Inventories and Trade Receivables

Thus, the major change is in raw material inventory holding period which has increased from 1.2 months to 3.85 months and trade receivables has decreased from 3.7 months to 2.1 months.

Conclusion on Financials of FY 2012 and FY 2013 (Base Phase):

For both the years, auditor’s report is clean.

In the CARO report also for both the years, there is no adverse internal audit system is commensurate with the size and nature of business, there is no default in making payment of undisputed statutory dues, no disputed tax liability, no default in repayment of dues to banks and FIs etc.

In the notes on accounts also there is no adverse remark. Overall sales have increased by 55%.

` 108 crore to ` 168 crore which is increased by about 56%.

GDRs issue of ` 220 crore in FY 2013.

In FY 2012, turnover increased from ` 1,583 crore to ` 2,038 crore.

In FY 2013, though the sales have increased from ` 2,083 crore to ` 3,154 crore, the PBT has also increased from ` 108 crore to ` 168 crore.

CHAPTER 15

In FY 2012, the PBT of `come of ` 96 lakhs. The other income inter alia includes foreign ` 53 lakhs in FY 2012 which was an expenditure of ` 66 lakhs in FY 2011, whereas FOB value of exports in FY 2012 was at ` 465 crore as against ` 319 crore in FY 2011.

In FY 2013, the PBT of ` 168 crore includes income from other sources of ` 172 crore. The income inter alia includes export

Raw material inventory level in FY 2013 has increased from 1.2

Case Analysis-22

The relevant financial position of the very said company for the subsequent two financial years i.e. FY 2014 and FY 2015 are considered. This period is considered as Built-up Phase. In the Box 58, the statement of profit and loss for the year 31st March, 2015 and 31st March, 2014 is provided.

Built-up Phase

BOX 58

PROFIT AND LOSS STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2015

In Box 59, the break-up of the sales is provided:

FOR THE YEAR ENDED 31ST MARCH, 2015

Details of Sales (Traded Goods) for the year ended 31st March, 2015

In the Box 60, the level of inventories and trade receivables, for the purpose of proper analysis as provided is considered:—

CHAPTER

BOX 60

NOTE 15:

Analysis

Note 16:

On the basis of analysis of the financials of the case analysis-22, for FY 2014 and FY 2015, being Built-up Phase, the following important facts emerges: In FY 2012, the PBT was ` 108 crore which has increased to ` 168 crore ` 400 crore and in FY 2015, it is also at loss of ` 133 crore.

` 2,449 crore from ` 2,249 crore in FY 2013 and ` 1,649 crore in FY 2012. The raw material inventory has increased from ` 124 crore in FY 2014 to ` 500 crore in FY 2015, which is equivalent to 0.7 months in FY 2014 has increased to 4.2 months in FY 2015.

2013, increased to 2.3 months in FY 2014 and 5.2 months in FY 2015. In terms amount as under:-

CHAPTER 15

Inventories and Trade Receivables

- As at 31st March, 2013 - ` 167 crore

- As at 31st March, 2014 - ` 446 crore

- As at 31st March, 2015 - ` 616 crore part of other income.

The trade receivables which were equivalent to 2.1 months of sales in FY 2013 have increased to 3.3 months in FY 2014 and 3.9 months in FY 2015.

In FY 2015, auditor under referred note-37 regarding CDR, as given in Box 61:

BOX 61

Note-37. The Company followed an aggressive growth path in the last ten years, it had considerably grown its balance sheet, including debt. Due to the industry restructuring its debts under Corporate Debt Restructuring (CDR) mechanism. During the year, the Company’s proposal for restructuring of its debts was ap-

September, 2013. The Company executed Master Restructuring Agreement (MRA) with CDR Lenders on 24th September, 2014. The details of the Restructuring package as approved by CDR cell are as under:

( a) Restructuring of repayment schedule for term loans under Technology UpgraFunded Interest Term Loan (FITL).

(b amount of by lenders. Accordingly, promoters have brought in an amount of ` Preference Shares.

( c) Lenders with the approval of CDR EG shall have the right to recompense the amount comes to ` 129.51 crores.

Analysis

In the CARO report of FY 2015, the auditor has also reported about default by the company regarding repayment of dues to banks.

Case Analysis-23

In the Box 62 below, the financial position of the very said company for the subsequent two financial years i.e. FY 2016 and FY 2017 are provided. This period is considered as Stress Phase.

BOX 62 PROFIT AND LOSS STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2017

CHAPTER 15

Inventories and Trade Receivables

In Box 63, the break-up of the sales is provided:

BOX 63

NOTE 26: REVENUE FROM OPERATIONS

Stress Phase

In the Box 64, the level of inventories and trade receivables, for the purpose of proper analysis is provided.

Stress Phase

BOX 64

NOTE 11: INVENTORIES

NOTE 12: TRADE RECEIVABLES

As at 31.03.2017 (` in Lakhs) As at 31.03.2016 (` in

Combined Analysis of FY 2016 and 2017 (Stress Phase)

On the basis of analysis of the financials from the case analysis of the same company for FY 2016 and FY 2017, the following important facts emerge:

In FY 2016, the PBT is at loss of ` 558 crore and in FY 2017, it is also a loss of ` 854 crore.

` 2,956 crore. In FY ` 2,325 crore (Box 33), which is further decreased to ` 1,947 crore in FY 2016 and ` 1,711 crore in FY 2017 (Box 38).

The raw material inventory which was equivalent to 4.2 months in FY 2015 has increased to 8 months in FY 2016 and reduced to 5.5 months in FY 2017.

2015 was increased to 6.5 months in FY 2016 and in FY 2017, the same is equivalent to 1.6 months.

The trade receivables have increased from being equivalent to 2.1 months of sales in FY 2013 to 3.3 months in FY 2014. Further, the same has increased to 3.9 months in FY 2015, 5.6 months in FY 2016 and 7.2 months in FY 2017. Not only that, the auditors in auditor’s report in 65, the said note is provided.

BOX 65

Note-38. The balances of Trade Receivables, Loan and Advances, Deposits - auditors or to the company. No provision has been created for trade receivables as they are realizable as per management of the company.

Analysis subsequent years, as appears on the basis of remarks.

CHAPTER 15 slow moving etc., as per notes on accounts, note 43 as given in the Box 66.

BOX 66 aggregate amount of ` due to write down thereof to net realizable value, which is charged to Statebeen highlighted.

Note 43.

BOX 67

Note-49. -

The Surveyor deputed by the insurance company is in process of assessing and have since resumed.

Bottom line

Inventories and trade receivables are like a black box, which provide vital information about the financials of an entity. The proper analysis, keeping in mind the trend of holding period, industry practice, observation of the auditor and the remark relating to “slow moving”, “obsolete” or the auditor using the phrase “as valued and certified by the management” indicate that all is not well with such inventories.

Similarly, in the case of trade receivables, the amount of debtors should match with the normal credit period and there has to be regular recovery of the sales made. The remark in the auditor’s report or in the notes on account, stating that balance of debtors is subject to confirmation, also indicate early warning signs.