A Study on Cash Conversion Cycle With Special

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A STUDY ON CASHCONVERSION CYCLE

WITH SPECIALREFERENCE TO

SUNDARAMPACKAGINGS



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ABOUT THE COMPANY



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SUNDARAM PACKAGINGS

It is situated in sidco , coimbatore.

It is a company which manufacturescarton boxes, export containers and

packaging material.



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OBJECTIVE OF THESTUDY



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PRIMARY OBJECTIVE :

v To study the cash conversion cycle of thecompany.

SECONDARY OBJECTIVE :

To study the efficiency in cash, inventory,debtors and creditors.

To study the working capital managementof the company.



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RESEARCHMETHODOLOG

Y


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RESEARCH:

• Systematic and organized effort to investigate ascientific problem.

• Identify the problem.

• Gather information.

• Analyze the data.

• Take corrective action and solve the problem.



RESEARCH METHODOLOGY:

It is the way to systematicallysolve the research problem. This studyon cash conversion cycle is an

analytical study because the facts andinformation that is readily available arebeing used to make critical evaluation

of cash conversion cycle at SundaramPackaging’s.



RESEARCH DESIGN :

Research design is a blue print or aplanned procedure for conducting research

program.

RESEARCH DESIGN USED IN THESTUDY:

ANALYTICAL RESEARCH:



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DATA COLLECTION METHOD:

Nature of Data

The data collected is both primary andsecondary in data in nature.

Source of Data

The source of data is the various year’sbalance sheet, profit and loss account andstatements provided by the company.

They were used for the analysis and forpreparing reports. The records maintainedby the company where referred to get the



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TOOLS AND TECHNIQUIES FORANALYSIS:

Various tools and techniques are used for

the analysis are as follows

Ratio Analysis

NOC Formula

CCC Formula

Tables and charts are used for thepurpose of the analysis and interpretation.



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LIMITATIONS OF

THE STUDY



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The study has taken into account onlythree years for comparative analysis.

Time and other resources have proved tobe a constraint.

It has always not been possible to get thefull information.

The three year balance sheet is shown inthe study.from this we cannot predict the

previous year performance of thecom an .



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INTRODUCTION OFCASH

CONVERSIONCYCLE



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The cash conversion cycle (CCC) is a key

measure of business efficiency and howquickly actual cash ends up in your bankaccount from the time the outlay ismade in terms of paying for inventory

(stock) or raw materials.

Simply the CCC is the time between an

expenditure of money to make or buy aproduct and the collection of accountsreceivable from the ultimate sale of thatproduct



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The formula is:

CCC = Inventory

Conversion Period +Receivable ConversionPeriod – Payables

Conversion Period





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Raw material conversion period

(RMCP)

RMCP is the average time periodtaken to convert material in to workin process

RMCP = Raw material inventory /

[raw material



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Work in process conversion period

(WIPCP) :

WIPCP is the average time taken tocomplete the semi-finished or work–in- process.

Work in process conversion period =work-in-process inventory/ [cost of production]/360…... (4)



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Finished goods conversion period

(FGCP)

Finished goods conversion period is

the average time taken to sell thefinished goods.

Finished goods conversion period =Finished goods inventory / [Cost of goods sold / 360]….. (5)



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Debtors (receivable) conversion

period (DCP)

DCP is the average time taken toconvert debtors into cash. DCPrepresents the average Collectionperiod.

Debtors conversion period (DCP) =Debtors / [Credit sales / 360]…… (6)



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Creditors (payable) deferral period

(CDP)

CDP is the average time taken bythe firm in paying its suppliers(creditors).

CDP = Creditors / [credit purchases /360]…… (7)



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Net operating cycle

Net operating cycle [NOC] is thedifference between gross operationcycle and payable deferral period.

Net operating cycle = Grossoperating cycle – Creditor deferralperiod……. (8)



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analysis



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CASH CONVERSION CYCLEFOR 3 YEARS

YEAR ICP RCP PCP CCC

2008 268.52 18.58 103.61 183

2009 246.4 47.13 69.12 224

2010 14.61 50.2 4.38 60



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CHART SHOWING CASHCONVERSION CYCLE FOR 3

YEARS



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WORKING CAPITAL FOR 3 YEARS

Year Current Asset Current Libility Amout

2008 2529320.49 1706067.85 823252.64

2009 3708185.52 1788672.26 1919513.26

2010 4050431.68 2071671.86 1978759.82

CHART SHOWING



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CHART SHOWINGWORKING CAPITAL FOR 3

YEARS



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NET OPERATING CYCLEFOR 3 YEARS

Year GOC CDP NOC

2008 535 115 650

2009 491 97 588

2010 536 97 633

CHART SHOWING NET



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CHART SHOWING NETOPERATING CYCLE FOR 3

YEARS



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FINDINGS



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The working capital of the company isincreasing year to year, on 2008 it hasonly 823252.64 but on 2009 it

tremendously increased to 1919513.26,and by 2010 it reaches 1978759.82.Thatshows the better utilization of workingcapital of the company.

Cash conversion cycle is around 6months for the year 2008 and 7 months

for the year 2009, both the years theinventories are very high when comparedto the year 2010. CCC for year 2010 isonly 2 months, which shows the

companies better control over CCC.



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2008 debtors conversion period is only 18days where it is increasing for the years2009 and 2010,by increasing the debtors

conversion period chances for bad debt ishigh. And cash conversion period also willincrease.

Creditor’s turnover ratio remains almost

stable for the 3 years.

Creditors conversion period has not much

fluctuated for the 3 years



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2009 have a better inventory conversionperiod when compared with other twoyears.

Gross operating cycle is constant for theyears 2008 and 2010 which shows the

company have a better control over grossoperating cycle. But it is less for the year2009.The lower gross operating cycleindicates the faster production and faster

sales.

Net operating cycle is very high i.e. nearly

two years is taking. When compared with



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SUGGESTIONS



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Last two years company’s working capitalis high so liquidity position of the companyis good. But much more increase in

working capital is not that good for thecompany hence they should maintain thefurther increase of working capital.

The company is having a very good cashconversion cycle for the 2010 whencompared to previous years. So the

company should maintain the same forthe coming years.

Company should try to get more debtors



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The debtor’s conversion period of thecompany is not that much high, hence thecompany can follow the same.

The company should try to get more creditpurchase so that company can reduce thecash conversion cycle.

The company should try to get more creditpurchase so that company can reduce thecash conversion cycle.



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The firm should concentrate on theproduction department for reducing theinventory conversion cycle.

Last year companies gross operating cycleis one month more when compared to2009.so the company should try not toincrease their gross operating cycle.

The higher net operating cycle showsblocking of money in business. So the

company should concentrate on how toreduce their net o eratin c cle.



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CONCLUSION



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The study of cash conversion cycle is toanalyse how fast the company is getting

back the cash which they invested forraw materials, work in progress and fromdebtors. This company is have a bettercash conversion period, last year it only

takes two months as the cash conversionperiod. And the firms have a goodliquidity position because the workingcapital is increasing year to year. So the

company can follow this for the comingyears for their better functioning.



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THANK YOU

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A Study on Cash Conversion Cycle With Special