Course: Financial Management - II

Assignment No: 2

Working Capital Analysis

Dish Tv India Ltd.

Submitted By Sankul Ubbott

Section B
Roll No. 2016107
Goa Institute of Management
 DISH TV India Ltd.
Asia's largest Direct to Home Entertainment Company, DishTV is the pioneer when it comes to
digital entertainment. A division of Zee Entertainment Enterprises, the innovative offerings and
revolutionary features of DishTV have earned it a prestigious place of being Worlds third
largest DTH Company. DishTV is the first DTH Company in India to have come out of the red
and be profitable in the fourth quarter of 2014-15.

Being the leader in DTH services, DishTV has changed the face of Indian Television by making
it possible for every customer to have access to premium quality digital entertainment.
Enhancing the viewing experiencing, the tri-satellite technology that broadcasts Hi-Definition
and Standard Definition signals, DishTV has taken the standards of television to incredible
heights.

Working Capital Analysis

Working capital is a measure of a company's efficiency and its short-term financial health.
Working capital is calculated as:

Working Capital = Current Assets - Current Liabilities

If a company's current assets do not exceed its current liabilities, then it may run into trouble
paying back creditors in the short term. The worst-case scenario is bankruptcy. Working capital
also gives investors an idea of the company's underlying operational efficiency. Money that is
tied up in inventory or money that customers still owe to the company cannot be used to pay off
any of the company's obligations. So, if a company is not operating in the most efficient manner,
it will show up as an increase in the working capital. This can be seen by comparing the working
capital from one period to another; slow collection may signal an underlying problem in the
company's operations.

The cash conversion cycle (CCC) is a metric that expresses the length of time, in days, that it
takes for a company to convert resource inputs into cash flows. The cash conversion cycle
attempts to measure the amount of time each net input is tied up in the production and sales
process before it is converted into cash through sales to customers. This metric looks at the
amount of time needed to sell inventory, the amount of time needed to collect receivables and the
length of time the company is afforded to pay its bills without incurring penalties. The CCC is
also referred to as the cash cycle and calculated as

Where: DIO represents days inventory outstanding, DSO represents days sales outstanding and
DPO represents days payable outstanding
Days Sales Outstanding:

Days Sales Outstanding (DSO) refers to the number of days needed to collect on sales, or
accounts receivable. A smaller DSO is always preferred.

Net Credit Average Days Sales

Financial Year
Sales* Receivable Outstanding
2011 - 2012 19579 256.5 4.78
2012-2013 21668 295 4.97
2013-2014 25090 359.5 5.23
2014-2015 26880 526 7.14
2015-2016 30599 681 8.12

* Assumption: Revenue = Net Credit Sales

Days Sales Outstanding

10.00 8.12
Days Sales Outstanding

7.14
8.00
4.78 4.97 5.23
6.00
4.00
2.00
0.00
2011 - 2012 2012-2013 2013-2014 2014-2015 2015-2016
Financial Year

The days required to convert the credit sales into cash is increasing on yearly bases.
However, the same is quiet low, as compared to other industries. Thus, credit sales is not
an area of concern for the company

Days Payable Outstanding:

Days Payable Outstanding (DPO) refers to the company's payment of its own bills, or accounts
payable. By maximizing this number, the company holds onto cash longer, increasing its
investment potential.
 Days
Financial Average
COGS Payable
Year Payable
Outstanding
2011 - 2012 6115 1886 112.57
2012-2013 6599 1706.5 94.39
2013-2014 9420 1747.5 67.71
2014-2015 11122 1312.5 43.07
2015-2016 12605 1783 51.63

Days Payable Outstanding

120.00 112.57

94.39
Days Payable Outstanding

100.00

80.00 67.71

60.00 51.63
43.07
40.00

20.00

0.00
2011 - 2012 2012-2013 2013-2014 2014-2015 2015-2016
Financial Year

On analyzing the same we can see a constant improvement, year on year basis (2015-
2016 being an exception). The company is now being able to pay to its suppliers in
almost 1.5 month.

Days Inventory outstanding:

Days Inventory Outstanding (DIO) refers to the number of days it takes to sell an entire
inventory. A smaller DIO is preferred.

Average Days Inventory

Financial Year COGS
Inventory outstanding
2011 - 2012 6115 56.5 3.37
2012-2013 6599 77.5 4.29
2013-2014 9420 358 13.87
2014-2015 11122 1150.5 37.76
2015-2016 12605 898.5 26.02
 Days Inventory outstanding
37.76
40.00

Days Inventory Outstanding

26.02
30.00
20.00 13.87

10.00 3.37 4.29

0.00
2011 - 2012 2012-2013 2013-2014 2014-2015 2015-2016
Financial Year

Huge fluctuations can be seen in DIO of the company. In terms of converting the
inventory into the cash the company was able to perform better in 2011-2012 & 2012-
2013. An increasing DIO can be area of concern if this increasing trend continues for a
long-term.

Operating Cycle:

An operating cycle represents the amount of time it takes a company to acquire inventory, sell that
inventory, and receive cash from its customers in exchange for the inventory sold. The length of a
company's operating cycle is dictated by a number of factors, including the payment terms a company
extends to its customers and those extended to the company by its suppliers. If a company is given more
time to pay its suppliers for inventory, it can reduce its operating cycle by delaying the outlay of cash. On
the other hand, if a company gives its customers more time to pay for goods received, it can extend its
operating cycle, as the company will have to wait longer to get its cash. A shorter operating cycle
indicates that a company's cash is tied up for a shorter period of time, which is generally more ideal
from a cash flow perspective.

Financial Days Inventory Days Sales

Operating Cycle
Year outstanding Outstanding
2011 - 2012 3.37 4.78 8.15
2012-2013 4.29 4.97 9.26
2013-2014 13.87 5.23 19.10
2014-2015 37.76 7.14 44.90
2015-2016 26.02 8.12 34.14

The value of operating cycle is directly affected by the value of Days inventory
outstanding. An increasing trend for the same is replicated in an increasing trend in
operating cycle.
 Operating Cycle
50.00 44.90
45.00
40.00 34.14
Operating Cycle 35.00
30.00
25.00 19.10
20.00
15.00 9.26
8.15
10.00
5.00
0.00
2011 - 2012 2012-2013 2013-2014 2014-2015 2015-2016
Financial Year

Cash Cycle:

A cash cycle represents the amount of time it takes a company to convert resources to cash. The cash
cycle calculates the time during which each dollar is committed to various production and sales
processes before it is then converted to cash in the form of accounts receivable, or paid invoices. The
cash cycle begins when a company pays to purchase inventory and ends when that money is recovered
by receiving payment from customers. When a company's cash is committed to production and sales
processes, it is, by default, unavailable for other purposes, including investment and growth. A shorter
cash cycle, therefore, indicates that a company has more reliable access to cash on hand, and more
opportunities to use that cash to further the business.

Days
Financial Days Sales Days Payable Cash
Inventory
Year Outstanding Outstanding Cycle
outstanding
2011 - 2012 3.37 4.78 112.57 -104.42
2012-2013 4.29 4.97 94.39 -85.13
2013-2014 13.87 5.23 67.71 -48.61
2014-2015 37.76 7.14 43.07 1.83
2015-2016 26.02 8.12 51.63 -17.49

The Days inventory outstanding and Days sales outstanding is less than Days payable
outstanding, thus we have a negative cash cycle. It simply means that the companys cash
or short term investments are not affected by DIO & DSO and it is able to convert its
inventory or other resources readily into cash.
 Cash Cycle
20.00
1.83
0.00
2011 - 2012 2012-2013 2013-2014 2014-2015 2015-2016
-20.00
-17.49
Cash Cycle

-40.00 -48.61

-60.00
-85.13
-80.00
-104.42
-100.00

-120.00
Financial Year

Current Ratio:

The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-
term obligations. To gauge this ability, the current ratio considers the current total assets of a
company relative to that companys current total liabilities. The formula for calculating a
companys current ratio, then, is:

Current Ratio = Current Assets / Current Liabilities

Financial Current
Current Assets Current Liabilities
Year Ratio
2011 - 2012 6335 15181 0.42
2012-2013 9929 23012 0.43
2013-2014 7451 21977 0.34
2014-2015 9147 34548 0.26
2015-2016 7592 23243 0.33

Current Ratio
0.50 0.42 0.43
0.34
Current Ratio

0.40 0.33
0.26
0.30
0.20
0.10
0.00
2011 - 2012 2012-2013 2013-2014 2014-2015 2015-2016
Financial Year
 The current ratio of the company is low. The level of company's current liabilities is way
above its current assets. Thus the liquidity of the company is low.

Quick Ratio:

The quick ratio is an indicator of a companys short-term liquidity. The quick ratio measures a
companys ability to meet its short-term obligations with its most liquid assets. For this reason,
the ratio excludes inventories from current assets, and is calculated as follows:

Quick ratio = (current assets inventories) / current liabilities

Financial Current Quick Current Quick

Inventory
Year Assets Assets Liabilities Ratio
2011 - 2012 6335 69 6266 15181 0.41
2012-2013 9929 86 9843 23012 0.43
2013-2014 7451 630 6821 21977 0.31
2014-2015 9147 1671 7476 34548 0.22
2015-2016 7592 126 7466 23243 0.32

Quick Ratio
0.50 0.41 0.43
0.40 0.31 0.32
Quick Ratio

0.30 0.22
0.20
0.10
0.00
2011 - 2012 2012-2013 2013-2014 2014-2015 2015-2016
financial Year

The short term financial postition of the firm is bad. The quick ratio is based upon current
assets that are highly liquid and the quick assets compared to current liabilities are less.

Current Assets/Total Assets Ratio:

Financial Current Total Current Assets/Total

Year Assets Assets Assets
2011 - 2012 6335 26340 0.24
2012-2013 9929 31548 0.31
2013-2014 7451 27702 0.27
2014-2015 9147 31663 0.29
2015-2016 7592 39394 0.19
 The assets that generate income of the business as compared to the toal assets are less,
thus a low current assets to total assets ratio.

Current Assets/Total Assets

0.35 0.31
0.29
CurrentAssets/Total Assets

0.30 0.27
0.24
0.25
0.19
0.20

0.15

0.10

0.05

0.00
2011 - 2012 2012-2013 2013-2014 2014-2015 2015-2016
Financial Year

Working Capital to Sales ratio:

Working
Financial Current Current Working
Sales Capital to
Year Assets Liabilities Capital
Sales ratio

2011 - 2012 6335 15181 -8846 19579 -0.45

2012-2013 9929 23012 -13083 21668 -0.60
2013-2014 7451 21977 -14526 25090 -0.58
2014-2015 9147 34548 -25401 26880 -0.94
2015-2016 7592 23243 -15651 30599 -0.51

Working Capital to Sales ratio

0.00
Working Capital to Sales

2011 - 2012 2012-2013 2013-2014 2014-2015 2015-2016

-0.20
-0.45
-0.40 -0.51
-0.60 -0.58
Ratio

-0.60

-0.80 -0.94
-1.00
Financial Year
 Working capital to sales shows how well the company is utilising its working capital for
given level of sales. Since the current liabilities of the company are more than the current
assets, we have a negative working capital, as a result the working capital to sales ratio is
also negative for Dish TV India Ltd.

References
1. DISHTV Annual Report 2012, 2013,2014,2015,2016, Annual Reports DISHTV India,
DTH Services in India. Retrieved January 29, 2017, from
https://www.dishtv.in/Pages/Investor/Annual-Reports.aspx
2. Thomson Reuters
3. Ross, S. A., Westerfield, R., Jaffe, J. F., Lim, J. Y., & Kulkarni, R. K. (2016). Corporate
finance. McGraw-Hill Education.
4. About the company. Retrieved January 29, 2017, from https://www.dishtv.in/
5. http://www.investopedia.com/terms/w/workingcapitalturnover.asp