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    MARIA M Case Study03..

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    Charrie Faye Magbitang Hernandez
    BP's working capital management is inefficient compared to competitors. BP's inventory turnover ratio of 12.91 is lower than competitors' average of 14.79, indicating inefficient inventory management. While BP's receivables turnover ratio of 14.34 is higher than competitors' 11.20, both of BP's ratios have been falling in recent years, from 8.5 to 13.4 for inventory and 13.7 to 16.3 for receivables from 2016 to 2015. Efficient working capital management through high inventory and receivables turnover ratios is important for liquidity and profitability but BP needs improvement in these areas.

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    MARIA M Case Study03..

    Uploaded by

    Charrie Faye Magbitang Hernandez
    24 views3 pages
    BP's working capital management is inefficient compared to competitors. BP's inventory turnover ratio of 12.91 is lower than competitors' average of 14.79, indicating inefficient inventory management. While BP's receivables turnover ratio of 14.34 is higher than competitors' 11.20, both of BP's ratios have been falling in recent years, from 8.5 to 13.4 for inventory and 13.7 to 16.3 for receivables from 2016 to 2015. Efficient working capital management through high inventory and receivables turnover ratios is important for liquidity and profitability but BP needs improvement in these areas.

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    BP's working capital management is inefficient compared to competitors. BP's inventory turnover ratio of 12.91 is lower than competitors' average of 14.79, indicating inefficient inventory management. While BP's receivables turnover ratio of 14.34 is higher than competitors' 11.20, both of BP's ratios have been falling in recent years, from 8.5 to 13.4 for inventory and 13.7 to 16.3 for receivables from 2016 to 2015. Efficient working capital management through high inventory and receivables turnover ratios is important for liquidity and profitability but BP needs improvement in these areas.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    24 views3 pages

    MARIA M Case Study03..

    Uploaded by

    Charrie Faye Magbitang Hernandez
    BP's working capital management is inefficient compared to competitors. BP's inventory turnover ratio of 12.91 is lower than competitors' average of 14.79, indicating inefficient inventory management. While BP's receivables turnover ratio of 14.34 is higher than competitors' 11.20, both of BP's ratios have been falling in recent years, from 8.5 to 13.4 for inventory and 13.7 to 16.3 for receivables from 2016 to 2015. Efficient working capital management through high inventory and receivables turnover ratios is important for liquidity and profitability but BP needs improvement in these areas.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    As an outline to the question below listed the explanation of answers together

    with the captured screenshots of the excel used in computing


    Step-by-step instructions
    a. Inventory Turnover Ratio: 12.91 b. Receivables Turnover: 14.34 c. Competitors'
    average inventory turnover is 14.79, greater than BP's. BP's inventory management
    system is inefficient. It is preferable if the Inventory Turnover Ratio is higher.
    BP's Receivables turnover is greater than rivals' Receivables turnover of 11.20.
    The higher the Receivables Turnover Ratio, the more efficient the firm is at collecting its
    receivables. If the cash conversion cycle is long, then an examination of inventory and
    receivables turnover confirms BP's inefficiency.
    2016 2015 2014 Inventory turnover ratio - BP 8,5 13,4 16,2
    Receivable turnover ratio - BP 13,7 16,3 18,0 On average 2016-2014 Exxon Chevron
    Inventory turnover ratio 11,7 13,4 Receivable turnover ratio 18,3 9,9. Between BP and
    its competitors, there is a significant disparity in numbers. Inventory and receivable
    turnover ratios are both falling in the BP instance. When it comes to the second
    number, however, simply looking at the receivable turnover ratio, BP looks to be in a
    better situation.

    Thoughts to ponder
    Working capital management guarantees that a business has enough
    cash flow to satisfy short-term debt commitments and operating expenditures. For
    many businesses, implementing a good working capital management system is a great
    approach to boost profits. Ratio analysis and individual component management are the
    two most important parts of working capital management. The working capital ratio,
    inventory turnover, and collection ratio are three essential performance ratios of a
    working capital management system. Management will use ratio analysis to identify
    areas of attention, such as inventory management, cash management, accounts
    receivable, and accounts payable management.
    According to the evaluation, BP's poor and inefficient working capital
    management causes cash to be stranded in idle assets, reducing the company's liquidity
    and profitability. Efficient liquidity management entails managing and regulating current
    assets and liabilities in a way that reduces the danger of not being able to fulfill due
    short-term commitments and avoids over-investment in these assets. Working capital
    management may have a significant impact on a company's health.

    Points to consider as its advantages


    - If the debtor's conversion cycle is favorable, there will be less bad debts linked
    with it. As a result, the firm would not need to rely on outside agencies or
    include a huge amount of uncollectible in its financials.
    - To accommodate its cash conversion cycle, the company can develop an
    incentive scheme. For example, if the company wants to shorten the time it
    takes to collect money from debtors, it might provide incentives for immediate or
    early payments.
    - Older inventory in storage buildings offers a danger to the firm in terms of high
    retention costs, spoiling risks, and quality degradation. If the organization can
    maintain a high inventory conversion rate, it will be able to improve overall
    production and business quality.
    - On the other hand, a low payables conversion rate means that the company may
    take advantage of the fast payment incentives given by suppliers. It also
    strengthens the bond between the two parties, and the company can profit from
    a quicker manufacturing cycle than its rivals.
    Points to consider as its disadvantages
    - The firm has a tendency to settle dues to suppliers as soon as possible in order
    to guarantee that the cash conversion cycle is always positive. This eliminates
    the business's ability to spend the cash it still has. Instead, it may use the cash
    that will ultimately be paid toward other tasks that will help it improve the many
    areas where it is falling behind.
    - The cash conversion cycle isn't the most accurate indicator of a company's
    efficiency. It simply refers to the time it takes for dues to be paid, which is a
    strong indicator of a company's liquidity and operational sustainability. However,
    there are a lot of things that aren't mentioned.
    - The management considers an enhanced cash conversion cycle in comparison to
    rivals to be a positive indication. However, it may lead to unwelcome
    complacency in the way the firm is run in the future.
    - Furthermore, depending on market conditions and changes in the business
    environment, the industry's cash conversion cycle requirements are susceptible
    to change. It would be foolish to cling to the old definition and acceptable norm.

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