The Cash Requirement for Working Capital Purpose for Minda Corporation – Case Study – MANEESH REDDY
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The Cash Requirement for Working Capital Purpose for Minda Corporation
K J Somaiya Institute of Management Studies and ResearchMumbai[pic 1]2016-2018Financial ManagementAssignmentSubmitted to Prof. Vineet SwarupSubmitted byManeesh Gondesi(15)Aditya Khandelwal(26)PGDM- Core (B)Objective:To estimate the cash requirement for working capital purpose for Minda Corporation.Minda Corporation Limited is a diversified automotive components manufacturer with a product portfolio that encompasses Safety, Security and Restraint Systems; Plastic Interior Systems and Driver Information & Telematics Systems for auto OEMs across the globe. Note: All the data for the purpose of calculation is taken from the annual report of the company for the FY 2015-16. The Standalone Balance sheet and Income statements are used for all calculation purposesMethodology:To compute the cash component required we are going to see the scenarios during which the company would be requiring cash outside of the operating cycle.A company in a course of time would require working capital for three purposes:Purchasing inventory To pay off its trade payablesTo finance its operations in, case the receivables are delayedAlso, the company expects its Accounts receivables to be received and act as working capital. But some of the trade receivables may get delayed due to various circumstances for which the company needs cash as well. So, now what we are going to do is estimate the delay in the collection of AR. For doing this we would be using the past average collection period variability and estimate the probability of the delay. After this we are going to calculate the per day purchase which the company does and finally get the additional cash required using the below formula:
Additional cash = {Expected delay in collection in days * Per day purchases}Analysis: (All figures in Rs. Crore)Expected delay in collection in days:To calculate the delay in collection days we calculate the average collection period of last 5 yearsACP=365/accounts receivable turnover ratioAccounts receivable turnover ratio = Total sales in a year/ Average AR YearAccounts receivable turnover ratio = Total sales in a year/ Average ARAverage collection period (in days)2015-16751.20/108.76 = 6.90365/6.90=52.892014-15682.96/112.95 = 6.04365/6.04= 60.432013-14648.59/119.54 = 5.42365/5.42= 67.342012-13622.94/ 112.03 = 5.56365/5.56= 65.642011-12567.72/ 106.03 = 5.35365/5.35= 68.22From the above table, we can infer that the average collection period can be as high as 68 days and as low as 53 days. The average collection period is 60 days (approximately). So, any AR can get delayed for around 7-8 days. Now calculation per day purchases: Per day purchases = Total purchases / 365 = 421.422/365 = 1.15 Crore Calculation for Accounts payables:
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By: MANEESH REDDY
Submitted: February 14, 2017
Essay Length: 608 Words / 3 Pages
Paper type: Case Study Views: 438
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