Dr. Vandana Srivastava Nitin Chauhan: (Assistant Professor) Roll. No. - 0925170032 GLA University Mba - Ii Mathura (U.P)
Dr. Vandana Srivastava Nitin Chauhan: (Assistant Professor) Roll. No. - 0925170032 GLA University Mba - Ii Mathura (U.P)
Dr. Vandana Srivastava Nitin Chauhan: (Assistant Professor) Roll. No. - 0925170032 GLA University Mba - Ii Mathura (U.P)
ON
WORKING CAPITAL MANAGEMENT OF TOP FIVE FMCG
RATIO ANALYSIS
NITIN CHAUHAN
Although I have tried my level best to prepare this report an error free report
every effort has been made to offer the most authenticate position with
accuracy.
NITIN CHAUHAN
DECLARATION
I NITIN CHAUHAN student M.B.A. (iv Semester) hereby declare that the
project report entitled “A STUDY OF WORKING CAPITAL
MANAGEMENT OF TOP FIVE FMCG COMPANY IN INDIA” is my
own original work based on the research conducted by me
I also declared that this report has not been submitted to any university/
institute for the aware if any professional.
DATE
NITIN CHAUHAN
MBA (IV Semester)
Chapter #2
INTRODUCTION
Introduction: Working Capital Management
Working capital refers to that part of the firm’s capital which is required for
financing short- term or current assets such as cash, marketable securities,
debtors & inventories. Funds, thus, invested in current assts keep revolving
fast and are being constantly converted in to cash and this cash flows out
again in exchange for other current assets. Hence, it is also known as
revolving or circulating capital or short term capital.
Working capital management is concerned with the problems arise in
attempting to manage the current assets, the current liabilities and the inter
relationship that exist between them.
The term current assets refers to those assets which in ordinary course of
business can be, or, will be, turned in to cash within one year without
undergoing a diminution in value and without disrupting the operation of the
firm. The major current assets are cash, marketable securities, account
receivable and inventory.
Current liabilities ware those liabilities which intended at there inception to
be paid in ordinary course of business, within a year, out of the current
assets or earnings of the concern. The basic current liabilities are account
payable, bill payable, bank over-draft, and outstanding expenses.
The goal of working capital management is to manage the firm’s current
assets and current liabilities in such way that the satisfactory level of
working capital is mentioned.
Definition:-
According to Guttmann & Dougall-
“Excess of current assets over current liabilities”.
According to Park & Gladson-
“The excess of current assets of a business (i.e. cash, accounts receivables,
inventories) over current items owned to employees and others (such as
salaries & wages payable, accounts payable, taxes owned to Government)”.
Capital required for a business can be classified under two main categories
via,
Every business needs funds for two purposes for its establishment and
to carry out its day- to-day operations. Long terms funds are required to
create production facilities through purchase of fixed assets such as p&m,
land, building, furniture, etc. Investments in these assets represent that part
of firm’s capital which is blocked on permanent or fixed basis and is called
fixed capital. Funds are also needed for short-term purposes for the purchase
of raw material, payment of wages and other day – to- day expenses etc.
CONCEPT OF WORKING CAPITAL
The gross working capital is the capital invested in the total current assets of
the enterprises current assets are those assets which can convert in to cash
within a short period normally one accounting year.
7. Prepaid expenses
8. Accrued incomes.
9. Marketable securities.
In a narrow sense, the term working capital refers to the net
working. Net working capital is the excess of current assets over
current liability, or, say:
Amount of Working
Capital
Temporary capital
Permanent Capital
Time
PERMANENT OR FIXED WORKING CAPITAL
Goodwill:
Easy loans:
Adequate working capital leads to high solvency and credit standing can
arrange loans from banks and other on easy and favorable terms.
Cash Discounts:
The longer the manufacturing time the raw material and other supplies
have to be carried for a longer in the process with progressive
increment of labor and service costs before the final product is
obtained. So working capital is directly proportional to the length of
the manufacturing process.
2. Retained earnings:
3. Issue of debentures:
1. Commercial bank:
2. Public deposits:
Most of the companies in recent years depend on this source to meet their
short term working capital requirements ranging fro six month to three
years.
3. Various credits:
Trade credit, business credit papers and customer credit are other sources of
short term working capital. Credit from suppliers, advances from customers,
bills of exchanges, etc helps to raise temporary working capital
Various funds of the company like depreciation fund. Provision for tax and
other provisions kept with the company can be used as temporary working
capital.The company should meet its working capital needs through both
long term and short term funds. It will be appropriate to meet at least 2/3 of
the permanent working capital equipments form long term sources, whereas
the variables working capital should be financed from short term sources.
The working capital financing mix should be designed in such a way that the
overall cost of working capital is the lowest, and the funds are available on
time and for the period they are really required.
Management of Inventory
Management of Receivables/Debtors
Management of Cash
Management of Payables/Creditors
MANAGEMENT OF INVENTORY
Inventories constitute the most significant part of current assets of a large
majority of companies. On an average, inventories are approximately 60%
of current assets. Because of large size, it requires a considerable amount of
fund. The inventory means and includes the goods and services being sold
by the firm and the raw material or other components being used in the
manufacturing of such goods and services.
Nature of Inventory:
The common type of inventories for most of the business firms may be
classified as raw-material, work-in-progress, finished goods.
Raw material:
it is basic inputs that are converted into finished products through the
manufacturing process. Raw materials inventories are those units
which have been purchased and stored for future productions.
Work–in–process:
Work-in-process is semi-manufactured products. They represent
products that need more work before them become finished products
for sale.
Finished goods:
These are completely manufactured products which are ready for sale.
Stocks of raw materials and work-in-process facilitate production,
while stock of finished goods is required for smooth marketing
operations. Thus inventories serve as a link between the production
and consumption of goods.The levels of three kinds of inventories for
a firm depend on the nature of business. A manufacturing firm will
have substantially high levels of all the three kinds of inventories.
While retail or wholesale firm will have a very high level of finished
goods inventories and no raw material and work-in-process
inventories.
So operating cycle can be known as following:-
Raw Material
Work in Progress
Management of Receivables/Debtors
The Receivables (including the debtors and the bills) constitute a significant
portion of the working capital. The receivables emerge whenever goods are
sold on credit and payments are deferred by customers. A promise is made
by the customer to pay cash within a specified period. The customers from
whom receivable or book debts have to be collected in the future are called
trade debtors and represents the firm’s claim or assets. Thus, receivable is s
type of loan extended by the seller to the buyer to facilitate the purchase
process. Receivable Management may be defined as collection of steps and
procedure required to properly weight the costs and benefits attached with
the credit policy. The Receivable Management consist of matching the cost
of increasing sales (particularly credit sales) with the benefits arising out of
increased sales with the objective of maximizing the return on investment of
the firm.
Nature
The term credit policy is used to refer to the combination of three decision
variables:
1. Credit standards: It is the criteria to decide the type of customers to
whom goods could be sold on credit. If a firm has more
slow –paying customers, its investment in accounts
receivable will increase. The firm will also be exposed to
higher risk of default.
2. Credit terms: It specifies duration of credit and terms of payment by
Customer Investment in accounts receivable will be high
if customers are allowed extended time period for
making payments.
3. Collection efforts: It determine the actual collection period. The lower
the collection period, the lower the investment in
accounts receivable and vice versa.
Management of Cash
Cash management refers to management of cash balance and the bank
balance and also includes the short terms deposits. Cash is the important
current asset for the operations of the business. Cash is the basic input
needed to keep the business running on a continuous basis. It is also the
ultimate output expected to be realized by selling the service or product
manufactured by the firm. The term cash includes coins, currency, and
cheque held by the firm and balance in the bank accounts.
Transaction motive: This refers to the holding of cash to meet routine cash
requirement to finance. The transactions, which a
firm carries on in the ordinary course of business.
1.Precautionary motive: This implies the needs to hold cash to meet
unpredictable contingencies such as strike, sharp increase
in raw materials prices. If a firm can borrow at short
notice to pay them unforeseen contingency, it will need
to maintain relatively small balances and vice-versa.
2. Speculative motives: It refers to the desire of the firm to take advantage
of opportunities which present themselves at unexpected
movements and which are typically outside the normal
course of business.
3. Compensatory motive: Bank provides certain services to their client free
of cost. They therefore, usually require client to keep
minimum cash balance with them to earn interest and
thus compensate them for the free service so provided.
Management of Payables/Creditors
Creditors are a vital part of effective cash management and should be
managed carefully to enhance the cash position. Purchasing initiates cash
outflows and an over-zealous purchasing function can create liquidity
problems. Consider the
Following:
Who authorizes purchasing in our company-is it tightly managed or
spread among a number of people?
Are purchase quantities geared to demand forecasts?
Do we use order quantities which take account of stock-holding and
purchasing costs?
Do we know the cost to the company of carrying stock?
Do we have alternative source of supply?
How many of ours suppliers have a returns policy?
Are we in a position to pass on cost increases quickly through price
increase?
As we know working capital is the life blood and the centre of a business.
Adequate amount of working capital is very much essential for the smooth
running of the business. And the most important part is the efficient
management of working capital in right time. The liquidity position of the
firm is totally effected by the management of working capital. So, a study of
changes in the uses and sources of working capital is necessary to evaluate
the efficiency with which the working capital is employed in a business.
This involves the need of working capital analysis.
3. Budgeting.
TREND ANALYSIS:-
To analyze many years financial statements of top five FMCG company uses
this method. This indicates the direction on movement over the long time
and help in the financial statements.
RATIO ANALYSIS:-
Ratio analysis is the process of the determining and presenting the
relationship of the items and group of items in the statements.
Liquidity ratio: They indicate the firms’ ability to meet its current
obligation out of current resources.
REVIEW OF LITERATURE
REVIEW OF LITERATURE:
There were many researches which were conducted towards this topic at
various regions. In the review of Literature I found how we can find the
working capital management of these company with reference to company
financial reports.
Apart from this various journals are published regarding this topic
Chapter # 4
OBJECTIVE OF THE STUDY
Objectives of the Study:
RESEARCH
METHOLOGY
INTRODUCTION
they are dealing with the durable goods so the have to maintain the sound
working capital in their business. In the research I will analysis how these
company maintain its working capital what are the various source of
RESEARCH METHOLOGY
DATA COLLECTION:
Only Secondary Data is taken in research
Tools used for data analysis :- Line chart, Histogram chart, Pie
CURRENT RATIO
CURRENT LIABILITES
(Rupees in crore)
Current Assets
Current Liabilities
Current Ratio
Interpretation
QUICK RATIO
CURRENT LIABILITES
(Rupees in crore)
Current Assets
Current Liabilities
Current Ratio
Interpretation
(Rupees in crore)
Interpretation
2
COMPANY HUL ITC LTD NESTLE AMUL DABUR
Current Assets
Current Liabilities
Current Ratio
Interpretation
Current Assets
Current Liabilities
Current Ratio
Interpretation
Current Assets
Current Liabilities
Current Ratio
2
Interpretation
Interpretation
Current Assets
Current Liabilities
Current Ratio
Interpretation
INVENTORIES
Current Assets
Current Liabilities
Current Ratio
(Rs. in Crores)
DEBTORS:
Interpretation
CURRENT ASSETS :
Current Assets
Current Liabilities
Current Ratio
(Rs. in Crores)
Interpretation
CURRENT LIABILITY:
Current Assets
Current Liabilities
Current Ratio
(Rs. in Crores)
Chapter # 7
FINDINGS AND
OBSERVATION
Chapter # 10
CONCLUSION
BIBLIOGRAPHY
TEXT BOOKS:
BIBLIOGRAPHY
Books:
no.3
WEBSITES:
www.itcportal/
www.hul.co.in
www.crisil.com
www.dabur.com
www.nestle.in
www.amul.com
www.google.com
Annexure