WORKING CAPITAL MANAGEMENT

OF HLL LIFECARE LTD

- PEROORKADA PLANT
AJAY J
KH.BU.P2ASB23004

1
Company Profile
 HLL Lifecare Limited (HLL) is a Government of India enterprise.
 Operates under the Ministry of Health and Family Welfare.
 Established in 1966.
 Headquartered in Thiruvananthapuram, Kerala.
 Initially named Hindustan Latex Limited.
 Initially focused on producing contraceptives.
 Diversified into various healthcare products and services over the years.
 Significant contributions to public health in India.
  Definition: Working capital management
involves balancing a company's current assets
and current liabilities to ensure sufficient
liquidity to meet short-term obligations.
 Importance: Critical for operational efficiency,
financial stability, profitability, and
INTRODUCTION sustainability, especially in the healthcare
sector.
 Objectives of the Study
1.Compute and interpret key working capital
management ratios.
2.Create a detailed schedule of changes in working
capital.
3.Predict future working capital needs using business
analytics.
4.Provide actionable recommendations for
improvement.
Research
Methodology
Research Design: Descriptive, using both
primary and secondary data.

Data Collection: Primary: Financial

statements (balance sheets, income
statements). Secondary: Annual reports,
industry publications.
Data Analysis: Compute key working capital
ratios. Create a detailed schedule of changes.
Predict future working capital needs using
predictive analytics tools.
 DATA ANALYSIS AND
INTERPRETATION
 CURRENT RATIO
 Over five years (2018-19 to 2022-23), the company's
current ratio improved.
 On average, the current ratio was about 1.009,
indicating enough current assets to cover short-term
debts.
 In 2018-19, the ratio was below 1, suggesting
potential problems in paying short-term debts.
 Each year showed improvement, with the ratio
reaching 1.139 in 2022-23.
 The upward trend shows better financial
management and capability to pay off short-term
debts.
 This improvement highlights successful working
capital management strategies, but the company have
just enough cash to pay it's short term debt
 QUICK RATIO
 The Quick Ratio increased from 0.77
in 2018-19 to 0.92 in 2022-23.
 Average Quick Ratio over five years
is 0.87, below the ideal benchmark
of 1.0.
 Indicates improved liquidity but
potential challenges in covering
short-term liabilities without selling
inventory.
 WORKING CAPITAL TURNOVER
RATIO
 Over five years (2018-19 to 2022-23),
the working capital turnover ratio varied
widely.
 Average ratio: 20.66, indicating ₹20.66
in sales for every ₹1 of working capital.
 Early years had negative ratios,
indicating struggles with managing
working capital.
 Recent years showed significant
improvement in the ratio.
 Demonstrates better use of working
capital to generate sales.
 INVENTORY TURNOVER RATIO
 Inventory Turnover Ratio declined from
12.19 in 2018-19 to 4.35 in 2022-23.
 Average Inventory Turnover Ratio:
approximately 6.64.
 Decline suggests longer time to sell
inventory, indicating potential
overstocking, decreased sales efficiency, or
reduced demand.
 Signals potential inefficiencies in inventory
management or changes in market
conditions.
 Highlights the need to reassess inventory
strategies to improve turnover and
operational efficiency.
 ACCOUNTS RECEIVABLE TURNOVER
RATIO
 Average accounts receivable turnover ratio over
five years (2018-19 to 2022-23) was 1.73.
 On average, the company collected its receivables
1.73 times a year.
 The ratio varied yearly, indicating fluctuating
efficiency in collecting receivables.
 A higher ratio indicates better performance in debt
collection.
 PAYABLE TURNOVER RATIO
 Average payables turnover ratio over five
years (2018-19 to 2022-23) was 7.18.
 On average, the company paid its
suppliers around 7 times a year.
 A higher ratio indicates quick payments,
suggesting good financial health and
strong supplier relationships.
 DAYS INVENTORY OUTSTANDING
 DIO increased from approximately 30 days in
2018-19 to nearly 84 days in 2022-23.
 Average DIO over five years is about 63 days.
 The upward trend indicates longer times to
convert inventory into sales.
 Potential causes: slower-moving inventory,
overstocking, or declining sales efficiency.
 Increasing DIO suggests inefficiencies in
inventory management.
 Possible consequences: higher holding costs and
reduced liquidity.
 Recommended actions: reassess inventory
policies, improve demand forecasting, and
enhance sales strategies to reduce inventory
holding period and optimize operational
efficiency.
 DAYS SALES OUTSTANDING
 Average DSO over five years (2018-19 to
2022-23) was about 225.41 days.
 On average, it took around 225 days to
collect payments from customers.
 Lower DSO is better, indicating quicker
collection of receivables.
 Higher DSO suggests longer collection
times, potentially affecting cash flow.
 Overall, the company takes about seven
and a half months to collect its receivables.
 OPERATING CYCLE
 Operating Cycle increased from 166.31 days in 2018-
19 to 293.71 days in 2022-23.
 Average Operating Cycle over five years is 288.14
days.
 Longer Operating Cycle indicates more time to
convert inventory into cash.
 Driven by increases in DIO (slower inventory
turnover) and DSO (delays in collecting payments).
 Extended durations can impact cash flow and liquidity,
leading to higher working capital requirements and
financial costs.
 To improve, the company should optimize inventory
levels, enhance sales processes, and tighten credit
policies to reduce collection times.
 DAYS PAYABLE OUTSTANDING
 DPO measures the average days taken to pay
suppliers.
 Calculation: (Average Accounts Payable / Cost of
Goods Sold) * 365.
 DPO fluctuated over the observed period: 23.56
days (2018-19), 16.38 days (2021-22), 20.80
days (2022-23).
 Average DPO: approximately 20.37 days.
 Variability suggests inconsistent payment
practices to suppliers year over year.
 Overall, the company has maintained a relatively
short DPO, indicating prompt payment practices.
 Recommendation: Evaluate payment strategies to
balance good supplier relationships and optimize
cash flow.
 CASH CONVERSION CYCLE
 The CCC measures the average time to convert
investments in inventory and other resources into
cash flows from sales.
 CCC increased from approximately 143 days in
2018-19 to nearly 273 days in 2022-23.
 Average CCC over the period is around 268 days.
 The rising trend indicates longer times to convert
investments into cash.
 Suggests potential inefficiencies in managing
inventory, receivables, and payables.
 Implies challenges in maintaining liquidity and
need for additional working capital.
 SCHEDULE IN
CHANGE IN WORKING CAPITAL-PFT
 2018-19 to 2019-20
 Increase in Working Capital: 101.53%
 Factors:
 Total Current Assets: Increased by ₹265,677,319.21 (6.52%).
 Trade Payables: Decreased by ₹19,096,572.49 (18.76%).
 Current Liabilities: Decreased overall, contributing to improved
working capital.
 Implication: Improved liquidity and better short-term financial stability.
 2019-20 to 2020-21
 Increase in Working Capital: 63.25%
 Factors:
 Trade Payables: Increased by ₹34,661,695.34 (41.91%).
 Current Provision: Decreased by ₹43,093,227.47 (35.29%).
 Implication: Despite an increase in trade payables, the significant decrease in
current provision contributed to a positive change in working capital.
 2020-21 to 2021-22

 Dramatic Increase in Working Capital: 1063.95%

 Factors:
 Cash and Cash Equivalents: Increased by 17.68%.
 Trade Payables: Decreased by 44.74%.
 Provisions: Decreased by 28.69%.
 Implication: Major improvements in cash reserves and reduced liabilities led to a substantial increase in working
capital, enhancing the company’s ability to meet short-term obligations and invest in operations.

 2021-22 to 2022-23

 Increase in Working Capital: 185%

 Factors:
 Inventory: Increased by 70%.
 Cash and Cash Equivalents: Decreased by 10.28%.
 Trade Payables: Increased by 233%.
 Implication: Despite a decrease in cash reserves and an increase in trade payables, a significant rise in inventory
helped maintain a positive working capital. This indicates improved asset management but highlights the need to
monitor cash flow and payables closely.
FUTURE WOKING CAPITAL
 HISTORICAL SALES GROWTH IS CALCULATED
 SCENERIO FOR FORECASTING IS 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
Historical Sales Growth Rates
From 2018-19 to 2019-20: 10.75%
From 2019-20 to 2020-21: −4.72%
From 2020-21 to 2021-22: −8.66%
 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.
 Forecasting Sales
 Base Case: ₹1,457,694,000
 Optimistic Case: ₹1,635,728,000
 Pessimistic Case: ₹1,288,528,000
 Stress Case: ₹1,269,650,000
 Forecasting of Working Capital
 Base Case Scenario
 Receivables: ₹ 1,004,608,000
 Payables: ₹130,866,100
 Inventory: ₹445,708,200
 Working Capital: ₹1,319,450,000
 Optimistic Case Scenario
 Receivables: ₹1,127,305,000
 Payables: ₹146,849,300
 Inventory: ₹500,144,400
 Working Capital: ₹1,480,600,000
 Pessimistic Case Scenario
 Receivables: ₹888,022,900
 Payables: ₹115,679,000
 Inventory: ₹393,983,500
 Working Capital: ₹1,166,327,000
 Stress Case Scenario
 Receivables: ₹875,013,000
 Payables: ₹113,984,300
 Inventory: ₹388,211,500
 Working Capital: ₹1,149,240,000
 Conclusion and
Recommendations
• Recommendations: Improving inventory management involves
regular reviews, implementing just-in-time inventory practices, and
using advanced demand forecasting. Enhancing receivables
collection includes reassessing credit policies, reviewing accounts
receivable aging, conducting credit checks, and using electronic
invoicing. Optimizing payables management entails negotiating
better terms, building strong supplier relationships, implementing
payment scheduling, and using dynamic discounting. Cash flow
management requires detailed forecasting, exploring short-term
financing, and considering working capital loans. Leveraging
technology with integrated software, automation, and financial
dashboards is essential. Strategic planning and forecasting involve
scenario analysis, regular reviews, and benchmarking. Employee
training, cross-functional collaboration, and focusing on core
operations, such as cost control, operational efficiency, and asset
utilization, are crucial. Lastly, enhancing working capital can be
achieved through equity financing, profit retention, and asset
liquidation.
• Conclusion: HLL Lifecare Limited's Peroorkada Plant has improved
liquidity and operational efficiency, as shown by key financial
ratios. Scenario-based forecasting helps plan for future economic
conditions. Recommendations include better receivables
management, optimized inventory, extended payables periods, and
leveraging technology. These steps will enhance liquidity, support
strategic goals, and boost competitiveness, ensuring financial
stability and operational excellence.