Bottomline is growing in double digits for India Inc, but cash flows are on the decline. While net cash flows are down by 45% for the non-finance BSE 500 companies, operating cash flows have also dropped by 11% for FY06 as compared to the previous year.
An ETIG analysis shows that 165 companies in the BSE 500, accounting for half the sample size, have seen a decline in their respective operating cash flows for FY06, as against FY05. Out of this half, around 120 companies reported this decline despite a growth in their respective net profits, implying that most of them have been carrying a relatively greater burden on their balance sheets.
Operating cash flow is a measure of the cash generated by a company from operations during the year. It quantifies how much cash is available for a company to fund investments and service debtors and shareholders.
While profit is an accounting concept, what really matters to a CFO while taking decisions about future growth plans is the hard cash generated during the year. The decline in operating cash flows can broadly be attributed to a rise in inventories and receivables on the one hand, and the decline in payables on the other hand.
Reliance Industries (RIL), Hindalco and Tata Motors were among the companies which reported lower operating cash flows in FY06, as against the previous year, even after PAT growths were in excess of 15%. RIL added around Rs 3,000 crore in inventories during FY06, while payables went down by Rs 800 crore, both impacting operating cash flows.
Hindalco’s operating cash flows were down by Rs 1,000 crore from FY05, mainly on account of greater working capital needs arising out of rising copper prices, while Tata Motors suffered due to increase in receivables from dealers and increased deployment in vehicle financing business. Suzlon
Energy, Unitech, ABB and Dr Reddy’s Labs reported lower operating cash flows mainly on account of working capital charges.
However, decline in operating cash flows didn’t deter these companies from making investments and capital expenditures. These 165 companies stepped up investments by 36%, as against 32% reported by the remaining companies. Even after taking debt, the companies with declining operating cash flows reported a drop of 87% in net cash flows with around 70 companies reporting negative cash flows. The remaining companies, on the other hand, reported a growth of 130% in net cash flows.
Meanwhile, L&T, Sterlite and Airtel have considerably improved their operating cash flows with better working capital management. While L&T has cut down on its WIP inventory, Sterlite has improved its credit muscle for carrying higher payables on its balance sheet.
MNCs have proved their focus on cash flows, reporting a combined growth of 6% in operating cash flows. Hindustan Lever has led the group by cutting down on inventories and improving its credit terms with suppliers. MICO, Colgate Palmolive and GSK are other notable examples
http://economictimes.indiatimes.com/articleshow/2030147.cms
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An ETIG analysis shows that 165 companies in the BSE 500, accounting for half the sample size, have seen a decline in their respective operating cash flows for FY06, as against FY05. Out of this half, around 120 companies reported this decline despite a growth in their respective net profits, implying that most of them have been carrying a relatively greater burden on their balance sheets.
Operating cash flow is a measure of the cash generated by a company from operations during the year. It quantifies how much cash is available for a company to fund investments and service debtors and shareholders.
While profit is an accounting concept, what really matters to a CFO while taking decisions about future growth plans is the hard cash generated during the year. The decline in operating cash flows can broadly be attributed to a rise in inventories and receivables on the one hand, and the decline in payables on the other hand.
Reliance Industries (RIL), Hindalco and Tata Motors were among the companies which reported lower operating cash flows in FY06, as against the previous year, even after PAT growths were in excess of 15%. RIL added around Rs 3,000 crore in inventories during FY06, while payables went down by Rs 800 crore, both impacting operating cash flows.
Hindalco’s operating cash flows were down by Rs 1,000 crore from FY05, mainly on account of greater working capital needs arising out of rising copper prices, while Tata Motors suffered due to increase in receivables from dealers and increased deployment in vehicle financing business. Suzlon
Energy, Unitech, ABB and Dr Reddy’s Labs reported lower operating cash flows mainly on account of working capital charges.
However, decline in operating cash flows didn’t deter these companies from making investments and capital expenditures. These 165 companies stepped up investments by 36%, as against 32% reported by the remaining companies. Even after taking debt, the companies with declining operating cash flows reported a drop of 87% in net cash flows with around 70 companies reporting negative cash flows. The remaining companies, on the other hand, reported a growth of 130% in net cash flows.
Meanwhile, L&T, Sterlite and Airtel have considerably improved their operating cash flows with better working capital management. While L&T has cut down on its WIP inventory, Sterlite has improved its credit muscle for carrying higher payables on its balance sheet.
MNCs have proved their focus on cash flows, reporting a combined growth of 6% in operating cash flows. Hindustan Lever has led the group by cutting down on inventories and improving its credit terms with suppliers. MICO, Colgate Palmolive and GSK are other notable examples
http://economictimes.indiatimes.com/articleshow/2030147.cms
:SugarwareZ-229: