Transcom electronics performance evaluation and working capital management

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Performance Evaluation and Working Capital Management

WHAT IS WORKING CAPITAL? Working capital refers to the investment by the company in short terms assets such as cash, marketable securities. Net current assets or net working capital refers to the current assets less current liabilities. Symbolically, it means,

Net Current Assets = Current Assets - Current Liabilities. DEFINITIONS OF WORKING CAPITAL: The following are the most important definitions of Working capital: 1) Working capital is the difference between the inflow and outflow of funds. In other words it is the net cash inflow. 2) Working capital represents the total of all current assets. In other words it is the Gross working capital, it is also known as Circulating capital or Current capital for current assets are rotating in their nature. 3) Working capital is defined as The excess of current assets over current liabilities and provisions. In other words it is the Net Current Assets or Net Working Capital. IMPORTANCE OF WORKING CAPITAL Working capital may be regarded as the lifeblood of the business. Without insufficient working capital, any business organization cannot run smoothly or successfully. In the business the Working capital is comparable to the blood of the human body. Therefore the study of working capital is of major importance to the internal and external analysis because of its close relationship with the current day to day operations of a business. The inadequacy or mismanagement of working capital is the leading cause of business failures. To meet the current requirements of a business enterprise such as the purchases of services, raw materials etc. working capital is essential. It is also pointed out that working capital is nothing but one segment of the capital structure of a business.


In short, the cash and credit in the business, is comparable to the blood in the human body like finance s life and strength i.e. profit of solvency to the business enterprise. Financial management is called upon to maintain always the right cash balance so that flow of fund is maintained at a desirable speed not allowing slow down. Thus enterprise can have a balance between liquidity and profitability. Therefore the management of working capital is essential in each and every activity. WORKING CAPITAL MANAGEMENT INTRODUCTION: Working Capital is the key difference between the long term financial management and short term financial management in terms of the timing of cash. Long term finance involves the cash flow over the extended period of time i.e 5 to 15 years, while short term financial decisions involve cash flow within a year or within operating cycle. Working capital management is a short term financial management. Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities & the inter relationship that exists between them. The current assets refer to those assets which can be easily converted into cash in ordinary course of business, without disrupting the operations of the firm. •

Composition of working capital •

Major Current Assets • Cash • Accounts Receivables • Inventory • Marketable Securities

Major Current Liabilities • Bank Overdraft • Outstanding Expenses • Accounts Payable • Bills Payable

The Goal of Capital Management is to manage the firm s current assets & liabilities, so that the satisfactory level of working capital is maintained. If the firm can not 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.


CONCEPT OF WORKING CAPITAL: There are 2 concepts:  Gross Working Capital  Net Working Capital Gross working capital: - It is referred as total current assets. Focuses on, • Optimum investment in current assets: An excessive investment impairs firm s profitability, as idle investment earns nothing. Inadequate working capital can threaten solvency of the firm because of its inability to meet its current obligations. Therefore there should be adequate investment in current assets. • Financing of current assets: Whenever the need for working capital funds arises, agreement should be made quickly. If surplus funds are available they should be invested in short term securities. Net working capital (NWC) defined by 2 ways, • Difference between current assets and current liabilities • Net working capital is that portion of current assets which is financed with long term funds. NET WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES If the working capital is efficiently managed then liquidity and profitability both will improve. They are not components of working capital but outcome of working capital. Working capital is basically related with the question of profitability versus liquidity & related aspects of risk. Implications of Net Working Capital: Net working capital is necessary because the cash outflows and inflows do not coincide. In general the cash outflows resulting from payments of current liability are relatively predictable. The cash inflows are however difficult to predict. More predictable the cash inflows are, the less NWC will be required. But where the cash inflows are uncertain, it will be necessary to maintain current assets at level adequate to cover current liabilities that are there must be NWC. For evaluating NWC position, an important consideration is trade off between probability and risk. The term profitability is measured by profits after expenses. The term risk is defined as the profitability that a firm will become technically insolvent so that it will not be able to meet its obligations when they become due for payment. The risk of becoming technically insolvent is measured by NWC.


If the firm wants to increase profitability, the risk will definitely increase. If firm wants to reduce the risk, the profitability will decrease. PLANNING OF WORKING CAPITAL: Working capital is required to run day to day business operations. Firms differ in their requirement of working capital (WC). Firm s aim is to maximize the wealth of share holders and to earn sufficient return from its operations. WCM is a significant facet of financial management. Its importance stems from two reasons: • Investment in current asset represents a substantial portion of total investment. • Investment in current assets and level of current liability has to be geared quickly to change in sales. Business undertaking required funds for two purposes: o To create productive capacity through purchase of fixed assets. o To finance current assets required for running of the business. The importance of WCM is reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities . The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are necessary for earning profits. However, sales do not convert into cash instantly; there is invariably a time lag between sale of goods and the receipt of cash. WC management affect the profitability and liquidity of the firm which are inversely proportional to each other, hence proper balance should be maintained between two. To convert the sale of goods into cash, there is need for WC in the form of current asset to deal with the problem arising out of immediate realization of cash against good sold. Sufficient WC is necessary to sustain sales activity. This is referred to as the operating or cash cycle. INTRODUCTION This report has done as a requirement for the MBA program. The basic purpose of this report was to find out overall performance of Transcom Electronics Limited, which is the one of the leading companies in the Electronics in Bangladesh. To fulfill this purpose I have tried to accomplish some objectives like identify their operating efficiency, company’s position within the industry, company’s financial performance in the recent year’s asset management and working capital management. I used both primary and secondary sources of information to collect data.


Transcom electronics Limited (TEL) is an established organization under Transcom Group, which is owned, by a group of dynamic entrepreneurs of our country. Its past name was PHILIPS Bangladesh Limited. Philips that was established in Holland more than 100 years ago with the objective of produces high quality electronics product. It was established in our country in 1962 in East Pakistan era and as used to market the products of two different manufacturing company namely Bangladesh Lamps Ltd.(BLL) and Bangladesh Electronics Industries Ltd.(BEIL). Both BLL & BEIL were set up, as far is the year 1962 under the Companies Act 1962. They were a joint collaboration with NV-PHILIPS Holland and share ratio 60% Philips and 40% locally. But the company of Philips Holland sold their entire shares on 4 th march 1993 to Transcom Group. After acquiring the Philips, BLL & BEIL the group changed the name of Philips Bangladesh Limited as Transcom Electronics Limited and thereby became the authorized producing and marketing company of Philips products in Bangladesh. The TEL has been allowed to use Philips Brand name as royalty basis. In this report evaluated not only their financial performances, but also the non financial performance. Discussed on external and internal factors that affect the company’s performance, strengths and weaknesses of the company and give some recommendation for future improvements. ORIGIN OF THE REPORT In recent time practical experience is as much essential as academic education that enables someone to be successful business executive especially in this competitive business environment. PURPOSE OF THE REPORT The purpose of the report is to make an analysis of financial and nonfinancial performance and working capital management of Transcom Electronics Limited (TEL) in terms of the trading industry. This study attempted to understand the financial conditions Transcom Electronics on different segments such as liquidity, profitability, solvency and also the policy followed to manage working capital. The purpose is also to identify the bottlenecks and make some recommendations for improving the financial stability and soundness of working capital management of TEL. OBJECTIVE OF THE REPORT Name of the Nature of Business Company Transcom Limited It is the flagship and Holding company of the Transcom enterprises. The company is the official licensee of Philips N.V. Holland for lighting Transcom products, radio and T.V. sets in Bangladesh. The lighting division


Electronics Limited

Bangladesh Lamps Ltd. (BLL) Bangladesh Electrical Industries Ltd. Transcom Beverages Limited. Transcom Distribution Ltd,

Co.

Eskayef (SK+F) Bangladesh Ltd. Media Star ltd.

Media World Ltd Transcraft Ltd. Tea Holdings Ltd.

distributes PHILIPS lighting products to over 45,000 outlets over the country through an exclusive dealer network. The Consumer Electronics division distributes PHILIPS televisions, radios, music system and domestic appliances. BLL is the pre-eminent manufacturer of electric light bulbs in the country. BLL was incorporated in 1960 as a subsidiary of PHILIPS, Holland. In march 1993, PHILIPS sold its entire shares to TRANSCOM. Bangladesh Electrical Industries Ltd (BEIL) is a leading producer of television and radios in Bangladesh and is the official licensee of PHILIPS Electronics N.V. Holland. In March 1993, PHILIPS sold its entire shares to TRANSCOM. The company is the exclusive Pepsi Franchisee for Bangladesh. TBL owns and operates modern plants in Dhaka, Chittagong & Bogra for bottling the renowned Pepsi, 7up, Mirinda Orange, Mirinda lemon, Mirinda apple Slice and soda. TDC is the largest independent distribution setup in Bangladesh with full infrastructural facilities provided by a countrywide network of branch offices with warehouse and delivery vans. The company distributes quality pharmaceutical products manufactured by ORGANON, SERVIER, ESKAYEF and Laboratory Equipment & Diagnostic Reagents from ORGANON TEKNIKA and BECKMAN COULTER. TDC also markets and distributes color cosmetics, skin & hair product from L’OREL Paris, MAYBELLINE New York and GARNIER Paris. The company, which was incorporated in 1980 as a subsidiary of SMITH KLINE & FRENCH USA, was acquired by TRANSCOM in 1990. Eskayef manufactures high quality pharmacuitical products and a particularly strong in antibiotics. PROTHOM ALO, the largest circulated daily newspaper in the country has established itself as an independent and respected voice in the field of journalism in Bangladesh. The daily star is the leading and most quoted English newspaper in Bangladesh. The company also publishes the Bengali Shaptahik 2000 a quality political and current affairs weekly and Anondodhara, the premier films and entertainment fortnightly. A high speed, modern printing and packaging facility. THL is an exporter of Tea, Jute goods and Petroleum products. It is also involved in warehousing, import and sales of agricultural commodities. It has been awarded the Presidents Export Trophy for outstanding export performance. The company represents VITOL Switzerland and Singapore for Petrleum products manufacturing Tea plantation.

M. Rahman Tea Co. Ltd. Marina Tea Co. Tea plantation. Ltd. Monipur Tea Co. Tea plantation. Ltd


W. Rahman Jute Established in 1962 at Chandpur, Manufactures jute bags, Hessian and Mills Ltd. yarns. Reliance Insurance The Largest private sector general insurance company in Bangladesh. Ltd. Transcom Foods Limited (TFL) started its journey in 2003 as a franchisee of Pizza Hut, the first International Chain Restaurant in Transcom Foods Bangladesh, and went on to sign the contract to become the franchisee of Ltd. Kentucky Fried Chicken (KFC) in the year 2006. Both Pizza Hut and KFC are subsidiaries of the world’s largest restaurant company Yum! Restaurants International. In a span of seven years, TFL has opened 4 Pizza Hut and 7 KFC outlets so far throughout the country. Transcom Cables Incorporated in 2010 a newly launched company manufactures and Ltd. distributes different types of wires and cables. TML is the TRANSCOM’s latest venture into the Mobile Handset business and the company is exclusive distributing mobile phones all Transcom Mobile over the country. It started its operation on22nd june,2010. At the Ltd. beginning it operated nearly half of the country and the resources was 35. At present TML operates nationwide as a single distributor with trade marketing operation of SAMSUNG Mobile. Heritage Argo Heritage Argo Farms Ltd is a joint venture of Monipur, Marina and M. Farms Ltd Rahman Tea Company Ltd. It's building own Brand name in Sylhet fish market by intensive cultivation of fresh water fish especially Tilapia. BACKGROUND OF TRANSCOM ELECTRONICS LIMITED (TEL) Originated with tea plantations in 1885, TRANSCOM today is one of the leading and fastest growing diversified business houses in the country employing over 10000 people. Not many industrial groups in Bangladesh can claim a history of continuous business pursuits stretching back over 125 years! Initially tea and later jute formed the backbone of the family business. Although these are still part of the activities and contributing marginally to the overall group turnover. Presently those early industrial ventures have moved over to businesses involving hightech manufacturing, international trading and distribution, forming strong ties with a host of blue chip multinational companies. In recent years, TRANSCOM has emerged as the largest media house in Bangladesh. Transcom electronics Limited (TEL) is an established organization under Transcom Group, which is owned, by a group of dynamic entrepreneurs of our country. Its past name was PHILIPS Bangladesh Limited. Philips that was established in Holland more than 100 years ago with the objective of produces high quality electronics product. It was established in our country in 1962 in East Pakistan era and as used to market the products of two different manufacturing company namely Bangladesh Lamps Ltd.(BLL) and Bangladesh Electronics Industries Ltd.(BEIL). Both BLL & BEIL were set up, as far is the year 1962 under the Companies Act 1962. They were a joint collaboration with NV-PHILIPS Holland and share ratio 60% Philips and 40% locally. But the company of Philips Holland sold their entire shares on 4th march 1993 to Transcom Group.


After acquiring the Philips, BLL & BEIL the group changed the name of Philips Bangladesh Limited as Transcom Electronics Limited and thereby became the authorized producing and marketing company of Philips products in Bangladesh. The TEL has been allowed to use Philips Brand name as royalty basis. Primary Data:

The information is collected through the primary sources like: •

Talking with the employees of the department.

Getting information by observations e.g. in manufacturing processes.

Discussion with the head of the department.

Secondary Data:

The data is collected through the secondary sources like: •

Annual Reports of the company.

Office manuals of the department.

Magazines, Reports in the company.

Policy documents of various departments.


LIMITATION OF THE STUDY Data Confidentiality Time Constraints HISTORY OF TRANSCOM GROUP Transcom Limited is the proud owner of rich history of continues business persuits streching back over 100 years. Transcom originated with tea plantations in 1885 and is today, one of the leading and fastest growing diversified over 5000 people. Not many industrial groups in Bangladesh can claim a history of continuous business persuits stretching back over 100 years. Initially tea and later jute formed the backbone of the family besiness. Although these are still part of the activities, they contribute marginally to the overall group turnover. These early industrial ventures have moved over to business involved in hightech manufaturing, international trading and distribution, forming strong ties with a host of blue chip multinational companies, such as, PHILIPS, WHIRLPOOL and HP. VISION FOR THE FUTURE The Vision of the company is “To be the leader in Electronics industry in the region and provide a complete solution and the brand image to the precious customers.” There is an emphasis on creating a strong brand image in the customers’ mind. Such customer will require strong support for brand loyalty to develop. Corporate Head Office Name of the Nature of Business Company Transcom Limited It is the flagship and Holding company of the Transcom enterprises. The company is the official licensee of Philips N.V. Holland for lighting Transcom products, radio and T.V. sets in Bangladesh. The lighting division Electronics Limited distributes PHILIPS lighting products to over 45,000 outlets over the country through an exclusive dealer network. The Consumer Electronics division distributes PHILIPS televisions, radios, music system and domestic appliances. Bangladesh Lamps BLL is the pre-eminent manufacturer of electric light bulbs in the Ltd. (BLL) country. BLL was incorporated in 1960 as a subsidiary of PHILIPS, Holland. In march 1993, PHILIPS sold its entire shares to TRANSCOM. Bangladesh Bangladesh Electrical Industries Ltd (BEIL) is a leading producer of Electrical television and radios in Bangladesh and is the official licensee of Industries Ltd. PHILIPS Electronics N.V. Holland. In March 1993, PHILIPS sold its entire shares to TRANSCOM. Transcom The company is the exclusive Pepsi Franchisee for Bangladesh. TBL


Beverages Limited.

owns and operates modern plants in Dhaka, Chittagong & Bogra for bottling the renowned Pepsi, 7up, Mirinda Orange, Mirinda lemon, Mirinda apple Slice and soda. Transcom TDC is the largest independent distribution setup in Bangladesh with full Distribution Co. infrastructural facilities provided by a countrywide network of branch Ltd, offices with warehouse and delivery vans. The company distributes quality pharmaceutical products manufactured by ORGANON, SERVIER, ESKAYEF and Laboratory Equipment & Diagnostic Reagents from ORGANON TEKNIKA and BECKMAN COULTER. TDC also markets and distributes color cosmetics, skin & hair product from L’OREL Paris, MAYBELLINE New York and GARNIER Paris. Eskayef (SK+F) The company, which was incorporated in 1980 as a subsidiary of SMITH Bangladesh Ltd. KLINE & FRENCH USA, was acquired by TRANSCOM in 1990. Eskayef manufactures high quality pharmacuitical products and a particularly strong in antibiotics. Media Star ltd. PROTHOM ALO, the largest circulated daily newspaper in the country has established itself as an independent and respected voice in the field of journalism in Bangladesh. The daily star is the leading and most quoted English newspaper in Media World Ltd Bangladesh. The company also publishes the Bengali Shaptahik 2000 a quality political and current affairs weekly and Anondodhara, the premier films and entertainment fortnightly. Transcraft Ltd. A high speed, modern printing and packaging facility. THL is an exporter of Tea, Jute goods and Petroleum products. It is also involved in warehousing, import and sales of agricultural commodities. It Tea Holdings Ltd. has been awarded the Presidents Export Trophy for outstanding export performance. The company represents VITOL Switzerland and Singapore for Petrleum products manufacturing M. Rahman Tea Tea plantation. Co. Ltd. Marina Tea Co. Tea plantation. Ltd. Monipur Tea Co. Tea plantation. Ltd W. Rahman Jute Established in 1962 at Chandpur, Manufactures jute bags, Hessian and Mills Ltd. yarns. Reliance Insurance The Largest private sector general insurance company in Bangladesh. Ltd. Transcom Foods Limited (TFL) started its journey in 2003 as a franchisee of Pizza Hut, the first International Chain Restaurant in Transcom Foods Bangladesh, and went on to sign the contract to become the franchisee of Ltd. Kentucky Fried Chicken (KFC) in the year 2006. Both Pizza Hut and KFC are subsidiaries of the world’s largest restaurant company Yum! Restaurants International. In a span of seven years, TFL has opened 4 Pizza Hut and 7 KFC outlets so far throughout the country. Transcom Cables Incorporated in 2010 a newly launched company manufactures and


Ltd.

distributes different types of wires and cables. TML is the TRANSCOM’s latest venture into the Mobile Handset business and the company is exclusive distributing mobile phones all Transcom Mobile over the country. It started its operation on22nd june,2010. At the Ltd. beginning it operated nearly half of the country and the resources was 35. At present TML operates nationwide as a single distributor with trade marketing operation of SAMSUNG Mobile. Heritage Argo Heritage Argo Farms Ltd is a joint venture of Monipur, Marina and M. Farms Ltd Rahman Tea Company Ltd. It's building own Brand name in Sylhet fish market by intensive cultivation of fresh water fish especially Tilapia. BACKGROUND OF TRANSCOM ELECTRONICS LIMITED (TEL) Originated with tea plantations in 1885, TRANSCOM today is one of the leading and fastest growing diversified business houses in the country employing over 10000 people. Not many industrial groups in Bangladesh can claim a history of continuous business pursuits stretching back over 125 years! Initially tea and later jute formed the backbone of the family business. Although these are still part of the activities and contributing marginally to the overall group turnover. Presently those early industrial ventures have moved over to businesses involving hightech manufacturing, international trading and distribution, forming strong ties with a host of blue chip multinational companies. In recent years, TRANSCOM has emerged as the largest media house in Bangladesh. Transcom electronics Limited (TEL) is an established organization under Transcom Group, which is owned, by a group of dynamic entrepreneurs of our country. Its past name was PHILIPS Bangladesh Limited. Philips that was established in Holland more than 100 years ago with the objective of produces high quality electronics product. It was established in our country in 1962 in East Pakistan era and as used to market the products of two different manufacturing company namely Bangladesh Lamps Ltd.(BLL) and Bangladesh Electronics Industries Ltd.(BEIL). Both BLL & BEIL were set up, as far is the year 1962 under the Companies Act 1962. They were a joint collaboration with NV-PHILIPS Holland and share ratio 60% Philips and 40% locally. But the company of Philips Holland sold their entire shares on 4th march 1993 to Transcom Group. After acquiring the Philips, BLL & BEIL the group changed the name of Philips Bangladesh Limited as Transcom Electronics Limited and thereby became the authorized producing and marketing company of Philips products in Bangladesh. The TEL has been allowed to use Philips Brand name as royalty basis.