Bbc Pvt. Ltd. and Working Capital Challenge

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BBC PVT. LTD. AND WORKING CAPITAL CHALLENGES | Case Study Report | Table of Contents * Case Background 3 * Key Findings 4 * Recommendations 6 * References 11 * Exhibits 11 Case Background BBC Pvt. Ltd, is a chemical manufacturing company that was established in 2004. It's registered offices are in Bangalore, and its manufacturing is in Lucknow. At the time of the case BBC is in need of working capital to secure a major contract with Indian Railways. The contract would open doors for long term business. BBC's product manufacturing required minimal fixed assets investment and high quality production. Their product was low cost high quality which…show more content…
This repayment alone could cover the cost of the negotiations for Indian Railways who only requires an investment of 1.2 million Exhibit 2, but Union Bank will not extend their credit limit to BBC. Analysis on the Working Capital Policy of the Company BBC’s working capital policy was too conservative. This is apparent in their high level of net working capital with more than 4.2 million in 2010-2011 fiscal year. Although, the net working capital was in the positive figures, their assets were 10 time more than their liabilities. When further reviewing this figure it is because they have a large amount of inventory and accounts receivable. Their liquid assets to total assets ration was between 62% and 66%. Where industry bench marks are 30%. Analysis of BBC's inventory turnover Reviewing Exhibit 1 it is indicative that each year their actual inventory ratio continued to increase as opposed to decreasing. Keeping inventory in stock is good for clients but bad for capital when it remains on the shelves and doesn’t sell as quickly as you are producing it. Analysis of BBC’s credit policy towards receivable BBC’s credit policy was too lenient with customers who had the potential of repaying. If they were not repaying their own debt so quick they could have a potential balance with working capital. Unfortunately, there credit policy will be one that needs to be reviewed to raise capital. Specifically to mediate their immediate needs of

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