Term Project Report on

Working Capital Management

Executive Report 2023-2024

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 Working Capital Management

Team Members:
MUHAMMAD TAHIR SHAIKH - 20221-32597
AMMAR ABID KHAN - 20201 -28494
SHAHZAIB ALL - 20221-32247
MOHAMMAD AMEED - 20221-32246

Course: Strategic Financial Analysis and Design (SFAD)

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Program: MBA

Submitted to:
Professor Harish Chander

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 Letter of Acknowledgement

December 15, 2023

Professor Harish Chander

Lecturer
Institute of Business Management, Karachi.

Dear Sir,

With due respect, we are grateful to Almighty ALLAH, who gave us the strength
to strive to our goal and paved the path in the completion of this Executive Report
on Working Capital Management.

This report provides an over view of the four companies which are:
1. GalxoSmithKline Pakistan Limited (GSK) - Inventory & Cash Management.
2. ATCO PHARMA Pvt Ltd - CASH MANAGEMENT
3. NOVATEX LIMITED - RECEIVEABLE MANAGEMENT
4. NOVATEX LIMITED - PAYABLE MANAGEMENT

we, the students of MBA have render due respect and appreciation to our course
Faculty Professor Harish Chander, who provide us all the guidance and
required information about the report.

We would also like to acknowledge our parents for their utmost co-operation and
their love and affection which have become our strength.

Respectfully submitted.

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Table of Content

EXECUTIVE SUMMARY ………………………………………………………………………………………………………

INTRODUCTION TO COMPANY (GalxoSmithKline (GSK) Pakistan Limited) ….……………

INVENTORY MANAGEMANT …………………………………………………………………………………………..

CASH MANAGEMENT …………………………………………………………………………………………………………………

EXECUTIVE SUMMARY __________________________________________________

INTRODUCTION TO COMPANY (ATCO PHARMA Pvt Ltd) _______________________

INVENTORY MANAGEMANT ____________________________________________

EXECUTIVE SUMMARY …………………………………………………………………………………………………….....

INTRODUCTION TO COMPANY (NOVATEX LIMITED) ……………………………………………………….

ACCOUNT RECIEVABLE MANAGEMENT …………………………………………………………………………..

EXECUTIVE SUMMARY …………………………………………………………………………………………………………

INTRODUCTION TO COMPANY (NOVATEX LIMITED) …………………………………………………….…

ACCOUNT PAYABLE MANAGEMENT ………………………………………………………………………………….

BIBLOGRAPHY _________________________________________________

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Executive Summary:
This report delves into the focal point of GSK Pakistan's working capital management and pivotal element
within the broader financial plan designed to foster sustained growth and operational excellence. The
company places a strong emphasis on the intricacies of inventory management, seeking to strike a
balance that aligns with both supply and demand dynamics. Simultaneously, GSK Pakistan streamlines
its accounts receivable and payable processes, ensuring efficient billing and collection practices, and
negotiates advantageous credit terms with suppliers. These multifaceted initiatives collectively contribute
to the company's resilience in navigating the dynamic pharmaceutical environment.

One of the key pillars of GSK Pakistan's working capital strategy lies in its commitment to precise cash
flow forecasting. Utilizing sophisticated models and leveraging technological integration through
Enterprise Resource Planning (ERP) systems, the company enhances data-driven decision-making and
improves overall visibility. This dedication to technological advancement not only streamlines operations
but also positions GSK Pakistan to proactively respond to market fluctuations and emerging trends in the
pharmaceutical sector.

GSK Pakistan accords utmost significance to regulatory compliance in order to guarantee the smooth
running of its operations and reduce regulatory risks that are inherent in the highly regulated
pharmaceutical business. In order to maximize efficiency, the firm strives to minimize lead times and
negotiate advantageous terms with suppliers and distributors. This report highlights the company's
dedication to cooperative activities throughout its supply chain. A fundamental component of GSK
Pakistan's strategic strategy is proactive risk management, which methodically handles possible working
capital risks such as currency fluctuations and changes in market demand. GSK Pakistan's commitment
to maintaining industry standards, improving operational efficiency, and reducing risks for long-term
success in the pharmaceutical business is demonstrated by this multidimensional approach.
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Company Overview:

GalxoSmithKline Pakistan Limited was created January 1st, 2001 through the merger of SmithKline
and French of Pakistan Limited, Beecham Pakistan (Private) Limited and Glaxo Wellcome (Pakistan)
Limited and stands today as the largest pharmaceutical company in Pakistan. GSK is a long established
investor in Pakistan. Glaxo’s legacy company - Glaxo Laboratories Pakistan Ltd. was the first
pharmaceutical company to be listed on the Karachi Stock Exchange in 1951.

GSK Pakistan operates mainly in two industry segments: Pharmaceuticals (prescription drugs and
vaccines) and Consumer Healthcare (over-the-counter-medicines, oral care and nutritional care). In
Pakistan, the Company deals in Anti-
infective, Respiratory, Vaccines,
Dermatological, Analgesics,
Oncology, Urology, Central Nervous
System, Allergy,Cardiovascular and
Vitamins therapy areas. GSK is
committed to their mission of
providing patients quality products to
help improve the quality of their lives. Some of the leading pharmaceutical brands include Augmentin,
Seretide, Amoxil, Velosef, Zantac and Calpol and renowned consumer healthcare brands, which include
Panadol, Horlicks, Sensodyne and ENO. Prominent vaccines include Synflorix, Infanrix Hexa,Rotarix,
Havrix and Priorix Tetra.Today GSK Pakistan is highly successful business with 11% of the value and over
18% of the volume share.

Major competitors are MNCs such as Abbott, Novartis, Pfizer, Sanofi Aventis. GSK Pakistan has
built a competent commercial capability with a track record of successfully integrating the BMS,UCB, and
Stiefel businesses, and building a diverse and profitable business of over 150 brands. GSK Pakistan
presently employs about 3,300 persons across its Sales, Global Manufacturing Services (GMS), Pharma
division and Consumer Health Care functions. Global Manufacturing Services (GMS) in Pakistan consists
of three facilities - West Wharf (Karachi Port), SITE and Korangi in Karachi.

Our Mission and Vision

 Our mission is to help people “Do more, feel better, live longer”
 GSK Pharma vision is to make “The opportunity to make a difference to the millions of lives
everyday” that help people with various health problems.
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Working Capital Management:
In the Annual Financial Report of FY 2022, GlaxoSmithKline (GSK) faced challenges with a significant
PKR 3.16 Billion outflow from operating activities, due to unfavorable changes in working capital.
Despite these challenges, the company maintains a strong cash and cash equivalents position, ensuring its
capability to meet both investment and operational cash needs, reinforcing its financial resilience.

1. Inventory Management

Inventory management is crucial to the pharmaceutical supply system, encompassing all aspects of
product flow, from ordering and receiving to storing, issuing, and reordering. At GSK Pakistan, inventory
management is a core function, with a dedicated investment of PKR 3.7 billion.

GSK Pakistan operates on a JIT (Just In Time) system, ensuring efficient inventory management
and minimizing holding costs. To maintain a seamless flow of goods across the supply chain, the company
has implemented a SAP model for inventory management. This system integrates ordering,
receiving, and warehousing activities, enabling efficient data analysis and identification of trends.

To ensure product availability for patients, GSK Pakistan maintains a 90-day safety stock due to
the strategic nature of the pharmaceutical industry and lead times ranging from 30 to 60 days.
Additionally, the company strategically holds raw materials inventory to guarantee smooth production
flow and timely forecast accurate demand. Hence, Material Handling and Funds Flow would not
disturbed.

Warehousing operations are facilitated through a Material Resource Planning System (MRP) and
strategically located warehouses equipped with modern technology. RFID tags and Warehouse
Management Software (WMS) ensure efficient inventory tracking and traceability. Regular cycle
counting verifies inventory accuracy and identifies discrepancies through a Decision Support System
process. Furthermore, GSK Pakistan utilizes the First-In-First-Out (FIFO) method in its
inventory management. This ensures that the oldest stock is used first, minimizing the risk of expired
products reaching patients. This is particularly crucial in the pharmaceutical industry where product
expiry can have serious safety and regulatory consequences.

GSK Pakistan successfully manages seasonality through production planning cycles involving multiple
stakeholders and inventory management at both GSK and distributor warehouses. This ensures enhanced

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product availability for patients without supply limitations, enabling them to access essential
medications.

In 2023, GSK Pakistan faced challenges regarding material availability due to delays in shipment
clearance from PNSC (Pakistan National Shipping Corporation). This highlights the importance of robust
contingency planning and proactive supplier management to mitigate future disruptions.

By implementing a comprehensive and data-driven approach to inventory management, GSK Pakistan

strives to achieve optimal inventory levels, ensuring both product availability and cost efficiency.

Objectives of Inventory Management

The primary objectives of inventory management are:
 To minimize the possibility of disruption in the production schedule of a firm for want of Raw
Material, Stock and Spaces.
 To keep down capital investment in inventories.
 The unnecessary tie up of the firm’s funds and loss of profit.
 Excessive carrying cost, and
 The risk of liquidity.
Inventory Management Flowchart

Ratio Analysis
FY-2022 FY-2021 FY-2020
01 Inventory Turnover Ratio 4.3 4.3 4.5
02 No. Of Days to Sell Inventory 85 86 81

Inventory Turnover Ratio:

 The average inventory turnover ratio for the past three years is 4.37. This indicates that the company
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 sells its inventory and replaces it with new inventory 4.37 times per year on average.
 The inventory turnover ratio has remained relatively stable over the past three years, suggesting that
the company's inventory management practices have been consistent.
 A higher inventory turnover ratio generally indicates that the company is efficient in managing its
inventory and is not carrying excess inventory. This can be beneficial for the company as it reduces
holding costs and improves cash flow.
Days to Sell Inventory:
 The average number of days it takes the company to sell its inventory is 84.00 days. This means that
on average, the company takes 84 days to convert its inventory into sales.
 The number of days to sell inventory has also remained relatively stable over the past three
years, further suggesting consistency in inventory management practices.
 A lower number of days to sell inventory is generally preferable, as it indicates that the company is
selling its inventory quickly and not holding onto it for extended periods. This can be beneficial for
the company's profitability.
Overall:
 The company is managing its inventory efficiently with a relatively stable inventory turnover ratio
and days to sell inventory.

2. Cash Management:
Effective cash management lies at the heart of GSK Pakistan's financial stability and operational
efficiency. Within the framework of World Class Manufacturing (WCM), meticulous cash management
practices enable the company to fuel its commitment to drug development.

GSK Pakistan employs a comprehensive cash management strategy encompassing various components.
To cover day-to-day operational expenses, the company maintains a minimum cash-in-hand balance
ranging from PKR 180,000 to PKR 200,000, determined through historical data analysis and

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projected cash flows. Additionally, GSK Pakistan continuously implements strategic initiatives to
optimize cash flows so that budgeted expenses would not exceed against the budgeted sales receipts.

Balancing global and local demands presents unique cash management challenges for GSK Pakistan as it
operates in a global market while catering to local needs. The company addresses this challenge by
carefully planning and coordinating resource allocation across different regions. In FY 2022, GSK
Pakistan's tax figures increased from PKR 2.07 billion to PKR 2.67 billion, driven by changes in tax
regulations and increased profitability. This rise, coupled with the company's prioritization of operational
needs, including investments in critical areas like R&D, technology infrastructure, and strategic
partnerships, led to the decision of not declaring a cash dividend in FY 2022.

Moreover, due to Fluctuations in operating profit and EBTIDA in FY 2022, attributed to factors such as
market competition, currency fluctuations, and changes in input costs. GSK Pakistan closely monitors
these factors to identify improvement opportunities and ensure efficient resource utilization.
Furthermore, to optimize cash utilization and generate additional income, GSK Pakistan recently invested
in Term Deposit Receipts (TDRs) as a short-term investment strategy.

Objectives of Cash Management

The primary objectives of cash management are:
 To meet the cash disbursement needs.
 To minimize the funds committed to cash balances.
Cash Conversion Cycle
Operating Cycle is the interval between the order of inventory stock and the date when cash is collected
from receivables. And CCC begins when the company pays cash to suppliers for the raw materials
purchased and ends when cash is collected from customers for credit sales.

Cash Conversion Analysis

FY-2022 FY-2021 FY-2020
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01 Cash Conversion Cycle (Days) 52 51 43

ATCO HIGHLIGHTS

 Total Pakistan Pharmaceutical Market is 725 Bn (MAT Q1-23).

 Total Pharmaceutical market is growing with 12.8 %.
 Atco is 15 Bn company in the market.
 Atco is growing with 17.9%
 Among all Pakistan Pharmaceutical companies ATCO stands at “9th”
position unit wise.
 Among all Pakistan Pharmaceutical companies ATCO stands at “14th”
position Value wise.
 Among National Companies ATCO stand at 6th position unit wise.

CASH MANAGEMENT

1) Average Daily Cash Balance:

The average daily cash balance is maintained above the minimum threshold of
PKR 25,000.
2) Sources of Cash Inflows:

Cash inflows primarily come from sales transactions.

3) Uses of Cash Outflows:

Cash outflows are allocated to various expenditures, including vendor

payments, salaries, maintenance expenses, loan repayments, and investments
in sister concerns.

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4) Cash Reserves Policy:

The company follows a policy of holding cash reserves in banks, with no

significant cash in hand reserves.

5) Types of Bank Accounts:

The company maintains current, savings, and overdraft (OD) accounts.

6) Terms and Conditions of Bank Accounts:

Interest rates are paid according to SOC. The company's banking procedures
follow general basic banking standards.

7) Goals of Cash Management System:

The primary goal is to minimize costs associated with cash management.

8) Challenges:

The main challenge is the irregular cash flow.

9) Risks:

Potential risks include the potential for theft and associated life risks during
cash withdrawals.

10) Cash Flow Forecasting:

Cash flows are forecast by budgeting expenses against expected sales receipts.

11) Investment Policy:

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 The company follows a conservative investment policy with authorized
instruments such as TDR, Pakistan Investment Bond, and stock market shares.

12) Financing Types:

The company utilizes running finance, overdrafts, export refinance, short-term

loans, and long-term loans.

13) Terms and Conditions of Financing Arrangements:

Interest rates are based on the standard rate KIBOR, with an additional
company margin.

14) Internal Controls:

Internal controls include maintaining a minimum cash balance, utilizing safe

lockers, and implementing security reports for cash transportation.

15) Technology Used:

SAP is employed to support cash management, ensuring no cash payments are

allowed due to online cash management.

16) Benefits of Technology:

The use of technology, particularly SAP and online cash management, has
improved cash handling within the company.

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Company Overview

Novatex Limited embarked on its journey in 1991, initially producing Textile Grade Polyester Chips by
1997. A significant milestone arrived in 2002 when the company diversified into manufacturing Bottle
Grade Pet Resin. Expansions in 2007 led to the installation of plants for Amorphous Grade Polyester
Chips and Bottle Grade Pet Resin. Simultaneously, the production of Pet Preforms commenced using in-
house Pet Resin. In 2012, Novatex achieved another breakthrough by initiating the production of BOPET
films under the brand name Krystofilms, hosting the largest Pet film plant in Pakistan.

Novatex Limited has garnered recognition as a reliable manufacturer of Pet Resin, Pet Preforms, and
BOPET films. Equipped with cutting-edge technology and state-of-the-art facilities, the plant ensures top-
notch productivity while maintaining stringent quality standards.

The company's reach extends globally, exporting products across Europe, the Middle East, South Asia,
North Africa, East Africa, New Zealand, South America, and North America. Focusing predominantly on
the B2B market, Novatex primarily caters to major multinational corporations like Pepsi, Coca-Cola, and
Nestle, providing bottle to bottle grade products. The company's production capacity boasts two virgin
PET plants with capacities of 850 tons per day and 350 tons per day. From 2020, Novatex ventured into
the PET recycling business with a 100 tons/day Recycling Plant, targeting the Pakistani market initially,
benefitting from EFSA approvals.

Novatex Limited, under the umbrella of G&T Gani & Tayub Group, stands as a testament to decades of
industry expertise and innovation. Its unwavering commitment to quality, global reach, and recent strides
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in PET recycling reaffirm its position as a key player in the PET industry, serving major multinational
corporations while expanding its footprint in recycling within the Pakistani market.

3 Management of Account Receivables

Accounts receivable (AR) management is the practice of obtaining customer payment within a
given period of time. Organizations that sell products and services use AR management to ensure the
proper tracking and management of every step involved in collecting payment after the customer places
an order. It’s a vital component of building liquidity and profitability and avoiding bad debts—and it
includes much more than simply receiving payment on a bill.

A strong, efficient AR management process can mean the difference between dwindling capital and a
booming business. But companies still using manual procedures to operate their AR will run into various
roadblocks that impact cash flow and customer satisfaction. To gain a thorough understanding of the
accounts receivable management process and how it supports your AR engine, you’ll first need to master
the basics of accounts receivable. Here, we’ll examine what AR is, why it’s important, and how effective
AR management can benefit your business.

The Account receivable management process is explained as follows

1. DETERMINECUSTOMER’S CREDIT RATING

Before agreeing to any terms or conditions or accepting a new customer, you’ll first need to identify
whether or not they’re able to actually pay for your goods and/or services. This determination is based on
the customer’s credit information and helps you decide if you’ll need to require payment upfront rather
than extending a line of credit.

2. MONITOR LATE PAYMENTS

it’s essential to keep regular tabs on when each payment is due and to send out payment reminders
accordingly. Consistent communication with customers can prevent non-payment and collections which,
in turn, ensures healthy cash flow.

3. MAINTAIN CUSTOMER RELATIONSHIPS

Providing excellent customer service by addressing any complaints or questions in a timely manner is
crucial for managing solid working relationships.

4. MAINTAIN ACCOUNT BALANCES

you’ll want to be certain that you update customer balances to accurately reflect payments so that nothing
falls through the cracks. Both internal teams and customers should have easy access to real-time
balances.

OBJECTIVES OF AR MANGEMENT

 Maintaining Cash Flow:

 Reducing Bad Debts:
 Optimizing Working Capital:.
 Improving Financial Ratios:

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  Enhancing Profitability
 Customer Relationships:
 Efficiency in Operations:

How Novatex Is maintain Account Receivable management are explained as follows”

CREDIT POLICY:

Novatex Credit policy is based on Positive cash flow for business and customer satisfaction. It varies with
scope of business and relationship with customer Credit limits are assigned to different customers based
on size of sales and customer rating. Mostly the customers are giant multinational companies so they pay
as per agreed credit terms. If any customer is procuring product in bulks the contract period is extended
to 3 months and cash discounts are offered considering that profit that will be generated through
crediting the amount in bank

MONITORING CREDIT RAITING

Novatex monitor customer credit rating with sales volume and past history of credit paid by customer. If
the company has good customer rating Novatex provides leniency in credit limits and even time period on
request from customer.

FACTORING

Novatex consider factoring into the account during contract with customers that if they are unable to pay
payments as per credit terms than 3rd party can be involved for selling account receivables and customer
had to pay interest on that payments.

CASH DISCOUNTS

Novatex encourages customer to pay early to gain cash discounst. If any of the firm would pay credits
with in 15 days they would provide 5 percent discount on credit limit.

RISK ASSESMENTS

The risk are mitigated through credit rating monitoring and through research on customer brand name or
terms with other business partners.

BAD DEBTS

Bad debts are handled through factoring and advance payments like selling the waste or c grade product
to customer is ensured with 100 percent advance payments

COLLECTION MANAGEMENT

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Maintaining aging report and through regular follow-ups on due accounts through emails, phone calls, or
letters to remind customers about outstanding payments

CUSTOMER RELATIONSHIP MANAGEMENT

In case of any credit note from the customers Novatex compensate that value in next order and
immediately

CHALLENGES

The biggest challenges are high interest rates late payments because of economic condition imposed by
government in case of delay in payments, company had to pay heavy interest rates.

TECHNOLOGY

Accounting softwares are intergated with sap for efficent work flow and approval process with in the
company

PERFORMANCE MATRIX

Regularly analyzing accounts receivable turnover ratio, days sales outstanding (DSO), and other relevant
metrics helps in evaluating the effectiveness of receivables management strategies.

ACCOUNT PAYABLES MANAGENT

Accounts payable management is a system that deals with a business's debts to third-party vendors or
suppliers that it made on credit and hasn't paid back yet. These debts might include expenses that
have accumulated, purchases of inventory or supplies and short-term operations costs. Accounts
payable management includes managing purchases, looking for trade credit lines and arranging
favorable purchase terms. All the expenses that a company owes appear on their balance sheet as their
"accounts payable balance."

Accounts payable exist because companies sometimes like to buy on credit so that they can have
whatever they need to run their business while also keeping more available cash flow and retaining
their assets. Accounts payable can help a business control its working capital.

ACCOUNT PAYABLE PROCESS

Traditional AP management involves manual processes for many, most, or even all steps. In part this
is a holdover from the time before computers and before modern software capabilities and
automation platforms. For some organizations, the preference for holding onto manual processes
because that’s how they’ve always done it and they believe these processes still work just fine.

These companies may not recognize the hidden costs of allocating employee time and energy to the
payment process.

The traditional AP management process includes:

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Data Entry

When invoices are received, the data must be entered into the accounting system and coded to the
right GL accounts. Paper invoices generally require that a team member type information directly into
each field from the details on the invoice itself. Even when invoices are received via email, the AP
team may print copies and manually re-key this information.

Approval Processes

When handled manually, the approval process typically involves moving physical paper from desk to
desk for signatures. Of course this makes it subject to delays, especially if the approvers are out of the
office, or papers get lost among other documents on someone’s desktop. Email approvals are also
subject to significant manual effort, as department must be constantly chased and these
communications often fall into a black hole.

Payment Execution

Check payments used to be the gold standard. The AP department would need to print out paper
checks, get them signed by the controller or CFO, and mail them to their intended recipients. These
payment runs would typically be run on a weekly basis. This takes much longer than direct
or electronic payments not only because if travel through the mail system as well. Additionally, checks
have high costs associated with them. Hard costs such as stamps, envelopes, and printing are easy to
calculate, but softer costs such as employee time can be even more expensive. Despite these
challenges, 33% of companies are still making over half of their payments via check

HOW NOVATEX IS MAINTAING ACCOUNT PAYABLES MANAGEMENT

PROCUREMENT PROCESS AND DEBT POLICY

A purchase requisition is generated by concern department than go through approval process on SAP
Integrated system to finance department. Agianst PR PO is generated and communication with
vendor is being done on payment terms. Vendor reputation and past services is being measured
through data and procurment is initated.

TECHNOLOGY BENEFITS

Company uses intergated SAP technlogy to efficently manage the work flow from invoice processing to
electronic payments

VENDOR SELECTION

Vendors are selected on brand reputation and through word of mouth from business partners They
are initally asked to register themselves into the company and than services are taken on credit

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PAYMENT PERIOD

The debit terms with vendors are of two months and company some times also avails the cash
discount offered by vendors

RISK MANAGEMENT

Internal department KPI’s are set to ensure complaince of accurate account payable management so
that chances of giving wrong checks and taxes submitions and other risk factors are mitigated.

DEBIT NOTE

In Case of any problem in services or product company issues debit note to vendor and they have to
compensate it with new product in next consignment

VENDOR PERFORMANCE

Vendor Performance is being measured through histroical data of performance rating.The company
rates their

Vendors on behalf of performance and by providing good credit limits.

DISCREPANCIES

The discrepancies are removed through effective communication with vendors through emails
document

Overview internal review process and record keeping by the company

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