Page 10 - Q3 GI/J&J Newsletter, 2019

Finance Business Glimpse

ASIF SHAIK

Manager Commercial Finance
GI/J&J Consumer Division

In the finance world, we used to spend all our time looking
backwards, reporting on what happened. Can I book it? What are the
numbers? Now it's about looking into the future. It's about planning
and integration. The role of finance is now that of a partner in the
business.

We closed the Q3 with challenging market situations like less
consumer offtake, insufficient cash flows with the customers,
demand of high discounts and trade deals, competition etc., and we Currently, we are not only facing the problems in customer
are nearing to close the Y 2019 with all positiveness. For any receivables but also in inventory turnover period. When the days
business cash flow is very significant, it’s become an increasing inventory outstanding is low, it reduces the CCC. This means a
problem for small and medium (S&M) businesses not to have company is able to collect cash from revenues quickly; the business
enough funds readily available for real-time expenses, so we are is able to use its working capital in other areas. When the days
facing difficulties in collection from S&M type of businesses. In Y inventory outstanding is high, it increases the CCC. This means it
2019 we have more focused-on trade receivables and continuous takes a company longer to collect its cash from revenues, which
follow-up on collection. Individual KPIs have been set to achieve causes potential cash flow issues to arise when company needs
collection targets. In future this will help in improving the cash flows working capital.
of Gulf International.
Working capital management is a very important component of
In general, to increase the profitability, company must maintain an corporate finance because it directly affects the liquidity and
appropriate level of inventory, which shall take fewest days to profitability of the company. It deals with current assets and current
convert into sales. But in order to achieve tough targets we are able liabilities. Working capital management is important due to many
to generating higher revenues, but it is increasing liquidity risk to the reasons. For one thing, the current assets of a typical distribution
company. Though trade credit also results in higher sales, price company accounts for more than half of its total assets. Excessive
discrimination and build long term customer relationship but due to levels of current assets can easily result in a firm's realizing a
longer cash conversion cycle it’s effecting on working capital substandard return on investment. However, firms with too few
management. current assets may incur shortages and difficulties in maintaining
smooth operations.
Another common gauge to assess the working capital management

of the company is cash conversion cycle i.e. the time involve in Pharma Channel
purchase of raw material to selling the finished goods and collecting We have started distributing to pharmacy channel with our newly
cash. The firms can increase profitability by shortening the Cash added OTC brands in the Y 2019. Pharma channel is significantly
Conversion Cycle (CCC). The cash conversion cycle (CCC) is different than mass channel. It has different challenges like extended
considered most appropriate measure of working capital credit terms with the customers (due to insurance claims), few key
management. The CCC measures the time laps between cash players (customer groups), dependency on OTC & Consumer
received from sales and payment for resources. products etc., however, we have successful in the achievement till
Q3. The cost of doing pharma channel business is very high when
Based on the above it can be hypothesizing that the shorter
compared to mass channel and another main challenge is longer
conversion cycle results in higher ROA of firms. The use of CCC alone
while analyzing the relationship of working capital policy with credit term period with the customer.
Alhamdulillah, we have faced and overcome many challenges in the
profitability may lead to less convincing results. Therefore, the three
Y 2019 and Insha Allah we will close the Y 2019 successfully. Thanks
components of CCC i.e. receivables collection period (RCP), inventory
to Gulf International management for giving me this chance.
turnover period (ITP) and payables payment period (PPP) are to be

analyzed separately.