On balance sheet figures, operating cash flow of the company looks a bit dangerous- however when we analyse the figures based on month to month sales- it looks okay. Let us compare the balance sheet figures of March 23 and September 23- sales per month was almost 4 crores per month and sales in September 23 was almost 8 crores per month.
On an absolute basis, inventory was almost 2 times sales in March 23 and September 23. Trade receivables are also in the same proportions, slightly more than 2 months figures. Trade payable has gone up sharply in current liabilities figures- which shows that probably the company is getting more and more raw materials on credit.
2 months of inventory is a great figure, it shows that the company can maintain an inventory turnover ratio is 6, which is excellent [Nestle has an inventory turnover between 4 and 5]. This inventory turnover, coupled with 25% gross margin can give a great return on equity.
Still, this is a phase where management has to be prudent in cash flow management.
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