Abstract 441526
This document was ed by and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this report form. Report 2z6p3t
Overview 5o1f4z
& View Abstract as PDF for free.
More details 6z3438
- Words: 5,048
- Pages: 21
ABSTRACT
istration of Working Capital is one of the most vital functions of corporate management. Every organization whether public or private, profit oriented or not, regardless of its extent and nature of business, needs sufficient amount of working capital. The proficient working capital management is most critical factor in maintaining existence, liquidity, solvency and accomplishment of the any business organization. A company needs sufficient finance to carry out purchase of raw materials, payment of predictable operational expenses and funds to meet these expenses are together known as working capital. Keeping in view the importance of working capital management as a grey area of corporate finance function, an effort has been made to examine the working capital styles and practices particularity in FMCGs sector in India by selecting five FMCGs companies (Hindustan Unilever Limited, Nestle India Limited, Britannia Industries, Proctor and gamble, and ITC). The FMCG sector in India is at present-day, the fourth leading sector with a total market size in excess of USD 14 billion as of 2013. This sector is expected to grow to a USD 35 billion industry by 2016. This industry primarily includes the production, circulation and marketing of consumer packaged goods, that is those categories of products which are consumed at fixed intervals. The study is based on secondary data i.e. Annual Reports of the selected companies. The period of study is five years and method of data analysis and ratio analysis as tools of financial statement analysis to examine the degree of efficiency of working capital management has been embraced.
RESEARCH METHODOLOGY SOURCES AND METHODS: The following sources have been sought for the preparation of this report: Primary sources such as current annual reports, books on financial management by various authors and business magazines such as Business World, Business Today etc. Secondary sources like previous year‟s annual reports, reports on working Capital for research, analysis and comparison of the data gathered. LIMITATIONS: The following limitations have been faced in this project in spite of all possible efforts made to make the report accurate. The financial data of different companies is available for financial years that vary, such as; some firms have their ing year from January to December while some others have it from March to April. Hence the comparison may not be fully accurate. The latest financial data of few firms could not be reported, as their Internet websites have not been updated. Hence for some companies the data was available for previous year but for some it was available for year proceeding previous year. SCOPE: The study of working capital helps us to know the current assets and current liability of an organization. If working capital is excess then the excess amount of working capital is idle. If the working capital is not sufficient for meeting the daily expenses then it creates a problem. So it is necessary to maintain exact working capital according to the expenses for the organization. In this project, the study of working capital analysis is done through working capital budget and ratio analysis, which are wide spread and some ratios creates relations with whole casting industry. In any analysis of working capital, a distinction is made between temporary and permanent working capital requirements. The efficiency of the planning and management is subject to the correct estimates of the working capital requirement. The fixed assets which typically require a large mass of overall funds can be used at and optimum level only if sustained by
sufficient working capital if working capital level is not properly maintained and managed, then it may result in unnecessary blocking of scarce resources of the Firm.
INTRODUCTION
The concept of WC is very vital because the term used for the capital needed for the day-today operation. Adam Smith (1776) explained, “The goods of the dealer yield him no revenue or profit, till he retails them for money, and the money Harvests him as little till it is again swapped for goods. His capital is continuously going from him to one shape, and returning to him in another, and it is only by means of such flow, or successive exchanges, that it can produce him revenue; such capital consequently, may very properly be called circulating capital.” What we called working Capital Smith called circulating capital. This capital is needed for regular business operation such as purchase of raw materials, payment of direct and indirect expenses carry on production, investment in stock and store, credit granted to customers keeping balance, etc. Decisions relating to working capital and short –term financing are referred to as WCM. It is best described as the istration of all aspects of current assets and current liabilities. The purposes of WCM are to make sure that the firm is able to carry on its operations and that it has enough cash flow to satisfy both maturing shortterm debt and operative expenses. WCM therefore, consists of: a) considering the trade- off between costs and benefits derived from alternative levels of investment in WC and: b) managing of both control and decisions regarding stock, debtors and cash. According to Harris (2005) Working capital management is a simple and straightforward concept of ensuring the ability of the firm to fund the difference between the short term assets and short term liabilities. Nevertheless, complete mean and approach preferred to cover all its company‟s activities related to vendors, customer and product. (Hall, 2002). Now a day working capital management has considered as the main central issues in the firms and financial managers are trying to identify the basic drivers and level of working capital management (Lamberson, 1995). The working capital meets the temporary financial requirements of a business enterprise. It is a trading capital, not reserved in the business in a particular form for longer than a year. The money devoted in it changes form and substance during the typical course of business processes. The necessity for keeping an adequate working capital can hardly be questioned. Just as flow of blood is very necessary in the human body to maintain life, the flow of funds is very necessary to continue business. If it becomes weak, the business can hardly flourish and survive. Working capital starvation is generally accredited as a major cause if not the major cause of small business fiasco in many
developed and developing countries (Rafuse, 1996). The accomplishment of a firm depends ultimately, on its ability to produce cash receipts in excess of pay-outs. The cash flow problems of many small businesses are aggravated by poor financial management and in particular the lack of arrangement of cash requirements (Jarvis et al, 1996). The study purposes are to scrutinize the working capital management of the sample firms. The amounts devoted in working capital are often high in proportion to the total assets employed and so it is vital that these amounts are used in an effective and efficient way.
INDUSTRY PROFILE
FMCG stands for Fast Moving Consumer Goods. Companies in the FMCG sector provide high volume/low value goods such as food, drink, household goods and confectionary items.The FMCG sector is one of the fastest growing sectors in the national economy and encomes organizations involved in distribution, manufacturing and retailing. Fast Moving Consumer Goods are a multi-million rupees industry. FMCG is one of the most competitive areas. The sector includes groceries, beauty products and home care companies, the majority of which come from large global corporations. At the time of independence (1947) MNC‟s were allowed to operate in India, but the Indian market was too minor for global MNC‟s. HLL has a manufacturing base, Colgate and Nestle mostly carry out only trading activities. In 1978 several FMCG products, which are essentially mass consumption items, became luxury products due to exorbitant burden of excise duties, sales tax. In a FMCG industry everyone is a consumer. This makes the industry personally relevant as everyone is personally affected. People get more excited and care more deeply about the products they put in use every day. FMCG industry in India observed noteworthy changes over the 1990s. Several important FMCG companies like Hindustan unilever Ltd. (HUL) and Procter & Gamble India Ltd. (P&G) have been facing stark glitches on of increased rivalry from small and regional companies and from sluggish growth across its numerous product groups. As a consequence, many of these firms were forced to revamp their product, marketing, distribution and customer service strategies to strengthen their position in the market.
The realization of the customer's growing awareness and the need to meet changing requirements and preferences on of changing lifestyles also contributed to the formulation of customer- centric strategies. HLL led the way in revolutionizing the product, market, distribution and service formats of the FMCG industry by focusing on rural markets, direct distribution, creating new product, distribution and service formats. FMCG does not suffer from mass layoffs every time the economy starts to dip. You may put off buying a car, but you don't put off dinner. Indian FMCG companies like Dabur and HLL for the first time found themselves under severe stress as MNCs went on price dropping splurge. The FMCG sector also received a lift from the government led resourcefulness in the 2004 budget such as the setting up of excise free zones in various parts of the country that witnessed firms moving away from subcontracting to manufacturing by investing in the zones. ASSOCHAM has specified that the FMCG industry will achieve a growth of 4-5 per cent in 2012-2013. However, FMCG companies will face the tests of sharp swings in commodity prices, likely to influence profits like never before.
ANALYSIS OF FMCG COMPANIES
Britannia Industries Ltd. Britannia was integrated in 1918 as Britannia Biscuits Co Ltd in Calcutta. In 1924, Pea Frean UK acquired a governing stake, which later ed on to the Associated Biscuits International (ABI) a UK established company. During the ‟50s and‟ 60s, Britannia stretched operations to Mumbai, Delhi and Chennai. In 1987, Nabisco, a renowned European food company, picked up ABI. In 1989, J M Pillai, a Singapore centred NRI businessman along with the Groupe Danone attained Asian operations of Nabisco, thus acquiring governing stake in Britannia. In 1977, the Government reserved the industry for small scale sector, which controlled Britannia's growth. Britannia's controlling stake is mutually with Groupe Danone and Nusli Wadia. Groupe Danone is one of the chief players of the world in bakery products business. It picked up interest in Britannia Industries in 1989 and assimilated controlling stake in 1993.Nusli Wadia group is one of the prominent industrial houses in the country, with interests mostly in textiles and petrochemicals.
Britannia's plants are situated in the 4 main metro cities - Kolkatta, Mumbai, Delhi and Chennai. A large part of products are also subcontracted from third party producers. Dairy products are out sourced from three producers - Dynamix Dairy centred in Baramati, Maharashtra, Modern Dairy at Karnal in Haryana and Thacker Dairy Products at Howrah in West Bengal. Britannia is the market front-runner in the organized biscuit and bakery product market in India. Biscuits add to more than 80% of Britannia's entire turnover. Other products comprise bread and cakes. Britannia expanded into dairy products in 1997 with processed cheese. The entrance of new MNC‟s has not posed a straight threat to Britannia, as these MNC‟s have placed their brands in the /health segment. Britannia has maintained market control with a 40% volume share and 48% value market share in the organized sector. FMCG major HLL is expected to venture into the segment. Britannia has been aggressive in new launches and marketing during the last 2 years anticipating the competition. It has also recently acquired Kwality Biscuits, gaining a strong foothold in the southern market. Working Capital Trends and Liquidity Analysis of Britannia Industries from March 2008 to March 2012 (Rs. In Crore) March 2012
March 2011
March 2010
March 2009
March 2008
328.28
311.20
268.34
253.63
301.53
Sundry Debtors 52.14
57.27
39.49
49.61
46.33
Cash & Bank
30.94
27.25
18.11
40.56
43.54
391.22
351.11
211.00
209.61
185.54
Fixed Deposits 0.00
1.50
5.25
0.24
0.23
Total Current
784.59
648.33
552.19
553.65
577.49
1124.15
625.96
510.10
437.54
370.31
Inventories
Balance Loan & Advances
Assets Total Current
Liabilities Net Current
-339.57
22.37
42.09
116.11
207.18
Assets Source: Compiled from the Annual Reports of Britannia Industries Key Financial Ratios of Britannia Industries March 2012
March
March 2010
2011
March
March 2008
2009
Current Ratio
0.70
1.04
1.08
1.27
1.22
Quick Ratio
0.36
0.50
0.50
0.65
0.68
Inventory Turnover
13.15
16.68
15.08
14.54
9.98
Debtors Turnover
90.75
87.18
76.42
64.88
69.07
Investment Turnover Ratio 13.15
16.68
15.08
14.54
9.98
-
12.58
13.81
11.59
11.08
-24.62
1.91
4.45
14.43
28.82
Average Finished Goods held
No. of days in working capital
The overhead cited table revealed that the company was dealing with positive working capital excluding during March 2011-12 as current liabilities amplified radically by nearly 80 per
cent as equated to current assets which has rose by only 21 per cent. Moreover, in gross working capital loans and advances has major share during last two years whereas from March 2010 to March 2008 inventories had the chief share in total current assets. However, fixed deposits have minimum share in gross working capital and it was nil in March 2012.As for as number of days in working capital is concerned, it has shown a decreasing drift and even curved into negative through March 2011-12. It specifies that the company has good cash flow and negative working capital reveals that the company functions on an almost stringently cash basis with little inventory and s receivables.
Nestle India Ltd. Nestle was endorsed by Nestle Alimentana, Switzerland, a solely owned supplementary of Nestle Holdings Ltd., Nassau, Bahama Islands. Nestle is one of the first food MNC operating in India, with a existence of over a century. For a long time, Nestle India‟s processes were limited to importing and dealing of condensed milk and infant food. Over the years, the Company stretched its product range with fresh products in instant coffee, noodles, sauces, pickles, culinary aids, chocolates and confectionery, dairy products and mineral water. Nestle was assimilated as a limited company in 1959. Nestle S A Switzerland, is one of the leading companies in the worldwide foods industry. The major activities of the group include beverages (with Nescafe as the flagship brand), milk products, processed foods, cooking aids, bakery products, chocolates, sweets, pharmaceutical products (ophthalmic, surgical instruments etc). Nestle has an existence in 84 countries worldwide. It has a total number of 510 factories out of which 220 are located in Europe, 154 in America and 136 in Africa, Asia and Oceania. Nestle started its manufacturing processes with Milkmaid in 1962 at Moga factory. Manufacturing of Nescafe started in 1964 at the same factory. The company set up another factory at Cherambadi in Tamil Nadu, for production of infant foods, coffee etc. Nestlé India manufactures products of truly International quality under brand names such as, MUNCH, POLO, NESTLE MILK, NESTLE DAHI, NESTLE FRUIT „N MILK and NESTLE FRUIT „N DAHI. Working Capital Trends and Liquidity Analysis of Nestle India from December 2007 to December 2012 (Rs. In Crore)
Inventories
December
December
December
December
December
2012
2011
2009
2008
2007
734.04
575.95
498.74
434.911
401.22
115.42
63.29
64.19
45.59
53.49
19.45
26.73
12.66
15.75
Sundry Debtors
Cash & Bank 25.55
Balance Loan &
256.36
200.17
184.85
162.67
186.23
Fixed Deposits 201.66
235.84
128.86
181.03
22.01
Total Current 1333.03
1094.70
903.37
836.86
678.70
1751.62
1501.18
1259.76
1027.30
-656.92
-597.81
-422.90
-348.60
Advances
Assets Total Current 2216.96 Liabilities Net Current
-883.93
Assets Source: Compiled from the Annual Reports of Nestle India
Key Financial Ratios of Nestle India
December
December December
December December
2011
2010
2009
2008
2007
Current Ratio
0.42
0.62
0.60
0.66
0.66
Quick Ratio
0.24
0.27
0.24
0.29
0.23
Inventory Turnover Ratio
11.60
12.33
11.61
11.39
8.79
Debtors Turnover Ratio
83.83
98.22
93.68
87.37
64.09
Investment Turnover Ratio 11.60
12.33
11.61
11.39
10.02
No. of days in working capital
Average
finished
-42.48
-37.78
-41.86
-35.17
-35.85
22.14
22.77
22.17
26.46
28.54
goods
held
It is apparent from the above table that inventories has the major share (nearly more than 50 per cent) in gross working capital tailed by loans and advances. The table is also revealing that the company is dealing in negative working capital as the total current liabilities are more than total current assets. The current ratio of the company is very little i.e.0.60:1 on an average as against the normal ratio i.e. as per Tandon Committee which shows that the company is retaining only 0.60 rupee of current assets as a risk avoidance to meet the short-term liabilities. Quick ratio is also very little during study period. Inventory turnover ratio varied between 8.79 times and 12.33 times which means the company has acceptable inventory management. Debtor‟s turnover ratio stood at 85.4 times on an average basis during study period which reveals effective debtor management. Moreover, the company has negative working capital during study period. A negative working capital is a symbol of managerial efficiency in a business with little inventory and s receivables (which means it operates on an almost stringently cash basis). In other situation, it is a signal that a company may be facing insolvency or grave financial trouble. However, it is not with Nestle India. In fact, it indicates that it may be gathering money from sale beforehand it pays for goods which mean it has decent cash flow.
Proctor & Gamble (P&G) India P&G is one of the major and amongst the firmest developing consumer goods companies in India. Recognized in 1964, P&G India now works for over 650 million consumers through India. Its presence pan across the Beauty and Grooming segment, the Household Care segment as well as the Health and Well Being segment with trusted brands that are household name across India. These include Vicks, Ariel, Tide, Whisper, Olay, Gillette, Ambipur, Pampers, Pantene, Oral-B, Head & Shoulders, Wella and Duracell. Working Capital Trends and Liquidity Analysis of P&G India from 2008 to 2012 (Rs. In Crore) June 2012
June 2011
June 2010
June 2009
June 2008
Inventories
92.27
65.33
54.41
53.98
46.52
Sundry
48.15
31.02
28.68
22.51
13.34
3.76
8.76
4.52
6.67
461.28
322.40
336.65
208.95
Fixed Deposits 0.00
126.19
223.57
83.51
159.81
Total Current 871.24
687.58
637.82
501.17
435.29
284.98
300.01
217.94
224.61
402.60
337.81
283.23
210.68
Debtors Cash & Bank 182.37 Balance Loan &
548.45
Advances
Assets Total Current 401.49 Liabilities Net Current
469.75
Assets Source: Compiled from the Annual Reports of P&G India Key Financial Ratios of P&G India June June 2012 June 2011 June 2010
2009
June 2008
Current Ratio
2.17
2.41
2.13
2.30
1.94
Quick Ratio
1.94
2.16
1.92
2.02
1.70
Inventory Turnover
14.13
20.48
21.28
17.79
16.88
Debtors Turnover
32.78
33.54
35.21
43.11
46.03
Investment Turnover Ratio
14.13
20.48
21.28
17.79
16.88
Ratio
3.75
3.20
3.71
3.48
3.17
Total Assets Turnover Ratio
1.86
1.67
1.69
1.76
1.86
-
18.42
23.59
30.05
28.42
130.34
144.76
134.94
131.94
117.78
Fixed
Average
Assets
Turnover
Finished Goods
held
No. of days in working capital
From the aforementioned table it can be observed that the company has encouraging working capital throughout study period. It is detected that Loans and advances have main share in gross working capital tailed by fixed deposits apart from in June 2012 (as fixed deposit was nil in 2012). The capacity of net working capital has also improved over the study period. Cash and bank balance has lowermost share in total current assets excluding in June 2012 and the percentage of cash and bank balances have been improved i.e. 47 per cent radically in 2012 as compared to the last year. The current ratio ranges between 1.94 to 2.41 which reveals that there is over investment in current assets and the portions of current assets are nearly double the current liabilities during study period. Though, inventory turnover ratio revealing an average value of 18.11 times which means effective organization of inventory and more frequently the stock are sold. Debtor turnover ratio varies between 32.78 times and 46.03 times and it has shown a declining trend throughout study period which is a pinch for the company. The number of days in working capital of the company is on upper side and it is a sign of company may be facing little cash trouble.
ITC Limited
ITC Limited is an Indian public conglomerate company (25.4% owned by British corporation, British American Tobacco) headquartered in Kolkata, West Bengal, India. Its diversified business includes four segments: Fast Moving Consumer Goods (FMCG), Hotels, Paperboards, Paper & Packaging and Agri Business. ITC's annual turnover stood at $7 billion and market capitalization of over $34 billion. The company has its ed office in Kolkata. It started off as the Imperial Tobacco Company, and shares ancestry with Imperial Tobacco of the United Kingdom, but it is now fully independent, and was rechristened to India Tobacco Company in 1970 and then to I.T.C. Limited in 1974. It employs over 29,000 people at more than 60 locations across India and is listed on Forbes 2000. ITC Limited completed 100 years on 24 August 2010. ITC has a diversified presence in FMCG (Fast Moving Consumer Goods), Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business and Information Technology. While ITC is an outstanding market leader in its traditional businesses of Hotels, Paperboards, Packaging, AgriExports and Cigarettes, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. Working Capital Trends and Liquidity Analysis of ITC Ltd. from 2008 to 2012 (Rs. In Crore) March 2012
March 2011
March 2010
March 2009
March 2008
5637.83
5267.53
4549.07
4599.72
4050.52
986.02
907.62
858.80
668.67
736.93
Cash & Bank 140.50
988.77
120.16
68.73
153.34
2173.89
1929.16
2150.21
1949.29
10592.28
8463.31
8450.99
7306.99
9772.94
9169.48
5862.08
5265.09
Inventories Sundry Debtors
Balance Loan &
1952.54
Advances Total Current 11395.32 Assets Total Current 10519.67
Liabilities Net Current
875.65
819.34
-706.17
2588.91
2041.90
Assets Source: Compiled from the Annual Reports of ITC Ltd.
Key Financial Ratios of ITC Ltd.
March
March
March
March
March
2012
2011
2010
2009
2008
Current Ratio
1.08
1.08
0.92
1.42
1.36
Quick Ratio
0.51
0.50
0.39
0.61
0.56
Inventory Turnover Ratio 6.53
6.05
6.04
5.26
5.51
Debtors Turnover Ratio 26.50
23.91
24.31
21.32
20.43
6.53
6.05
6.04
5.26
5.51
Ratio
1.34
1.34
1.33
1.09
1.61
No. of days in working
12.56
13.97
-13.69
62.19
52.39
Investment
Turnover
Ratio
Total
Capital
Assets Turnover
Average finished goods held
40.51
40.67
36.33
64.35
43.88
It can be perceived from the aforementioned Table that ITC limited is dealing with positive working capital for the duration of study period excluding in March 2010. During March 2010 current liabilities show severe increase of 56 per cent but current assets continued to remain constant. Amongst total current assets inventory has the major share and it encomes more than 50 per cent of gross working capital. Loans and advances have succeeding largest share in gross working capital in last five years. The current ratio of the company lies between 0.92:1 and 1.42:1. It means on an usual per every one rupee of current liabilities, the company has been preserving 1.17 rupees of current assets as a caution to meet its short- term obligations which is good. Quick ratio lies between 0.39:1 and 0.61:1 during the period. It has been observed that there was constant increase in debtor turnover ratio and inventory turnover ratio. Moreover the table revealed a mean value of debtor turnover ratio at 23.29 times which specifies effective debtor management. As for as Number of days in working capital is concerned, number of days in working capital has been shrinking during the study period and even it turned into negative in 2010. Less the number of days better the position and it means the company has better cash flow.
Hindustan Unilever limited (HUL)
Hindustan Unilever limited (HUL) is Indias major FMCG Company with the legacy of over 75 years in India. It is owned by the British-Dutch company Unilever which controls 52% mainstream stake in HUL. Its yields include foodstuffs, drinks, washing agents and special care produces. HUL was made in 1933 as Lever Brothers India Limited and came into existence in 1956 as Hindustan Lever Limited over a union of Lever Brothers, Hindustan Vanaspati Mfg. Co. Ltd. and United Traders Ltd. HUL works to create improved future each day and aids folks to feel good, look good and get further more out of lifetime with brands and services. With above 37 brands covering 22 different groupings like soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, water purifiers, etc. the company is a chunk of the daily life of lots of customers through India. Its range comprises prominent household brands such as Lux, Lifeboy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond‟s, Vaseline, Lakme, Dove, Clinic Plus, Sunsilk, Pepsodent, CloseUp, Axe, Brook Bond, Bru, Knorr, Kissan, Kwality Wall‟s and Pureit. In India, HUL is identified for its taut managing of working capital and the business has been functioning with negative working capital ever since 2001. But the organization understood that as competition toughens, there is still possibility for purifying operative efficiency and bringing down working capital requirements. Unilever firms in India combined all facets of finance, s and logistics into a widespread profitable function. They concentrated on cutting working capital necessities through advanced supply chain supervision and use of Information Technology to increase the efficiency of dealings.
Working Capital Trends and Liquidity Analysis of HUL from December 2009 to March 2013 (Rs. In crore) March
March
March
March
December
2013
2012
2011
2010
2009
Source: Compiled from the Annual Reports of HUL.
Inventories
2516.65 2811.26
2179.93 2528.86
1953.60
Sundry
678.99
678.44
443.37
943.20
536.89
Debtors
Loan &
1314.72 1099.72
1068.31 1196.95
1083.28
6341.40 6492.19
5817.89 6040.05
3681.11
7633.36 7588.19
6925.52 5967.06
5303.31
Net
-
-
-1521.20
Current
1293.95 1095.01
Advances
Total Current Assets
Total Current Liabilities
Assets
-
1115.63
73.99
Key Financial Ratios of HUL March
March
March
March
March
2013
2012
2011
2010
2009
Operating Profit 15.38
12.34
12.82
13.60
9.54
12.41
14.70
13.50
15.86
11.56
12.29
12.69
12.58
per share (Rs.)
Gross
Profit 14.04
Margin (%)
Net
Profit 12.07
margin (%)
Current Ratio
0.83
0.86
0.84
0.92
0.68
Quick Ratio
0.45
0.43
0.46
0.51
0.25
Inventory
9.93
7.91
8.99
9.26
7.20
27.27
24.28
29.24
41.83
31.41
5.63
5.35
7.81
9.80
8.31
7.66
9.22
10.53
Turnover Ratio
Debtors Turnover Ratio
Fixed
Assets 6.26
Turnover Ratio
Total
Assets 6.37
Turnover Ratio
Average
29.08
35.15
32.05
34.18
29.81
-20.02
-22.62
1.5
42.05
Finished Goods held Number of days -21.06 in working capital
It is obvious from the overhead specified table that amongst current assets inventories has the main portion and it dominates the gross working capital throughout the study period. Inventories and Loan and Advances signify almost more than 50 per cent of gross working capital excluding during March 2009-2010. The current ratio or working capital ratio is perhaps the most commonly used of all the ratios. This processes the capability of the firm to pay off its short- term maturity requirements. It determines how quickly a company can meet its short- term commitments. It can be perceived from the table that the current ratio of HUL varies between 0.68 and 0.92 during last five years. Quick ratio lies between 0.25 and 0.51 during study period. It is a more stark check of liquidity than current ratio. Inventory turnover ratio is maximum (9.93 times) in March 2013 and deepest (7.20 times) in December while Debtor turnover ratio was maximum (41.83 times) in March 2009 and deepest (24.28 times) in March 2011. Debtors dealing appears to be quite satisfactory as more the number of times debtors turnover, better the liquidity locus of the company. Amount of days in working capital is used to describe that how many days a firm will take to convert the working capital into income and lesser the number of days the better it will be. A lesser working capital cycle means a business has decent cash flow. On the other hand, HUL has negative working capital during study period excluding in 2010. A negative working capital cycle means what a company purchases and sells goes into cash faster than it has to pay to its creditors and has more capital available to fund progress. For a business to grow it needs access to cash and being able to free up cash from working capital cycle is inexpensive than other sources of funding such as loans.
Conclusion
More companies go further down for the reason that of cash flow concerns, reasonably than decreasing the profitability. Henceforth traditional judgment constantly advocates the belief that a firm must have abundant cash to shield its prompt obligations. Still there is a growing class of FMCG firms that assert otherwise. Contrasting from maximum other businesses, the revenue of a FMCG business is not constrained by its capacity to yield, but its capability to sell. They can yield cash so fast that they really have a negative working capital. This happens since buyers pay straight and so rapidly, the industry has no struggle raising cash (like flipkart.com, KFC). In these businesses produces are supplied and retailed to the buyers before the company even reimburses for them. Hence the emphasis is laid on their resources and publicising and either subcontract their manufacturing or make a fractional investment (as matched to their revenue) in plant and machines. Hence there is a restricted room to cultivate funds by promising the plant and machinery. The improvements in Supply chain management, enterprise resource planning and application of Just in time have prepared the firms to become leaner and henceforth now it‟s not likely to nurture considerable funds through stocks. Normally a company mortgages its plant, machines or stock to raise the bank loan/overdraft vital to fund its process. Understanding these restrictions, many firms started spending their negotiating powers over their consumers and suppliers to fund their progress in operations. Negative working capital is a signal of managerial efficiency in a business with little inventory and s receivables (which means it operates on an almost sternly cash basis). In other situation, it is a sign a company may be facing liquidation or grave financial trouble.
istration of Working Capital is one of the most vital functions of corporate management. Every organization whether public or private, profit oriented or not, regardless of its extent and nature of business, needs sufficient amount of working capital. The proficient working capital management is most critical factor in maintaining existence, liquidity, solvency and accomplishment of the any business organization. A company needs sufficient finance to carry out purchase of raw materials, payment of predictable operational expenses and funds to meet these expenses are together known as working capital. Keeping in view the importance of working capital management as a grey area of corporate finance function, an effort has been made to examine the working capital styles and practices particularity in FMCGs sector in India by selecting five FMCGs companies (Hindustan Unilever Limited, Nestle India Limited, Britannia Industries, Proctor and gamble, and ITC). The FMCG sector in India is at present-day, the fourth leading sector with a total market size in excess of USD 14 billion as of 2013. This sector is expected to grow to a USD 35 billion industry by 2016. This industry primarily includes the production, circulation and marketing of consumer packaged goods, that is those categories of products which are consumed at fixed intervals. The study is based on secondary data i.e. Annual Reports of the selected companies. The period of study is five years and method of data analysis and ratio analysis as tools of financial statement analysis to examine the degree of efficiency of working capital management has been embraced.
RESEARCH METHODOLOGY SOURCES AND METHODS: The following sources have been sought for the preparation of this report: Primary sources such as current annual reports, books on financial management by various authors and business magazines such as Business World, Business Today etc. Secondary sources like previous year‟s annual reports, reports on working Capital for research, analysis and comparison of the data gathered. LIMITATIONS: The following limitations have been faced in this project in spite of all possible efforts made to make the report accurate. The financial data of different companies is available for financial years that vary, such as; some firms have their ing year from January to December while some others have it from March to April. Hence the comparison may not be fully accurate. The latest financial data of few firms could not be reported, as their Internet websites have not been updated. Hence for some companies the data was available for previous year but for some it was available for year proceeding previous year. SCOPE: The study of working capital helps us to know the current assets and current liability of an organization. If working capital is excess then the excess amount of working capital is idle. If the working capital is not sufficient for meeting the daily expenses then it creates a problem. So it is necessary to maintain exact working capital according to the expenses for the organization. In this project, the study of working capital analysis is done through working capital budget and ratio analysis, which are wide spread and some ratios creates relations with whole casting industry. In any analysis of working capital, a distinction is made between temporary and permanent working capital requirements. The efficiency of the planning and management is subject to the correct estimates of the working capital requirement. The fixed assets which typically require a large mass of overall funds can be used at and optimum level only if sustained by
sufficient working capital if working capital level is not properly maintained and managed, then it may result in unnecessary blocking of scarce resources of the Firm.
INTRODUCTION
The concept of WC is very vital because the term used for the capital needed for the day-today operation. Adam Smith (1776) explained, “The goods of the dealer yield him no revenue or profit, till he retails them for money, and the money Harvests him as little till it is again swapped for goods. His capital is continuously going from him to one shape, and returning to him in another, and it is only by means of such flow, or successive exchanges, that it can produce him revenue; such capital consequently, may very properly be called circulating capital.” What we called working Capital Smith called circulating capital. This capital is needed for regular business operation such as purchase of raw materials, payment of direct and indirect expenses carry on production, investment in stock and store, credit granted to customers keeping balance, etc. Decisions relating to working capital and short –term financing are referred to as WCM. It is best described as the istration of all aspects of current assets and current liabilities. The purposes of WCM are to make sure that the firm is able to carry on its operations and that it has enough cash flow to satisfy both maturing shortterm debt and operative expenses. WCM therefore, consists of: a) considering the trade- off between costs and benefits derived from alternative levels of investment in WC and: b) managing of both control and decisions regarding stock, debtors and cash. According to Harris (2005) Working capital management is a simple and straightforward concept of ensuring the ability of the firm to fund the difference between the short term assets and short term liabilities. Nevertheless, complete mean and approach preferred to cover all its company‟s activities related to vendors, customer and product. (Hall, 2002). Now a day working capital management has considered as the main central issues in the firms and financial managers are trying to identify the basic drivers and level of working capital management (Lamberson, 1995). The working capital meets the temporary financial requirements of a business enterprise. It is a trading capital, not reserved in the business in a particular form for longer than a year. The money devoted in it changes form and substance during the typical course of business processes. The necessity for keeping an adequate working capital can hardly be questioned. Just as flow of blood is very necessary in the human body to maintain life, the flow of funds is very necessary to continue business. If it becomes weak, the business can hardly flourish and survive. Working capital starvation is generally accredited as a major cause if not the major cause of small business fiasco in many
developed and developing countries (Rafuse, 1996). The accomplishment of a firm depends ultimately, on its ability to produce cash receipts in excess of pay-outs. The cash flow problems of many small businesses are aggravated by poor financial management and in particular the lack of arrangement of cash requirements (Jarvis et al, 1996). The study purposes are to scrutinize the working capital management of the sample firms. The amounts devoted in working capital are often high in proportion to the total assets employed and so it is vital that these amounts are used in an effective and efficient way.
INDUSTRY PROFILE
FMCG stands for Fast Moving Consumer Goods. Companies in the FMCG sector provide high volume/low value goods such as food, drink, household goods and confectionary items.The FMCG sector is one of the fastest growing sectors in the national economy and encomes organizations involved in distribution, manufacturing and retailing. Fast Moving Consumer Goods are a multi-million rupees industry. FMCG is one of the most competitive areas. The sector includes groceries, beauty products and home care companies, the majority of which come from large global corporations. At the time of independence (1947) MNC‟s were allowed to operate in India, but the Indian market was too minor for global MNC‟s. HLL has a manufacturing base, Colgate and Nestle mostly carry out only trading activities. In 1978 several FMCG products, which are essentially mass consumption items, became luxury products due to exorbitant burden of excise duties, sales tax. In a FMCG industry everyone is a consumer. This makes the industry personally relevant as everyone is personally affected. People get more excited and care more deeply about the products they put in use every day. FMCG industry in India observed noteworthy changes over the 1990s. Several important FMCG companies like Hindustan unilever Ltd. (HUL) and Procter & Gamble India Ltd. (P&G) have been facing stark glitches on of increased rivalry from small and regional companies and from sluggish growth across its numerous product groups. As a consequence, many of these firms were forced to revamp their product, marketing, distribution and customer service strategies to strengthen their position in the market.
The realization of the customer's growing awareness and the need to meet changing requirements and preferences on of changing lifestyles also contributed to the formulation of customer- centric strategies. HLL led the way in revolutionizing the product, market, distribution and service formats of the FMCG industry by focusing on rural markets, direct distribution, creating new product, distribution and service formats. FMCG does not suffer from mass layoffs every time the economy starts to dip. You may put off buying a car, but you don't put off dinner. Indian FMCG companies like Dabur and HLL for the first time found themselves under severe stress as MNCs went on price dropping splurge. The FMCG sector also received a lift from the government led resourcefulness in the 2004 budget such as the setting up of excise free zones in various parts of the country that witnessed firms moving away from subcontracting to manufacturing by investing in the zones. ASSOCHAM has specified that the FMCG industry will achieve a growth of 4-5 per cent in 2012-2013. However, FMCG companies will face the tests of sharp swings in commodity prices, likely to influence profits like never before.
ANALYSIS OF FMCG COMPANIES
Britannia Industries Ltd. Britannia was integrated in 1918 as Britannia Biscuits Co Ltd in Calcutta. In 1924, Pea Frean UK acquired a governing stake, which later ed on to the Associated Biscuits International (ABI) a UK established company. During the ‟50s and‟ 60s, Britannia stretched operations to Mumbai, Delhi and Chennai. In 1987, Nabisco, a renowned European food company, picked up ABI. In 1989, J M Pillai, a Singapore centred NRI businessman along with the Groupe Danone attained Asian operations of Nabisco, thus acquiring governing stake in Britannia. In 1977, the Government reserved the industry for small scale sector, which controlled Britannia's growth. Britannia's controlling stake is mutually with Groupe Danone and Nusli Wadia. Groupe Danone is one of the chief players of the world in bakery products business. It picked up interest in Britannia Industries in 1989 and assimilated controlling stake in 1993.Nusli Wadia group is one of the prominent industrial houses in the country, with interests mostly in textiles and petrochemicals.
Britannia's plants are situated in the 4 main metro cities - Kolkatta, Mumbai, Delhi and Chennai. A large part of products are also subcontracted from third party producers. Dairy products are out sourced from three producers - Dynamix Dairy centred in Baramati, Maharashtra, Modern Dairy at Karnal in Haryana and Thacker Dairy Products at Howrah in West Bengal. Britannia is the market front-runner in the organized biscuit and bakery product market in India. Biscuits add to more than 80% of Britannia's entire turnover. Other products comprise bread and cakes. Britannia expanded into dairy products in 1997 with processed cheese. The entrance of new MNC‟s has not posed a straight threat to Britannia, as these MNC‟s have placed their brands in the /health segment. Britannia has maintained market control with a 40% volume share and 48% value market share in the organized sector. FMCG major HLL is expected to venture into the segment. Britannia has been aggressive in new launches and marketing during the last 2 years anticipating the competition. It has also recently acquired Kwality Biscuits, gaining a strong foothold in the southern market. Working Capital Trends and Liquidity Analysis of Britannia Industries from March 2008 to March 2012 (Rs. In Crore) March 2012
March 2011
March 2010
March 2009
March 2008
328.28
311.20
268.34
253.63
301.53
Sundry Debtors 52.14
57.27
39.49
49.61
46.33
Cash & Bank
30.94
27.25
18.11
40.56
43.54
391.22
351.11
211.00
209.61
185.54
Fixed Deposits 0.00
1.50
5.25
0.24
0.23
Total Current
784.59
648.33
552.19
553.65
577.49
1124.15
625.96
510.10
437.54
370.31
Inventories
Balance Loan & Advances
Assets Total Current
Liabilities Net Current
-339.57
22.37
42.09
116.11
207.18
Assets Source: Compiled from the Annual Reports of Britannia Industries Key Financial Ratios of Britannia Industries March 2012
March
March 2010
2011
March
March 2008
2009
Current Ratio
0.70
1.04
1.08
1.27
1.22
Quick Ratio
0.36
0.50
0.50
0.65
0.68
Inventory Turnover
13.15
16.68
15.08
14.54
9.98
Debtors Turnover
90.75
87.18
76.42
64.88
69.07
Investment Turnover Ratio 13.15
16.68
15.08
14.54
9.98
-
12.58
13.81
11.59
11.08
-24.62
1.91
4.45
14.43
28.82
Average Finished Goods held
No. of days in working capital
The overhead cited table revealed that the company was dealing with positive working capital excluding during March 2011-12 as current liabilities amplified radically by nearly 80 per
cent as equated to current assets which has rose by only 21 per cent. Moreover, in gross working capital loans and advances has major share during last two years whereas from March 2010 to March 2008 inventories had the chief share in total current assets. However, fixed deposits have minimum share in gross working capital and it was nil in March 2012.As for as number of days in working capital is concerned, it has shown a decreasing drift and even curved into negative through March 2011-12. It specifies that the company has good cash flow and negative working capital reveals that the company functions on an almost stringently cash basis with little inventory and s receivables.
Nestle India Ltd. Nestle was endorsed by Nestle Alimentana, Switzerland, a solely owned supplementary of Nestle Holdings Ltd., Nassau, Bahama Islands. Nestle is one of the first food MNC operating in India, with a existence of over a century. For a long time, Nestle India‟s processes were limited to importing and dealing of condensed milk and infant food. Over the years, the Company stretched its product range with fresh products in instant coffee, noodles, sauces, pickles, culinary aids, chocolates and confectionery, dairy products and mineral water. Nestle was assimilated as a limited company in 1959. Nestle S A Switzerland, is one of the leading companies in the worldwide foods industry. The major activities of the group include beverages (with Nescafe as the flagship brand), milk products, processed foods, cooking aids, bakery products, chocolates, sweets, pharmaceutical products (ophthalmic, surgical instruments etc). Nestle has an existence in 84 countries worldwide. It has a total number of 510 factories out of which 220 are located in Europe, 154 in America and 136 in Africa, Asia and Oceania. Nestle started its manufacturing processes with Milkmaid in 1962 at Moga factory. Manufacturing of Nescafe started in 1964 at the same factory. The company set up another factory at Cherambadi in Tamil Nadu, for production of infant foods, coffee etc. Nestlé India manufactures products of truly International quality under brand names such as, MUNCH, POLO, NESTLE MILK, NESTLE DAHI, NESTLE FRUIT „N MILK and NESTLE FRUIT „N DAHI. Working Capital Trends and Liquidity Analysis of Nestle India from December 2007 to December 2012 (Rs. In Crore)
Inventories
December
December
December
December
December
2012
2011
2009
2008
2007
734.04
575.95
498.74
434.911
401.22
115.42
63.29
64.19
45.59
53.49
19.45
26.73
12.66
15.75
Sundry Debtors
Cash & Bank 25.55
Balance Loan &
256.36
200.17
184.85
162.67
186.23
Fixed Deposits 201.66
235.84
128.86
181.03
22.01
Total Current 1333.03
1094.70
903.37
836.86
678.70
1751.62
1501.18
1259.76
1027.30
-656.92
-597.81
-422.90
-348.60
Advances
Assets Total Current 2216.96 Liabilities Net Current
-883.93
Assets Source: Compiled from the Annual Reports of Nestle India
Key Financial Ratios of Nestle India
December
December December
December December
2011
2010
2009
2008
2007
Current Ratio
0.42
0.62
0.60
0.66
0.66
Quick Ratio
0.24
0.27
0.24
0.29
0.23
Inventory Turnover Ratio
11.60
12.33
11.61
11.39
8.79
Debtors Turnover Ratio
83.83
98.22
93.68
87.37
64.09
Investment Turnover Ratio 11.60
12.33
11.61
11.39
10.02
No. of days in working capital
Average
finished
-42.48
-37.78
-41.86
-35.17
-35.85
22.14
22.77
22.17
26.46
28.54
goods
held
It is apparent from the above table that inventories has the major share (nearly more than 50 per cent) in gross working capital tailed by loans and advances. The table is also revealing that the company is dealing in negative working capital as the total current liabilities are more than total current assets. The current ratio of the company is very little i.e.0.60:1 on an average as against the normal ratio i.e. as per Tandon Committee which shows that the company is retaining only 0.60 rupee of current assets as a risk avoidance to meet the short-term liabilities. Quick ratio is also very little during study period. Inventory turnover ratio varied between 8.79 times and 12.33 times which means the company has acceptable inventory management. Debtor‟s turnover ratio stood at 85.4 times on an average basis during study period which reveals effective debtor management. Moreover, the company has negative working capital during study period. A negative working capital is a symbol of managerial efficiency in a business with little inventory and s receivables (which means it operates on an almost stringently cash basis). In other situation, it is a signal that a company may be facing insolvency or grave financial trouble. However, it is not with Nestle India. In fact, it indicates that it may be gathering money from sale beforehand it pays for goods which mean it has decent cash flow.
Proctor & Gamble (P&G) India P&G is one of the major and amongst the firmest developing consumer goods companies in India. Recognized in 1964, P&G India now works for over 650 million consumers through India. Its presence pan across the Beauty and Grooming segment, the Household Care segment as well as the Health and Well Being segment with trusted brands that are household name across India. These include Vicks, Ariel, Tide, Whisper, Olay, Gillette, Ambipur, Pampers, Pantene, Oral-B, Head & Shoulders, Wella and Duracell. Working Capital Trends and Liquidity Analysis of P&G India from 2008 to 2012 (Rs. In Crore) June 2012
June 2011
June 2010
June 2009
June 2008
Inventories
92.27
65.33
54.41
53.98
46.52
Sundry
48.15
31.02
28.68
22.51
13.34
3.76
8.76
4.52
6.67
461.28
322.40
336.65
208.95
Fixed Deposits 0.00
126.19
223.57
83.51
159.81
Total Current 871.24
687.58
637.82
501.17
435.29
284.98
300.01
217.94
224.61
402.60
337.81
283.23
210.68
Debtors Cash & Bank 182.37 Balance Loan &
548.45
Advances
Assets Total Current 401.49 Liabilities Net Current
469.75
Assets Source: Compiled from the Annual Reports of P&G India Key Financial Ratios of P&G India June June 2012 June 2011 June 2010
2009
June 2008
Current Ratio
2.17
2.41
2.13
2.30
1.94
Quick Ratio
1.94
2.16
1.92
2.02
1.70
Inventory Turnover
14.13
20.48
21.28
17.79
16.88
Debtors Turnover
32.78
33.54
35.21
43.11
46.03
Investment Turnover Ratio
14.13
20.48
21.28
17.79
16.88
Ratio
3.75
3.20
3.71
3.48
3.17
Total Assets Turnover Ratio
1.86
1.67
1.69
1.76
1.86
-
18.42
23.59
30.05
28.42
130.34
144.76
134.94
131.94
117.78
Fixed
Average
Assets
Turnover
Finished Goods
held
No. of days in working capital
From the aforementioned table it can be observed that the company has encouraging working capital throughout study period. It is detected that Loans and advances have main share in gross working capital tailed by fixed deposits apart from in June 2012 (as fixed deposit was nil in 2012). The capacity of net working capital has also improved over the study period. Cash and bank balance has lowermost share in total current assets excluding in June 2012 and the percentage of cash and bank balances have been improved i.e. 47 per cent radically in 2012 as compared to the last year. The current ratio ranges between 1.94 to 2.41 which reveals that there is over investment in current assets and the portions of current assets are nearly double the current liabilities during study period. Though, inventory turnover ratio revealing an average value of 18.11 times which means effective organization of inventory and more frequently the stock are sold. Debtor turnover ratio varies between 32.78 times and 46.03 times and it has shown a declining trend throughout study period which is a pinch for the company. The number of days in working capital of the company is on upper side and it is a sign of company may be facing little cash trouble.
ITC Limited
ITC Limited is an Indian public conglomerate company (25.4% owned by British corporation, British American Tobacco) headquartered in Kolkata, West Bengal, India. Its diversified business includes four segments: Fast Moving Consumer Goods (FMCG), Hotels, Paperboards, Paper & Packaging and Agri Business. ITC's annual turnover stood at $7 billion and market capitalization of over $34 billion. The company has its ed office in Kolkata. It started off as the Imperial Tobacco Company, and shares ancestry with Imperial Tobacco of the United Kingdom, but it is now fully independent, and was rechristened to India Tobacco Company in 1970 and then to I.T.C. Limited in 1974. It employs over 29,000 people at more than 60 locations across India and is listed on Forbes 2000. ITC Limited completed 100 years on 24 August 2010. ITC has a diversified presence in FMCG (Fast Moving Consumer Goods), Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business and Information Technology. While ITC is an outstanding market leader in its traditional businesses of Hotels, Paperboards, Packaging, AgriExports and Cigarettes, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. Working Capital Trends and Liquidity Analysis of ITC Ltd. from 2008 to 2012 (Rs. In Crore) March 2012
March 2011
March 2010
March 2009
March 2008
5637.83
5267.53
4549.07
4599.72
4050.52
986.02
907.62
858.80
668.67
736.93
Cash & Bank 140.50
988.77
120.16
68.73
153.34
2173.89
1929.16
2150.21
1949.29
10592.28
8463.31
8450.99
7306.99
9772.94
9169.48
5862.08
5265.09
Inventories Sundry Debtors
Balance Loan &
1952.54
Advances Total Current 11395.32 Assets Total Current 10519.67
Liabilities Net Current
875.65
819.34
-706.17
2588.91
2041.90
Assets Source: Compiled from the Annual Reports of ITC Ltd.
Key Financial Ratios of ITC Ltd.
March
March
March
March
March
2012
2011
2010
2009
2008
Current Ratio
1.08
1.08
0.92
1.42
1.36
Quick Ratio
0.51
0.50
0.39
0.61
0.56
Inventory Turnover Ratio 6.53
6.05
6.04
5.26
5.51
Debtors Turnover Ratio 26.50
23.91
24.31
21.32
20.43
6.53
6.05
6.04
5.26
5.51
Ratio
1.34
1.34
1.33
1.09
1.61
No. of days in working
12.56
13.97
-13.69
62.19
52.39
Investment
Turnover
Ratio
Total
Capital
Assets Turnover
Average finished goods held
40.51
40.67
36.33
64.35
43.88
It can be perceived from the aforementioned Table that ITC limited is dealing with positive working capital for the duration of study period excluding in March 2010. During March 2010 current liabilities show severe increase of 56 per cent but current assets continued to remain constant. Amongst total current assets inventory has the major share and it encomes more than 50 per cent of gross working capital. Loans and advances have succeeding largest share in gross working capital in last five years. The current ratio of the company lies between 0.92:1 and 1.42:1. It means on an usual per every one rupee of current liabilities, the company has been preserving 1.17 rupees of current assets as a caution to meet its short- term obligations which is good. Quick ratio lies between 0.39:1 and 0.61:1 during the period. It has been observed that there was constant increase in debtor turnover ratio and inventory turnover ratio. Moreover the table revealed a mean value of debtor turnover ratio at 23.29 times which specifies effective debtor management. As for as Number of days in working capital is concerned, number of days in working capital has been shrinking during the study period and even it turned into negative in 2010. Less the number of days better the position and it means the company has better cash flow.
Hindustan Unilever limited (HUL)
Hindustan Unilever limited (HUL) is Indias major FMCG Company with the legacy of over 75 years in India. It is owned by the British-Dutch company Unilever which controls 52% mainstream stake in HUL. Its yields include foodstuffs, drinks, washing agents and special care produces. HUL was made in 1933 as Lever Brothers India Limited and came into existence in 1956 as Hindustan Lever Limited over a union of Lever Brothers, Hindustan Vanaspati Mfg. Co. Ltd. and United Traders Ltd. HUL works to create improved future each day and aids folks to feel good, look good and get further more out of lifetime with brands and services. With above 37 brands covering 22 different groupings like soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, water purifiers, etc. the company is a chunk of the daily life of lots of customers through India. Its range comprises prominent household brands such as Lux, Lifeboy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond‟s, Vaseline, Lakme, Dove, Clinic Plus, Sunsilk, Pepsodent, CloseUp, Axe, Brook Bond, Bru, Knorr, Kissan, Kwality Wall‟s and Pureit. In India, HUL is identified for its taut managing of working capital and the business has been functioning with negative working capital ever since 2001. But the organization understood that as competition toughens, there is still possibility for purifying operative efficiency and bringing down working capital requirements. Unilever firms in India combined all facets of finance, s and logistics into a widespread profitable function. They concentrated on cutting working capital necessities through advanced supply chain supervision and use of Information Technology to increase the efficiency of dealings.
Working Capital Trends and Liquidity Analysis of HUL from December 2009 to March 2013 (Rs. In crore) March
March
March
March
December
2013
2012
2011
2010
2009
Source: Compiled from the Annual Reports of HUL.
Inventories
2516.65 2811.26
2179.93 2528.86
1953.60
Sundry
678.99
678.44
443.37
943.20
536.89
Debtors
Loan &
1314.72 1099.72
1068.31 1196.95
1083.28
6341.40 6492.19
5817.89 6040.05
3681.11
7633.36 7588.19
6925.52 5967.06
5303.31
Net
-
-
-1521.20
Current
1293.95 1095.01
Advances
Total Current Assets
Total Current Liabilities
Assets
-
1115.63
73.99
Key Financial Ratios of HUL March
March
March
March
March
2013
2012
2011
2010
2009
Operating Profit 15.38
12.34
12.82
13.60
9.54
12.41
14.70
13.50
15.86
11.56
12.29
12.69
12.58
per share (Rs.)
Gross
Profit 14.04
Margin (%)
Net
Profit 12.07
margin (%)
Current Ratio
0.83
0.86
0.84
0.92
0.68
Quick Ratio
0.45
0.43
0.46
0.51
0.25
Inventory
9.93
7.91
8.99
9.26
7.20
27.27
24.28
29.24
41.83
31.41
5.63
5.35
7.81
9.80
8.31
7.66
9.22
10.53
Turnover Ratio
Debtors Turnover Ratio
Fixed
Assets 6.26
Turnover Ratio
Total
Assets 6.37
Turnover Ratio
Average
29.08
35.15
32.05
34.18
29.81
-20.02
-22.62
1.5
42.05
Finished Goods held Number of days -21.06 in working capital
It is obvious from the overhead specified table that amongst current assets inventories has the main portion and it dominates the gross working capital throughout the study period. Inventories and Loan and Advances signify almost more than 50 per cent of gross working capital excluding during March 2009-2010. The current ratio or working capital ratio is perhaps the most commonly used of all the ratios. This processes the capability of the firm to pay off its short- term maturity requirements. It determines how quickly a company can meet its short- term commitments. It can be perceived from the table that the current ratio of HUL varies between 0.68 and 0.92 during last five years. Quick ratio lies between 0.25 and 0.51 during study period. It is a more stark check of liquidity than current ratio. Inventory turnover ratio is maximum (9.93 times) in March 2013 and deepest (7.20 times) in December while Debtor turnover ratio was maximum (41.83 times) in March 2009 and deepest (24.28 times) in March 2011. Debtors dealing appears to be quite satisfactory as more the number of times debtors turnover, better the liquidity locus of the company. Amount of days in working capital is used to describe that how many days a firm will take to convert the working capital into income and lesser the number of days the better it will be. A lesser working capital cycle means a business has decent cash flow. On the other hand, HUL has negative working capital during study period excluding in 2010. A negative working capital cycle means what a company purchases and sells goes into cash faster than it has to pay to its creditors and has more capital available to fund progress. For a business to grow it needs access to cash and being able to free up cash from working capital cycle is inexpensive than other sources of funding such as loans.
Conclusion
More companies go further down for the reason that of cash flow concerns, reasonably than decreasing the profitability. Henceforth traditional judgment constantly advocates the belief that a firm must have abundant cash to shield its prompt obligations. Still there is a growing class of FMCG firms that assert otherwise. Contrasting from maximum other businesses, the revenue of a FMCG business is not constrained by its capacity to yield, but its capability to sell. They can yield cash so fast that they really have a negative working capital. This happens since buyers pay straight and so rapidly, the industry has no struggle raising cash (like flipkart.com, KFC). In these businesses produces are supplied and retailed to the buyers before the company even reimburses for them. Hence the emphasis is laid on their resources and publicising and either subcontract their manufacturing or make a fractional investment (as matched to their revenue) in plant and machines. Hence there is a restricted room to cultivate funds by promising the plant and machinery. The improvements in Supply chain management, enterprise resource planning and application of Just in time have prepared the firms to become leaner and henceforth now it‟s not likely to nurture considerable funds through stocks. Normally a company mortgages its plant, machines or stock to raise the bank loan/overdraft vital to fund its process. Understanding these restrictions, many firms started spending their negotiating powers over their consumers and suppliers to fund their progress in operations. Negative working capital is a signal of managerial efficiency in a business with little inventory and s receivables (which means it operates on an almost sternly cash basis). In other situation, it is a sign a company may be facing liquidation or grave financial trouble.
Related Documents c2h70
Abstract 441526
December 2021 0
Abstract 441526
December 2019 61
Abstract 441526
October 2021 0
Abstract 441526
November 2021 0
Abstract 441526
December 2021 0