Description
The PPT highlights Financial analysis of HUL and ITC, Accounts receivable management by Collection and credit policies and Analyzing the credit applicant.
Financial analysis of HUL and ITC ? Accounts receivable management
?
? Collection and credit policies ? Analyzing the credit applicant
Account Receivable Management- ITC ? Account Receivable ManagementHUL ? Accounts receivable - HUL vs. ITC
?
Ratios
HUL
ITC
1 2 3 4
Current ratio
Acid test ratio Debt to equity Debt to total assets ratio Long term debt to total capitalization Interest coverage ratio Inventory turnover ratio Inventory turnover in days Debtors turnover ratio
0.87
0.52 0.203 0.050 0.060 566.5 6.90 65 days 36.39 12 days
2.09
1.141 0.013 0.009 0.001 121.8 2.35 155 days 20.32 18 days
5
6 7 8 9
10 Debtor turnover in days
Ratios
11
HUL 3.49 104 days
ITC 3.31 110 days
Creditors turnover ratio Creditors turnover in days
12
13
Operating cycle
Cash cycle Total asset turnover ratio Gross profit margin Net profit margin Return on assets Return on equity Return on investment (Du Pont) Return on Equity (Du Pont)
78 days
-26 days 2.368 14.8% 12.1% 28.8% 116.74% 28.8% 116.7%
173 days
63 days 0.810 29.6% 19.9% 16.6% 23.94% 16.6% 23.9%
14
15
16
17
18
19
20
21
ACCOUNTS RECEIVABLE
Amounts of money owed to a firm by customers who have bought goods and services on credit. ? It is a current asset- also called as “receivables”
?
Factors influencing accounts receivable
1.Economic conditions 2.Product pricing 3.Product quality 4.Firms credit policies
Beyond the control of the financial manager
Credit and Collection Policies
Quality of the trade accounts accepted Length of the credit period The cash discount for early payment Collection program of the firm
Average collection period Ratio of bad debts to credit sales
Credit standards:
Min. quality of credit worthiness of a credit applicant acceptable to the firm. ? Credit influences demand for firm’s product ? Lowering of credit standard should be done as long as the profitability of sales generated exceeds the added costs of the receivables.
? ?
Added costs includes:
1. 2. 3. 4. 5. Enlarged credit departments Checking additional accounts Servicing the added volume of receivables Increased probability of bad debt losses Opportunity cost
? 1. 2.
Additional receivables results from Increased sales A longer average collection period Disadvantages of relaxing credit standards Collecting from new less creditworthy customers is likely to be slower Existing customers will be less careful in paying their bills on time.
? 1. 2.
Credit standards change
(Profitability vs. Required Return)
Unit price (Rs) variable cost per unit (Rs) contribution margin per unit(Rs) Sales (Rs) New sales (Rs) Additional sales revenue (Rs) Additional units sold Profitability of additional units (Rs)
Receivable turnover for new customers (times) Additional receivables (Rs) Investment in receivables (Rs) Required return on additional investment (Rs)
As profitability on additional sales far exceeds the required return on additional investments, the firm would be well advised to relax its credit standards.
10 8 2 24,00,000 30,00,000 6,00,000 60,000 = 2 x 60,000 = 1,20,000 6 1,00,000 80,000 =20% x 80,000 = 16,000
Credit terms
?
?
Credit terms- specify length of time over which credit is extended to a customer and the discount, if any, given for early payment Eg 2/10, net 30
? Implies that 2 % discount is given if the bill is paid within 10 days of the invoice date ? If discount is not taken, the full payment is due by 30th day from the invoice date
Credit period Cash discount period and cash discount
Seasonal datings
Credit period change
(profitability vs. required return)
•Credit period- Total length of time over which credit is extended to a customer to pay a bill.
•Change in credit terms from “net 30” to “net 60”. More liberal credit period results in increase in sales.
a) Receivables associated with increase in sales:
Additional sales (Rs) Receivable turnover ratio Additional receivables (Rs) Investment (Rs) 3,60,000 6 = 3,60,000/6 = 60,000 = 0.8 x 60,000 = 48,000
b) Slowing in collections associated with sales to original customers
Original sales (Rs) Original turnover Original Receivables (before the credit period change) (Rs) New turnover New receivables (Rs) Investment in additional receivables (Rs) Profitability of additional sales (Rs) Total investment in additional receivables (Rs) Required return on investment (Rs) 24,00,000 12 24,00,000/12 = 2,00,000 6 24,00,000/6 = 4,00,000 = 4,00,000 – 2,00,000 = 2,00,000 = 2x 36,000 = 72,000 =48,000 + 2,00,000 = 2,48,000 =0.2 x 2,48,000 = 49,600
The profitability on the additional sales exceeds the required return on the investment in additional receivables. Hence the change in credit period from 30 to 60 days is worthwhile.
Cash discount period and cash discount
? ?
?
Cash discount change (cost vs. savings) Annual credit sales (Rs) 30,00,000
Old receivable turnover Receivables before cash discount (Rs) New receivable turnover Receivable associated with cash discounts (Rs)
Cash discount period- time during which cash discount can be taken for early payment Cash discount is a percent reduction in sales or purchase price allowed for early payment of invoices Varying cash discount - Attempt to speed up payment of receivables
6 30,00,000/6 = 5,00,000 12 30,00,000/12= 2,50,000
Reduction of investment in accounts receivable 5,00,000-2,50,000= 2,50,000 (Rs) Cash discount 2% Percentage taking discount 60% Cost of cash discount change (Rs) 0.02 x 0.60 x 30,00,000 = 36,000 Opportunity savings on reduction of receivables 0.20 x 2,50,000 = 50,000 Since opportunity savings arising from the speedup in collection is greater than the cost of the discount, (Rs) the firm should adopt a 2% discount.
Seasonal Dating
?
? ? ?
Credit terms that encourage the buyer of seasonal products to take delivery before the peak sales period and to defer payment until after the peak sales period. It may stimulate demand Also used to avoid inventory carrying costs Profitability of additional sales should be compared with the require return on additional investment in receivables to determine whether datings are appropriate terms by which to stimulate demand.
Default Risk
? ?
Optimum credit standard policy is not necessarily the one that minimizes bad debt losses. Optimal policy provides the greatest incremental benefit.
Credit policy changes
(profitability vs. required return)
Present policy Credit sales Incremental sales Default loses a. original sales b. incremental sales Average collection period a. original sales b. incremental sales 2% 10% 18% 24,00,000 Policy A 30,00,000 6,00,000 Policy B 33,00,000 3,00,000
1 month 2 months 3 months
Policy A
Policy B
Profitability of additional sales
= 0.20 x 6,00,000 =1,20,000
= 0.20 x 3,00,000 =60,000
= 0.18 x 3,00,000 =54,000 =3,00,000/4 =75,000 =0.80 x 75,000 =60,000 =0.20 x60,000 =12,000 =66,000
Additional bad debt losses =0.10 x 6,00,000 =60,000 Additional receivables Investment in additional receivables Required return on additional investment = 6,00,000/6 =1,00,000 =0.80 x 1,00,000 =80,000 =0.20 x 80,000 =16,000
Additional bad debt losses =76,000 + additional required return Incremental profitability =1,20,000 -76,000 =44,000
=60,000-66,000 =(6,000)
The marginal benefit is positive in moving from the present policy to policy A but negative in going from policy A to policy B. The optimal profit is one that provides greatest incremental benefit.
Collection Procedure:
? ? ?
Combination of procedures- letter, fax, call, personal visits. Principal policy variable involved: money spent on collections Optimal amount to be spend- Within range
Lower proportion of bad-debt losses Shorter the average collection period
Greater amount spent for collection
BAD-DEBT LOSSES Saturation point
COLLECTION EXPENDITURE
Relationship between amount of bad debt and collection expenditure
Telephone call asking why payment is not made
Letter is sent followed by additional letters with more serious note
Phone call or letter from cos. attorney may be necessary
Collection personal visit customer about overdue account
If all else fails, account can be turned over to a collection agency who charge nearly half amount of receivables
Credit and Collection Policy
?
Policy of a firm involves several decisions:
1. 2. 3. 4. 5. The quality of accounts accepted The length of the credit period The size of the cash discount allowed Any special terms, such as seasonal datings The level of collection expenditure.
AVG. COLLECTION PERIOD
SALES
QUALITY OF ACCOUNTS REJECTED
QUALITY OF ACCOUNTS REJECTED
BAD DEBT LOSSES
PROFITS
QUALITY OF ACCOUNTS REJECTED
QUALITY OF ACCOUNTS REJECTED
Analyzing the Credit Applicant
?
After sales terms established, time for back ground check by firm about its creditors Credit evaluation involves:
1. 2. 3. Obtaining information on the applicant. Analyzing this information to determine the applicants creditworthiness. Making credit decisions.
?
Sources of Information
? FINANCIAL STATEMENTS: ?
?
?
?
Correlation between a company’s refusal to provide statements and a weak financial position CREDIT RATING AND REPORTS: Published ranking by credit bureau based on financial history; related to ones ability to pay obligation. E.g. : Crisil India BANK CHECKING: credit information for credit analyst checking on the particular firm is the firm’s bank; the analyst can obtain information, such as average cash balance carried, loan accommodations, experience and sometimes more extensive financial information. TRADE CHECKING: Credit information is frequently exchanged among companies selling to the same customers; company can ask others suppliers about their own experience with an account. THE COMPANY’S OWN EXPERIENCE: study of the promptness of past payments, including any seasonal patterns, is very useful; original “three Cs” of credit analysis:
Character - willingness to honour obligation Capacity - ability to generate cash Capital - net worth and the relationship net worth to debt
?
?
?
Pending Order Stage 1 Rs 50 cost
Bad past credit experience?
Reject
CRISIL report analysis
Stage 2 Rs 50- 150 cost
Credit rating “limited” and/or other damaging information unearthed?
Reject
Accept
Credit rating “fair”, and/or close to maximum “line of credit”?
Stage 3 Rs 300 cost
Bank, creditor and financial statement analysis
Accept
Accept, only upon domestic irrevocable letter of credit (L/C)
Reject
Credit Decision
In initial sale, first decision is whether to ship goods and extend credits. ? Subsequent sale ? no need to fully evaluate again ? Streamlining procedure : line of credit : maximum limit of money owed by firm ? Credit functions can be outsourced : depending on the core competence of firm
?
2008-09 Receivable Turnover Ratio 20.32
2007-08 16.66
Receivable Turnover Ratio
50 45 40 35 30 25 20 15 10 5 0 44.6
R a t i o
20.32
16.66
Recievable Turnover Ratio
2008
2009 YEAR
Industry Average
2008-09 Receivable Turnover in days 18 days
2007-08 22 days
Recievable Turnover in Days
25 20 22 18
D 15 A Y 10 S 5
0 2008 2009 YEAR
8.18
Recievable Turnover in Days
Industry Average
2008-09 Bad Debts 8.67 Cr
2007-08 7.32 Cr
Bad Debt
9 8.67 8.5 In crores 8 7.5 7 6.5 2008 YEAR 2009 7.32 Bad Debt
2008-09 Percentage Bad Debts 1.07% To Total Debts Provision for bad debts 48.06
2007-08 0.8% 42.41
% Bad Debt - Total Debt
1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 0.8 % Bad Debt - Total Debt
1.07
Sundry Considered Good Over 6 months old Other
Debtors 2008-09
Analysis 2007-08
2007-06
2831.52 52773.5 55605.02
2588.35 43607.75 46196.1
1163.65 42873.45 44037.1
Considered doubtful
Over 6 months old Others – – Less: Provision for doubtful debts Share of Joint Venture schedule 20 (b)
6921.48 0 62526.5 -6921.48 55605.02 451.05 56056.07
6301.83 0 52497.93 -6301.83 46196.1 296.96 46493.06
5147.3 45.41 49229.81 -5192.71 44037.1 0 44037.1
Account Receivable Turnover
Account Receivable Turnover 44.6 36.57253
27.48452
29.540495
2006-07
2007-08
2008-09
Industry Average
Account Receivable Days
Account Receivable Days
13.28 12.37 12.44
8.18
2006-07
2007-08
2008-09
Industry Average
From Annual Report
Focus on cash generation continued and we delivered a strong operating cash flow during the period. This was driven by good business performance, underlying efficiencies and cost savings across the supply chain and a continued efficient collection system.
% increase in sale % increase in Account Receivable 49.44941
20.56858 13.33815 5.577025 2007 2008
Portfolio of Debt & provision for doubtful Debt
% of Good Debt % of Doubtful Debt
10.5479
11.4383
10.348381
89.4521
88.5617
89.651619
2006-07
2007-08
2008-09
Credit Policy
Account Receivable Short term loan Doubtful Debt 56056.02 44037.1
46493.06
27784.66
5192.71 3911.17 2006-07
6328.696301.83
6921.48
2007-08
2008-09
Debt Turnover Ratio Average
140
120
125.39
89.38 65.61 30.10
100
80
60
40 20 0
31.56
9.36
34.29 12.35
20.66 27.33
Debt Turnover Collection Days
40 35 30 25 20 15 10 5 0 39.00 29.55 17.66
12.12
2.91 4.08
11.56
10.65 5.56
13.36
HUL is moving towards realising the ambition of a chequeless organisation since 2008-09, they have implemented both e-collection (from sales) and e-payments (for purchases). These have increased speed and service substantially while simplifying processes.
A/C Receivables Turnover ratio
Series 1 36.57253 20.32 44.6
HUL
ITC
Industrial Average
A/C Receivable Days
ACC Receivable Days 18 12.44 8.18
HUL
ITC
Industrial Average
doc_449038356.pptx
The PPT highlights Financial analysis of HUL and ITC, Accounts receivable management by Collection and credit policies and Analyzing the credit applicant.
Financial analysis of HUL and ITC ? Accounts receivable management
?
? Collection and credit policies ? Analyzing the credit applicant
Account Receivable Management- ITC ? Account Receivable ManagementHUL ? Accounts receivable - HUL vs. ITC
?
Ratios
HUL
ITC
1 2 3 4
Current ratio
Acid test ratio Debt to equity Debt to total assets ratio Long term debt to total capitalization Interest coverage ratio Inventory turnover ratio Inventory turnover in days Debtors turnover ratio
0.87
0.52 0.203 0.050 0.060 566.5 6.90 65 days 36.39 12 days
2.09
1.141 0.013 0.009 0.001 121.8 2.35 155 days 20.32 18 days
5
6 7 8 9
10 Debtor turnover in days
Ratios
11
HUL 3.49 104 days
ITC 3.31 110 days
Creditors turnover ratio Creditors turnover in days
12
13
Operating cycle
Cash cycle Total asset turnover ratio Gross profit margin Net profit margin Return on assets Return on equity Return on investment (Du Pont) Return on Equity (Du Pont)
78 days
-26 days 2.368 14.8% 12.1% 28.8% 116.74% 28.8% 116.7%
173 days
63 days 0.810 29.6% 19.9% 16.6% 23.94% 16.6% 23.9%
14
15
16
17
18
19
20
21
ACCOUNTS RECEIVABLE
Amounts of money owed to a firm by customers who have bought goods and services on credit. ? It is a current asset- also called as “receivables”
?
Factors influencing accounts receivable
1.Economic conditions 2.Product pricing 3.Product quality 4.Firms credit policies
Beyond the control of the financial manager
Credit and Collection Policies
Quality of the trade accounts accepted Length of the credit period The cash discount for early payment Collection program of the firm
Average collection period Ratio of bad debts to credit sales
Credit standards:
Min. quality of credit worthiness of a credit applicant acceptable to the firm. ? Credit influences demand for firm’s product ? Lowering of credit standard should be done as long as the profitability of sales generated exceeds the added costs of the receivables.
? ?
Added costs includes:
1. 2. 3. 4. 5. Enlarged credit departments Checking additional accounts Servicing the added volume of receivables Increased probability of bad debt losses Opportunity cost
? 1. 2.
Additional receivables results from Increased sales A longer average collection period Disadvantages of relaxing credit standards Collecting from new less creditworthy customers is likely to be slower Existing customers will be less careful in paying their bills on time.
? 1. 2.
Credit standards change
(Profitability vs. Required Return)
Unit price (Rs) variable cost per unit (Rs) contribution margin per unit(Rs) Sales (Rs) New sales (Rs) Additional sales revenue (Rs) Additional units sold Profitability of additional units (Rs)
Receivable turnover for new customers (times) Additional receivables (Rs) Investment in receivables (Rs) Required return on additional investment (Rs)
As profitability on additional sales far exceeds the required return on additional investments, the firm would be well advised to relax its credit standards.
10 8 2 24,00,000 30,00,000 6,00,000 60,000 = 2 x 60,000 = 1,20,000 6 1,00,000 80,000 =20% x 80,000 = 16,000
Credit terms
?
?
Credit terms- specify length of time over which credit is extended to a customer and the discount, if any, given for early payment Eg 2/10, net 30
? Implies that 2 % discount is given if the bill is paid within 10 days of the invoice date ? If discount is not taken, the full payment is due by 30th day from the invoice date
Credit period Cash discount period and cash discount
Seasonal datings
Credit period change
(profitability vs. required return)
•Credit period- Total length of time over which credit is extended to a customer to pay a bill.
•Change in credit terms from “net 30” to “net 60”. More liberal credit period results in increase in sales.
a) Receivables associated with increase in sales:
Additional sales (Rs) Receivable turnover ratio Additional receivables (Rs) Investment (Rs) 3,60,000 6 = 3,60,000/6 = 60,000 = 0.8 x 60,000 = 48,000
b) Slowing in collections associated with sales to original customers
Original sales (Rs) Original turnover Original Receivables (before the credit period change) (Rs) New turnover New receivables (Rs) Investment in additional receivables (Rs) Profitability of additional sales (Rs) Total investment in additional receivables (Rs) Required return on investment (Rs) 24,00,000 12 24,00,000/12 = 2,00,000 6 24,00,000/6 = 4,00,000 = 4,00,000 – 2,00,000 = 2,00,000 = 2x 36,000 = 72,000 =48,000 + 2,00,000 = 2,48,000 =0.2 x 2,48,000 = 49,600
The profitability on the additional sales exceeds the required return on the investment in additional receivables. Hence the change in credit period from 30 to 60 days is worthwhile.
Cash discount period and cash discount
? ?
?
Cash discount change (cost vs. savings) Annual credit sales (Rs) 30,00,000
Old receivable turnover Receivables before cash discount (Rs) New receivable turnover Receivable associated with cash discounts (Rs)
Cash discount period- time during which cash discount can be taken for early payment Cash discount is a percent reduction in sales or purchase price allowed for early payment of invoices Varying cash discount - Attempt to speed up payment of receivables
6 30,00,000/6 = 5,00,000 12 30,00,000/12= 2,50,000
Reduction of investment in accounts receivable 5,00,000-2,50,000= 2,50,000 (Rs) Cash discount 2% Percentage taking discount 60% Cost of cash discount change (Rs) 0.02 x 0.60 x 30,00,000 = 36,000 Opportunity savings on reduction of receivables 0.20 x 2,50,000 = 50,000 Since opportunity savings arising from the speedup in collection is greater than the cost of the discount, (Rs) the firm should adopt a 2% discount.
Seasonal Dating
?
? ? ?
Credit terms that encourage the buyer of seasonal products to take delivery before the peak sales period and to defer payment until after the peak sales period. It may stimulate demand Also used to avoid inventory carrying costs Profitability of additional sales should be compared with the require return on additional investment in receivables to determine whether datings are appropriate terms by which to stimulate demand.
Default Risk
? ?
Optimum credit standard policy is not necessarily the one that minimizes bad debt losses. Optimal policy provides the greatest incremental benefit.
Credit policy changes
(profitability vs. required return)
Present policy Credit sales Incremental sales Default loses a. original sales b. incremental sales Average collection period a. original sales b. incremental sales 2% 10% 18% 24,00,000 Policy A 30,00,000 6,00,000 Policy B 33,00,000 3,00,000
1 month 2 months 3 months
Policy A
Policy B
Profitability of additional sales
= 0.20 x 6,00,000 =1,20,000
= 0.20 x 3,00,000 =60,000
= 0.18 x 3,00,000 =54,000 =3,00,000/4 =75,000 =0.80 x 75,000 =60,000 =0.20 x60,000 =12,000 =66,000
Additional bad debt losses =0.10 x 6,00,000 =60,000 Additional receivables Investment in additional receivables Required return on additional investment = 6,00,000/6 =1,00,000 =0.80 x 1,00,000 =80,000 =0.20 x 80,000 =16,000
Additional bad debt losses =76,000 + additional required return Incremental profitability =1,20,000 -76,000 =44,000
=60,000-66,000 =(6,000)
The marginal benefit is positive in moving from the present policy to policy A but negative in going from policy A to policy B. The optimal profit is one that provides greatest incremental benefit.
Collection Procedure:
? ? ?
Combination of procedures- letter, fax, call, personal visits. Principal policy variable involved: money spent on collections Optimal amount to be spend- Within range
Lower proportion of bad-debt losses Shorter the average collection period
Greater amount spent for collection
BAD-DEBT LOSSES Saturation point
COLLECTION EXPENDITURE
Relationship between amount of bad debt and collection expenditure
Telephone call asking why payment is not made
Letter is sent followed by additional letters with more serious note
Phone call or letter from cos. attorney may be necessary
Collection personal visit customer about overdue account
If all else fails, account can be turned over to a collection agency who charge nearly half amount of receivables
Credit and Collection Policy
?
Policy of a firm involves several decisions:
1. 2. 3. 4. 5. The quality of accounts accepted The length of the credit period The size of the cash discount allowed Any special terms, such as seasonal datings The level of collection expenditure.
AVG. COLLECTION PERIOD
SALES
QUALITY OF ACCOUNTS REJECTED
QUALITY OF ACCOUNTS REJECTED
BAD DEBT LOSSES
PROFITS
QUALITY OF ACCOUNTS REJECTED
QUALITY OF ACCOUNTS REJECTED
Analyzing the Credit Applicant
?
After sales terms established, time for back ground check by firm about its creditors Credit evaluation involves:
1. 2. 3. Obtaining information on the applicant. Analyzing this information to determine the applicants creditworthiness. Making credit decisions.
?
Sources of Information
? FINANCIAL STATEMENTS: ?
?
?
?
Correlation between a company’s refusal to provide statements and a weak financial position CREDIT RATING AND REPORTS: Published ranking by credit bureau based on financial history; related to ones ability to pay obligation. E.g. : Crisil India BANK CHECKING: credit information for credit analyst checking on the particular firm is the firm’s bank; the analyst can obtain information, such as average cash balance carried, loan accommodations, experience and sometimes more extensive financial information. TRADE CHECKING: Credit information is frequently exchanged among companies selling to the same customers; company can ask others suppliers about their own experience with an account. THE COMPANY’S OWN EXPERIENCE: study of the promptness of past payments, including any seasonal patterns, is very useful; original “three Cs” of credit analysis:
Character - willingness to honour obligation Capacity - ability to generate cash Capital - net worth and the relationship net worth to debt
?
?
?
Pending Order Stage 1 Rs 50 cost
Bad past credit experience?
Reject
CRISIL report analysis
Stage 2 Rs 50- 150 cost
Credit rating “limited” and/or other damaging information unearthed?
Reject
Accept
Credit rating “fair”, and/or close to maximum “line of credit”?
Stage 3 Rs 300 cost
Bank, creditor and financial statement analysis
Accept
Accept, only upon domestic irrevocable letter of credit (L/C)
Reject
Credit Decision
In initial sale, first decision is whether to ship goods and extend credits. ? Subsequent sale ? no need to fully evaluate again ? Streamlining procedure : line of credit : maximum limit of money owed by firm ? Credit functions can be outsourced : depending on the core competence of firm
?
2008-09 Receivable Turnover Ratio 20.32
2007-08 16.66
Receivable Turnover Ratio
50 45 40 35 30 25 20 15 10 5 0 44.6
R a t i o
20.32
16.66
Recievable Turnover Ratio
2008
2009 YEAR
Industry Average
2008-09 Receivable Turnover in days 18 days
2007-08 22 days
Recievable Turnover in Days
25 20 22 18
D 15 A Y 10 S 5
0 2008 2009 YEAR
8.18
Recievable Turnover in Days
Industry Average
2008-09 Bad Debts 8.67 Cr
2007-08 7.32 Cr
Bad Debt
9 8.67 8.5 In crores 8 7.5 7 6.5 2008 YEAR 2009 7.32 Bad Debt
2008-09 Percentage Bad Debts 1.07% To Total Debts Provision for bad debts 48.06
2007-08 0.8% 42.41
% Bad Debt - Total Debt
1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 0.8 % Bad Debt - Total Debt
1.07
Sundry Considered Good Over 6 months old Other
Debtors 2008-09
Analysis 2007-08
2007-06
2831.52 52773.5 55605.02
2588.35 43607.75 46196.1
1163.65 42873.45 44037.1
Considered doubtful
Over 6 months old Others – – Less: Provision for doubtful debts Share of Joint Venture schedule 20 (b)
6921.48 0 62526.5 -6921.48 55605.02 451.05 56056.07
6301.83 0 52497.93 -6301.83 46196.1 296.96 46493.06
5147.3 45.41 49229.81 -5192.71 44037.1 0 44037.1
Account Receivable Turnover
Account Receivable Turnover 44.6 36.57253
27.48452
29.540495
2006-07
2007-08
2008-09
Industry Average
Account Receivable Days
Account Receivable Days
13.28 12.37 12.44
8.18
2006-07
2007-08
2008-09
Industry Average
From Annual Report
Focus on cash generation continued and we delivered a strong operating cash flow during the period. This was driven by good business performance, underlying efficiencies and cost savings across the supply chain and a continued efficient collection system.
% increase in sale % increase in Account Receivable 49.44941
20.56858 13.33815 5.577025 2007 2008
Portfolio of Debt & provision for doubtful Debt
% of Good Debt % of Doubtful Debt
10.5479
11.4383
10.348381
89.4521
88.5617
89.651619
2006-07
2007-08
2008-09
Credit Policy
Account Receivable Short term loan Doubtful Debt 56056.02 44037.1
46493.06
27784.66
5192.71 3911.17 2006-07
6328.696301.83
6921.48
2007-08
2008-09
Debt Turnover Ratio Average
140
120
125.39
89.38 65.61 30.10
100
80
60
40 20 0
31.56
9.36
34.29 12.35
20.66 27.33
Debt Turnover Collection Days
40 35 30 25 20 15 10 5 0 39.00 29.55 17.66
12.12
2.91 4.08
11.56
10.65 5.56
13.36
HUL is moving towards realising the ambition of a chequeless organisation since 2008-09, they have implemented both e-collection (from sales) and e-payments (for purchases). These have increased speed and service substantially while simplifying processes.
A/C Receivables Turnover ratio
Series 1 36.57253 20.32 44.6
HUL
ITC
Industrial Average
A/C Receivable Days
ACC Receivable Days 18 12.44 8.18
HUL
ITC
Industrial Average
doc_449038356.pptx