Time Line Analysis of Different Industries
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AMARA RAJA BATTERIES Ltd. TIME SERIES ANALYSISRatio Analysis:DSO: Days Sale OutstandingIt is a measure of the average number of days that a company takes to collect revenue after a sale has been made. Hence a low DSO means that the company is quick to convert its account receivables while a higher DSO usually means that the company sells its products on credits and takes longer to get back the money.2015/032014/032013/032012/032011/03DSO43.6344.2643.2048.2756.78We see that the DSO is relatively constant over the past 4 years at around 44 days. Amara Raja has a lot of B2B business which can be a reason for their DSO being constant over the years. This also means that they have a good credit policy or the debtors are prompt at repaying. Normally in the battery industry, especially in B2B where normally the credit periods are higher, Amara Raja is doing very well to get back its money in only 1 and half months. This means there is a constant cash flow in the company.DPO: Days Payable OutstandingDays payable outstanding (DPO) is a companys average payable period. Day’s payable outstanding tells how long it takes a company to pay its invoices from trade creditors, such as suppliers. Depending on the relative industries it is better to have a higher DPO which gives the company flexibility in operation.2015/032014/032013/032012/032011/03DPO15.8818.8117.9118.0929.13We see that in case of Amara Raja the DPO is quite less at around 16 days since last 4 years reducing drastically from 2011. This is a very low DPO in the battery industry. This gives us a sign that the company is also doing well. The lower DPO although keeps less cash in company can be a good thing, since their creditors are happy at such less time. This might also give them a competitive advantage over the others when it comes to suppliers or vendors.DIO: Days Inventory OutstandingIt is a financial measure of a companys performance that gives investors an idea of how long it takes a company to turn its inventory (including goods that are a work in progress, if applicable) into sales. Generally, a lower DIO is preferred, but it is important to note that the average DIO is industry specific.2015/032014/032013/032012/032011/03DIO37.8038.9639.6748.9059.31This is a great sign for the company as the DIO has been constantly decreasing over the past few years, which means Amara Raja is able to convert its inventory into sales very quickly. This also means that there is less holding cost for the inventory which is a good sign to the investors. This DIO is relatively lower when one looks at the battery industry solely.
OPERATING CYCLE:The operating cycle is the average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods. This is useful for estimating the amount of working capital that a company will need in order to maintain or grow its business.2015/032014/032013/032012/032011/03OPERATING CYCLE81.4383.2282.8797.17116.10For the last 3 years the operating cycle is hovering around the 80 days mark which is a significant change from its 2011 or even 2012 figures. In the battery industry this a good operating cycle specially compared to its main competitor EXIDE. It takes around 80 days for Amara Raja from producing its goods to getting paid for it. This gives you an idea that the company is huge, 2nd biggest battery industry in India and hence has a large operating cycle.CASH CYCLE:The cash conversion cycle measures the time period required to convert resources into cash. The intent behind the measurement is to determine how long it takes for funds paid to buy resources to be converted into cash by selling the resulting goods and being paid by customers. A short conversion cycle is considered highly desirable, since it means that a business can be operated with a reduced amount of cash. This is of prime interest to those companies operating on low or no debt.2015/032014/032013/032012/032011/03CASH CYCLE65.5564.4164.9679.0886.97The cash cycle is around 65 days for the last 3 years which has come down over 20 days from 2011. For a company like Amara Raja with very little debt, it is of great importance as to how they spend their cash. Comparing to other battery industries, this is quite good even considering they have a low DPO. It gives better management of the working capital and also the cash holdings in the company. . It also has a direct correlation with the profitability of the company