PFT FACTORY
1. Current Ratio
The current ratio improved from 0.85 in 2018-19 to 1.14 in 2022-23. This ratio compares
current assets to current liabilities. A ratio of 1 means that the company has exactly enough
assets to cover its liabilities. Anything above 1 means the company has more assets than
liabilities. The improvement from 0.85 to 1.14 indicates that the company has strengthened its
liquidity position, making it better able to meet its short-term obligations without running into
cash flow problems.
2. Quick Ratio
The quick ratio increased from 0.77 in 2018-19 to 0.92 in 2022-23. The quick ratio, also known
as the acid-test ratio, is similar to the current ratio but excludes inventory from current assets.
This is a stricter measure of liquidity because it considers only the most liquid assets, like cash
and receivables. The increase from 0.77 to 0.92 shows that the company is improving its ability
to pay off short-term liabilities with its most liquid assets, although it still hasn't reached the
ideal value of 1.
3. Cash Ratio
The cash ratio grew from 0.58 in 2018-19 to 0.69 in 2022-23. This ratio measures the
company’s ability to pay off its current liabilities with cash and cash equivalents alone. The
increase indicates that the company is building its cash reserves, but a ratio below 1 still
suggests that it doesn't have enough cash on hand to cover all its short-term liabilities.
In the early years, the ratio was negative, indicating poor efficiency in using working capital to
generate sales. This ratio measures how effectively the company is using its working capital to
support sales. Recently, the ratio has improved significantly, showing that the company is now
better at using its working capital to generate sales. This improvement highlights better resource
management and operational efficiency.
The ratio dropped from 12.19 in 2018-19 to 4.35 in 2022-23. This means the company is
holding onto inventory for a longer period before selling it. A high inventory turnover ratio
indicates efficient inventory management and strong sales, while a low ratio can indicate
overstocking, obsolescence, or weak sales.
This ratio fluctuated around an average of 1.73 times a year. This means the company collects
its receivables about 1.73 times a year. A higher ratio indicates efficient collection of
receivables, which improves cash flow. However, the variability in this ratio shows
inconsistency in the company's collection process.
Averaged 7.18 times a year, indicating prompt payment practices to suppliers. This ratio
measures how quickly the company pays its suppliers. A higher ratio can indicate good cash
flow management and strong supplier relationships, but if it’s too high, it might also suggest
the company is not taking full advantage of credit terms.
8. Days Inventory Outstanding (DIO)
Increased from 30 days in 2018-19 to 84 days in 2022-23. This metric shows how long, on
average, the company holds inventory before selling it. The increase indicates that the company
is taking much longer to sell its inventory, which could suggest overstocking, slower sales, or
inefficiencies in inventory management.
9. Days Sales Outstanding (DSO)
Averaged 225 days, indicating a lengthy period to collect payments from customers. This
metric shows how long, on average, it takes for the company to collect payment after making a
47
sale. A higher DSO means the company is taking longer to collect receivables, which can
negatively impact cash flow and liquidity.
10. Days Payable Outstanding (DPO)
Averaged 20 days, showing a balanced approach in paying suppliers. This metric indicates how
long, on average, the company takes to pay its suppliers. A lower DPO means the company is
paying its suppliers more quickly, which is good for supplier relationships but may strain cash
flow.
11. Operating Cycle
Increased from 166 days in 2018-19 to 293 days in 2022-23. The operating cycle measures the
time it takes for a company to buy inventory, sell it, and collect the cash from the sale. The
increase indicates that the company is taking much longer to convert its inventory into cash,
pointing to inefficiencies in managing inventory and receivables.
12. Cash Conversion Cycle (CCC)
Extended from 143 days in 2018-19 to 273 days in 2022-23. The CCC measures the time it
takes for the company to convert its investments in inventory and receivables back into cash.
A longer CCC indicates that it’s taking more time for the company to turn its investments into
cash, which can strain liquidity and increase the need for external financing.
7.1.2 FINDINGS FROM SCHEDULE OF CHANGES IN WORKING CAPITAL OF

HLL PFT FACTORY
2018-2019: Working capital increased by a substantial 101.53%.
2019-2020: Further increase of 63.25%, indicating a continuous rise.
2020-2021: A drastic surge of 1063.95%, suggesting a major inefficiency in working capital
management.
2021-2022: Working capital still increased by 185%, showing a persistent issue.
Potential Reasons for Increasing Working Capital:
These significant increases raise concerns about potential inefficiencies in working capital management.
Here are some possible explanations:
• Increased Inventory Levels: The company might be holding excessive inventory due to factors
like poor demand forecasting, overstocking to avoid stockouts, or inefficiencies in procurement
processes.
• Slow Collections from Customers: Delays in collecting payments from customers can tie up
significant amounts of cash in accounts receivable.
Negative Impact of High Working Capital:
• Reduced Liquidity: Excessive cash tied up in working capital reduces the company's ability to
meet short-term obligations.
• Increased Costs: Holding excess inventory incurs storage and carrying costs, impacting
profitability.
7.1.3 SCENARIO-BASED WORKING CAPITAL FORECASTING OF HLL PFT

FACTORY
Utilized historical average ratios and scenario analysis to predict future working capital requirements.
Techniques included data collection, ratio calculation, and scenario definition for base, optimistic,
pessimistic, and stress cases. Scenario-based forecasting helps in preparing for various potential
outcomes, enhancing strategic decision-making and financial planning.
48
• Historical Average Ratios: Historical financial data, including sales, receivables, payables,
inventory, and cost of goods sold (COGS) from, was collected. Average ratios of receivables to
sales, payables to COGS, and inventory to sales were calculated based on historical data. These
historical average ratios were applied to forecast future values of receivables, payables, and
inventory based on projected sales and COGS.
• Scenario Analysis: Multiple scenarios (base case, optimistic case, pessimistic case, and stress
case) were created based on different assumptions about future growth rates. These scenarios
were used to project future sales, and then the historical average ratios were applied to estimate
future values of receivables, payables, and inventory. The impact of each scenario on working
capital was analyzed to understand the potential range of outcomes and to prepare accordingly.
1. Base Case Scenario: Assumes moderate growth in sales and COGS, consistent with historical
trends. Forecasts a steady increase in working capital requirements, with receivables, payables,
and inventory growing proportionally with sales. The base case provides a stable outlook,
suggesting that current working capital management practices should continue to be effective.
2. Optimistic Case Scenario: Assumes higher-than-expected growth in sales and moderate
increases in COGS. Forecasts a significant increase in receivables and inventory, with payables
growing at a slower rate. In this scenario, the company would need to enhance its working
capital management practices to handle increased receivables and inventory efficiently.
3. Pessimistic Case Scenario: Assumes lower-than-expected growth in sales, coupled with higher
COGS. Forecasts slower growth in receivables and inventory, with payables remaining stable.
This scenario indicates the need for caution in financial planning and potential cost-cutting
measures to maintain liquidity.
4. Stress Case Scenario: Assumes a significant economic downturn leading to a sharp decline in
sales and an increase in COGS. Forecasts a decrease in receivables and inventory, with payables
remaining constant or increasing slightly due to delayed payments. The stress case scenario
highlights the importance of having contingency plans and maintaining a strong cash position
to navigate through challenging times.
7.2 SUGGESTIONS FOR HLL PFT FACTORY

1. Improve Inventory Management
• Regular Inventory Reviews: Conduct regular reviews to ensure inventory levels are
optimized. Identify slow-moving or obsolete stock and take appropriate actions, such as
discounts or write-offs, to free up working capital.
• Just-in-Time Inventory: Implement just-in-time (JIT) inventory practices where possible to
reduce holding costs and minimize excess inventory.
• Demand Forecasting: Use advanced demand forecasting techniques to better predict inventory
needs, reducing the likelihood of overstocking or stockouts.
2. Enhance Receivables Collection
• Credit Policy Review: Reassess the company’s credit policies to ensure they are neither too
lenient nor too stringent. Offer incentives for early payments and impose penalties for late
payments to encourage timely collections.
• Accounts Receivable Aging: Regularly review the aging schedule of accounts receivable to
identify and follow up on overdue accounts. Implement a systematic follow-up process for
overdue invoices.
• Customer Creditworthiness: Conduct thorough credit checks on new customers and regularly
review the creditworthiness of existing customers to mitigate the risk of bad debts.
49
• Electronic Invoicing: Implement electronic invoicing to speed up the invoicing process and
reduce the time it takes for customers to receive and pay invoices.
3. Optimize Payables Management
• Negotiating Terms: Negotiate better payment terms with suppliers to extend payment periods
without damaging relationships. This can help improve cash flow by keeping money within the
business longer.
• Supplier Relationships: Build strong relationships with key suppliers to gain more favorable
terms and possibly discounts. Good relationships can also provide more flexibility in times of
financial strain.
• Payment Scheduling: Implement a payment scheduling system to manage cash outflows
better. Ensure that payments are made on the last possible day to take advantage of the full
credit period without incurring late fees.
• Dynamic Discounting: Use dynamic discounting to take advantage of early payment discounts
offered by suppliers when the company has surplus cash.
4. Cash Flow Management
• Cash Flow Forecasting: Develop detailed cash flow forecasts to predict periods of cash
surpluses and shortages. Use these forecasts to make informed decisions about investments,
expenses, and financing needs.
• Short-Term Financing Options: Explore short-term financing options, such as lines of credit
or short-term loans, to manage temporary cash flow shortages. Ensure these options are used
strategically to avoid unnecessary debt.
• Working Capital Loans: Consider working capital loans specifically designed to cover short-
term financial needs without long-term commitments.
5. Leverage Technology
• Integrated Software Solutions: Implement integrated software solutions for inventory

management, accounts receivable, and accounts payable. These systems can provide real-time
data and analytics, aiding in better decision-making.
• Automation: Automate routine tasks such as invoicing, payment reminders, and inventory
tracking to reduce errors and free up staff time for more strategic activities.
• Financial Dashboards: Use financial dashboards to monitor key working capital metrics in
real-time, allowing for quicker response to changes.
6. Strategic Planning and Forecasting
• Scenario Analysis: Conduct scenario analyses to understand the impact of different market
conditions on working capital. Use these analyses to develop contingency plans and improve
readiness for economic fluctuations.
• Regular Reviews: Schedule regular reviews of working capital management practices to ensure
they remain aligned with the company’s strategic goals and market conditions.
• Benchmarking: Compare the company's working capital performance against industry
benchmarks to identify areas for improvement.
7. Training and Development
• Employee Training: Provide training for employees on effective working capital management
practices. Ensure that all relevant staff understand the importance of liquidity, cash flow
management, and efficient operations.
• Cross-Functional Collaboration: Encourage collaboration between departments such as
finance, sales, and operations to ensure a holistic approach to managing working capital.
50
8. Focus on Core Operations
• Cost Control: Continuously monitor and control costs to improve profitability and working
capital. Implement cost-saving measures where possible without compromising product quality
or customer satisfaction.
• Operational Efficiency: Streamline operations to improve efficiency. This can include process
improvements, reducing waste, and enhancing productivity.
• Asset Utilization: Optimize the use of assets to ensure they are contributing effectively to
revenue generation.
9. Enhancing Working Capital
• Equity Financing: Raise additional equity to bolster working capital, reducing reliance on debt
and improving the financial health of the company.
• Profit Retention: Retain a higher portion of profits to reinvest into working capital rather than
distributing all profits as dividends.
• Asset Liquidation: Sell non-core or underperforming assets to free up cash that can be used to
enhance working capital.
51
CHAPTER 8
CONCLUSION
52
8.1 CONCLUSION
The analysis of working capital management at HLL Lifecare Limited's Peroorkada Plant reveals
significant improvements and strategic strengths in managing liquidity and operational efficiency. By
examining key financial ratios, the study highlights the company's enhanced ability to meet short-term
obligations and optimize resource utilization. The improvements in current ratio, quick ratio, and cash
ratio reflect better liquidity management, while the positive trends in inventory turnover and receivables
turnover ratios indicate effective handling of inventory and credit sales.
The predictive analysis, based on historical data and scenario-based forecasting, provides a robust
framework for anticipating future working capital needs. The scenarios outlined—base case, optimistic
case, pessimistic case, and stress case—offer valuable insights into potential outcomes and help in
strategic planning. This approach ensures that the company is well-prepared to navigate various
economic conditions and maintain financial stability.
To further strengthen working capital management, several strategic recommendations have been
proposed. These include enhancing receivables management, optimizing inventory levels, extending
payables periods, improving cash management, implementing cost control measures, preparing for
economic variability, leveraging technology and automation, and regularly monitoring key performance
indicators.
By adopting these recommendations, HLL Lifecare Limited's Peroorkada Plant can continue to improve
its working capital management practices, ensuring sustained growth, operational efficiency, and
financial resilience. This proactive approach will not only enhance the company's liquidity position but
also support its long-term strategic objectives and competitiveness in the healthcare industry.
In conclusion, the comprehensive analysis and actionable insights provided in this project underscore
the importance of effective working capital management in achieving financial stability and operational
excellence. The recommendations and strategic initiatives outlined herein will serve as a roadmap for
HLL Lifecare Limited to optimize its working capital and drive future success.
53
CHAPTER 9
REFERENCES
54
9.1 REFERENCES
• Annual Reports of HLL Lifecare Limited
The annual reports provided comprehensive financial data and insights into the company’s
performance, including detailed balance sheets, income statements, and cash flow statements.
These reports were obtained from the Deputy Finance Manager of the Peroorkada Factory.
• Textbooks and Academic Journals on Working Capital Management

o Brigham, E. F., & Ehrhardt, M. C. (2019). Financial Management: Theory & Practice.
Cengage Learning.
o Gitman, L. J., & Zutter, C. J. (2020). Principles of Managerial Finance. Pearson.
o Ross, S. A., Westerfield, R., & Jordan, B. D. (2018). Fundamentals of Corporate
Finance. McGraw-Hill Education.
o Hill, N. T., Kelly, G. W., Lockhart, G. B., & Van Ness, R. A. (2013). "Determinants
and Effects of Corporate Lobbying." Journal of Corporate Finance, 27, 65-79.
• Financial Ratios and Analysis
Analysis of financial ratios was guided by methodologies outlined in standard finance textbooks
and resources such as:
o Penman, S. H. (2016). Financial Statement Analysis and Security Valuation. McGraw-

Hill Education.
o Bernstein, L. A., & Wild, J. J. (2013). Financial Statement Analysis: Theory,
Application, and Interpretation. McGraw-Hill.
o White, G. I., Sondhi, A. C., & Fried, D. (2003). The Analysis and Use of Financial
Statements. Wiley.
• Predictive Analytics Tools and Techniques
The use of predictive analytics in the project was informed by literature on business analytics
and forecasting techniques:
o Evans, J. R. (2017). Business Analytics: Methods, Models, and Decisions. Pearson.

o Albright, S. C., & Winston, W. L. (2014). Business Analytics: Data Analysis &
Decision Making. Cengage Learning.
o Chopra, S., & Meindl, P. (2016). Supply Chain Management: Strategy, Planning, and
Operation. Pearson.
• Working Capital Management Practices
Practical insights into working capital management practices were drawn from:
o Richards, V. D., & Laughlin, E. J. (1980). "A Cash Conversion Cycle Approach to
Liquidity Analysis." Financial Management, 9(1), 32-38.
o Petersen, M. A., & Rajan, R. G. (1997). "Trade Credit: Theories and Evidence." The
Review of Financial Studies, 10(3), 661-691.
o Deloof, M. (2003). "Does Working Capital Management Affect Profitability of Belgian
Firms?" Journal of Business Finance & Accounting, 30(3‐4), 573-588.
Web resources:
• HLL Lifecare Limited. (n.d.). Lifecare HLL. lifecarehll.com
• Tofler. (n.d.). HLL LIFECARE LIMITED - Company Profile, Directors, Revenue & More.
https://www.tofler.in/hll-lifecare-limited/company/U25193KL1966GOI002621
• Instafinancials.com. (n.d.). Hll lifecare limited - U25193KL1966GOI002621.
http://www.lifecarehll.com/page/render/reference/Annual_Report
55

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Project HLL Final

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CHAPTER 1

1.2 OBJECTIVES OF THE STUDY

1.4 SCOPE OF THE STUDY

1.5 TOOLS FOR THE ANALYSIS

2.2 RESEARCH DESIGN

2.3 Data Analysis

• Analyzing the year-on-year changes in each component of working capital.

2.4 TOOLS AND TECHNIQUES

2.5 PERIOD OF STUDY

• Contraceptives and Healthcare Products:

4.2 SUBSIDIARIES AND HOLDINGS AND FACTORIES OF THE

• Peroorkada Factory, Trivandrum (PFT)

4.3 VISON AND MISSION

• Provide quality products and services meeting international standards.

4.4 PEROORKADA FACTORY

4.4.1 PRODUCTS MANUFACTURED AT PFT:

4.5 DEPARTMENTS OF PFT

5.1.1 SCOPE OF THE INDUSTRY:

5.2 GLOBAL SCENARIO

5.4 INDIAN CONTRACEPTIVE INDUSTRY

5.4.1 KEY FACTORS DRIVING GROWTH

5.5 COMPETITORS OF HLL LIFECARE LTD.

6.2 WORKING CAPITAL RATIOS OF HLL PFT FACTORY

2. Quick Ratio (Acid-Test Ratio)

6. Accounts Receivable Turnover Ratio

8. Days Inventory Outstanding (DIO)

9. Days Sales Outstanding (DSO)

10. Operating Cycle

11. Days Payable Outstanding (DPO)

12. Cash Conversion Cycle (CCC)

6.3 SCENARIO-BASED WORKING CAPITAL FORECASTING OF HLL

6.4 SCHEDULE OF CHANGES IN WORKING CAPITAL OF HLL PFT

Table 1: Current Ratio

Chart 1: Current Ratio

Table 2: Quick Ratio

Year Quick Assets Current Liabilities Quick Ratio

Chart 2: Quick Ratio

Table 3: Cash Ratio

Chart 3: Cash Ratio

Table 4: Working Capital Turnover Ratio

Chart 4: Working Capital Turnover Ratio

Table 5: Inventory Turnover Ratio

Chart 5: Inventory Turnover Ratio

Table 6: Accounts Receivable Turnover Ratio

Chart 6: Accounts Receivable Turnover Ratio

Table 7: Payables Turnover Ratio

Chart 7: Payable Turnover Ratio

Table 8: Days Inventory Outstanding

Table 9: Days Sale Outstanding

Table 10: Operating Cycle

Chart 10: Operating Cycle

Table 11: Days Payable Outstanding

Chart 11: DPO

Table 12: Cash Conversion Cycle

Chart 12: CCC

3. Calculating Sales Growth Rate

𝑆𝑎𝑙𝑒𝑠 𝑖𝑛 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑃𝑒𝑟𝑖𝑜𝑑 − 𝑆𝑎𝑙𝑒𝑠 𝑖𝑛 𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑃𝑒𝑟𝑖𝑜𝑑

# Load the data

# Clean column names

# Calculate the sales growth rate

# Display the sales growth rates

The historical sales growth rates calculated are:

• From 2018-19 to 2019-20: 10.75%