[PDF] Harvey Company Financial Analysis

The provided document is a detailed financial analysis of Harvey Company for the years 2016 and 2015. The analysis includes a cash flow statement that reveals an inflow of £150 in financing activities. Additionally, the document provides calculations for days inventory outstanding (DOI), days sales outstanding (DSO), and days payable outstanding (DPO). The cash conversion cycle is also calculated to be £481.22 in 2016 and £476.26 in 2015. Furthermore, the profit of different geographical regions, including Northern, Midlands, and Southern regions, is presented for both years.

FINANCIAL DECISION
MAKING

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
PART 1............................................................................................................................................1
Analysis of statement of profit and loss.................................................................................1
Analysis of statement of financial position............................................................................4
Analysis of statement of cash flow.........................................................................................7
Market segment analysis........................................................................................................9
PART 2..........................................................................................................................................13
Management forecast............................................................................................................13
Investment appraisals techniques.........................................................................................13
Sources of finance................................................................................................................14
Non financial factors............................................................................................................15
Hiring Locals........................................................................................................................16
Making corporate connections.............................................................................................16
REFERENCES..............................................................................................................................17
APPENDIX....................................................................................................................................19

Illustration Index
Illustration 1: Comparison of Gross margin ratio............................................................................1
Illustration 2: Comparison of Net margin ratio................................................................................2
Illustration 3: Comparison of return on capital employed...............................................................3
Illustration 4: Comparison of current ratio......................................................................................5
Illustration 5: Comparison of Quick ratio........................................................................................6
Illustration 6: Comparison of long term debt to total asset ratio.....................................................7
Illustration 7: Inflow and outflow of cash........................................................................................8
Illustration 8: Comparison of cash conversion cycle.......................................................................9
Illustration 9: Northern region.......................................................................................................10
Illustration 10: Midlands region.....................................................................................................11
Illustration 11: Southern region.....................................................................................................11
Index of Tables
Table 1: Calculation of Gross Margin Ratio..................................................................................19
Table 2: Calculation of Net Margin Ratio.....................................................................................19
Table 3: Calculation of ROCE.......................................................................................................19
Table 4: Calculation of Capital employed.....................................................................................20
Table 5: Calculation of current ratio..............................................................................................20
Table 6: Calculation of Quick ratio...............................................................................................20
Table 7: Calculation of quick assets..............................................................................................21
Table 8: Calculation of long term debt to total Assets ratio..........................................................21
Table 9: Cash flow statement.........................................................................................................21
Table 10: Calculation of DOI........................................................................................................22
Table 11: Calculation of DSO........................................................................................................22
Table 12: Calculation of DPO........................................................................................................22
Table 13: Cash conversion cycle...................................................................................................22
Table 14: Profits of different geographical region.........................................................................23

EXECUTIVE SUMMARY
Analysing the financial statements helps in making comparative analysis of sales, profits,
investments etc. which further contributes to better decision making. Harvey homes is involved
in creating quality homes to people. The key findings of the report are that the current ratio of the
business is on higher side leading to productivity of the current assets. Further, the Harvey is not
earning mush revenues from Midland region hence, require improving product mix. The
company is low at its operating cash and therefore require working upon its operating income in
order to conduct its day to day business. The entity have been able to get loan for 150 million
through which it will be managing its cash requirements. There is an increase in revenue of the
entity also there is overall increase in the profits of the entity I comparison to the figures of
previous year.
PART 1
Analysis of statement of profit and loss
Gross Margin Ratio
Gross margin ratio reveals the profit the company has earned after paying all the cost of
goods sold. It indicates the financial health of the company by indicating the gross profit it has
1
Gross profit Net sales
0
200
400
600
800
1000
1200
1400
2016
2015
Illustration 1: Comparison of Gross margin ratio

earned on every Pound of sales revenue (Huang and et.al., 2013). Based on table (Appendix 1), it
can be interpreted that gross margin ratio have grown in comparison to the results of 2015.
There is a rise in demand of customers for high quality housing. It shows that the
company is more efficient in comparison to last year. The reason of increase in gross profit
margin of the company is due to increase in its sales revenue in comparison to previous year. The
company have been able to do more sales due to increase in customer's demand.
The revenue have increased due to rise in the demands of housing which has initiated an
increase in the revenues from three segments of Harvey.
The cost of sales of the company have been increased from 811 million in 2015 to 965
million in 2016. The significant increase in cost of sales is because of increase in production
done by Harvey. It shows that the entity have been using more material, labour and overhead in
order to satisfy the arising demand. The percentage change in the amount of cost of sales in
comparison to the previous year is 18%
The cost of sales have increased more than the revenue which shows that it is required to
optimally utilize the resources and keep the cost of production to the minimum.
The ratio was 25.1% in 2015 and it has been increased to 25.6%. Statement of profit and
loss is prepared for Harvey Homes Plc for the year ended 31 December 2016 shows that the sales
revenues have grown from £1083 to £1297. It further reveals that overall profit of the entity
have also increased to a significant margin.
There is a loss in the ratio due to increased cost of sales of Harvey and revenue have not
been generated in comparison to its expenditure.
Net Margin Ratio
2

Net profit margin reveals the profit earned by the company after considering all the cost
incurred. It is an important factor indicating the financial health of the company by estimating
net profit earned on every Pound of sales revenue (Moroney, Windsor and Aw, 2012). According
to the calculation of net profit margin ratio (Appendix 2) there is a significant decrease in net
margin ratio of the enterprise. The ratio in 2015 was 20.5% and it has decreased to 20% in 2016.
The operating cost of Harvey have a significant impact on net margin ratio which has
increased from 61 million in 2015 to 73 million in 2016. It shows that the company has increased
its operating cost in order to meet arising demand. The utilization of company's resources have
increased.
3
Operating profit Net sales
0
200
400
600
800
1000
1200
1400
2016
2015
Illustration 2: Comparison of Net margin ratio

There is an increase in both sales revenue and profits. However, the proportion of
increase in net profit does not equalize with that of rise in sales revenue. Decrease in net margin
ratio by .53% shows that the enterprise have incurred high operating cost which has lowered
down the profits earned by Harvey. The major factor of rise in cost is inflated building price in
order to use modern method of construction.
Return on Capital Employed
4
Operating cost
54
56
58
60
62
64
66
68
70
72
74
2016
2015
Illustration 3: Comparison of operating profit

Return on capital employed indicated the profitability of the company. It also calculated
how efficiently the company can generate its profits by using capital employed. Further, it
indicates the operating profit earned on each Pound of capital employed (Needles, Powers and
Crosson, 2013). This is long-term profitability ratio which is used to understand the long term
financial condition of the entity. According to the calculation conducted (Appendix 3) for
Harvey, it can be articulated that there is a significant in decrease in the ratio in comparison to
that of last year. The ratio was 20% in the year ending 2015 however, it has gone down by 2% in
2016. There is a significant increase in operating profits and capital employed in comparison to
last year. However, the proportion of increase in capital employed does not match with that of
operating profits (Weygandt, Kimmel and Kieso, 2015). Capital employed was 1094 in 2015
which has increased to 1412 in 2016. The reason can be due to increase in the prices of the
manufacturing cost leading to proportionate decrease in operating profits.
The capital employed of Harvey have increased which shows that there is an increase in
the owner's equity and entity have been able to increase its funds as it has taken long term loan
for 150 million.
5
Operating profit Capital employed
0
200
400
600
800
1000
1200
1400
1600
2016
2015
Illustration 4: Comparison of return on capital employed

Analysis of statement of financial position
Financial statement gives a detailed analysis of company's assets and liabilities which is
disclosed to the investors so that they can decide whether they want to invest in the entity or not.
Also, it assists in making comparative analysis of assets and liabilities over the years. Following
are the ratios useful to interpret the results of the balance sheet and make the comparative
analysis easy:
Current Ratio:
Current ratio is used to calculate the liquidity of the organization where it finds that
whether the company will be able to pay its short term debts with its available current assets.
Higher current ratio indicates high potential to pay out its debts. The current ratio below 1
demonstrate the incapability and ratio more than 1 shows the potential of the entity. According to
calculation (Appendix 4) Harvey have managed to increase its current ratio in comparison to
2015. The current ratio was 2.9 in 2015 which has increased to 3.12 in 2016. It indicates that
Harvey is capable enough to pay out its short term liabilities through the available current assets.
The adequate availability of current assets shows that it will be able to pay back its
current liabilities through that money. There is an increase in the current assets and current
liabilities of Harvey in the current year. However, more current ratio of Harvey shows that it is
not using its current assets effectively. Further, it is advised to make investment in order to
6
Current assets Current liabilities
0
500
1000
1500
2000
2500
2016
2015
Illustration 5: Comparison of current ratio

generate extra income for the entity. The current assets of the entity have increased from 1595 in
2015 to 1979 to 2016 which has a greater impact on the rise of quick assets as well.
Quick Ratio:
Quick assets are those which are readily convertible into cash. It doesn't consider
inventories while calculating these types of assets (Lanis and Richardson, 2012). The ideal ratio
is 0.5 which h shows that the company will be able to pay out half current liabilities
immediately. Harvey had a quick ratio of 0.17 in 2015 which has increased to 0.27 (Appendix 5).
However, it is less than the ideal ratio which indicates that it is difficult for the company to
payout its current liabilities with the quick assets available with the company. Further, the
company's quick assets have been increased significantly from 95 in 2015 to 171 in 2016. Also,
the current liabilities of the enterprise have been increased from 550 in 2015 to 634 in 2016.
Harvey is not liquid enough and requires establishing its liquidity position in the market.
Long term asset to debt ratio
7
Quick assets Current liabilities
0
100
200
300
400
500
600
700
2016
2015
Illustration 6: Comparison of Quick ratio

Efficiency ratios shows that how efficiently an entity is able to manage its liability is with
the available assets.
Long term debts to total assets represents financed corporate assets in terms of loans and
other long term financial obligations lasting for more than a year. The ratio measures long term
financial position of the company. It shows that whether the company will be able to meet its
long term financial obligations through total assets owned by the entity (Barham and et.al.,
2012).
The long term debts of Harvey have been increased from 245 in 2015 to 395 in 2016
(Appendix 6). Further, there is an increase of total assets by 402 as well. It has given rise to
increase in long term debt to total asset ratio from 0.15 in 2015 to 0.19 in 2016. The proportion
change in long term debt is more than that of change in the total assets. It can create problem for
the company if it is not able to payback the debts. Harvey in advised to increase the finances
through equity rather than debt. It will help to reduce the burden from the corporation and
decrease the long term debts of the company.
Long term asset to debt ratio of Harvey shows that the company will be able to manage
its long term debts with the assets in the current year. However, the more debt content increase
the obligation on Harvey and this amount have to be paid every year without failure.
8
Long term debt Total Assets
0
500
1000
1500
2000
2500
2016
2015
Illustration 7: Comparison of long term debt to total asset ratio

Analysis of statement of cash flow
According to the cash flow statement of Harvey (Appendix 7) there is an outflow of 23
million from operating activities. Also, financing activities is also attracting to outflow of 32
million leading to no availability of cash and cash equivalents through these two main activities
of Cash flow. Further, there is an inflow of 150 million from financing activities from long term
loan which has been taken by Harvey to meet its cash expectations. There is a total inflow of
cash amounting to 150 million at the end of the year.
Cash conversion cycle is the time period required by the company to convert resource
inputs into cash flows (Lawrence, 2013). The following formula is used:
Cash conversion cycle = Days inventory outstanding + Days sales outstanding -Days payable
outstanding
9
Operating activities Investing activities Financing activities
-50
0
50
100
150
200
Inflow / (Outflow)
Illustration 8: Inflow and outflow of cash

Based on the calculation of cash conversion cycle in 2015 the cash conversion cycle is
approximately 481 days in 2016 which has increased to approximately 476 days in 2016.
Increase in cash conversion shows that the company has become less liquid in comparison to that
of last year. It reveals the bad financial condition of the company. The decision of paying out
dividends to the shareholders in order to maximize shareholders wealth may prove to be wrong
for the company due to less availability of cash and high cash conversion days. The dividend to
paid by Harvey is 26 million could have been used to improve operating income. Also, the
operating fund of the entity is in negative and it should utilize its loan in an appropriate manner
rather than giving to the shareholders. The decision can prove to be wrong for the company. It
would have helped the entity to improve its liquidity position.
Market segment analysis
The total of Harvey Homes business has 3 divisions namely Northern, Midlands,
Southern. They together comprise the entire industry functions. To cope with the low profit
margins the company has to take several steps. If the cause of the low margin of profit will not
be found then company may have to face desperate times in the future (Grinblatt and Titman,
2016).
10
Cash conversion cycle
473
474
475
476
477
478
479
480
481
482
2016
2015
Illustration 9: Comparison of cash conversion cycle

11
Gross Profit Operating Profit
0
20
40
60
80
100
120
2016
2015
Illustration 10: Northern region
Gross Profit Operating Profit
0
10
20
30
40
50
60
70
2016
2015
Illustration 11: Midlands region

The graph shows increase in the operating and gross profits of all the three geographical
market. However, the highest revenue is contributed by southern region which was 500 million
in 2015 has reached to 636 million in 2016. Further, it reveals that the sales revenue of Midlands
have been decreased from 252 million to 240 million in 2016. However, there is an increased in
the gross profit from 41 million in 2015 to 60 million in 2016. The difference may arise due to
increase in the percentage profits of the company. But it is advised that the Harvey should be
prudent enough while taking decisions for the Midlands. It should also introduce better
investment policies for northern region as well. Further, there is an increase in operating profits
of all the three geographical region. The highest operating profit is contributed by Southern
region where the profits have increased from 123 million in 2015 to 140 million in 2016.
Moreover, there is a rise in the operating profits of Midland region as well. It has increased from
31 million in 2015 to 48 million at the end of 2016. Also, operating profits of southern region
have also increased from 68 million to 71 million.
12
Gross Profit Operating Profit
0
20
40
60
80
100
120
140
160
180
2016
2015
Illustration 12: Southern region

The company has been running on necessary funding all across so the only viable reason
for the inferior sales has to be wrong study of market. The mid land's performance has been
falling because the customers do not get what they need from market. The company's market has
been successful but a need for demographic study is clear as air. The Company will have to
maintain their standards of client satisfaction by custom making the products properties, keeping
in mind the taste of people. Company should analyse their rates and do all this sustain a sales
growth all along the segments.
Another reason for the poor margin of profit could be the excess cost spent on asset
development. The company has to deal with vendors who charge on goods as per the orders, a
fixed bond for a long term business could help lower these costs.
There is a rise in the revenues of Northern and Southern region in comparison to the
previous year. However, the revenues of Midlands have come down. Effective strategies are
required to be implemented in order to increase its revenue. It also has to work on variable cost
in order to make the profits t the maximum.
PART 2
Management forecast
The management of Harvey have prepared a detailed analysis of payback period which
says that it will take approximately 4 years and 6 months in order to get the return amounting to
500 million. It is the initial outlay of the company when the investment was made.
Using the accounting rate of return method, it can be assessed that, ARR is 6% after years
of investment was made. The initial investment was 500 million leading to covering of the
investment in next 5 years.The average annual profit has been calculated by diving the return of
76 million equally in all the five years which gave an outcome of 15.2 million. The average asset
value has been calculated by diving initial investment of 500 million with 2 which gave an
average value of 250 million. The 6% ARR shows the profits earned by making an investment in
the asset. However, the values have been forecasted, the actual ARR may vary based on the
economic conditions of the country.
Net Present Value have been calculated with the help of 3% cost of capital. The present
value is calculated on the discounted factor of 3%. The final NPV when invested in the project is
4%. Harvey had a target of 3.5% which is lower than what has been gained from the investment.
13

It is suggested that the company can go with the investment in Midlands market as the net
present value factor is higher in comparison to the estimation.
The time of the year was good. However, the company had to face various challenges
such as increase in the cost of production and lack of sales generated from midland segment of
the entity.
Investment appraisals techniques
Payback period:
It is a time span for recovery of cask outflow, from the cash inflow by inducing
investment. It is calculated by specific formula which is, Initial investment/ cash inflow per
period (Bierman and Smidt, 2012). Sometimes when cash flow is uneven than payback period is
calculated by X+Y/Z where,
X is last period with negative progressive cash flow.
Y is definite value of progressive cash flow at the end of year X
Z is total cash flow during the period after X
The major drawback of pay back period is it do not consider the time value of money. It
also does not measure cash inflow after payback period which leads to fail in overall projects
profitability.
Accounting rate of return:
It is also known as average rate of return (ARR), it is a return or profit which a finance
director expect from the investment made. ARR is calculated with the help of specific formula
which is incremental accounting income/ initial investment. However, it has few limitations such
as, ARR do not consider time value of money. Also, it keeps on changing that is why company
have to make changes accordingly in every project.
Using the accounting rate of return method, it can be assessed that, ARR is 6% after
years of investment was made. The initial investment was 500 million leading to covering of the
investment in next 5 years. The company has been able to gain 6% of the investment made in the
initial year. The average annual profit has been calculated by diving the return of 76 million
equally in all the five years which gave an outcome of 15.2 million. The average asset value has
been calculated by diving initial investment of 500 million with 2 which gave an average value
of 250 million. The 6% ARR shows the profits earned by making an investment in the asset.
14

However, the values have been forecasted, the actual ARR may vary based on the economic
conditions of the country.
Net present value (NPV) :
Company uses this because it represents net present value of investment projects
keeping base to rejection and approval of proposed investment in project like, purchase of
inventory, equipments, installation of new plants and addition of new assets. Negative NPV
denotes worse return and positive NPV denotes better return from the investment made on
projects (Arnold, G., 2013).
Sources of finance
Finance operations of the company are regulated by either through equity or debt.
Equity: It is cash paid by investors in the company. Investor gets the share of company
proportion to its percentage of investment made. Investors of the company can get their amount
of money by selling their share (Caglayan and Demir, 2014).
Advantages
 Increase its permanent capital, financial strength, and net worth borrowing capacity.
 Expertise investor accountability.,
Disadvantages
 Removes the ownership of the business as investors have equal share in capital of the
company.
 Takes away all the control of the business and as debts becomes more expensive when
the company is successful.
Debt: It is borrowing of the company. If the company holds high debt ratio, means the
business has lots of borrowing and is dependent on investors. Investors and company are in
conflict but also in mutual support. Sources of debt finance can be credit unions, credit finance
companies, leasing companies, commercial finance companies, trade credit etc. (Martín-Peña,
Díaz-Garrido and Sánchez-López, 2014).
Advantages
 Uses debt to meet its short term deficits in cash flow
 Finance manager can predict loan payments, cost of capital is low and debts helps in tax
benefits to the Harvey Homes.
Disadvantages
15

 Recovering of debt is risky for the company when the success of project is doubtful
 Borrowing of more and more debts affects the cash flow and market image of the firm.
Non financial factors
These issues may seem average or obvious but a stronger network development will give
the business a strong command. The Business ethics in France have to be respected for long
successful running of company in new territory.
Hiring Locals
The company must dedicate a skilled team to handle the work who have experience of
territory and know local people. These can give business a swift response and work will be done
to generate better products for the territory generating greater consumer experience
(Evbuomwan, and et.al, 2013).
Making corporate connections
The company should strive to maintain high amount of client satisfaction and not stick to
its old business models because this new business territory can provide ample opportunities the
company should see it and understand the consumer's mentality. Depending on proven processes
of business communication will show the company a smarter decision making strategy, It helps
to decide authority and helps access the right work.
When the customer comes to the shop, the process flows in the following manner
The financial position of Harvey is in increasing phase, however, it is not able to generate
much profits through Midland segment. It need to take corrective actions for the same so that
there is an increase in revenues as well as profits of the company.
16

17
Cashier
Greetings
And
Ask what she or he
likes
Confirm the
Product and
Specific
requirement
Accept payment
Give information
To preparation
employee
Provide
receipt
Customer
Approach
The
counter
Request
Specific
product Provide payment Walking for service
Counter Accept the product
Service
Select appropriate
material
Deliver to
Service counter
Handover to
customer

REFERENCES
Books and Journals
Allen, E. J., Larson, C. R. and Sloan, R. G., 2013. Accrual reversals, earnings and stock
returns. Journal of Accounting and Economics. 56(1). pp.113-129.
Arnold, G., 2013. Corporate financial management. Pearson Higher Ed.
Barham, J. and et.al., 2012. Regional food hub resource guide (No. 145227).
Bierman Jr, H. and Smidt, S., 2012. The capital budgeting decision: economic analysis of
investment projects. Routledge.
Caglayan, M. and Demir, F., 2014. Firm productivity, exchange rate movements, sources of
finance, and export orientation. World Development.54. pp.204-219.
Evbuomwan and et.al., 2013. Sources of finance for micro, small and medium enterprises in
Nigeria. In19th International Farm Management Congress, SGGW, Warsaw, Poland.
Grinblatt, M. and Titman, S., 2016. Financial markets & corporate strategy.
Huang, X. and et.al., 2013. Cascading failures in bi-partite graphs: model for systemic risk
propagation. Scientific reports. 3. p.1219.
Lanis, R. and Richardson, G., 2012. Corporate social responsibility and tax aggressiveness: An
empirical analysis. Journal of Accounting and Public Policy. 31(1). pp.86-108.
Lawrence, A., 2013. Individual investors and financial disclosure. Journal of Accounting and
Economics. 56(1). pp.130-147.
Martín-Peña, M. L., Díaz-Garrido, E. and Sánchez-López, J. M., 2014. Analysis of benefits and
difficulties associated with firms' Environmental Management Systems: the case of the
Spanish automotive industry. Journal of Cleaner Production. 70. pp.220-230.
18

Moroney, R., Windsor, C. and Aw, Y. T., 2012. Evidence of assurance enhancing the quality of
voluntary environmental disclosures: an empirical analysis. Accounting & Finance. 52(3).
pp.903-939.
Needles, B. E., Powers, M. and Crosson, S. V., 2013. Principles of accounting. Cengage
Learning.
Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2015. Financial & Managerial Accounting.
John Wiley & Sons.
19

APPENDIX
Appendix 1:
Gross margin ratio:
Table 1: Calculation of Gross Margin Ratio
Gross Margin ratio
Formula: Gross profit / Net sales * 100
2016 2015
Increase /
(Decrease)
Gross profit 332 272 60
Net sales 1297 1083 214
Gross Margin
ratio 25.6% 25.1% .48%
Appendix 2:
Net margin ratio:
Table 2: Calculation of Net Margin Ratio
Net Margin Ratio
Formula: Operating Profit / Revenue * 100
2016 2015 Increase / (Decrease)
Operating profit 259 222 37
Revenue 1297 1083 214
Net Margin
Ratio 20.00% 20.50% (.53%)
Appendix 3:
Return on capital employed:
Table 3: Calculation of ROCE
20

Return on Capital Employed (ROCE)
Formula: Operating Profit / Capital Employed * 100
2016 2015 Increase / (Decrease)
Operating profit 259 222 37
Capital employed 1412 1094 318
Return on Capital Employed
(working note 1) 18% 20% (2%)
Working note 1:
Table 4: Calculation of Capital employed
Calculation of Capital employed
Formula: Total Assets – Current Liabilities
2016 2015
Total Assets 2046 1644
Less: Current Liabilities -634 -550
Capital Employed 1412 1094
Appendix 4:
Current Ratio:
Table 5: Calculation of current ratio
Current Ratio
Formula: Current assets / Current liabilities
2016 2015 Increase / (Decrease)
Current assets 1979 1595 384
Current liabilities 634 550 84
Current Ratio 3.12 2.90 4.57
21

Appendix 5
Quick ratio:
Table 6: Calculation of Quick ratio
Quick Ratio
Formula: Quick assets / Current liabilities
2016 2015 Increase / (Decrease)
Quick assets
(working note 1) 171 95 76
Current liabilities 634 550 84
Quick ratio 0.27 0.17 0.10
Working note 1:
Table 7: Calculation of quick assets
Calculation of Quick assets
Formula: Current assets - Inventories
2016 2015
Current assets 1979 1595
Inventories 1808 1500
Quick Assets 171 95
Appendix 6
Long term debt to Total Assets ratio:
Table 8: Calculation of long term debt to total assets ratio
Long term debt to total assets ratio
Formula: Long term debts / Total Assets
2016 2015 Increase / (Decrease)
Long term debt 395 245 150
22

Total Assets 2046 1644 402
Long term debts to total assets ratio 0.19 0.15 0.04
Appendix 7:
Table 9: Cash flow statement
Cash flow statement of Harvey
Particulars Inflow / (Outflow)
Operating activities -32
Investing activities -23
Financing activities 150
Days inventory outstanding:
Table 10: Calculation of DOI
Particulars 2016 2015
Inventories 1808 1500
Cost of goods sold 965 811
Days of accounting period 366 365
685.73 675.09
Days Sales outstanding:
Table 11: Calculation of DSO
Particulars 2016 2015
Accounts receivable 36 39
Net credit sales 1297 1083
Days of accounting 366 365
10.16 13.14
Days payable outstanding:
Table 12: Calculation of DPO
23

Particulars 2016 2015
Accounts payable 566 471
Cost of sales 965 811
Days of accounting 366 365
214.67 211.98
Cash conversion cycle:
Table 13: Cash conversion cycle
Particulars 2016 2015
Cash conversion cycle 481.22 476.26
Appendix 8
Table 14: Profits of different geographical region
Northern Midlands Southern Total
2016 2015 2016 2015 2016 2015 2016 2015
Gross Profit 101 81 60 41 171 150 332 272
Operating Profit 71 68 48 31 140 123 259 222
24