1.0. Introduction

1.1. Origin of the study:

This report is originated as per the course work of “Working Capital management” In BBA program.

“Working Capital management” is an introductory course to get familiar with the knowledge of how a firm manages its working capital. The basic reason behind this report is to analyze the financial statements including its working capital of Orion Infusion Ltd. The report is completed based on the course teacher’s direction and the analysis results are well found.

1.2. Objective of the study:

The main purpose of this course work is to analyze the financial statements and working capital management of several years of Orion infusion which is a part of Orion pharmaceutical

1.3. Methodology:

Report design:

The report is of analytical type which is focused on the analysis of working capital and the financial statements of Orion Infusion ltd. Several years (FY 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2010, 2011 & FY 2012) of financial data are used to complete the analysis which have shown how the Co is managing its working capital and also performing and marching forward with its capital structure.

Sources of data:

In preparing the report and accomplishing the analysis, secondary data have been used which were mainly collected from Internet, books and Journals to give shape to the report.

2.0. Over view of Orion Infusion Ltd

Company overview

Company Name Orion Infusion LtdLocation of Production plant Maikuli, P.S.-Rupgani, District-Narayanganj,

BangladeshCorporate Office 153-154, Tejgaon Industrial Area, Dhaka-1208,

BangladeshCorporate setup Public Ltd CompanyProduction Area 7171 Square metersDosage Forms Large Volume parenteralsProduct Categories Fluid, Nutrient & Electrolyte Replenishers,

Antimicrobials, Antiulcerant, Osmic Diuretic, Amino Acid Supplement, plasma Substitute

ORION GROUP is one of the leading industrial conglomerates in Bangladesh over the years. With the support of a highly skilled management structure and 18000 dedicated professionals, ORION has achieved a degree of success that is unparalleled in the country’s business history.

ORION has assumed the leadership role with its operations in the Pharmaceuticals, Cosmetics & Toiletries, Infrastructure Development, Real Estate & Construction, Power, High-tech Agro Products, Hospitality, Textiles & Garments, Aviation Management sectors. Some of the units are successfully listed in the Stock Exchange.

ORION is the market leader in Pharmaceuticals and Cosmetics & Toiletries sectors over the years in the country. Besides these, ORION has extensively focused on Infrastructure Development and Power Generation businesses through major investment undertakings and significantly contributed to the country’s national economy's stability through the right business to business strategy. The Group’s main objective follows the principle to reduce rural poverty and foster sustainable economic development of the country

3.0. Introduction: Working Capital management

3.1. Definition of Working Capital

Working capital (abbreviated WC) is a financial metric that represents the operational liquidity of a business, organization, or other entity. Along with fixed assets, such as property, plant, and equipment, working capital is considered a part of operating capital. Positive working capital is required to ensure that a firm is able to continue its operations and has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. A company can be endowed with assets and profitability but short on liquidity if its assets cannot be converted into cash.

Working capital= Current Assets – Current Liabilities

3.2. Working Capital cycle:

3.3. Objectives of working capital management

To be effective, working capital management requires a clear specification of the objectives to be achieved. The two main objectives of working capital management are to increase the profitability of a company and to ensure that it has sufficient liquidity to meet short-term obligations as they fall due and so continue in business (Pass and Pike 1984). Profitability is related to the goal of shareholder wealth maximization, so investment in current assets should be made only if an acceptable return is obtained. While liquidity is needed for a company to continue in business, a company may choose to hold more cash than is needed for operational or transaction needs, for example for precautionary or speculative reasons. The twin goals of profitability and liquidity will often conflict since liquid assets give the lowest returns. Cash kept in a safe will not generate a return, for example, while a six-month bank deposit will earn interest in exchange for loss of access for the six-month period.

3.4. Uses of Working Capital

Net working capital is calculated as current assets minus current liabilities. It is a derivation of working capital commonly used in valuation techniques such as discounted cash flows (DCFs). If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. The ability to meet the current portion of debt (payable within 12 months) is critical because it represents a short-term claim to current assets and is often secured by long term assets. Common types of short-term debt are bank loans and lines of credit.

3.5. Evaluating Working Capital Management

Cash flows can be evaluated using the cash conversion cycle -- the net number of days from the outlay of cash for raw material to receiving payment from the customer. Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities, management generally aims for a low net count.

Profitability can be evaluated by looking at return on capital (ROC). This metric is determined by dividing relevant income for the 12 months by the cost of capital used. When ROC exceeds the cost of capital, firm value is enhanced and profits are expected in the short term.

Working capital management basically shows the amount of current assets and current liabilities a company manages to run the firms short term investment and activities.

The Goal of Capital Management is to manage the firms’ current assets &liabilities, so that the satisfactory level of working capital is maintained. If the firm cannot maintain the satisfactory level of working capital, it is likely to become insolvent & may be forced into bankruptcy. To maintain the margin of safety current asset should be large enough to cover its current assets. Main theme of the theory of working capital management is interaction between the current assets & current liabilities.

4.0. Major Working Capital Data

Years Current Assets

Current Liabilities:

operating profit

2012 232,818,649 214,084,150 64,499,674

2011 269,439,790 222,517,056 55,959,336

2010 229,864,086 338,366,043 58,905,017

2006 147,757,984 195,660,030 15,710,629

2005 150,587,991 182,567,010 11,583,390

2004 91,254,406 173,020,283 12,043,547

2003 71,015,513 214,453,730 (7,764,038)

2002 97,242,746 704,468,939 (95,095,576)

2001 117,125,693 520,928,584 (22,188,889)

2000 122,636,214 609,619,696 (28,416,398)

The working Capital management is based on the current assets and current liabilities through which the operating profit is earned. Orion Infusions overall Current asset is greater than the current liabilities from the FY 2004 to 2012 which is a positive outlook for the firm’s working capital structure.

The greater operating profit means that the firm has less change to default in case of short term liquidity arrangement. In this perspective, Orion infusion is managing learning to manage its working capital effectively.

5.0. Ratio analysis based on Working Capital Data

5.1. Current ratio:

Years

Current assets

Current liabilities

Current ratio

2012 232,818,649 214,084,150 1.0872011 269,439,790 222,517,056 1.2102010 229,864,086 338,366,043 0.679

2006 147,757,984 195,660,030 0.7552005 150,587,991 182,567,010 0.8242004 91,254,406 173,020,283 0.5272003 71,015,513 214,453,730 0.3312002 97,242,746 704,468,939 0.1382001 117,125,693 520,928,584 0.2242000 122,636,214 609,619,696 0.201

Interpretation:

When all the years are compared it is found that the current ratio of the company was better in 2011 and 12 as they are higher than 1. This entails the fact that the overall situation of the company is not good as the ratios of other years are less than 1. The ideal Current Ratio is 2:1 but here the current ratio shows that it is not a good situation for the organization at past though it has managed to turn around at present

5.2. Acid test ratio:

year Quick assets Current liabilities

Quick ratio

2012 125,176,192 214,084,150 0.584

2011 132,072,993 222,517,056 0.593

2010 142,163,576 338,366,043 0.420

2006 68,759,476 195,660,030 0.351

2005 72,382,563 182,567,010 0.396

2004 47,217,529 173,020,283 0.272

2003 40,082,589 214,453,730 0.186

2002 29,473,317 704,468,939 0.041

2001 43,273,424 520,928,584 0.083

2000 50,291,843 609,619,696 0.082

Interpretation:

The quick ratios of the co. are increasing every year which is a good signal for the working capital management of the firm. The highest quick ratio holding year is the year 2011 which is 0.593. It can be said that the overall liquidity position of the company is not good. It has a very unpredictable future as it might find it difficult to pay its current

liabilities on time. There is a major chance of failure as the liquidity ratio is low all the way through.

5.3. Cash ratio:

Year Cash Current liabilities Cash Ratio

2012 6,085,023 214,084,150 0.02842351

2011 29,801,666 222,517,056 0.133929805

2010 29,801,666 338,366,043 0.088075227

2006 7,069,656 195,660,030 0.036132346

2005 1,480,395 182,567,010 0.008108776

2004 5,089,683 173,020,283 0.029416684

2003 3,224,430 214,453,730 0.015035551

2002 2,176,458 704,468,939 0.003089502

2001 582,791 520,928,584 0.001118754

2000 1,020,491 609,619,696 0.00167398

Interpretation:

Orion Infusion limited has a volatile cash ratio which means that the company faces difficulties in managing its cash over the liabilities. The highest cash over liabilities generating period is FY 2011 where the ratio is 0.1339 and it decreases in the FY 2012 and became .0284 which is not good for managing the working capital.

5.4. Receivable Turnover Ratio:

year net credit sales

account receivables

Rec. turnover

2012 589,543,586 72,347,455 8.149

2011 594,103,378 60,474,635 9.824

2010 527,530,042 58,222,456 9.061

2006 233,857,748 33,825,550 6.914

2005 358,576,114 32,779,422 10.939

2004 157,690,079 16,791,135 9.391

2003 57,053,798 13,715,007 4.160

2002 572,566,456 4,943,237 15.828

2001 20,451,129 14,707,791 1.390

2000 27,903,727 16,575,142 1.683

Interpretation:

It can simply be stated that the receivable turnover is not stable and they are fluctuating every year. It can be seen that the best year regarding receivable turnover of the firm is FY 2001 where the ratio is only 1.390. The last year’s receivable turnover is 8.149. The financial situation regarding the working capital is better off if the receivable turnover is less. The amount of receivables simply suggests how much money the organization is supposed to receive from outside. It is better if the company has less cash involved outside.

5.4. Inventory Turnover ratio:

Years COGS Avg. Inventories

Inventory turnover

2012 374,335,973 107,642,457 3.477

2011 378,855,587 137,366,797 2.757

2010 343614502 87,700,510 3.918

2006 224,097,190 78,998,508 2.836

2005 155,278,202 78,205,428 1.985

2004 102,764,066 44,036,877 2.333

2003 48,924,408 30,932,924 1.581

2002 36,986,928 67,769,429 0.545

2001 25,688,404 73,852,269 0.347

2000 25,416,076 72,344,371 0.351

Interpretation:

It simply entails how efficient the business is at maintaining the appropriate level of inventory. Here the inventory turnover is better in 2010 than other years as it suggest that the company is having an increased involvement outside. But a reduction in inventory turnover can lead to liquidity crisis. The higher the Inventory turnover ratio, the

better it is for the firm. it can be interpreted that the firms overall inventory turnover is good.

5.5. Inventory holding Period:

Years Inventory turnover

Inventory holding period

2012 3.4775 3.450669

2011 2.757985 4.351002

2010 3.918045 3.062752

2006 2.836727 4.230228

2005 1.985517 6.043766

2004 2.333591 5.142289

2003 1.581629 7.587115

2002 0.545776 21.98704

2001 0.347835 34.49912

2000 0.351321 34.15682

Interpretation: -

The inventory holding period is decreasing every year. In the FY 2000 it is 24.15 where in the FY 2012, it is only 3.45. It means the company is able to turn its inventory to finished goods and can sell it efficiently. This holds a significant impact in the firm’s working capital management.

5.6. Net profit Margin:

Years

Net Income Net sales NPM

2012 35,272,194 601,416,406 0.059

2011 32,834,544 596,355,557 0.055

2010 30,182,990 541,672,423 0.056

2006 15,335,549 359,622,242 0.043

2005 11,732,692 249,846,035 0.047

2004 7,346,797 159,766,207 0.046

2003 21,436,060 66,825,568 0.321

2002 116,890,939 45,624,741 2.562

2001 103,586,773 29,771,078 3.479

2000 95,167,663 21,116,941 4.507

Interpretation:

The Net Profit Margin of Orion Infusion is going through a bad financial situation. A higher profit margin indicates a more profitable company. It can be seen that the net profit margin of FY 2012, 11 and 10 are 0.059, 0.055, and 0.056 accordingly which is not good for Orion Infusion. It was good in FY 2010 which is 4.507

5.7. Working capital turnover ratio:

Years Net sales Net WC WC turnover

2012 601,416,406 18,734,499 32

2011 596,355,557 46,922,734 13

2010 541,672,423 -108,501,957 (5)

2006 359,622,242 -47,902,046 (8)

2005 249,846,035 31,979,019 (8)

2004 159,766,207 81,765,877 (2)

2003 66,825,568 -143,438,217 (0)

2002 45,624,741 -607,226,193 (0)

2001 29,771,078 -403,802,891 (0)

2000 21,116,941 -486,983,482 (0)

Interpretation:

A high working capital turnover ratio indicates efficiency in utilization of resources and the ratio has improved from 13 in 2011 to 32 in 20012. The ratios other years are in negative form as the firms current assets are lower than the current liabilities from FY 2000 to FY 2006.

5.8. Total Asset Turnover Ratio:

Years

Net sales Total Assets TAT

2012 601,416,406 619,014,970 0.971

2011 596,355,557 739,022,003 0.806

2010 541,672,423 708,560,585 0.764

2006 359,622,242 736,066,216 0.488

2005 249,846,035 724,074,692 0.345

2004 159,766,207 451,546,465 0.353

2003 66,825,568 353,418,394 0.189

2002 45,624,741 387,478,149 0.117

2001 29,771,078 207,754,189 0.143

2000 21,116,941 207,754,189 0.101

Interpretation:

The asset turnover ratio is high as the company suggests having high ratio which simply entails the fact that company is being able to maintain the assets on the basis of its income. The overall asset turnover of Orion infusion is increasing every year. In FY 2012, it is 0.971 where in FY 2000 it is 0.101.

5.9. Return on Asset:

Years Net Income Total Assets ROA Ratio

2012 35,272,194 619,014,970 0.0569

2011 32,834,544 739,022,003 0.0444

2010 30,182,990 708,560,585 0.0425

2006 15,335,549 736,066,216 0.020

2005 11,732,692 724,074,692 0.0162

2004 7,346,797 451,546,465 0.0162

2003 21,436,060 353,418,394 0.0606

2002 116,890,939 387,478,149 0.3016

2001 103,586,773 207,754,189 0.4986

2000 95,167,663 207,754,189 0.4580

Interpretation:

The return on asset is very low this simply says that the company is not having a good return all the way through the investment of its assets. The mainframe work is mostly not a good one for the company as the Ratios are only 0.0569, 0.0444, 0.0425 in the FY 2012, 11 and 10 respectively.

5.10. Return on Equity:

Years Net Income total equity ROE

2012 35,272,194 177,497,306 0.198

2011 32,834,544 189,818,199 0.172

2010 30,182,990 206,116,683 0.14

2006 15,335,549 203,597,600 0.075

2005 11,732,692 25,741,388 0.455

2004 7,346,797 37,124,233 0.197

2003 21,436,060 41,087,336 0.521

2002 116,890,939 316,892,790 0.368

2001 103,586,773 207,754,189 0.498

2000 95,167,663 207,754,189 0.458

Interpretation:

The return on equity was being fluctuating from FY 2000 to 2005 and in the FY 2006 it started to decrease and after FY 2010 it again made adverse direction and started to increase. The return on asset of Orion Infusion in FY 2012 is 0.198 and this simply says that the company is having a unstable return all the way through. The whole work of the yearly return entails that the company might have to gain more sustainability on the basis of its existence.

5.11. Earnings per Share:

Years Net Income No. of stock EPS

2012 35,272,194 2,035,976 17.3

2011 32,834,544 2,035,976 16.12

2010 30,182,990 2,035,976 14.82

2006 15,335,549 2,035,976 7.53

2005 11,732,692 2,035,976 5.76

2004 7,346,797 2,035,976 3.68

2003 21,436,060 2,035,976 10.52

2002 116,890,939 2,035,976 57.41

2001 103,586,773 2,035,976 50.87

2000 95,167,663 2,035,976 46.74

Interpretation:

Earnings per share mean how the co. is earning over its operation in a fiscal year per share. The higher earnings per share is, the strong working capital managing co. it is. The table shows that the firms earning per share was higher in the FY 2002 and then it started to decrease. However the firm has been pooling its tail to make itself more profitable over the year and the EPS of FY 2012 is 17.3 per common stock.

5.12. Price Earnings Ratio:

Years

price per share

EPS PER

2012 100 17.324 5.7722011 100 16.127 6.2002010 100 14.824 6.7452006 100 7.5322 13.272005 100 5.7626 17.352004 100 3.608 27.712003 100 10.528 9.4972002 100 57.412 1.7412001 100 50.878 1.9652000 100 46.74 2.139

Interpretation:

Orion Infusion has highest PER in the FY 2004 and then it started to decrease where in FY 2012 it became 5.772. This signifies that the company’s ability to provide more benefits over its share price has been decreasing for which it would have to give more dividend to customer to be attractive and to provide more dividend, it would have to manage less working capital.

5.13. Debt. To Total asset Ratio:

Years Total Debt. Total Assets Debt to Asset Ratio

2012 441,517,664 619,014,970 0.713

2011 549,203,804 739,022,003 0.7431

2010 502,443,902 708,560,585 0.709

2006 532,468,616 736,066,216 0.723

2005 520,477,092 724,074,692 0.7188

2004 488,670,698 451,546,465 1.0822

Interpretation:

Orion Infusion has stable trend of Debt to asset ratio but it is not good enough to make the working capital stronger. The highest debt to asset ratio holding year is FY2004 but after then, the ratio started to drop and the ratio of FY2012 is 0.713 where debt is TK 441,517,664 and asset is TK 619,014,970

5.14. Debt to equity Ratio:

Years Total Debt. total Equity Debt to Equity

2012 441,517,664 177,497,306 2.48

2011 549,203,804 189,818,199 2.89

2010 502,443,902 206,116,683 2.43

2006 532,468,616 203,597,600 2.61

2005 520,477,092 25,741,388 20.21

2004 488,670,698 37,124,233 13.16

Interpretation:

The D/E ratio is 1:1; it implies that for every Tk of outside liability. In case of Orion Infusion ltd the ratio is decreasing every year. The firm is trying to increase its equity and for which the risk of debt is decreased. There is continuous decrease in total debt and there is continuous increase in shareholder s equity (i.e. Reserves and Surpluses) with increasing rate so the co. is able to take more loads and decrease the risk. It makes the working capital management of the firm stronger.

5.15. Time interest Earned Ratio:

Years EBIT+ Interest

Int. Expenses

TIE Ratio

2012 65,462,150 28,426,346 2.3022011 57,009,214 22,532,943 2.530

2010 59,564,493 27,872,354 2.137

2006 48,584,253 32,481,927 1.495

2005 28,103,239 15,783,912 1.780

2004 12,883,889 5,537,092 2.326

Interpretation:

In case of Orion Infusion Ltd, in the year 2005-06 there was a decrease in interest and increase in EBIT so ratio increased from 1.495 to 1.780. There was a decrease in interest as well as EBIT but the decrease rate is higher than the decrease rate of EBIT, so the ratio increased from 2.137 to 2.530 and in the year 2010-11. The ratio is 2.30 in the FY 2012.

6.0. Regression Analysis:

In this chapter, several regression analysis based on the Net Income & Net Working Capital, net Income & Liquidity ratios and Net Income & profitability ratios are discussed.

6.1. Net Working Capital with net Income Regression Analysis

Net WC 18,734,499 46,922,734 -108,501,957 -47,902,046 -31,979,019 -81,765,877 -143,438,217 -607,226,193 -403,802,891 -486,983,482Net Income 35,272,194 32,834,544 30,182,990 15,335,549 11,732,692 7,346,797 21,436,060 116,890,939 103,586,773 95,167,663

Hypothesis

Null Hypothesis: Net Income(dependent variable) correlation with Net working capital

Alternative Hypothesis: Net Income(dependent variable) has no correlation with Net working capital

SUMMARY OUTPUTRegression Statistics

Multiple R 0.914275458R Square 0.835899613Adjusted R Square 0.815387064Standard Error 17831142.58Observations 10

ANOVAdf SS MS F Significance F

Regression 1 1.29567E+16 1.29567E+16 40.75065 0.000212818Residual 8 2.5436E+15 3.1795E+14Total 9 1.55003E+16

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%Intercept 16429787.88 7395672.997 2.221540607 0.057045 -624664.6337 33484240.4 -624664.63 33484240.4Net WC -0.165491791 0.025924429 -6.383623316 0.000213 -0.225273632 -0.10571 -0.2252736 -0.10570995

Interpretation of Regression Statistics:

Multiple R indicates the correlation between Y & Ŷ. Here the correlation between Y and Ŷ is .9147 that means it shows correlations between these two.

Standard error indicates the variation between actual and predicted value. Here standard deviation is 17831142

R square is .8358 which means 83.58% independent variable can be explained by dependent variable

Interpretation of Anova table:

The value of F from the table is 5.19 and from the Anova table it is seen that the value of F is 40.75. here the F value from the Anova table is greater than the F value from the table. So Null Hypothesis is Accepted and alternative Hypothesis is regected

Interpretation of Coefficient Table:

Ŷ=a +b1x1+b2x2……+bnxn

net income= 16429787.88 - 0.165491(Net working capital)

the relationship between the net working capital and Net income is negative that means we can say that the current asset is lower than the current liabilities. So the Co. should increase its current asset in comparison with the current liabilities

If Net working capital decreases, then the Net working capital loan will decrease.

6.2. Net profit margin with liquidity ratio analysis:

year 2012 2011 2010 2006 2005 2004 2003 2002 2001 2000NPM 0.059 0.055 0.056 0.043 0.047 0.046 0.321 2.562 3.479 4.507Cash Ratio 0.0284 0.1339 0.088 0.036 0.0081 0.02941 0.015 0.00308 0.00111 0.00167Quick ratio 0.584 0.593 0.42 0.351 0.396 0.272 0.186 0.041 0.083 0.082Current ratio 1.087 1.21 0.679 0.755 0.824 0.527 0.331 0.138 0.224 0.201

Hypothesis

Null Hypothesis: Net profit margin(dependent variable) has no correlation with Current ratio, Quick Ratio & Cash Ratio

Alternative Hypothesis: Net profit margin(dependent variable) has correlation with Current ratio, Quick Ratio & Cash Ratio

SUMMARY OUTPUT

Regression StatisticsMultiple R 0.783581R Square 0.613999Adjusted R Square0.420999Standard Error 1.308429Observations 10

ANOVAdf SS MS F Significance F

Regression 3 16.33921 5.446405 3.181338 0.105905Residual 6 10.27191 1.711986Total 9 26.61113

CoefficientsStandard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0%Intercept 2.936463 0.838683 3.501281 0.012806 0.884281 4.988646 0.884281128 4.988645615Current ratio 4.084057 6.82863 0.598079 0.571657 -12.625 20.79311 -12.62499878 20.79311231Quick ratio -14.5518 13.09376 -1.11135 0.308956 -46.591 17.48752 -46.59103874 17.48752335Cash Ratio 3.407873 14.26206 0.238947 0.819099 -31.4901 38.30587 -31.49012358 38.30586913

Interpretation of Regression Statistics:

Multiple R indicates the correlation between Y & Ŷ. Here the correlation between Y and Ŷ is 0.783 that means it shows high correlations between these two.

Standard error indicates the variation between actual and predicted value. Here standard deviation is 1.30

R square is 0.61which means 61.39% independent variable can be explained by dependent variable

Interpretation of Anova table:

The value of F from the table is 4.76 and from the Anova table it is seen that the value of F is 3.18. Here the F value from the Anova table is less than the F value from the table. So Null Hypothesis is accepted and alternative Hypothesis is rejected.

Interpretation of Coefficient Table:

Ŷ=a +b1x1+b2x2……+bnxn

Net profit margin=2.93+4.084(CR)-14.55(QR)+3.40(CR)

The relationship between the Current Ratio, Cash ratio and net profit Margin is positive where the relation between Quick ratio and net profit margin is negative that means the firm has positive current and cash assets. So the Co. should increase its quick asset in comparison with the current liabilities.

6.3. EPS and capital structure regression analysis

Hypothesis

Null Hypothesis: EPS (dependent variable) has correlation with ROA and ROE

Alternative Hypothesis: EPS (dependent variable) has no correlation with ROA and ROE

SUMMARY OUTPUT

Regression StatisticsMultiple R 0.925101R Square 0.855811Adjusted R Square0.814615Standard Error 8.773138Observations 10

ANOVAdf SS MS F Significance F

Regression 2 3197.829 1598.914 20.77377 0.001138Residual 7 538.7756 76.96794Total 9 3736.604

CoefficientsStandard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%Upper 95.0%Intercept 11.39149 6.122528 1.860585 0.105121 -3.08599 25.86897 -3.08599 25.86897ROA Ratio 104.7471 18.82976 5.562848 0.000848 60.22179 149.2724 60.22179 149.2724ROE -13.581 21.48313 -0.63217 0.547359 -64.3805 37.2185 -64.3805 37.2185

Interpretation of Regression Statistics:

Multiple R indicates the correlation between Y & Ŷ. Here the correlation between Y and Ŷ is 0.925 that means it shows strong correlations between these two.

Standard error indicates the variation between actual and predicted value. Here standard deviation is 8.77

R square is .8147 which means 81.47% independent variable can be explained by dependent variable

Interpretation of Anova table:

The value of F from the table is 4.74 and from the Anova table it is seen that the value of F is20.77. Here the F value from the Anova table is greater than the F value from the table. So Null Hypothesis is accepted and alternative Hypothesis is regected

Interpretation of Coefficient Table:

Ŷ=a +b1x1+b2x2……+bnxn

EPS= 11.39+104.74(ROA)-13.58(ROE)

The relationship between the Earning per share and return on asset is positive that means the Co. ha positive outlook regarding the return on Asset with the Earning per share. On the other hand the EPS and the ROE has negative correlation. So the Co. should increase its Net Income to increase its return on the quantity of equity issued.

To increase the EPS, Orion Infusion has to increase its operating profit and Net income

7.0. Cash inflow outflow model

Cash is important to every organization. It is critical for companies to hold cash for payments but at the same time avoid holding excess cash, as this is a non-earning asset. Cash management is therefore a balance between liquidity and profitability.

There are 4 models regarding the cash flow which are discussed below-

Baumol Model

Baumol’s cash management model helps in determining a firm’s optimum cash balance under certainty. As per the model, cash and inventory management problems are one and the same.

There are certain assumptions that are made in the model. They are as follows:

1. The firm is able to forecast its cash requirements with certainty and receive a specific amount at regular intervals.

2. The firm’s cash payments occur uniformly over a period of time i.e. a steady rate of cash outflows.

3. The opportunity cost of holding cash is known and does not change over time. Cash holdings incur an opportunity cost in the form of opportunity foregone.

4. The firm will incur the same transaction cost whenever it converts securities to cash. Each transaction incurs a fixed and variable cost.

For example, let us assume that the firm sells securities and starts with a cash balance of C rupees. When the firm spends cash, its cash balance starts decreasing and reaches zero. The firm again gets back its money by selling marketable securities. As the cash balance decreases gradually, the average cash balance will be: C/2. This can be shown in following figure:

The Beranek model:

Beranek hypothesized firms where the cash inflows were steady but the outflows are periodic. This is the mirror image within the time pattern of cash flows within the baumol model where the inflows are periodic and the outflows were steady where balances are built over time and disbursed all at once

The Miller-Orr model:

The Miller-Orr Model rectifies some of the deficiencies of the Baumol Model by accommodating a fluctuating cash flow stream that can be either inflow or outflow. The Miller-Orr Model has an upper limit U and lower limit L

When there is too much cash and U is reached, cash is taken out (to buy short-term securities to earn interest) such that the cash balance goes to a return (R) point. Otherwise, if there is too little cash and L is reached, cash is deposited (from the short-term investments) to replenish the balance to R. The equations of the Miller-Orr Model are:

Where R = the return point, f = the fixed cost for each transaction to withdraw or deposit cash, s 2 = the variance of the cash flows, i = the interest rate per same time period as s 2 , U = the upper limit and L is determined by other means, for example, compensating balance requirement, minimum balance to avoid bank service charges on checking account, or zero.

The STONE MODEL:

The Stone Model is somewhat similar to the Miller-Orr Model insofar as it uses control limits. It incorporates, however, a look-ahead forecast of cash flows when an upper or lower limit is hit to take into account the possibility that the surplus or deficit of cash may naturally correct itself. If the upper control limit is reached, but is to be followed by cash outflow days that would bring the cash balance down to an acceptable level, then nothing is done.

If instead the surplus cash would substantially remain that way, then cash is withdrawn to get the cash balance to a predetermined return point. Of course, if cash were in short supply and the lower control limit was reached, the opposite would apply. In this way the Stone Model takes into consideration the cash flow forecast.

8.0. Recommendation:

Analyzing all the data and ratios regarding the working capital management of Orion Infusion Limited several recommendations pops up which are discussed below

o Current asset should be increased to make the cash management more easy and liquid

o Orion Infusion should be more conscious about the level of credit sales to make the cash management more strong

o Focus on working capital should be given to remain risk free in the volatile market

o Orion Infusion should choose between the best cash and short term investment model for its capital structure and working capital management

o The company has higher debt than equity. Though it works as tax shield, the common stockholders don’t get enough return on their investment which makes the investors less attractive. So Orion Infusion should increase its equity and decrease the total amount of debt

o EPS is very low which the investor would be less attractive, so Orion infusion ltd should try to increase its operating profit and net income or to give more dividend as possible

o The working capital turnover rate is very volatile which means that the company doesn’t practices the working capital management much to improve it. This makes the forecasting more unpredictable for the investors

o Net profit margin is very low which means that the company is failing to get enough profit from the production and selling. The co. should try to improve standards of the products

9.0. Conclusion

Several types of ratio regarding the working capital and capital structure has been analyzed with additional regression analysis tool to come to some clear findings and the results are well found

The Orion infusion ltd has some advantage and also some disadvantage regarding their capital structure and working capital management policy. The company is trying to improve its performance regarding the share market and also in accordance with the product development. Receivable turnover is very good that proves it receives payment from its customers or debtors within time.

The company is failing to increase its Net income that is affecting its EPS and Net working capital which should be their no.1 concern to attract more investor in the capital market.

So analyzing the related data and after completing the regression analysis it can be concluded that the overall financial performance of the Orion Infusion ltd should be increased.