Working Capital Management Course Code – FIN 4323 Date of Submission: 29th April, 2023 Name ID No Rajin Al – Tanjim Bhuiyan 111202052 Hasnat Jahan Shammi 111201194 Sakib Khan 111201231 Ibteda Bin Sana 111202021 Course Instructor: FARZANA, NUSRAT Asst. Professor – Finance April 29th, 2023 Nusrat Farzana Assistant Professor,SoBE School of Business & Economics United International University. Subject: - About the Working Capital Management of RAK Ceramics. Honorable Ma’am, With proper veneration and modest submission, we would like to draw your kind attention to the fact that we are the Bachelor of Business Administration students at United International University. We are informing you of their management on working capital “RAK ceramic”. We have discussed everything and how they manage their working capital and their company situation. Lastly, we pray and hope that you would be kind-hearted enough to accept and like the report. we presented and bless us heartily. Sincerely Yours, Sakib Khan 111201231 Hasnat Jahan Shammi- 111201194 Ibteda Bin Sana- 111202021 Rajin Al-Tanjim Bhuiyan – 111202052 All appreciation goes to the Almighty Allah, who has given us the blessings to be able to submit the report in time for the course of Working Capital Management. We also appreciate the effort of our respectable faculty Nusrat Farzana (NFa) (honorable ma’am for her guidance, supervision, support, and encouragement for our course report. Moreover, we would thank sir for clearly defining the requirements and analyzing the ratio of a manufacturing company (RAK ceramic) working capital management. And also thanked our group members for being Cooperative enough to do the work properly and on time. Lastly, we are very much thankful to our parents for supporting us in every step of our life, their sacrifices, well wishes, and prayers which have helped us to achieve our dream goal. Can you make a case question of bba strategic management course about netflix ChatGPT Sure, here's a potential case question for a BBA strategic management course focused on Netflix: "Netflix has disrupted the traditional television and film industry with its innovative business model and has become a household name. However, with increasing competition and changing consumer preferences, what strategic options should Netflix consider to maintain its dominant position in the streaming industry? Should the company focus on expanding its content library, investing in original content, exploring new distribution channels, or pursuing international expansion? How should Netflix balance its growth objectives with its financial goals and the need to manage content acquisition costs?" Executive Summary RAK Ceramic Bangladesh is one of the leading companies in this industry and was established in 1999. In Bangladesh, the ceramic industry started its journey before Bangladesh came into the beginning in 1950s, however, with time the industry expanded significantly realizing the increasing demand for ceramic both locally and globally. This report was developed to evaluate RAK Ceramic short-term performance over the last 5 years. The first step was to collect the annual report of RAK Ceramic Ltd, from 2018 to 2022, and after the collection annual report, for calculation purposes, all the necessary data about short-term management was taken into Microsoft Excel (Balance sheet, income statement, and cash flow statement). In addition to this, All the necessary working capital ratios are calculated based on the real data and interpretation along with graphical representation for a better understanding of all the ratios whether the ratio indicates good or bad for the company. Later on, based on the ratios we figured out the working capital policy that RAK Ceramic follow (Conservative policy), also discussed the characteristics of that particular policy as well as how it affects in this report. Lastly, we have tried to conclude our report about how good or bad RAK Ceramic is managing its working capital. Introduction Working capital is a financial metric of operating liquidity which describes the amount of cash tied up in operations and defines the short term condition of a company. A positive working capital position is required for the continuous running of a company's operations, i.e. to pay short term debt obligations and to cover operational expenses. A company with a negative working capital balance is unable to cover its short-term liabilities with its current assets. The ceramics industry is a growing manufacturing sector in Bangladesh. The industry started during the late 1950s when the first ceramic industrial plants were established. The industry mainly produces tableware, sanitary ware and tiles. As of 2011, there were 21 ceramic industrial units throughout Bangladesh, employing about 500,000 people. In the first nine months of the 2013-14 fiscal years, Bangladesh exported about US$36 million worth of goods after meeting 80% of the domestic demand. The main export destination are the EU, USA and Middle-East. RAK Ceramics Bangladesh is a ceramic manufacturer that was established in 1999 and is a subsidiary of the global company RAK Ceramics Group. They produce high-quality ceramic products like tiles, sanitary ware, and decorative items, with a focus on sustainability and environmental responsibility. The company has a strong presence in Bangladesh and also exports its products to other countries. About the Company Company Profile: RAK Ceramics is one of the largest ceramics’ brands in the world. Specializing in ceramic and gres porcelain wall and floor tiles, tableware, sanitary ware and faucets, the Company has the capacity to produce 118 million square meters of tiles, 5 million pieces of sanitary ware, 24 million pieces of porcelain tableware and 1 million pieces of faucets per year at our 21 state-of-the-art plants across the United Arab Emirates, India and Bangladesh. Headquartered in the United Arab Emirates, we serve clients in more than 150 countries through our network of operational hubs in Europe, Middle East and North Africa, Asia, North and South America and Australia. Across our global operations we employ approximately 12,000 staff from more than 40 nationalities. Mission & Vision: The mission of the RAK Ceramics Group is to provide high-quality ceramic products that meet the needs of their customers and enhance their quality of life. They strive to achieve this by continuously improving their manufacturing processes, using the latest technology and innovation to create products that are both functional and aesthetically pleasing. The vision of the RAK Ceramics Group is to become a global leader in the ceramics industry by providing sustainable, eco-friendly, and innovative products that set new standards in the industry. They aim to achieve this by investing in research and development, expanding their operations, and building long-term relationships with their customers and stakeholders. Products: RAK Ceramics Bangladesh has many different types of ceramic products available. Such as: 1. Wall Tiles: They offer a variety of wall tiles in different sizes, colors, and designs for both residential and commercial projects. 2. Floor Tiles: They offer floor tiles that are durable and can withstand heavy foot traffic in high traffic areas. 3. Sanitary ware: They offer sanitary ware products such as toilets, bidets, basins, and urinals that are designed to be stylish and functional. 4. Porcelain Tiles: They offer porcelain tiles that are resistant to scratches, stains, and moisture, making them ideal for high-traffic areas. 5. Digital Tiles: They offer digitally printed tiles that have high-definition graphics and are available in various designs and sizes. 6. Roof Tiles: They offer roof tiles that are designed to provide excellent protection against the elements and are available in a variety of colors and styles. Decor Tiles: They offer decorative tiles that can be used to add a unique and stylish touch to any space. Working capital management Definition: In simplest term, working capital is the investment in current assets. In addition, the capital which is required to finance current assets is called working capital. Working capital falls under a small part of finance manager’s responsibility. Working capital is concern about whether we are managing the company’s inflows and outflows properly or not. Importance of good working capital management: Working capital management is crucial for business success. It involves managing cash flow, inventory, accounts payable and receivable to ensure that there's enough cash available to cover short-term expenses. This helps the business operate efficiently and remain financially stable. Here are some of the reasons why good working capital management is important: Cash flow management: A business's capacity to cover its regular expenses is ensured by working capital management that is effective. A business can maintain operations and avoid short-term liquidity problems by managing cash flow. Increased profitability: A company can lower its borrowing costs and boost profitability by managing working capital well. Reducing the need for short-term borrowing or bargaining better payment terms with suppliers are two ways to do this. Efficient inventory management: Good working capital management allows a business to maintain optimal inventory levels. This means that a company can avoid holding excess inventory, which ties up capital, and reduce the risk of stockout, which can lead to lost sales. Problems with inadequate working capital: When the firm is lacking of required capital that refers to inadequate working capital. When a firm has inadequate working capital, is faces many problems as following: The business may be closed in short term of adequate working capital. Fixed assets can’t be utilized properly even repair and maintenance may face problem. Firm may miss attractive discounts from sellers. Firm’s liquidity- ability of the firm to satisfy its short term obligations, may get hampered. Firm’s goodwill can get hampered affected if it can’t pay its creditors in due date. Working capital policy RAK Ceramics is a publicly listed company in the UAE that operates in the ceramics and sanitary ware industry. Based on their financial statements, it appears that the company follows a moderate working capital management policy. For instance, the company's current ratio (current assets/current liabilities) has been relatively stable over the past few years, indicating that they maintain a balance between liquidity and profitability. Additionally, the company's cash conversion cycle (CCC) is neither too long nor too short, which suggests that they manage its cash flow efficiently without sacrificing sales growth. However, it is important to note that working capital management policies can change over time based on a company's financial performance, industry trends, and other factors. Therefore, this assessment is based on the available information and may not accurately reflect the current working capital management policy of RAK Ceramics. They follows conservative policy. Conservative Policy: Under this policy, a company maintains high levels of current assets (such as cash, inventory, and accounts receivable) and low levels of current liabilities (such as accounts payable and short-term debt). This policy provides a high degree of liquidity and safety but may result in lower profitability due to the cost of carrying excess current assets. Without specific information on RAK Ceramics' financial policies and practices, it is difficult to determine which policy they follow. It is worth noting that a company's working capital policy can change over time based on its financial performance, industry trends, and other factors. Cash management scenario As a manufacturing company, RAK Ceramics must manage its cash flows effectively to ensure it has enough liquidity to maintain its operations and invest in growth opportunities. Here's a hypothetical cash management scenario for RAK Ceramics: Cash forecasting: RAK Ceramics would need to forecast its cash inflows and outflows on a daily, weekly, and monthly basis. This would involve analyzing past cash flows, current market conditions, and any anticipated changes in its business operations. RAK Ceramics could use cash forecasting software to help automate this process. Cash concentration: To maximize its liquidity, RAK Ceramics could use cash concentration techniques to consolidate its cash balances into a single account or a few select accounts. This would allow it to minimize its banking fees and earn higher interest rates on its cash balances. Cash disbursement: RAK Ceramics would need to manage its cash disbursements carefully to ensure it doesn't run out of cash. This could involve prioritizing its payments based on their due dates and negotiating favorable payment terms with its suppliers. RAK Ceramics could also use electronic payment systems to streamline its payment processes and reduce the risk of fraud. Investment management: RAK Ceramics would need to invest its excess cash balances to earn a return on its funds. It could use a variety of investment vehicles, such as short-term money market funds, to earn interest on its cash balances while maintaining liquidity. Overall, effective cash management would be critical for RAK Ceramics to maintain its financial stability and pursue growth opportunities in the competitive ceramics manufacturing industry. Receivable management Credit granting decision: RAK Ceramics is a debt-free company, which means it has no bank loans. In an ideal world, each borrower would repay on time, and each lender would make a living from interest or other income earned over the term of the agreement. However, in the real world, there is an inherent risk that the borrower will not repay the advance credit to him. A credit business will only be profitable if the returns to its debtors exceed its default losses. Terms of Sales: All sales of services are subject to RAK Ceramics PJSC's standard terms and conditions of sale, a copy of these terms and conditions is available upon request. (1) In the case of sales, the buyer pays the cost of shipping from the warehouse and the cost of shipping insurance. Any other customs duties, fees, taxes, or excise duties are the responsibility of the buyer. (2) The purchase price is due and payable without deduction of the invoice and corresponding delivery of the goods. We reserve the right – and this also applies to ongoing business relationships – to deliver in whole or in part at any time without prepayment. A corresponding reserve will be notified to us at the latest with the confirmation of the order. (3)The cash hold on the new invoice will be excluded if the old bill has not been paid. Cash deduction is allowed only in case of full payment within the discount period. Discount deals are always related to the actual value of the goods. (4) The buyer has a right of set-off or withholding only to the extent that his right is determined to be final and binding or indisputable. In the event of a delivery failure, Buyer's right to object remains unaffected. The default rate in A/C receivables: Almost every loan or credit extension comes with some form of default risk. Default risk is measured by the probability that an individual or company will not make contractual payments on debt securities. Default risk does not exist with financial transactions, such as stock purchases, with no guarantee of payment. A default represents the failure to pay any liabilities of the Reference Asset or any other future liability of the Issuer for loans, deposits, or security. Bonds, loans, lines of credit, and even cash-on-delivery (COD) all carry some kind of default risk. RAK Ceramic has no long-term debt, which means they have no loans and high profitability. They pay their receivables on time, so their receivables default rate is risk-free. Controlling and monitoring account receivables: Compare collection period rates from year to year. If they find that customers are taking longer to pay, they may want to tighten their credit. Even as sales increase, the average number of days customers pay will not increase. Here's how RAK Ceramic control and monitors to improve collections on receivables: 1. Check the credit status of new customers. 2. Quickly issue invoices. Your customers cannot pay for products or services until they send an invoice. 3. Consider discounts for early payment bills. 4. Schedule monthly receivables and monitor overdue amounts. 5. Invoices for partially fulfilled orders and invoices for ongoing services as performed. 6. Hire a collection agency to pursue delinquent accounts. A well-defined and regularly followed system can help keep RAK Ceramics' receivables collection going and maintain the company's most important cash flow. Turnover method and payment pattern method, which one is applicable to RAK ceramics organization? The turnover method is applicable to RAK Ceramics organization because turnover is a term that is used in particular business sectors such as Accounts receivable and inventory turnovers are other types of common turnover. All these types of turnover are measurements that help determine a company’s success. Business turnover will help with planning and securing investments. It’s also important for measuring performance and will play a part in valuing RAK Ceramics if they plan to sell. This kind of turnover measures how effective a business is at generating sales. It’s crucial that business owners and company managers understand their turnover. This is chiefly so they can decide what measures they might need to introduce to meet their target profit. If gross profit is low in comparison to their turnover. They might need to consider ways to reduce the cost of their sales. That could be by renegotiating contracts with suppliers, for instance. If their net profit is low as a proportion of their turnover. You might then want to come up with ways to make their business more efficient. They might reduce administrative costs. Turnover can provide a partial indication of how well a business might be doing. Inventory management Overall inventory management condition: The inventory management job is mainly assigned to the Store department and accounts department. The accounts department is in charge of raw materials inventory. Raw materials are purchased and stored in the amount of 6 to 7 months of production. The store department is in charge of the management of the finished goods inventory. RAK takes extra precautions to not damage or waste raw materials and extra security for preventing the risk of theft. Inventory turnover ratio: 2018 2019 2020 1.09 1.89 1.64 2021 1.52 2022 3.27 Holding inventory ratio: 2018 2019 2020 2021 2022 335.80 192.77 222.10 240.11 111.47 RAK Ceramic’s Inventory turnover increases day by day so RAK Ceramic will have a higher inventory turnover ratio, while one with a lower ratio may be in trouble. Long-term inventory holding is bad for business but RAK Ceramic decreases their holding time so their management condition is good. Composition of Inventory: In most cases, a firm maintains raw materials, Workingin-process and Finished goods as inventory. Depending on the nature Of the Business, the proportion of inventory held by the firm varies. Show the Proportion or percentage of inventory. Raw materials: After placing the order to GBA, raw materials are sent by ship to Chittagong port and sometimes to Naryanganj from Chittagong port. From there Cargo trucks are used to carry the clay to their production plant. Spare parts for their machinery are collected from “SACMI” which is a giant of manufacturing machines and complete plants and it’s an Italian company. These spare parts are sent by air. Their raw material turnover inventory quickly .holding time period decreases in 2022 so their raw material management is very well. Work in Process: RAK Ceramics has the most advanced production facility for producing tiles and sanitary ware. They have one production plant for tiles which covers all the production activities. RAK also has a Design Development Program under the R&D department which helps to create new designs for the customers. In this department, RAK has invested a huge amount to gain an advantage over competitors in design. ACMI is the most advanced technology used in ceramics production. RAK’s production plant is fully automated and computer operated which helps to reduce the chance of error. SACMI’s machinery is sensor-based in which it is assigned the specific tasks to be performed with minimum error. In every step of production, there is a parameter that is being checked for ensuring good quality by ensuring size, moisture; pressing power, etc. Tiles are packed by PACKAGING MACHINE attached with sensors. RAK Ceramics’ work-in-process inventory turnover ratio increased from 2018 to 2022. The company to be faster in selling merchandise so that it will increase net income. Finished goods: After packaging, the finished goods are stored in the warehouse by Stock Department and dealers arrive with order papers of tiles to receive the delivery of the tiles for the Stock Department. When new inventory is received for resale and existing inventory is purchased, the finished goods inventory is increased so the RAK ceramics finished goods inventory turnover ratio chart shows their good management condition. Apply the Economic Order Quantity formula and determine the total inventory Quantity.
