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Company 1 Industry Median 2020 2019 2018 2017 A/R Turnover 119.6 75.8 74.3 86.7 92.0 Avg....

Company 1

Industry Median 2020 2019 2018 2017
A/R Turnover 119.6 75.8 74.3 86.7 92.0
Avg. A/R Days 3.1 4.8 4.9 4.3 4.0
Inv Turnover 3.5 5.9 5.9 6.0 5.8
Avg. Inventory Days 103.0 61.3 61.8 61.3 62.6
Avg. A/P Days 51.0 65.3 63.0 57.8 54.3
Fixed Asset Turnover 2.59 2.79 2.80 2.85 2.82
WC / Sales Growth (1.6%) (0.6%) (1.1%) (1.4%) (1.7%)
Bad Debt Allowance (% of A/R) - - - - -
ROIC - 12.0% 10.8% 9.9% 10.2%
Revenue per Employee ($) - $214,593.40 $213,775.90 $217,706.60 $211,659.60

Company 2

Industry Median 2020 2019 2018 2017
A/R Turnover 26.8 74.2 75.1 74.7 68.2
Avg. A/R Days 13.6 4.9 4.8 5.0 5.4
Inv Turnover 10.2 13.7 14.2 14.6 14.1
Avg. Inventory Days 35.6 26.6 25.7 25.4 26.4
Avg. A/P Days 31.8 23.7 22.9 22.6 23.9
Fixed Asset Turnover 5.21 4.86 5.67 5.83 5.68
WC / Sales Growth (0.4%) (0.1%) (0.4%) 0.1% 0.1%
Bad Debt Allowance (% of A/R) 1.7% - - - -
ROIC - 5.5% 13.1% 4.1% 8.8%
Revenue per Employee ($) - $275,418.90 $268,651.90 $275,026.90 $263,929.10


Please discuss which company operates more efficiently. The discussion may include, but not exhaustive to the inventory management system, capacity utilization, supply chain etc

Solutions

Expert Solution

Company 1

Ind.Med. 2020 2019 2018 2017 Analysis & comments
A/R Turnover 119.6 75.8 74.3 86.7 92 The company takes more time to convert receivables to cash than the industry peers & the collection rate has deteriorated over the years 2017 to 2020.
Avg. A/R Days 3.1 4.8 4.9 4.3 4 Days'sales outstanding is marginally more than the industry average--- on an average, receivables are collected once in 4.5 days.
Inv Turnover 3.5 5.9 5.9 6 5.8 Finished Inventory is converted to sales approximately 6 times in a year --- a better performance compared to the industry which turns around 3.5 times only.
Avg. Inventory Days 103 61.3 61.8 61.3 62.6 so, it has taken around 61 days to get converted to a sale , whereas, the industry peers take 103 days in inventory
Avg. A/P Days 51 65.3 63 57.8 54.3 Creditors are paid quite later than by the industry --taking advantage of the cash available , in the meanwhile.
Fixed Asset Turnover 2.59 2.79 2.8 2.85 2.82 ATO=$ Sales/Total assets , ie. $ sales generated per $ of total assets employed/utilised, in all the years --- is marginally better than the industry --indicating optimum asset utilisation
WC / Sales Growth -1.60% -0.60% -1.10% -1.40% -1.70% Called the Working Capital Turnover Ratio-- it being negative  means that the Company does not have adequate short term funds , in comparison to the growth achieved in sales during that period. But compared to industry, the company , is in a better position--might be, that is the norm of the industry.
Bad Debt All.(% of A/R) - - - - -
ROIC - 12.00% 10.80% 9.90% 10.20% Return generated of invested capital (ie. Debt+equity) is seen increasing in 2020, after a slump in 2018.
Revenue per Employee ($) - 214593.4 213775.9 217706.6 211659.6 Revenue /employee has been maintained on an average of more than $ 210000 in all the years.
Company 2
Ind.Med. 2020 2019 2018 2017
A/R Turnover 26.8 74.2 75.1 74.7 68.2 The company takes far more, less time to convert receivables to cash than the industry peers & the collection rate is seen   marginaly over the years 2017 to 2020.
Avg. A/R Days 13.6 4.9 4.8 5 5.4 Days'sales outstanding is far, far less than the industry average--- on an average, receivables are collected once in 4- 5 days, where as it takes more than 13 days for the industry peers.
Inv Turnover 10.2 13.7 14.2 14.6 14.1 Finished Inventory also is converted to sales more no.of times --approximately 13-14 times in a year --- a much better performance compared to the industry which turns around 10.2 times only.
Avg. Inventory Days 35.6 26.6 25.7 25.4 26.4 so, it has taken around only 25 days to get converted to a sale , whereas, the industry peers take 35 days in inventory
Avg. A/P Days 31.8 23.7 22.9 22.6 23.9 Creditors are paid in lesser no.of days than by the industry -- can try to take advantage of maximum credit days offered by the vendors, atleast upto the industry average.
Fixed Asset Turnover 5.21 4.86 5.67 5.83 5.68 ATO=$ Sales/Total assets , ie. $ sales generated per $ of total assets employed/utilised, in almost all the years(except 2020) --- is marginally better than the industry --indicating optimum asset utilisation
WC / Sales Growth -0.40% -0.10% -0.40% 0.10% 0.10% Called the Working Capital Turnover Ratio-- it being negative  means that the Company does not have adequate short term funds , in comparison to the growth achieved in sales during that period. But compared to industry, the company , is in a better position, in all of 3 years , except in 2019 when it was on par with teh industry--might be, that is the norm in the industry.
Bad Debt All.(% of A/R) 1.70% - - - -
ROIC - 5.50% 13.10% 4.10% 8.80% Return generated of invested capital (ie. Debt+equity) does not seem to have anysuggestive trend at all.It is quite erratic , but positive & the average is around 6% p.a.
Revenue per Employee ($) - 275418.9 268651.9 275026.9 263929.1 Revenue /employee has been maintained on an average of more than $ 260000 in all the years.
Company 2 seems to be better than its industry peers in all the metrics, ie. Receivables/days'sales outsatndings , inventory/ supply days & asset /capacity utilisation
But it does not take full advantage of supplier credit
Company 1 is lagging only in receivables management than its industry peers.
But it is taking better advantage of supplier credit than Company 1
ROIC is better for company 1 than company 2
Company 2 operates marginally more efficiently than Company 1

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