Submitted By:
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
Taha Kamran
01-111172-103
Shehryar Meeran 01-111172-178
Class: BBA (4) 5E
Subject:
Submitted To:
Date: 28th January, 2022
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Abstract:
The money transformation cycle (CCC) has been proposed as one strategy for breaking down the
monetary strength of a firm by following its practices for managing payables, receivables and
Inventory. The blend of turnover proportions for these three records portrays the process duration
it takes for a firm to transform a dollar put resources into the creation interaction into a dollar of
money stored. This report depends on the calculation and investigation of the functioning capital
specifically the money transformation pattern of Murree Brewery and Shezan International FY
2019 and FY 2020. The focal ramifications of these discoveries are that the money change cycle
may be a more valuable demonstrative and prescient instrument than the current proportion in
liquidity examination. The examination discoveries were predictable with progress or
disintegration in each organization's fundamental key presentation as estimated by basic changes
in its serious situation at a similar moment.
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INTRODUCTION
Murree Brewery:
Murree Brewery is a Pakistani multinational manufacturer of alcoholic and non-alcoholic
beverages. It is Pakistan's largest and oldest producer of alcoholic products. In 2015, it produced
10 million liters of beer, along with hundreds of tons of single malt whisky, vodka and brandy.
Founded by the British in 1860, it is a publicly traded company listed on the Pakistan Stock
Exchange, its products are exported to India and Bangladesh. In 2014, the company established a
flagship store on Park Avenue, in Manhattan, New York City. In 2013, it was named by Forbes as
one of Asia's 200 best companies. The brewery has two manufacturing units located in Rawalpindi,
Punjab and Hattar, Khyber Pakhtunkhwa. It is one of Pakistan's fastest-growing companies.
Shezan International:
Shezan International Limited is a Pakistani beverage manufacturer based in Lahore. It is one of
the biggest food and beverage manufacturers in Pakistan. Two of their most famous brands are All
Pure and Twist. This company is a part of Shahnawaz Group and is traded on the Pakistan Stock
Exchange. Since its inception in 1964, Shezan has produced various products including soft drinks,
juices, ketchups, and jams. The company is also the single largest grower of mangoes in Pakistan
and employs roughly 1,000 persons. The company is best known for its trademark product, 'Shezan
Mango', a mango juice drink popular in Pakistan.
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Objective of Report:
This report aims to evaluate and analyze the financial prospects of Murree Brewery and Shezan
International in term of their working capital management using financial reports of 2019 and
2020.
Furthermore, we will present cash conversion cycle (CCC) of respective years to highlight Murree
Brewery, and Shezan International’s ability to effectively manage their working capital, review
their past performance and will provide reasoning for why the discrepancy exists, if it exists at all.
Source of Data:
The main sources of data for this report were Annual Reports for the year ended 2019 and 2020
respectively. Data was obtained from the balance sheets and income statements of the respective
reports and was used for the computation of cash conversion cycles (CCC).
Cash Conversion Cycle:
The cash conversion cycle (CCC) is one of several measures of management effectiveness. It
measures how fast a company can convert cash on hand into even more cash on hand. The CCC
does this by following the cash, or the capital investment, as it is first converted into inventory and
accounts payable (AP), through sales and accounts receivable (AR), and then back into cash.
Generally, the lower the number for the CCC, the better it is for the company. Although it should
be combined with other metrics (such as return on equity (ROE) and return on assets (ROA)), the
CCC can be useful when comparing close competitors because the company with the lowest CCC
is often the one with superior management. The CCC is a combination of several activity ratios
involving accounts receivable, accounts payable, and inventory turnover. AR and inventory are
short-term assets while AP is a liability. All of these ratios are found on the balance sheet. In
essence, the ratios indicate how efficiently management is using short-term assets and liabilities
to generate cash. This allows an investor to gauge the company's overall health.
What does cash conversion cycle measures?
The cash conversion cycle (CCC) is one of several measures of management effectiveness. It
measures how fast a company can convert cash on hand into even more cash on hand. The CCC
does this by following the cash, or the capital investment, as it is first converted into inventory and
accounts payable (AP), through sales and accounts receivable (AR), and then back into cash.
Generally, the lower the number for the CCC, the better it is for the company.
Key Takeaways:
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The CCC is an indicator of how fast a company can convert its initial capital investment
into cash.
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Companies with a low CCC are often the companies with the best management.
The CCC should be combined with other ratios, such as ROE and ROA, and compared
with industry competitors for the same period for an adequate analysis of a company's
management.
The CCC is best applied to companies with inventories. It is not a reliable metric for
consulting companies, for example.
The Formula For CCC:
The mathematical formula for CCC is represented as:
Where CCC = DIO + DSO - DPO
DIO = Days of inventory outstanding
DSO= Days sales outstanding
DPO = Days payables outstanding
Finding the Cash Conversion Cycle:
Days Inventory Outstanding (DIO):
Days Inventory Outstanding (DIO) is the number of days, on average, it takes a company to turn
its inventory into sales. Essentially, DIO is the average number of days that a company holds its
inventory before selling it. The formula for day’s inventory outstanding is as follows:
Days Sales Outstanding (DSO):
Days Sales Outstanding (DSO) is the number of days, on average, it takes a company to collect its
receivables. Therefore, DSO measures the average number of days for a company to collect
payment after a sale. The formula for day’s sales outstanding is as follows:
What is Days Payable Outstanding (DPO)?
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Days Payable Outstanding (DPO) is the number of days, on average, it takes a company to pay
back its payables. Therefore, DPO measures the average number of days for a company to pay its
invoices from trade creditors, i.e., suppliers. The formula for day’s payable outstanding is as
follows:
Interpreting the Cash Conversion Cycle:
The cash conversion cycle formula is aimed at assessing how efficiently a company is managing
its working capital. As with other cash flow calculations, the shorter the cash conversion cycle, the
better the company is at selling inventories and recovering cash from these sales while paying
suppliers.
The cash conversion cycle should be compared to companies operating in the same industry and
conducted on a trend. For example, measuring a company’s conversion cycle to its cycles in
previous years can help with gauging whether its working capital management is deteriorating or
improving. In addition, comparing the cycle of a company to its competitors can help with
determining whether the company’s cash conversion cycle “normal” is compared to industry
competitors.
Calculation:
To calculate CCC, we need several items from the financial statements:
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Revenue and cost of goods sold (COGS) from the income statement;
Inventory at the beginning and end of the period;
AR at the beginning and end of the period;
AP at the beginning and end of the period; and
The number of days in the period (year = 365 days, quarter = 90).
Murree Brewery:
(2020)
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Days Inventory Outstanding (DIO) = ((BI + EI) / 2 / COGS) × DIY
= ((276,636,000+276,636,000)/2/6,695,444,000) x 365
= 15.08 days
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Days Sales Outstanding (DSO) = ((BR + ER) / 2 / NCS) × DIY
= ((14,563,000+25,926,000)/2/8,996,909,000) x 365
= 0.82 days
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Days Payable Outstanding (DPO) = ((BP + EP) / 2) / (COGS / DIY)
= ((1,337,179,000+1,723,243,000)/2/ (6,695,444,000/365)
= 83.41
Cash Conversion Cycle= DIO+DSO-DPO
= 15.08+0.82-83.41
= -67.51 days
(2019)
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Days Inventory Outstanding (DIO) = ((BI + EI) / 2 / COGS) × DIY
= ((30,681,000+30,681,000)/2/7,236,021,000) x 365
= 1.54 days
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Days Sales Outstanding (DSO) = ((BR+ER)/2/NCS) x DIY
= ((26,058,000+14,563,000)/2/9,983,292,000) x 365
= 0.74 days
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Days Payable Outstanding (DPO)= ((BP+EP)/2)/(COGS/DIY)
= ((1,243,524,000+1,337,179,000)/2/ (7,236,021,000/365)
= 65.08 days
Cash Conversion Cycle = DIO+DSO+DPO
= 1.54+0.74-65.08
= -62.8 days
Shezan International:
(2020)
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Days Inventory Outstanding (DIO) = ((BI + EI) / 2 / COGS) × DIY
= ((1,645,062,000+1,527,152,000)/2/6,213,833,000) x 365
= 93.16 days
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Days Sales Outstanding (DSO) = ((BR + ER) / 2 / NCS) × DIY
= ((136,615,000+156,598,000)/2/7,313,042,000) x 365
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= 7.31 days
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Days Payable Outstanding (DPO) = ((BP + EP) / 2) / (COGS / DIY)
= ((376,383,000+744,035,000)/2)/ (6,213,833,000/365)
= 32.90 days
Cash Conversion Cycle = DIO+DSO+DPO
= 93.16+7.31-32.90
= 67.57 days
(2019)
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Days Inventory Outstanding (DIO) = ((BI + EI) / 2 / COGS) × DIY
= ((1,720,889,000+ 1,645,062,000)/2/ 6,172,758,000) x 365
= 99.51 days
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Days Sales Outstanding (DSO) = ((BR + ER) / 2 / NCS) × DIY
= ((116,219,000+136,615,000)/2/ 7,704,097,000) x 365
= 5.98 days
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Days Payable Outstanding (DPO) = ((BP + EP) / 2) / (COGS / DIY)
= ((553,262,000+ 376,383,000)/2)/(6,172,758,000/365)
= 3.97 days
Cash Conversion Cycle = DIO+DSO-DPO
= 99.51+5.98-3.97
= 101.52 days
Analysis:
A negative cash conversion cycle means that it takes you longer to pay your suppliers/ bills than
it takes you to sell your inventory and collect your money, which, de-facto, implies that your
suppliers finance your operations. As a result, you do not need operating cash to grow. As it can
be seen in the cash conversion cycles of Murree Brewery. The negative sign shows that there is
great amount of liquid money than stocks. In order to improve (reduce) the CCC, Murree Brewery
can focus on any of its three components. Reducing DPO, increasing DSO or increasing DIO will
all reduce the CCC. They can improve the cash conversion cycle by avoiding common cash flow
problems in one of several ways:
1. Convert inventory into sales faster
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2. Collect payment from customers sooner
3. Extend the time taken to pay suppliers
In case of Shezan International during the fiscal year 2019 the cash conversion cycle shows that it
took more than 100 days to convert cash into more cash but during the fiscal year 2020 the
company managed to convert cash into more cash in less than 70 days as shown by the cash
conversion calculations. So, the company can use the following ways to reduce its days and make
profit in less days:
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2.
3.
4.
5.
6.
Improve Cash Flow Management.
Adjust Accounts Payable Periods.
Work with Your Customers.
Modify Your Accounts Receivable.
Optimize Your Inventory.
Shortening Cash Conversion with Automated A/R.
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