You can basically look at the inverse of working capital turnover ratio. Or just calculate the working capital / net sales to understand how much working capital is needed to generate the sales.
Generally, a WCap/Sales of 10% or below indicates a business that has Working Capital under control. Of course, a negative Working Capital is the best thing to have.
But then like most Ratios, it’s relative to the industry. For many B2B firms, Working Capital is a necessity. So “high” or “low” here would depend on the industry average itself.
The company I am studying Jamna Auto which has over 70% market share in the leaf spring market. It is one of the world’s largest manufacturers and no Co. in India comes close to its scale. Its WCap/Sales has been in the low single digits(I take WCap as Receivable+inventory-payable) with cash conversion cycle being negative in 8 of the last 10 years.
With peers of no real significance, I want to evaluate whether current working capital is efficiently managed and if there is scope for further improvement
Also, what are the effects of improving cash conversion cycle on the income statement?
An improvement in Working Capital cycle puts more money in the hands of the company. So that leads to higher turnovers and thus Sales. Otherwise, a long history of low / negative Working Capital indicates Pricing Power with Suppliers/Distributors and/or Customers. That’s indicative of a good moat.
But the Co.'s gross margins have not improved, and over the past 5 years it has incurred CAPEX of 400cr but gross block has not changed. Am I right in thinking that the Co. is in a fixed capital intensive business that needs such CAPEX just to maintain its position?
Given these facts how to analyze why the Co. has such a dominant market share?
In RateStar, I can see that over the last 5 years, their Cash outflows due to purchasing Fixed Assets has been close to -27 Crs and the change in Gross Block has been about 24 Crs. There are usually small mismatches like this in websites like Screener / RateStar. The Annual Reports for the past 5 years should give you the complete picture.
Also, Working Capital, Margins and ‘Capex’ (Related to Capital Turnover) are different parts of the business. Market Share is in the past. The future depends upon how the business will evolve in the future (And consequently, the figures mentioned above). This understanding only comes after a thorough analysis of the company.
Do visit VP’s Jamna Industries thread to get a better understanding:
These figures are as per AR. Does this mean the assets that this Co. holds needs constant replacement/upgradation?
If Promoter holding is Zero…who owns and runs the company?
It means that the company does not have a designated promoter and is run by a professional board.
You don’t need a promoter to run a company. The management & board runs the company. It’s actually better for minority shareholders like us if there is no promoter.
Actually, in most cases, you are better off having a promoter. Lot of studies have been done globally on this and data suggests promoter-operators are the best for long term value creation. Primarily because they have skin in the game. A professional board by nature tends to have a short term mindset. Of course there are notable exceptions to this. In India, L&T and ITC are major board driven companies but both had the good fortune of having very strong leadership for a very long period in Naik and Deveshwar.
The problem we have faced with promoters is that they act in their own self interest rather than that of the minority shareholders. They mostly screw the minority shareholder. We have seen this time & again.
Proper long term growth based incentives would make the CEO & the board have skin in the game.
How would they go about and cause problems for the Minority shareholder? Can you elucidate a bit more on that? Personally, I think that having a promoter is good for a small to mid-cap company because those kinds of companies just can’t afford to have a professional board at this point in time. Please feel free to correct me if I may be wrong in some cases.
How exactly is forward P/E Calculated. I used to think it’s predicted EPS for 1 year/current price, but the forward P/E given in this article seems very strange
At its current one-year forward, the Nifty 50 trades at a price earnings or PE multiple of 18.38, according to Bloomberg estimates
This article was written back when the Nifty regular P/E was 29. How can regular P/E be 29 & forward P/E be 18? That would mean an expected growth in EPS of 60% in 1 year. How is that even possible?
Also, where can I find current forward P/E for nifty
Where does one find the restructured loans details i.e the quantum and other details etc in financial statements of a bank ? Thanks in advance
Many reputed well established companies dont do investor conference call nor have investor presentation on the website. Although not legally necessary , isnt such a thing a basic requirement for ethical companies? How does one find out more about such companies? I guess These present to institutional investors only as one sees nse notification that such companies meet so and so securities . Why is there such discrimination between institutional investor and retail investor ? In such case what the way out ? How does one find more information? Atleast companies who do concall publish transcript but these dont do concall. @basumallick dada , @hitesh2710 Hitesh bhai , request your suggestion pls .
As long as there is no legal or policy requirement, there is nothing possible. For example, a company I really like is Divi’s Lab. They do not interact with the public shareholders or analysts at all other than in AGMs. Sometimes, I have seen some brokerage reports from prominent brokers, so it is possible they give selective access. There is nothing much that can be done about it.
We need to learn about such businesses by doing our own scuttlebutt and talking to dealers, suppliers, employees etc. A platform like VP is the most useful in terms of collaborating with people across the country on such scuttlebutt efforts.
Couldnt understand why. Jaypee infra has negative reserve and 1389 crore equity with 6954 crore debt. Is it because Jaypee healthcare’s assets?
Images extracted from Jaypee Infratech AR 19.
Experts, pls explain, want to understand how insolvency works. As i understand, first all money gets paid to lenders, and then, maybe if some remains, to shareholders. But want to understand in detail.
Thanks in advance…
u have to visit the company website were u will get the concall detail in investor relation or u can go to researchbytes were u can find the concalls and its transcripts.
I have a very basic question. In IPO we can understand company raise money from retail and institutional investor against equity in the company.
But once money is raised what motivation company has to keep its share price high or low.
How does trading in secondary market (I mean exchange of shares between various share holders among themselves) help company?
For Banks and NBFC I think it matters because from time to time they dilute to raise more capital. So higher their stock price better for them. But how does it help a pipe company or a paint company.